Millennials, Gen Z, and the coming “youth boom” economy

Insights from Morgan Stanley Research


Summary: As Gen Z joins Gen Y in the workforce, the two cohorts could deliver a sizable jolt to US GDP, consumption, wages, and housing—presenting a bullish outlook for investors.

In 2019, Generation Y, often called the Millennials, overtook Baby Boomers as the largest cohort in the US.1 What’s arguably more important, though, is that Gen Z, born between 1997 and 2012, is poised to overtake Gen Y as the country's largest cohort by 2034. 

For the US economy, the demographic tailwinds created by these high-population cohorts could be significant, delivering a “youth jolt” akin to the Baby Boomers generation. 

Work by Morgan Stanley’s economic team, along with an in-depth survey of Generations Y and Z consumers, uncovered a significantly brighter outlook for the US in the coming decades than previously thought. 

As Gens Y and Z combine in the workforce, these two outsized generations could power higher consumption, wages, and housing demand, all pillars of GDP growth—offering investors an overall bullish view for the US between the 2020s and 2040s.

Headwinds turn to tailwinds

As a nation’s labor force grows, productivity, income, and consumer spending often increase as well, creating a virtuous cycle of growth. The Baby Boomers are an apt example, propelling post-WWII economic activity for decades as they moved en masse into their prime working and earning years. Conversely, aging Boomers have also dragged on the economy, as structurally lower productivity and slow growth in the potential labor force held down GDP growth.

Those headwinds could be poised for change. Gen Y—born between 1981 and 1996—is now fully loaded into the labor force, even as Gen Z's leading edge now graduates from college and enters the workforce.

This new generational overlap in the workplace could create significant synergies. Powered by the economic machine of Gens Y and Z, the prime working-age population is projected to accelerate into the 2030s. In fact, younger Millennials will continue to reach their prime working years through 2021, and Gen Z will reach their prime working years from 2022 to the second half of the 2030s.

An understated impact on the US labor force

Morgan Stanley economists analyzed the potential effects of these demographic trends on labor-force growth. The team constructed forecasts of potential labor-force growth based on Census population estimates and Congressional Budget Office (CBO) projections of the growth rate of workers who will eventually be covered by Social Security.

The CBO figures projected labor-force growth to be between 0.3% and 0.5% per year over the next 10 years. Morgan Stanley's projections were similar to CBO forecasts through 2024; however, they found that labor-force growth in the mid- to late-2020s and beyond could exceed the official CBO estimates.

Morgan Stanley found that the CBO projections understate potential labor-force growth by 0.2 to 0.3% per year in the 15 years through 2040. Also, they concluded that the CBO forecasts could be underestimating the level of potential GDP in 2040 by as much as 2.4% to 4.3%.

Chart - Potential labor force growth may start trending up in mid-to-late- 2020s

Source: Congressional Budget Office, Census Bureau, Morgan Stanley Research

Morgan Stanley Research’s labor-force trend lines also support consumption growth into the 2030s that could mirror that last seen during the peak working years of the Baby Boomers—albeit on a smaller scale. They projected trend consumption growth to move up steadily to average 2.5% in the 2030s, driven by Millennials, and then Gen Z, moving through their prime working years. These trends are expected to remain on track, even amid the ongoing pandemic.

A solid boom

To dig further into these findings and the potential impact on the US economy, the economics team commissioned a proprietary survey from AlphaWise—Morgan Stanley's evidence-based research group—to examine the habits, views, and expectations of Gen Z and Millennials.

The results of that survey, in conjunction with the overarching demographic trends, paint a promising picture for the coming decades. The AlphaWise survey found a number of factors that support a “youth boom” beginning in the mid-2020s:

  • For starters, Gen Z enters the workforce on firmer financial footing than Millennials, with a stronger job market and college costs that are less burdensome. 
  • In addition, Gen Z’s aspirations seem to align with the labor market’s opportunities. This cohort sees technology and health care as the most desirable industries to work in, and, in fact, both sectors are expected to be growth drivers for jobs in the coming decades. 
  • No surprise, the survey also found Gen Z to be far more tech-savvy than its predecessors, with 60% saying they have used a smartphone before the age of 14.

What investors should consider

Those who are looking for investing opportunities may look to mutual funds or exchange-traded funds (ETFs) focused on companies that are impacted by Millennial and Gen Z spending trends and activities.

ETFs and mutual funds are both collections, or “baskets," of individual stocks, bonds, or other assets—in some cases hundreds of them—all pooled together. When an investor buys a share of the fund, they own a small piece of this basket of assets. ETFs and mutual funds are similar in that they give a broad range of investment choices and inherently offer greater diversification compared to a single stock. That said, there are distinct differences in these investment choices. The price of an ETF fluctuates throughout the trading day. ETFs also tend to have lower fees and are typically passively managed—mirroring the performance of an index. On the other hand, a mutual fund’s price (commonly referred to as net asset value) is calculated just once a day, typically has higher expense ratios, and is managed by professional fund managers who actively try to outperform a market or index.

To learn more about the distinctions between mutual funds and ETFs, check out ETFs vs. mutual funds: Understand the difference.


The source of this article, Millennials, Gen Z, and the Coming “Youth Boom” Economy, was originally published on January 25, 2019.

  1. Brookings, “Now, more than half of Americans are millennials or younger,” 7/30/20,

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