Thursday, July 12, 2012

Exclusive Interview With Adam Marx, on the Challenges Faced by University Graduates When Starting a Family

Note: This is my economic assignment, exactly as it was submitted onto the students works blog
Posted: Jun 14, 2012, by ___, New Life reporter

Nobel Prize winning economist Adam Marx is known for his studies about how different demographics make their economic decisions differently. In recent years, he has been focusing his studies on the challenges faced by the younger generation, especially university graduates.

Adam Marx speaks with New Life about the challenges that university graduates will face when they try to start a family. This is the first part of a series of exclusive interviews with economists to talk about the main challenges faced by different demographics.

To listen to the original interview, click here.

Why is starting a family such a huge challenge for university graduates?

Starting and sustaining a family is a challenge for any adult, since it causes such a large and long-term financial burden. It is especially difficult for university graduates to start families, because they are likely to have student loans and their entry-level salaries—if they already have a job—are typically lower than the average salary of the nation. With the current economic problems, it will be especially difficult for them to successfully start families

What do you think is the economic problem that will have the most impact on their ability to start families?

Employment. The problem with employment is that ever since the 2008 financial crisis, unemployment has been high. The pre-recession unemployment rate was about 6.2%, whereas the current unemployment rate is about 7.3%. This is mainly due to our slow recovery from the recession, meaning that economic activities are still much lower than the pre-recession level, and that businesses do not have a large enough demand for them to need more workers. The public sector has also been laying off people because of the tight government budget.

There is also some structural unemployment, meaning that some businesses need more workers but the unemployed workers are not qualified for the jobs. For example, many skilled workers in the manufacturing industry cannot find jobs because their skills simply are not demanded.

This will severely impact the university graduates, because this means that it will be more difficult for them to find work and have a source of income. Without a source of income, it will definitely be very difficult for them to start a family.

Besides actually finding a job, is there any other concern regarding employment?

Absolutely. There are high concerns about job security, especially for university graduates. Again, the global economy is not very strong right now. So if another recession occurs in the near future, workers will be laid off to accommodate for the lowered demand. And young university graduates are especially in danger, because firing decisions are often based on the seniority and experience of the employees.

The level of income is also a concern, as we know that it will be very difficult to start a family without a moderate income. Wages from part time jobs are mostly not going to be enough to start a family, and salaries for full time jobs are unlikely to be very high for the young university graduates.

How can university graduates cope with this problem?

If they have trouble finding full-time jobs, they may temporarily settle for part-time jobs if they can. At the same time, they should increase their employability, which is how qualified they are for jobs. This could be done by obtaining further training or education. By doing so, they will increase their chances of finding full-time positions and earning more.

Alternatively, they might want to move to different geographic locations, because certain places have more job opportunities than others. For example, I think the unemployment rate in Calgary is currently 4.9%, which is an entire 2.4% lower than that of the national average. Of course, the act of moving to another location could be quite costly, so they will need to think twice before actually moving to other locations.

If they have a full-time job, they should still consider improving their skills and employability by attending workshops and obtaining extra certificates. This would make them extremely busy, but it can prove to be worthwhile when their extra skills and experience prevent them from being fired or allow them to get higher, better-paying positions. And of course, they need to work hard and perform well for them to have better chances of not being laid off during bad economic times.

Also, they should consider saving money as early as possible. The savings could be used to cover the many costs involved with starting a family, and would allow them to sustain themselves if they become unemployed. Unfortunately, this leads to the paradox of the thrift, where if a large group of people all save money, the economy gets weaker because no one spends. However, on an individual basis, this would probably be the best course of action because of all the economic uncertainty.

Besides problems with employment, what other economic issues should young university graduates be aware of?

One other very important issue is with commodities and resources. When we say that a good is a commodity, it means that the market treats it the same regardless of the supplier, because there is no way to differentiate the product. Commodities include many cash crops such as rice, wheat, and soil beans, as well as resources and raw materials such as crude oil, coal, and iron ore.

Commodities are very important, as they are often used as inputs to produce other goods, and our survival is directly dependent on the food. However, their prices have been increasing due to a limited supply and a growing demand. There is only so much fossil fuel to produce natural gas, crude oil, and coal, and only so much farmland to grow food. With a limited supply but a growing demand from developing countries such as China and India, the prices naturally go up.

Are there other factors that are driving up commodity prices?

Speculation has also been driving up commodity prices, especially oil prices. Speculation is basically when investors make bets on the future price of a commodity. When large companies bet that prices of commodities would increase, it would create an expectation of higher price in the future. As a result, more investors would want to make the bets that prices would rise, increasing the demand. At the same time, producers would hold onto their supplies, hoping that prices would be higher in the future. With increased demand and decreased supply, it means that prices would ultimately rise because of the large bets that the companies have made.

Can you give us an idea of how much commodity prices have risen recently?

Of course. The prices of commodities have risen substantially over the past few years, both globally and in Canada. For example, the global food price last year was more than twice as much as that in 2005! Fortunately, Canada’s food prices did not rise as much as the rest of the world, but from what I remember, it still rose by about 4.1% over the past year. The price of gasoline for Canadians has risen by 8.7% over the past year, and the total cost of energy—which includes gasoline, natural gas, electricity, and other kinds of fuels— rose by 7.2%.

Are these trends likely to continue in the future? And if so, how much are they going to impact university graduates?

Unfortunately, it does seem as if these trends are going to continue. We still have a limited supply and a rising demand for food and resources, and the speculations are still happening.

With higher commodity prices, it will be a lot more difficult for university graduates to start families. They will have to spend so much more money on buying food for themselves and for their children, and their energy costs are also going to take up a larger portion of their budget. In addition, rising energy prices can increase the cost of transportation, which would make consumer products more expensive. With so much more spending on the basic on the day-to-day necessities, it’s going to be a lot more difficult for them to save up for their children’s education and to pay their mortgages or rents.

So how can university graduates cope with these issues when they start their families?

With rising gasoline prices, it will be especially important for them to use fuel-efficient vehicles. This way, they will use less gasoline and the monthly costs of gasoline will be lower. Or, if they have access to public transportation, they should consider not owning a car. Public transportation is much cheaper than having private vehicles.

Also, they should try to rent housing units that have utilities included, if they are not homeowners. This could help them combat rising electricity prices.

As for rising food prices, they would need to make sure not to waste any food, as that would be the same as pouring money down the drain. They could also consume less meat and more vegetables, which would decrease spending on food. However, it would not be desirable to switch to fast foods to reduce costs. It could cause health problems, which could eventually cost them even more.

Generally, to cope with increasing costs, the best strategy is to be frugal and avoid unnecessary spendings. With successful control of their budgets, they can still put money aside for investment, education plans, and other family projects.