Pay Up, Millennials by Samantha Jakuboski, September 07 2016, 0 Comments
Ask a handful of college students and recent graduates to name their biggest financial concerns, and I can guarantee you ‘student debt’ will be a top answer. After all, over 70% of undergraduate students take out loans for school, total student debt hovers around $1.26 trillion, and student loans currently have the highest 90-day delinquency rate out of all types of household debt. Yes, these numbers are shocking, but what if I were to tell you that an even greater economic burden awaits young people in the future? One that has the capability to reduce a person’s lifetime wealth by over $700,000. If you just broke into a nervous sweat, get used to it. The aforementioned burden is climate change, and it's about to get a whole lot warmer.
The Price Tag of Being Young, an August 2016 analysis by Demos and NextGen Climate, describes two major categories that will contribute to climate change cost. The:
1) Direct costs due to slow economic growth; and
2) Indirect costs of increased tax bills
Slow Economic Growth
Using a model from Stanford University and the University of California, the Demos and NextGen Climate analysis came up with projections of income and wealth loss for millennials and their children in the face of climate change. In the draconian scenario that no action will be taken to combat climate change, the analysis suggests that by 2100, per capita gross domestic product (GDP) will decrease 23% globally and 36% in the United States, versus a world in which there is no climate change. As GDP falls, wages and income also decrease. As a result:
- For a 21-year-old earning a median income, lifetime income will decrease by $100,000
- For a 21-year-old 2015 college graduate earning a median income, lifetime income will decrease by $126,000
In addition to this 5.5% loss in lifetime income, the opportunity to invest the income and build one’s wealth is also forfeited:
- For a 21-year-old earning a median income, the decline in wealth amounts to $142,000 by the age of 65
- For a 21-year-old 2015 college graduate earning a median income, the decline in wealth amounts to $187,000 by the age of 65
The children of millennials face even greater financial penalties, with predicted lost wealth of $764,000 for a college graduate in 2015 earning the median income.
As you can see, the projected lost wealth due to climate change is high—even higher than the lost wealth of $113,000 due to student loans. In all, the total losses described above amount to $8.8 trillion lost in lifetime income and $2.2 trillion lost in lifetime wealth for the millennial generation.
So, now the question arises as to how climate change causes a decrease in GDP, and, consequently, income and wealth.
Well, it all has to do with productivity.
There is growing evidence supporting the claim that people are less productive at extreme temperatures. As a result of lowered productivity, output falls. This leads to a decrease in GDP, which then exerts downward pressure on wages. In the Columbia Business School (CBS) publication, “Climate Change and the Next Great Recession,” a 2012 study of American General Motors factories is cited: when temperatures exceeded 90 degrees Fahrenheit for six or more consecutive days, output dropped by about 8%.
CBS’ own research found that productivity declines between 2.5-3% per degree Fahrenheit increase in “hot and poor” countries. CBS says that if global temperatures increase by the doomsday scenario case of six degrees Celsius (10.8 degrees Fahrenheit) by the end of the century, productivity can decrease by 20% in hot regions.
While a six degree increase is indeed an extreme case, an increase in temperature of two degrees Celsius (3.6 degrees Fahrenheit) by the end of the century is much more likely. In this case, CBS states that productivity in hot regions can decline by 4.3%—roughly the same drop in magnitude of output as was experienced during the 2008 financial crisis. Does that mean a never-ending Great Recession awaits us in the future?
As if these projections were not bleak enough, the Demos and NextGen Climate analysis also discusses the tax implications of climate change.
If we take a look back to 2012 and the $67 billion damage that Superstorm Sandy wrecked on the Eastern Seaboard, it is clear that climate change is proving to be very costly. As storms become more powerful, sea levels continue to rise, and other problems related to climate change become more common, these costs will only escalate. For instance, a previous Demos report predicts that by 2050, Florida will have about $3.5 trillion in hurricane damage, versus $105 billion in 2010. And who do you think will help pay for these increased costs? You, since you are a dutiful, taxpaying citizen. Over the past eight years, alone, taxpayers have dished out over $10 billion to cover the costs of extreme weather. Expect this number to go up.
As an economics minor, I found this analysis and financial view of climate change to be very interesting. I hope these statistics show people who feel distanced from the melting icecaps that climate change can indeed have real and very costly impacts on their personal lives.
Samantha is a junior at Barnard College, Columbia University. She hopes that through blogging, she can help change the way people view their actions in relation to the earth, encouraging them to lead more eco-friendly lives. Samantha also maintains the environmental science blog, Green Science, for Nature Journal.