Millenials, Gen Z and the Coming "Youth Boom" Economy

Added: 4th February 2019 by Morgan Stanley

It’s well-known that Generation Y, often called the Millennials, will overtake Baby Boomers as the largest cohort in the U.S. this year. Less discussed, but arguably more important: Gen Z, born between 1997 and 2012, will overtake Gen Y as the country's largest cohort by 2034, ultimately peaking at 78 million.

As Gens Y and Z combine in the workforce, these two outsized generations could power higher consumption, wages and housing demand, all pillars of GDP growth.

For the U.S. economy, the demographic tailwinds created by these high-population cohorts could be significant, delivering the kind of “youth jolt” that the Baby Boomers were famous for. However, according to a recent report from Morgan Stanley Research, the implications of these demographic shifts aren’t baked into current Congressional Budget Office forecasts, in particular, the projections for labor-force growth.

Work by the firm’s economic team, along with an in-depth survey of Generation Y and Z consumers, uncovered a significantly brighter outlook for the U.S. in the coming decades than previously thought. As Gens Y and Z combine in the workforce, these two outsized generations could power higher consumption, wages and housing demand, all pillars of GDP growth.

A Solid Boom

To dig further into these findings and the potential impact on the U.S. economy, the economics team commissioned a proprietary survey from AlphaWise—Morgan Stanley's evidence-based research group—to examine the habits, views, and expectations of Gen Z and Millennials.

The results of that survey, in conjunction with the overarching demographic trends, paint a promising picture for the coming decades. The AlphaWise survey found a number of factors that support a “youth boom” beginning in the mid-2020s.

For starters, Gen Z enters the workforce on firmer financial footing than Millennials, with a stronger job market and college costs that are less burdensome. In addition, Gen Z’s aspirations seem to align with the labor market’s opportunities. This cohort sees technology and health care as the most desirable industries to work in, and, in fact, both sectors are expected to be growth drivers for jobs in the coming decades. No surprise, the survey also found Gen Z to be far more tech-savvy than its predecessors, with 60% saying they have used a smartphone before the age of 14.

It also found no generational divide between Millennials and Gen Z, with both groups sharing broadly similar views on education and values. “We interpret this positively as it implies that, alongside the continuous support to population growth, there will be no fundamental generational gap as Millennials relinquish their dominance to Gen Z," says Zentner. “Generation gaps can create misconceptions, particularly in the workplace, which can weigh on productivity."