Many Australians have good reasons to feel that their standard of living has declined in recent years. The graph above shows what has happened to real disposable per capita incomes in Australia over the last decade. The impact of the Covid virus and government income support at that time is obvious. However, it is also obvious that real disposable incomes have declined since then.
Not so long
ago, Australians could expect their real disposable per capita incomes to
increase on average by about 2.5% per annum. That was the average rate of
increase in the period from 1994 to 2014. However, there hasn’t been any
increase over the last four years.
We can no longer assume that in Australia each generation will
have higher disposable incomes on average than the previous generation at a
given age. A recent report by the Productivity Commission has found that “slow
growth in recent periods has meant people born in the 1990s have experienced
almost no growth in incomes between the ages of 25–30 compared to those born in
the 1980s.” See: Fairly
equal? Economic mobility in Australia, p. 34 and figure 3.1.
People seem
to have a fair idea of how their current income levels compare with those of
their parents at a comparable age. Survey data suggests that the majority of young
Australians feel that their income levels are lower than those of their
parents.
When people
feel that their incomes are lower than those of their parents at a comparable
age, that often has an adverse impact on their life satisfaction. An essay I wrote on this blog in Nov 2021 made that
point using data from the World Values Survey. The perception that living
standards are worse than parents is associated with substantially lower life
satisfaction in both Australia and United States, but the perception that
income is higher than parents is not associated with higher life satisfaction
than the perception that it is about the same.
In this essay
I extend that analysis using Australian data for 2024 from the survey conducted
by the Australian Centre on Quality of Life (ACQOL). The Australian
Unity Wellbeing Index (AUWI) 2024 report found:
“On average, younger age groups (18-54 years old) were more likely to feel financially worse off compared to their parents at the same age (Figure 3-64). This was most notable for 25-34-year olds, where more than half (56%) of respondents felt worse off. In comparison, over half of 55+ year-olds felt financially better off than their parents were.”
I focus here on the 18-54 years group. In that group, 33%
felt better off than their parents, 48% felt worse off, and 19% felt that their
incomes were about the same as their parents’ incomes at a comparable age.
Life satisfaction of the 18-54 years group
The survey
question about financial situation relative to parents was: “Thinking about how
financially well-off your parents were at your age, do you feel better or worse
off? Better, Worse, Same.”
The life
satisfaction question was: “Thinking about your own life and personal
circumstances, how satisfied are you with your life as a whole?” Scale: 0 to 10
(0 = not satisfied at all; 10 = completely satisfied).
The first graph
shows the percentages with different life satisfaction experience for those who
feel “better off”, “worse-off” and “about the same” relative to the financial
position of their parents at a comparable age. Please note that the life
satisfaction ratings are shown in reverse order (highest on the left) in the
frequency distributions.
The graph
shows clearly that those who feel worse off financially have substantially
lower life satisfaction. Those who feel better off than their parents don’t
have much higher life satisfaction than those who feel that their financial
position is much the same as that of their parents at a comparable age. That suggests
an important point – although economic progress has little impact on psychological
well-being in high income countries, economic decline has potential to have a
substantial adverse impact on psychological well-being in those countries.
The second
graph indicates the proportions of people with different life satisfaction
experience who feel better off, worse-off and about the same, relative to their
parents.
Those who
feel worse off than their parents clearly represent a high percentage of total
numbers in the low life satisfaction categories. They are a smaller percentage
of the total in the higher life satisfaction categories, but the absolute
numbers involved are substantial.
The third
graph looks more deeply at the group who feel worse-off than their parents, to
observe the extent to which their life satisfaction experiences interact with their
resilience. The resilience question was: “How quickly do you normally recover
when something goes wrong?” (Scale: 0 to 10) The graph shows the average
resilience rating of those who feel worse off than their parents in each of the
life satisfaction categories.
As might be
expected, the graph shows that those in the higher life satisfaction categories
tend to have higher resilience. I guess that means that in a period of economic
decline people who have a great deal of resilience don’t have too much trouble
coping with the idea that their economic prospects are worse than those of
their parents. However, there is no magic wand that people can use to enhance
their resilience so they can avoid feeling grumpy when their economic prospects
deteriorate. Resilience enhancement seems to be a long-term investment rather than something that can be
accomplished overnight.
What is
to be done?
There is an
obvious solution to the adverse impact that declining economic prospects are
having on the life satisfaction of young people in Australia. The solution is
to adopt economic policies that will enhance growth in productivity and make it
possible to return to a situation where each succeeding generation can
reasonably expect to be better off than the one that came before.
It would
not be difficult for a government to construct an agenda of economic policies
to be adopted to raise productivity growth in Australia. The Productivity
Commission compiled an extensive list in 2023.
When I look
back on the economic performance of past governments in Australia, it seems
obvious that the performance of the federal government in the 20 year period
from around 1985 to 2005 was outstanding by comparison with the dismal
performance of those that followed. During that period, the leaders of
governing parties from both sides of politics were willing to undertake productivity-increasing
economic reforms despite opposition from powerful interest groups.
By
contrast, the current government is more interested in Wafflenomics than productivity-enhancing economic
reform. The federal Opposition says they are interested in productivity-enhancing
economic reforms but seem to me to be more interested in socialization of the
means of production of electricity (by investing taxpayers’ money in nuclear
energy). Both of the major political parties now seem to think that when government
interference in markets has unintended adverse consequences, the solution lies
in further government intervention, including attempts to pick winners. Most of
the politicians currently occupying the crossbenches of the parliament are advocating policies that are even worse than those of the major parties.
Australian
voters seem to have forgotten the lessons of the 1960s and 1970s about the
risks of having faith in the ability of governments to pick winners. They
should take heed of the
wisdom of Johan Norberg: “Governments are bad at picking winners, but
losers are good at picking governments.”
My
bottom line
I don’t
expect much improvement in economic policy in Australia in the near future.
As I see
it, rather than waiting for governments to adopt better policies, it would be
wise for young people to invest in personal resilience, so they will be better
able to cope with the challenges that lie ahead.
That
thought didn’t come from the top of my head just a few seconds ago. I have been
thinking about this for several years. Something I wrote at the end of the
chapter, “Will Progress Continue?” in my book, Freedom, Progress, and Human Flourishing (2021) is highly relevant. Here it is:
“We cannot rely on governments to maintain conditions favorable to the ongoing growth in opportunities for flourishing.
Whatever governments might do, human flourishing is intrinsically a self-directed activity in which individuals cooperate with others. When we reflect on what determines our own flourishing, we observe our individual capacities for wise and well-informed self-direction to be of central importance.” p. 121.
The
following chapter of my book discusses the challenge of self-direction. I
encourage people to read my book, but those who wish to improve their resilience may also
need relevant professional advice which is not too difficult to find.
Any Australians who are feeling depressed after reading this essay may be able to find help here, or here.
