In the post-World War II period, each generation was encouraged to expect higher living standards than its predecessor. Steady improvements in living standards were founded upon a good job, a nice home and an early and comfortable retirement. Today, the basic foundation of these expectations, continuous strong economic growth, is under threat.
The reality is that these elements that citizens in developed nations took for granted were based on fragile foundations. In the period leading up to the 2007-2008 crisis, around half the economic growth in the world was based on increasing borrowings. The crisis highlighted the problems of unsustainable, high levels of debt. Now, as existing borrowings must be reduced, economic activity has stagnated.
The slowdown is also affected by the demographics of aging in many societies, rising inequality, slowdowns in innovation and productivity, and decreasing returns on investment in energy and food with resulting higher prices as well as the impact of climate change.
Middle class dream: The economic growth enjoyed during the post WWII period is today under threat
Work is increasingly fractionalised and out-sourced to the lowest cost supplier, anywhere in the world. The process is no longer confined to low skill jobs, such as textiles or simple manufacturing but increasingly encompasses more complex tasks and even professional activities. Technology also de-skills jobs and alters business models. In turn, this changes the work available, the rates of pay and working conditions.
The work force is increasingly stratified between those whose skills are in demand and the rest. It is stratified between older workers with salaried employment and related benefits and newer workers hired on fixed contracts with lower entitlements.
Casual or contract work, often of short duration lowers effective earnings, because of the absence of benefits with employees bearing the cost of un and under employment, sick leave, training and tools of trade. It also reduces income security.
In the period until 2008, home ownership rates increased, providing secure shelter and also becoming an important store of wealth.
Policy actions of governments to alleviate the effects of the 2007-08 crisis have distorted property markets. Ultra-low interest rates and quantitative easing, a policy where central banks provide abundant liquidity to governments and the economy, have artificially boosted house prices.
Priced out: As house prices spiral out of control, younger generations struggle to get on the housing ladder
Designed to restore household balance sheets to encourage consumption and also protect the financial system, which is heavily exposed to a sharp fall in house prices, the policies have increased prices of existing houses rather than significantly increasing construction of new houses. This has increasingly priced new homebuyers out of the housing market.
Where they are able to purchase, most people take on high levels of mortgage debt and commit a high proportion of their income to meeting repayments, despite low interest rates.
Retirement income was once provided by defined benefit pension schemes underwritten by governments and employers, where workers received pensions based on their final salaries that were indexed to inflation to maintain purchasing power. Aging populations and also changing workforces make such schemes unworkable.
The unsustainable burden on the current workforce means that the promised entitlements will need to be re-negotiated, increasing the retirement age, reducing or eliminating automatic adjustments for cost-of-living adjustment or decreasing benefit levels.
Bleak outlook: Most workers will have to work much longer, perhaps until death
Anticipating the difficulties, many countries and companies discontinued DB schemes, replacing them with defined contribution schemes, where the final payout is based on employee savings augmented by employer payments and investment earnings.
Under DC schemes, the risk of retirement income is transferred to the beneficiary. He or she is responsible for the level of savings, investment returns, increases in costs and the risk of longevity.
In many cases, DC schemes may prove unable to provide a satisfactory level of retirement income. A high proportion of households will run through retirement savings in their lifetimes, leaving them dependent for financial support on the states, whose increasingly stretched finances will force them to reduce benefits or limit entitlements to only the most needy.
Unable to build adequate savings and with an inadequate social safety net, retirement will become a luxury, available to only a small part of the population. Most workers will have to work much longer, perhaps as long as they are physically capable or until death.