Archive for the 'Economy' Category

h1

What’s wrong with this picture?

Sunday, September 17th, 2017

High employment and low wage growth

Another month goes by and another month of extremely confusing employment data.  The good news is astoundingly good: record levels of employment, 40 year lows of unemployment and record numbers of job vacancies per unemployed person.  These are statistics that would indicate a booming economy and you would normally expect rapid wage growth.  Indeed, economists have a concept of NAIRU (non-accelerating inflation rate of unemployment), which is a not very snappy way of saying that if unemployment goes below a certain level, wages will rise and feed into inflation.  Effectively, it’s the law of supply and demand being applied to the labour market.

That isn’t happening in Britain despite all those employment records.  Wage growth has been lacklustre for years, with no sign of it picking up any time soon.  Whatever NAIRU is in Britain, we don’t seem to have reached it yet.  Why?

I’m not an economist so I don’t have the answer.  Since the economists don’t seem to have the answers either, however, I feel entitled at least to look at some of the possibilities because they are central to the politics of the age.  The public mood seems to be that the economy is not working for the bulk of the population.  If this is true, finding the reason and addressing it should be the urgent priority of all parties.  If it is not true, politicians have a still bigger problem explaining this.

So what are some of the possibilities?

The statistics are wrong

Whenever you are confronted with an apparently-contradictory set of data, you should always consider whether the data are accurate: Garbage In, Garbage Out.  The simplest explanations are often correct, so we should take this possibility seriously.

The possibilities for data errors include: fewer people in work than the statistics show; more people seeking work than the statistics show; salaries are rising faster than the statistics show.  No doubt there are others – data can go wrong in lots of ways.

The Office for National Statistics has a justified world class reputation for the quality of its statistics.  That doesn’t mean that they are necessarily accurate, especially when they are measuring things that are hard to measure.  Getting representative samples in a rapidly changing society is difficult (as the nation’s opinion pollsters would gloomily agree after the last two general elections).  Pay in small businesses, which collectively employ a large  proportion of the workforce is estimated indirectly.  It is conceivable that salary rises, for example, are not being adequately captured if sectors with higher wage inflation are being underweighted by the ONS.  It is also possible that the number of immigrants has been undercounted (many won’t want to be visible, which makes this rather more likely).

The statistics are misleading us

Let’s assume, as we must in practice for now, that the statistics are right.  That doesn’t mean that they are being correctly understood.  For example, average salary increases might be muted in part precisely because more workers are joining the employment market if those employees are joining at the bottom.  If ten employees are earning £20,000 a year on average and an eleventh starts work on £10,000 a year, the average declines to just over £19,000 a year.  Indeed, the other ten could each receive a 5% pay rise and average pay would be stagnant.

The employment data need to be understood carefully too.  The ONS collects information for this series only on 16-64 year olds.

The supply of labour is bigger than conventionally understood

Since the Second World War, work has been seen as something that you do between finishing your education and retiring.  But in fact there have been three big shifts in the workforce in that time.  First, women have entered the workforce in large numbers.  When the Queen came to the throne, one in three women worked.  Today, over 70% of women between 16 and 64 work.  This is still some way behind the 79% of men that work, so there still remains scope for further growth here.

Secondly, Britain has welcomed large scale migration.  Last year, 11% of all workers were non-UK nationals.  They are far more likely to be overqualified for their jobs than UK nationals and more likely (in the case of EU nationals, much more likely) to be working longer hours than UK nationals.

Thirdly, many are not stopping work when retiring.  10% of those aged 65 or over are in work (just under 4% of the entire workforce).

All three of these sources of new labour may potentially give employers recruitment options that mean that they are not under the wage pressure that one might expect.

That said, I don’t buy this at all.  By far the single biggest growth in the workforce in this period was caused by women joining it.  Real wage growth was largely buoyant throughout the post-war period when this took place.  Any downward pressure on wages was more than outweighed by other upward pressures.  Net immigration is now waning and at present at least we are seeing no net increase in older workers in the workforce.  It seems likely that something else is at play.

The demand for labour is smaller than conventionally understood

Another possibility is that employers are using labour precisely because it is cheap. Some may do so rather than paying for more expensive technological alternatives, and any attempt by employees to increase their wages will be rebuffed on that basis.  Other employers may choose to use labour in the UK for reasons of convenience rather than outsource the work to other lower wage economies.  If so, employees are competing against both technology and workers in other countries to a far greater extent than previously.

If the equilibrium were balanced in this way, you would not particularly expect the workforce to be increasing.  To make sense of that you would need to conclude that other pressures (reductions in social security benefits) were pushing people into the job market.  And indeed, that is what is happening: social security benefits are undergoing a further squeeze at present, almost unnoticed.

So perhaps this is a part of what is going on.  Those on benefits are seeing those benefits cut and are rationally deciding to take whatever work they can get.  As a result, employers are not feeling any great pressure to raise wages.  The unkind might call this exploitation.

What might that mean politically?

Much of the political focus to date on low wage growth has been on immigrants and poor productivity.  But if it is in part a function of austerity, the political parties should be looking instead at addressing low pay and looking for the effects of that to trickle up.  Both main parties are proposing to increase the minimum wage, which would help, as would looking to employers of the low paid to pay more towards their support (whether by outsourcing social security provision, taxing them more per low paid employee or otherwise).  In the longer term, workers are only going to be able to compete against their international competitors and work with technology if they are more skilled, so education remains a very high priority.

And, just perhaps, the trend of reducing social security benefits needs to be reversed.  One of the reasons that it is paid is to keep people off the breadline.  If it is no longer doing that, more money needs to be found from somewhere.  Just a thought.

Alastair Meeks




h1

The DUP deal has cost a lot more than £2bn: it’s blown apart the Tories’ economic case

Saturday, September 16th, 2017

Austerity is dead – but what can replace it?

YouGov published the results of an innovative survey on Thursday, where it found that the British public seemed more willing to pay a Brexit bill of £25bn (where 29% said they would find that acceptable), than one of £10bn (backed by 18%).

Good news for Monsieur Barnier? Not exactly. The survey was designed to assess the effect of the options presented on the answers elicited, with the sample split into two groups. The first was asked whether they would find a Brexit bill of £5bn, £10bn and £20bn acceptable (note that these were independent questions, not options to one question); the second group had the same questions but with £25bn, £50bn and £75bn.

The most striking feature of the answers was the similarity in profile: the larger numbers did depress the scores a little but the respondents still clustered to the lowest amount in not too dissimilar numbers – and as mentioned above, the lowest amount for the second group received a good deal more support than the middle amount in the first, despite being considerably more.

The conclusions to take from this are firstly, that large parts of the public don’t really understand big numbers and what they mean in real terms; and secondly, and consequently, that what is an acceptable amount to pay will be determined by the political argument, not the financial or legal one.

That matters for Brexit but the lessons from the survey are more widely applicable and the government this week has opened up a whole new field on which they can be applied.

Public sector pay restraint could never last indefinitely. Seven years of mostly below-inflation pay rises / freezes has not only had a negative impact on morale but has tested the limits of the employment markets in terms of retention and recruitment. At some point, that limit was going to be reached (though not yet – there are more teachers and nurses in Britain today than in 2010, for example; to the extent that there’s a recruitment problem, it’s one about the rate of expansion, not the fact of it).

However, by breaching its own dam and offering the police and prison staff increases of more than 1%, the government has entirely predictably and understandably set off a chain reaction of other public sector staff demanding their own above-cap rises. The NHS unions were first off the mark, demanding a 3.9% rise, plus an additional £800 on top.

This leaves the government with several considerable problems. The first and most obvious is to explain why some jobs deserve bigger increases than others, when those others include perennially popular services such as nurses, where an Ashcroft poll found that the public would back nurses striking over pay. Again, the public are probably not actually answering the question asked (as to do so properly, people would need to know how much the various roles pay, and I suspect most don’t), but as far as the politics are concerned, that doesn’t really matter.

There’s also the matter of the money. Opening the door to higher pay settlements will undoubtedly bring a bigger bill. In theory, the police and prison service are supposed to find the extra pay from their existing budgets but in reality this could very well prove impossible without running the kind of risks that governments shouldn’t. The overall public sector wage bill is about £180bn a year so to settle at 3%, in line with CPI would jack up the pay bill by about £3.6bn a year. If the demands of the health unions were applied across the board, it’d add close to £10bn in one go – and all this at a time when the deficit is widening again. (Some of the pay would come back in direct or indirect taxes and through stimulated economic activity, but by no means all of it).

Unfortunately for Theresa May, as YouGov proved, the public does arguments, not numbers. And the argument for austerity died the day that she magically found £2bn to seal a deal with the DUP (£1bn a year for two years). No matter that in the context of the government finances, £1bn is close to loose change, to most people it sounds like A Lot Of Money (which, in reality, it is). More importantly though, the £25bn or whatever for Brexit and a £60bn deficit are also A Lot Of Money; there is practically no difference in the immediate political impact of agreeing deals with these sums.

Instead, the public will buy into a plausible narrative. Austerity was justified for so long in the public mind because of the Liam Byrne letter: there was no money left, and even Labour admitted it. That, however, no longer stands. There must be money around because the Tories found some for the DUP, and have found more for the police, mustn’t there? Besides, seven years should long enough to sort it out, shouldn’t it? Well, ‘not really’ and ‘only if you work harder than the UK did’, in reality. But in the short term, perception trumps reality.

For the Tories, this is more than a short term problem of restless unions. Theresa May’s whole election messaging was based on the government being strong and stable. For reasons best known to herself, the economy – which has been strong and stable and which continues to generate record employment – barely featured. All the same, the strategy was justified by the results. But having now undermined the strategy without giving a good explanation for the chance in policy, will the public continue to give the credit for the results?

There will be many repercussions down the line that arise from May’s decision to do a deal with the DUP – or, more specifically, to do the deal she did. For all the focus on Brexit right now, losing control of the economic narrative will matter more.

David Herdson




h1

Today Corbyn’s Labour lead the ABC1s by 12%

Friday, July 7th, 2017

Corbyn’s Labour now have a 12% lead with the upper and middle classes, let that sink in.

I think whilst this might be an outlier it is probably a result of Mrs May and her close advisers decision to abdicate from focusing much/any time on the economy during the general election campaign lest Philip Hammond had a good campaign and made it impossible for Mrs May to sack Philip Hammond on June 9th.

The Tories must hope whomever succeeds Mrs May won’t make such a stupid and petty decision like that at the next general election, I suspect once the upper and middle classes realise what Corbyn and McDonnell’s economic and tax policies are, they’ll flee back to the Tories, even in 1997 (and on June 8th this year) the Tories won the ABC1s quite comfortably.

TSE



h1

It’s the economy, stupid. And Team Corbyn aren’t stupid.

Monday, May 29th, 2017

Don Brind on final phase of the LAB campaign

It may all end in tears but for now the diverse team of Corbyn fans and old media sweats who make the Leader of the Opposition comms team can pride themselves on helping the party and their leader to narrow the yawning gap in the polls since Theresa May called the snap election the best part of a month ago.

Because they are smart I expect them to make a decisive switch to highlight economy and business in the last ten days of the campaign. And they have plenty of ammunition to fire.

British families will be getting poorer over the next few years as incomes fail to keep pace with inflation.  Only Greeks, Italians and Austrians have a bleaker outlook according to the OECD.  At the same time the NHS will be in a state of unending crisis caused by underfunding and schools will be cutting teachers and increasing class sizes because of budget cuts. Nothing in the Tory manifesto offers to changes that.

These key facts give the lie to Conservative claims to have created a “strong economy”. The claim is pure fiction. The reality is that after seven years with the Tories in charge the British economy is weak and shaky.

According to OBR forecasts we are in the middle of a catastrophic decade for earnings says Torsten Bell Director of the Resolution Foundation and formerly Ed Miliband’s policy chief. It’s the worst squeeze in over two centuries.   “History teaches us two things, says Bell. “First, that Prime Ministers do not normally choose elections at times like this, and second that when an election happens anyway, the incumbent government gets a kicking rather than the increased majority the current polls imply.”

Against that back drop of Tory failure I expect Labour to highlight how the plans to get the economy growing through investment in infrastructure and skills is the way to create prosperity and security for British families.

Labour have also to decide shortly who to send along to the BBC TV  debate on Wednesday where Theresa May ’s stand-in will be Home Secretary Amber Rudd. For me there is no contest about who should stand at the Labour podium in the 7-way debate. It should be Angela Rayner, the Shadow Education Secretary who has been spearheading Labour campaign against school budget cuts. She is a gutsy performer who will be well able to expose the shaky economy and what she calls the “weak and wobbly” Prime Minister.

It’s not just Labour who think May has failed to live up to her self-styled “strong and stable” leadership. The “dementia tax” debacle has raised questions the Prime Minister’s fitness for the job of negotiating Brexit, according to a quartet of pundits whose columns will have made for unpleasant reading in CCHQ — Phil Collins and Rachel Sylvester of the Times, The FT’s Janan Ganesh  and the Spectator’s Fraser Nelson .

Collins says her replies on social care were “ weak and untruthful and Mrs May was exposed as not being quite the woman advertised. She has been rumbled as not very good and there is no turning back from that.

Sylvester “the debacle reveals the shortcomings of the prime minister’s controlling and occasionally paranoid approach to power .. it does not bode well difficult Brexit negotiations that will require flexibility and empathy as well as determination.”

Ganesh “The complex work of EU exit starts in June … the question is no longer what this government stands for but whether it is any good. Or at least whether it is good enough, given the work ahead.”

Nelson “Her shambolic U-turn over the so-called ‘dementia tax’ has given everyone cause to doubt whether she is as ‘strong and stable’ as she says she is. In fact, she can look indecisive and a bit dozy.”

Nelson’s article is headlined “Could Theresa May blow this election? The answer is probably not according to the New Statesman’s Stephen Bush.He reckons the Tory’s falling poll lead is believable – but May still has her “purple fire wall” — the 2015 Ukip voters who switched to the Tories in this year’s local elections.

May is undoubtedly having a bad campaign but unless the ex-Kippers desert her, Labour supporters can expect that watching the TV exit poll on June 8th is likely to be every bit as painful as it was in 2015.

Don Brind



h1

ComRes Indy/SMirror poll finds sharp rise in the economic trust lead for May/Hamond over Corbyn/McDonnell

Saturday, November 12th, 2016

comres1

In March the LAB pair were a net 16% behind CON leadeship – that’s now 33%

Ahead of the Autumn statement, May & Hammond are seen as much more trusted on the than both Corbyn & McDonnell and Cameron & Osborne.

    The brutal fact is that the twice elected leader hasn’t got an earthly with numbers like these. The vast influx of new members into the party since GE2015 have made the main opposition party unelectable

As is repeated so often an opposition leader and party cannot be behind on both personal ratings and the economy.

Ahead of Hammond’s first autumn statement more than half of sample say that the government should delay major spending decisions until after the UK has agreed the terms of leaving the European Union, while three in ten think the government should go ahead with these decisions (53% v 30%).

A majority say that the government should prioritise increasing public spending over the next few years rather than cutting it (53% v 23%).

There are gloomy view about the world with Trump as president.

comres2

Mike Smithson




h1

Alastair Meeks on How Conservative Leavers could gift Labour the next election

Tuesday, June 7th, 2016

The 2015 general election result was a surprise to almost everyone.  After the event, those who had not predicted the Conservative overall majority hastened to explain why it had happened.  One of the prime underlying causes alighted upon after the event was Labour’s catastrophic reputation on economic competence.  Labour’s own pollsters found that Labour had a 39% deficit behind the Conservatives on this topic among those who voted.

That Conservative lead was hard-won.  The Conservatives had for many years made a virtue of taking difficult decisions, of having the bottle to stick with austerity and bring down the deficit, even when individual decisions were unpopular.  Ed Miliband’s retail offer politics, while individually popular, did not comprise an election-winning platform when the public believed that keeping the purse strings under control was of vital importance.

Jeremy Corbyn has made no attempt to try to change public perceptions of Labour’s reputation for spending.  So at present Labour is no doubt as far adrift of the Conservatives as ever in this key battleground.

If Leave wins, however, this is likely to change – not because of anything that Jeremy Corbyn does but because the Conservatives are likely to throw away their hard-won reputation for economic competence.

There is near-universal agreement among economists, even those supporting Leave, that there will be an economic shock in the event of a vote to leave the EU.  There is less agreement about the size of the shock, of course, with Leave-supporting economists inclined to minimise it and Remain-supporting economists inclined to maximise it – funny that.  But whatever way you slice it, if there is an economic shock it will come at a time when Britain continues to run a high deficit, even after years of austerity.

This potential cost can and has been estimated (unlike Michael Gove, I haven’t yet had enough of experts).  The IFS, for example, has put the figure at £20bn to £40bn.  That can and has been doubted by the Leave side, who in their usual charming way took the opportunity to suggest that the IFS were in the pay of the European Union when putting their estimate together.  But for present purposes it will stand as a mainstream estimate.

Such an economic shock would not go unnoticed by the populace.  It would coincide with a lot of market turbulence.  And then those abstract numbers would need to be converted into cuts in services or tax rises.

It would not take long for it to dawn on the public that instead of leaving the EU they could have had countless new hospitals and far more spending on schools with the money that had been foregone by that economic shock.  It will not take long because Labour politicians will be pointing it out relentlessly.  The economic shock will be portrayed as a Conservative choice to waste untold billions on a hobby horse rather than the everyday problems that the general public face.  Any suggestion that Labour is profligate with money would have an instant answer.  The Conservatives would have thrown away their single biggest advantage over Labour in an instant.

Trust is hard-won and quickly-lost, as the Conservatives found out in 1992 when the UK was ejected from the ERM.  If Leave win the referendum and the economic shock that most economists expect comes to pass, the Conservatives might very well come to look back on 23 June 2016 as Black Thursday.

Alastair Meeks



h1

The economics of discontent

Sunday, June 5th, 2016

Alastair Meeks on why Leave is prospering

Where did it all go right?  The bare statistics are breathtaking.  Even looking in percentage terms, employment rates are at all time highs, unemployment rates are at 10 year lows and the economic inactivity rate is also at a joint all time low (tying with 1990).  Job vacancies are hovering just below their all time highs.  Most of the economically inactive are students, stay-at-home mums or the retired.  So why are so many voters so angry?

Wage rises have been subdued for years. This is routinely blamed on immigration levels. We are told that there is hostility to immigration because it sets rich against poor, improving the purchasing power of the rich while taking jobs and wages from the poor, creating an underclass who are thrown on society’s scrapheap.  It’s a potent theme.

As a result, Leave are pressing hard on the theme of controlling immigration.  Remain is struggling to respond effectively.  The polls on the subject suggest that Leave definitely has the upper hand on this specific question.

However, the evidence that immigration has reduced wages in aggregate is actually fairly weak: as a matter of common sense if employment rates are at an all-time high, job vacancies are near their all time highs and unemployment rates are at ten year lows, this cannot be anything like the only or even main explanation for low pay rises.

Reasonably enough, the public are less interested in the why and more interested in the fact that pay is struggling to keep pace with inflation.  But contrary to popular myth, people are actually feeling better off than they did a few years ago.  The tables at the top of the page show the most up to date ONS data on how people assess their financial comfort.  More people say that they are living comfortably or doing alright than did so four years previously and fewer people say that they are finding it quite or very difficult.  Far from most people being crushed, on average things are slowly getting a bit better.

Meanwhile, low pay is being targeted.  The government is introducing a much higher minimum wage.  The effects this will have are uncertain. When the minimum wage was originally introduced, Professor Patrick Minford predicted unemployment would rise by up to three million.  In fact, it was introduced without incident.  There is wider concern this time that the new rate is set at a level that would have an impact on jobs, but the precise impact is unclear.  At a time of such high employment and labour force participation, however, it seems as good a time as any to find out: if the impact is not too severe, those in work on or close to minimum wage will see a sharp increase in their earnings.

So if more people than ever before are in work, people are feeling better off and the government is looking at addressing low pay, what is all this discontent really about?

The key to this problem is elsewhere.  The government has been cutting spending, which affects the poor disproportionately.  It also adds pressure on the services that the poor use, making them less sympathetic to other users of those services.  This effect has been intensified because the government has protected spending on the elderly, meaning that other spending has been cut disproportionately hard. 

If the government stops looking like it is helping you, you might well decide either that it should start helping you again – the leftwing working class analysis – or that the government is part of the problem – the rightwing working class analysis.  Controlling the immigration that puts pressure on hard-pressed public services is a natural response.

If this is right, the seething discontent will continue for as long as austerity continues.  And this is hardly surprising.  Not all of that government spending was wasted.  Some of it was usefully helping some people.  If those people are seeing things deteriorate as a result of that spending being cut, they might well be disillusioned and angry.  Perhaps that is why they are.

Alastair Meeks



h1

The next recession

Sunday, May 22nd, 2016

recession

Trying to predict the next recession has the danger making you sound like The Ancient Mariner but William Hill have a market up if the UK is going to have recession by the end of 2017 if you want to bet on the timing of it. I’m not an economist, so this piece should be viewed in that spirit.

Most of the economic mood music seems to indicate backing a recession occurring before the end of 2017 might be the best option, for example, back in January George Osborne warned of a cocktail of threats facing the UK economy, whilst earlier on this week it was confirmed the manufacturing sector is already in recession. 

Unsurprisingly confidence in George Osborne’s stewardship of the economy has plummeted since the general election, the recent Ipsos Mori poll found “One year on from the election of a Conservative majority in Westminster, Ipsos MORI’s Political Monitor finds a fall in the public’s ratings on the government’s management of the economy. Just under half (47%) say the government has done a bad job over the past year compared with 42% who say they have done a good job. In March 2015, 56% said the Coalition government was doing a good job, and 37% were critical.”

All of the above is before the issues of  the predicted economic apocalypses that is Brexit or a Eurozone contagion which could impact negatively on the UK economy,  For the sake of the country, I hope this is a bet I don’t collect on, “the recent strong growth in retail sales dispels gloom around UK economy” may indicate that backing the other side of this bet is the wisest course of action.

TSE