Household consumption is 60% of western GDP. So any economic forecast that simply assumes it will always increase is likely to prove badly wrong as BabyBoomers move into retirement. Of equal importance is the impact of women’s role in the workforce. They added a major boost to demand during the Supercycle, as dual-income households became common for the first time.
The interest in last week’s post on the US jobs market has encouraged the blog to research this critical issue in more detail. And as the chart shows, UK data provides vital historical evidence highlighting the major change in women’s pay relative to men that took place after 1970:
• The 1970s saw large numbers of Boomer women enter the workforce for the first time
• This led to women’s pay rising relative to men’s (green line) from 45% to 80% today
• The 1970 Equal Pay Act supported this move by mandating equal pay for equal work
• The 1975 Sex Discrimination Act stopped married women being forced to leave their jobs
This was quite different from the 1938-1970 period. Many women had temporarily joined the workforce during World War 2. But they left again as the men returned home. Their pay ratio to men also fell back to pre-War levels, and was only 49% in 1968.
Unsurprisingly, this major change encouraged more women to join the workforce. Their participation level rose from 61% to 83% today. And their new ability to stay in the workforce after marriage led to the rise – for the first time in history – of dual-income families. In turn, this led to sustained increases in household consumption and western GDP.
Today, however, a new cycle is underway. Since 2010, as the chart also shows, wages for men (blue line) and women (red) have been falling in real terms (£2012) for the first time. Companies have chosen instead to boost short-term profits to support their share prices. But, of course, falling wages mean lower spending and lower GDP growth for the future.
Equally, increasing numbers of male and female Boomers are now retiring. Men’s participation in the labour force is already in long-term decline. Now the boost to consumption provided by Boomer women will reverse, as they begin to retire from the workforce.
Nothing lasts for ever. The rise of dual-income families in the West provided a major boost to consumption and growth through the SuperCycle. But now we are clearly in transition to a New Normal, as Boomer women move into their low-spending years.