Millennials - Sept27 DD - RBC · 93619 12000 Source: Statistics Canada, RBC Economics Research Laura Cooper Economist (416) 974-8593 [email protected] Millennials October 2016

93619

Laura Cooper

Economist

(416) 974-8593

[email protected]

Millennials

October 2016

In 1979, the average price of a home in Canada was $67,000. Inflation was

running at 9.1%, and the Bank of Canada’s interest rate hit 14%. It was the

year that the snowboard was invented, ESPN was launched and the first com-

mercial cellular network was established—a harbinger of things to come. The

newest toy of the country’s young baby boom generation—aged 15 to 33 - was

the $200 Sony Walkman. The prime minister was a Trudeau, at least for the

first half of the year.

There’s still a prime minister named Trudeau. But today, the average home

costs $493,000, and inflation is running around 1.5%. The Bank of Canada’s

key rate is just 0.5%. There’s talk about artificial intelligence disrupting our

lives. Mobile devices and streaming have put a vast trove of entertainment in

the hands of Canada’s millennials.

And they’re in the driver’s seat. The sheer size of the millennial cohort—at 9.8

million, it accounts for the largest share of Canada’s population—ensures it

will dominate Canada’s future, just as the baby boom generation did the past

three decades. And while there’s often focus on the obstacles millennials face,

such as a tough job market and sky-high prices for starter homes, the data sug-

gest they’re in pretty good shape.

A favourable starting point

Canadian millennials have inherited a labour environment in many ways better

than that of their parents. Rising female participation in the workforce, in-

creasing educational attainment, and narrowing wage differentials between

millennials and people of prime working age are trends they can expect to

benefit from. This tech-savvy, well-educated and diverse cohort will increas-

ingly determine economic and social trends given their sheer numbers and

rising purchasing power.

Millennials’ tech savvy is a source of economic clout

The rise of computers, the Internet and then smartphones coincided with mil-

lennials’ early years. For this generation, communicating through mobile de-

vices and social media, engaging in e-commerce and consuming and produc-

ing digital content are second nature.

These abilities ensure they will have a significant impact on the evolution of

Canadian economic activity. The emergence of the ‘gig’ economy highlights

this power—companies like Uber, Lyft and Airbnb blossomed, in part, due to

millennial adoption and have become household names.

Millennials’ deep engagement with technology is fueling disruption across a

number of sectors, including news dissemination and retailing. For instance,

more than three-quarters of millennials who follow the news rely on the Inter-

net, and 30% of them order groceries online for home delivery, the highest

among all age groups1. Those shifting habits are having serious economic

consequences for news publishers and retailers. But the list of affected indus-

0

2000

4000

6000

8000

10000

12000

Gen Z (0-12) Mil lennials (13-33) Gen X (34-50) Baby Boomers (51-69) Silent (70 and older)

Population by age cohort: 2015

Source: Statistics Canada, RBC Economics Research

Thousands

0

20

40

60

80

100

120

Less than 30 years 30 to 39 years 40 to 54 years 55 to 64 years 65 years and over

Thousands $

Average Household Expenditure: 2014


Millennials | October 2016

2

tries doesn’t end there—banking and transportation come to mind—and their

tech habits are launching new industries too.

Millennials are also set to foster the development of the so-called sharing

economy, which covers transportation and hotel accommodation but could

expand to other sectors. Notably, millennials aged 18 to 24 are twice as like-

ly as people over the age of 25 to view access to the sharing economy as the

“new ownership”2.

Millennials are actively engaged in the workforce

Millennial youth are pursuing more education than their parents, which in

turn, is contributing to a rising share of them working on a part-time basis. In

2015, 35% of 20-to-24 year olds in Canada worked part time, up from 10%

in 1979.

And despite the common perception that millennials have less job security

than previous generations, they actually tend to change jobs about as fre-

quently as baby boomers. On average, millennials stay at a full-time job for

just over 19 months—compared with 21 months for baby boomers back in

1979. They also hold part-time employment only slightly longer than their

predecessors (17.5 months versus 15 months).

These figures suggest that the path to establishing a career isn’t that much

different for millennials. Notably, the unemployment rate for 20-to-24 year

olds was 10.4% in both 1979 and 2015.

Millennials are taking on entrepreneurship

The share of self-employed 15-to-24-year-olds has doubled over the past two

decades, a trend that is not unique to Canada3. And the proportion of all start

-ups owned by someone under the age of 30 is increasing, reaching almost

9% in 20144.

The rise of the gig economy is likely influencing these labour market trends.

Technological growth has coincided with an increase in self-employment

within the professional, scientific and technical sector, where human capital

tends to be the primary input. A rise in contract employment, which account-

ed for a record 12.8% of all youth employment in 2015, is another example.

An expanded focus on experiential learning may also be a factor. More than

half of undergraduate students in Canada participated in co-ops or intern-

ships in 2015 with enrolment in co-op programs alone increasing 25% over

the past decade5. Integrating work experience into the post-secondary curric-

ulum has gone a step further, with many Canadian universities establishing

technology incubators to foster young entrepreneurial talent. Three such in-

cubators were in the top 20 in global rankings in 2015, with Toronto’s

Ryerson University topping the North American list6.

Millennial women will benefit from a more level playing field

Women are gaining ground in traditionally male-dominated fields. While

millennial females still account for the majority of graduates in fields like

nursing and education, they comprise a greater share of STEM (science,

technology, engineering and mathematics) graduates relative to previous

generations. In science and technology, 59% of degree holders are female7.

And more women are entering predominantly male occupations. Close to 1

in 5 females between the ages of 25 and 34 is employed as a teacher or a

45

50

55

60

65

70

75

80

85

90

95

100

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015

Males Females

% of population

Labour force participation rate: 25 to 54 age cohort


-15

-10

-5

0

5

10

15

20

25

30

0 to 8 years Some high school High school

graduate

Some

postsecondary

Postsecondary

certificate or

diploma

University degree Bachelor's degree Above bachelor's

degree

Educational Attainment: Females

15 to 24 years

25 to 44 years

Percentage point difference in 2015 from 1990


2

4

6

8

10

12

14

1997-2000 2001-2005 2006-2010 2011-2015

% of all workers aged 15 to 24 with a temporary term or contract job

Temporary workers: Term or contract job



3

nurse, a statistic that has changed little over the past two decades. But wom-

en aged 25 to 34 make up an increasing number of employees in fields such

as civil engineering (26%), financial management (46%) and investment

analysis (43%)8.

The wage gap is narrowing for millennial women

With women attaining higher levels of education and entering new fields, the

wage gap between males and females has narrowed since the 1970s. Still,

Canadian women earned just 87 cents for every dollar men earned in 20159.

Females aged 15 to 24 face the smallest differential in earnings, but that’s

likely because this age group tends to earn minimum wage. The gap widens

for those of prime working-age; however, the millennial cohort has seen a

narrowing in the wage differential relative to previous generations.

A further narrowing of the wage gap could yield further knock-on benefits

for the economy. If females aged 25 to 54 and working full-time had earned

the same hourly wage as their male counterparts, this cohort’s aggregate

earnings would have been a whopping 17% higher in 201510. Notably, this

does not account for the uneven distribution of males and females across

industries, although, in aggregate, it does signal economic gains are being

left on the table.

Also, women's contribution to household incomes has steadily risen. One-

quarter of women in millennial-aged couples bring in more than 50% of a

households’ employment income, compared with less than 40% only a dec-

ade ago.

More women are working

It’s not just the wage gap that’s shrinking. The gap between male and female

labour participation rates has narrowed significantly over the past four dec-

ades, giving a lift to economic activity amounting to more than 7% of

GDP11. Going forward, the full convergence of participation rates of Millen-

nial females to that of their male counterparts has the potential to further

boost economic activity by more than $60 billion in 2036 (2.3%)12.

A greater share of highly educated women participating in the workforce

signals a larger talent pool for senior positions in the future. While female

board membership in Canada has been increasing, it was still only 20.8% in

2015, below several OECD countries13. Millennial females are poised to

further gains in board and C-suite representation with positive economic

effects14.

Millennials’ family dynamics have changed, but still buying homes

In 2015, 31% of millennials were married or living common-law, down from

44% of baby boomers in 1979. And half of the couples in the 25-to-34 age

range didn’t have children in 2012. The average age of a woman giving birth

to her first child has increased by two years over the past three decades. This

has contributed to shrinking family sizes (average size of 3.0 people in 2006

compared to 3.3 people in 1981). These changes will have broad ramifica-

tions for society. For example, smaller family sizes have been shown to be

positively correlated with children’s education attainment, suggesting the

trend towards a more educated workforce is likely to continue unabated15.

1.8

1.9

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

With convergence of male and female 15-54 participation rates

Projected

$ trillions, constant 2015 dollars

Canadian Gross Domestic Product


2.3% difference by 2036($62 billion in constant 2015 dollars)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Aggregate Earnings of Full-Time Employed Females aged 25 to 54

Difference (RHS)

Status Quo

Female = Male Wages

Billions $


0

1

2

3

4

5

6

7

8

9

10

0 ye

ars

2 ye

ars

4 ye

ars

6 ye

ars

8 ye

ars

10 y

ears

12 y

ears

14 y

ears

16 y

ears

18 y

ears

20 y

ears

22 y

ears

24 y

ears

26 y

ears

28 y

ears

30 y

ears

32 y

ears

34 y

ears

36 y

ears

38 y

ears

40 y

ears

42 y

ears

44 y

ears

46 y

ears

48 y

ears

50 y

ears

52 y

ears

54 y

ears

56 y

ears

58 y

ears

60 y

ears

62 y

ears

64 y

ears

66 y

ears

68 y

ears

70 y

ears

72 y

ears

74 y

ears

76 y

ears

78 y

ears

80 y

ears

82 y

ears

84 y

ears

86 y

ears

88 y

ears

Immigrants to Canada by age

1979/1980 2014/15


Thousands


4

But interestingly, millennials are still buying homes. Though policy makers fret about the impact that rising home prices are having

on affordability, especially for first-time buyers, rates of home ownership in this cohort are elevated. That’s due to ultra-low bor-

rowing rates. Relative to baby boomers back in the late 1970s and early 1980s when borrowing rates were much higher, homeown-

ership rates of those 20 to 34 years old are modestly higher (47% in 2011 vs. 45% in 1981).

Millennials’ added advantage: diversity

Millennials are the most ethnically diverse generation Canada has ever seen. Canada’s immigration policy (around 250,000 new-

comers annually for the past quarter-century) has encouraged a mix of immigrants from a range of regions, with the greatest share

of these individuals amongst the millennial cohort. The differing perspectives of individuals from diverse backgrounds - race, na-

tionality, gender or other demographic strands – can increase the capacity for innovative thinking by encouraging intellectual de-

bate, enhancing creativity and providing access to broader networks of relationships16.

Simply put, Canada’s diverse millennial cohort could help boost innovation and productivity.

Notes 1. “The Future of Grocery: E-Commerce, Digital Technology and Changing Shopping Preferences Around the World”. Nielsen, April 2015. 2. “The Sharing Economy”. Consumer Intelligence Series, PWC. 3. Policy Brief on Youth Entrepreneurship. OECD & European Commission, 2012. 4. Survey of Financing and Growth of Small and Medium Sized Business. Statistics Canada. 5. Canadian University Survey Consortium, 2015. 6. Top Business Incubation Rankings 2015—UBI Global. 7. “Women in Canada: Education, qualifications, skills and technology”. Statistics Canada, July 2016. 8. “Changes in the occupational profile of young men and women in Canada”. Statistics Canada, November 2015. 9. Based on median hourly wage rate of male and female full-time employees 10. Based on median hourly wages of full-time employees of prime-working age (25-54). 11. “Canadian Women Grabbing the Baton”. RBC Economics, September 2013. 12. Convergence of males and female participation rates for the 15 to 44 age cohorts through to 2036; 13. “Gender Diversity on Boards in Canada”. Catalyst 2016. 14. “Gender Diversity in Senior Positions and Firm Performance: Evidence from Europe”. IMF Working Paper, 2016. 15. Baranowska-Rataj, A. et al. “The impact of family size on educational attainment in cross-country comparative perspective” Princeton university. 16. “The new global mindset: driving innovation through diversity”. Ernst & Young, 2010.

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Millennials - Sept27 DD - RBC · 93619 12000 Source: Statistics Canada, RBC Economics Research Laura Cooper Economist (416) 974-8593 [email protected] Millennials October 2016