Generation Y — otherwise known as "those damn Millennials" to anyone old enough to have been awake during the Gerald Ford administration — has been a source of constant grief for automakers and middle-aged balding industry pundits for a couple of years now. "Cellular phones," they constantly quip out of ignorance, "are more important to today's youth than personal transportation."
Some idiot even proclaimed once, "America's Youth is falling out of love with the automobile." Yeah, sure thing buddy. I bet you also bought that oceanfront condo in Phoenix, right?
I myself am part of the younger end of this demographic (and if you call me a Millennial, I will clean your dirty mouth up with Gojo and a wire brush) that currently comprises a little over a fourth of the United States population at an estimated 80 million strong. You can see why analysts are chugging Kool-Aid spiked with melodrama, and automakers are champing at the bit to tap into a sliver of the money we represent.
Except we don't have any cash. We're actually broke as hell. Most of us still struggle to find work. And if a proposed increase to the federal minimum wage laws manages to pass the legislative litmus test known as Congress, you're likely to going to see even fewer of us working a nine-to-five shift, buying new cars.
Say what? As my college economics professor would say, "Don't shoot me. I'm just the messenger."
Here's Why You Shouldn't Have Shown Up to Economics Class Hung Over
As of today, the federal minimum wage in the United States is set at $7.25 an hour and has been since the summer of 2009, as a result of the Fair Minimum Wage Act passed by Congress in 2007. Some state and local jurisdictions have passed legislation since then that happily exceeds that figure, with San Fransisco, for example, now paying workers a minimum of $10.74 an hour (which makes sense considering the higher costs of living there).
The federal end of the equation could be set to change soon, though. There's been recent talk coming out of Washington to increase the federal minimum wage from its current level to $10.10 an hour, and that discussion has really gained a significant foothold not only with some members of Congress, but the American voter as well.
It certainly does sound good when you read it online or hear it on your local evening news. From the look of it, if you're secure in a job, career or profession, you'll be taking home a few dollars extra between pay checks, and that hopefully might even open up a little bit of spare financial breathing room. Folks slaving at an entry-level job will finally see a decent raise and make decent pay. It also seems like younger people entering the workforce will be earning a better wage out of the gate. So what's the problem then?
In reality, raising minimum wage never exactly works out as advertised. While some folks who have a steady job do see some benefit, there's a cost to that gain — most economists tend to agree it's actually not all that great, and really bad news for unskilled labor and younger people trying to enter the workforce. That last bit is long-hand for "Generation Y."
Why? It's because a significant majority of us are young, lack basic job skills, or both. That itself is a result of the economic downturn of the late '00s and the increases in minimum wage that happened around the same time; many of us entered into the workforce then — whether it was to find a part-time job to earn some extra spending money during school or college, or if it was to work full-time because we didn't feel the need to go college in the first place — only to find recently displaced Gen Xers and Baby Boomers were taking up lower position jobs because they had greater job experience and skills on top of their bachelor's degree. Employers were happy to pay them minimum wage versus a 17 to 20 year-old kid who never worked a day in his life.
That was supply and demand at work, and it's the same basic economic law that's going to make life a living hell for us when wages are hiked yet again. Think about it.
When minimum wage goes up, employers obviously do not want to pay unskilled workers that higher amount of pay. Their demand for unskilled or underskilled labor goes down, and they replace those positions with cheaper automated machines or eliminate them all together. After all, if you were an employer, why would you want to pay someone ten bucks an hour to do a simple job like pump gas or bag groceries? We've seen countless entry level jobs eliminated because of that very reason, and it's those jobs — pump jockey, bag boy, and so on — that gives unskilled labor the basic skills they need to move up in the workforce.
On the supply side of things, when minimum wage goes up, you always have more people looking for work and an increase in the supply of unskilled labor goes in hand with that. Supply outstrips demand, and that's how you get a surplus. And when there's a surplus in labor and those labor costs are high, employers can certainly afford to be picky about who they hire.
Ever wondered why youth unemployment is higher now more than in the past? There's your answer in a nutshell, and that's also why if your an early twenty-something with a degree in anthropology, your college education doesn't mean shit when it comes to landing a job hocking Mexican Pizzas at Taco Bell if you haven't held down a job before. If you don't have basic job skills, you're not high up on the totem pole against some 45 to 50 year-old with a business degree and 25 to 30 years of work experience.
Now, I'm not an economist, so I can understand if you want a more professional opinion because you think my explanation might have been lacking somewhere. Thankfully, the Wall Street Journal recently put out a short article that quoted a few studies written by different economists on the subject of minimum wage and the impact it makes. Let's take a look at one of the quotes highlighted.
From a recent study by Johnathan Meer and Jeremy West from Texas A&M University, released in December 2013:
A minimum wage has two opposing effects on employment: it reduces demand for new workers by raising the marginal cost of an employee, while inducing additional search effort from unemployed workers…The results for job creation show that, in equilibrium, any supply-side effects on search (and the potential increase in the quality of employer-employee matches) do not overcome the negative demand-side effects of higher labor costs…More importantly, we find that on net the minimum wage meaningfully affects employment via a reduction in the rate of long run job growth.
It's really just more of what I just said, except with economic jargon.
So, what does that ultimately mean for the relationship between Gen Y and the auto industry? To be blunt, if minimum wage does increase, automakers are going to have to forget about selling a good number of us a brand-new car.
That Means Boomers Won't Shut Their Damn Mouth About How "Kids Hate Cars"
If you've been following the automotive industry for any length of time, you'll know it has recently made a significant rebound in America since the financial meltdown of the last decade. For the first time since 2007, new car sales last year topped 15 million sold. But, on the other hand, that sales recovery hasn't really been spurred on by consumers between the ages of 18 to 34.
That's where the whole "kids hate cars" rhetoric stems from (and, no, used cars are never part of the equation). Older generations — especially Baby Boomers — who are enjoying the recent economic recovery the most, are buying new cars by the truckload and wondering why Junior or Grandson isn't financing that $25,000 in change along with them, willfully ignorant to the fact we're still just as broke as ever and can't land a decent job. Unfortunately, some of those Boomers are automotive journalists with a little bit of clout who have nothing better to do than bitch about how much they dislike today's youth.