The ageing society – it’s a global thing

An ageing population is not just a developed country problem, says Steve Johnson in the FT. This mind-boggling graphic shows the speed at which countries went, or are expected to go, from 7 percent to 21 percent of their population aged over 65,

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Just as emerging economies industrialised at speed, their populations are ageing at speed too. As countries become richer, two things happen; people live longer and they have fewer children.

Max Roser published a chart last week showing how quickly that decline in fertility happened in some of the emerging economies.

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Chart via Our World in Data.

At the same time as birth rates declined, life expectancy also rose much more quickly in the emerging economies. By 2009, life expectancy in Turkey was less than 6 years behind the UK and Germany, while South Korea had caught up.

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Source: Clio Infra via Our World in Data

UN forecasters expect both trends to continue. According to their projections, by the middle of this decade, the median age in the upper-middle-income countries will have caught up with that of the high-income countries. (For definitions, see pages 7-9 here.)

Median Age

Source: UN 2015 Revision of World Population Prospects

The upper-middle-income group contains countries which we currently think of as having young populations but the time taken for their median age to reach the early 40s is likely to be much shorter than for the developing economies.

A random selection of the countries the UN expects to have a higher median age than the United States by the middle of the century throws up some surprises.

Median Age Selected

Source: UN 2015 Revision of World Population Prospects

The rates of increase for some of the Asian countries are rapid. South Korea’s rising life expectancy takes its median age past even Japan’s by 2050. The trajectories for countries like France and the UK look gentle by comparison. Iran and Brazil draw level by the middle of the century.

Earlier this year, Aron Strandberg produced this graphic showing the change in median ages in Europe since 1960 and the UN’s projections to 2060. Watch what happens to Iran, Thailand, South Korea and Brazil.

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These countries catch up with many of the developed economies and, in some cases, overtake them.  It’s also interesting to watch what happens to the countries immediately adjacent to the EU.

Median Ages in Europe 1960-2060 - Imgur

They pretty much draw level with some of the European countries. By 2060, Turkey has the same median age as the UK and France while overtaking Norway and Sweden. The ongoing row over whether Turkey should be admitted into the EU surfaced during the UK’s Brexit debates last week. There are have been arguments for years about how European Turkey is. As time goes on, though, at least in terms of its age profile, Turkey is starting to look ever more like the other large EU countries.

Median Age EU Turkey

In some of the northern European countries, such as the UK and Sweden, the rate of ageing has slowed down. The fall in the birthrate has stabilised and even risen slightly, one  theory being that increasing gender equality may have halted the decline. Improvements in healthy life expectancy may reduce healthcare costs and enable the rise in workforce participation among the over 65s to continue. None of this is to say that the richer countries have solved the ageing problem. Healthcare and pension costs are expected to grow faster than the economy almost everywhere. But for the northern European countries, the steepest ageing of the population will probably occur over the next few years and is then set to level off.

Contrast this with the rapid rates of ageing elsewhere in the world. Some of the emerging economies will have a lot less time to prepare and will see their retirement costs outstrip their economic growth by some distance.

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Chart via FT.

The World Economic Forum also predicts that, over the next decade or so, health expenditure in emerging economies will rise at about 3 times the rate in developed countries. The fiscal consequences of this could be severe.

I have been banging on for some time that ageing societies are not just a western phenomenon. Many of the emerging economies are ageing at a truly fascinating rate. It may even be that, because the process has been slower and started sooner in the advanced economies, we have had time to get used to it and the shock here may not be as severe. Whatever happens, though, global greying is changing our world and it is doing so at an astonishing speed.

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After Brexit: Fewer immigrants or just different immigrants?

There was a new twist on the Brexit and immigration question last week. The Leave campaign came up with the Save British Curry slogan. Priti Patel blamed the EU for the tougher restrictions on non-EU workers. This, she claimed, was preventing restauranteurs from bringing workers over from the Indian subcontinent.  Of course, as an employment minister she well knows that the EU has nothing to do with these restrictions but the point she was trying to make (I think) was that tougher rules on immigration from outside the EU have been brought in because of the easier access for EU workers. A government under pressure to reduce immigration had to balance looser restrictions on EU migration with tighter restrictions for everyone else. If we were to leave the EU, so the logic goes, the tougher restrictions on workers from India would not be necessary.*

This sentiment was echoed during Channel 4’s EU referendum debate, which drew its audience from ethnic minorities. Most of the pro Brexit members of the audience gave immigration as their main reason for wanting to leave the EU. Not all of them wanted to reduce immigration, though. Many were opposed to free movement of people from the EU because they felt it had made it more difficult for those from elsewhere in the world to come to the UK. A number of people argued that the increase in immigration restrictions was an indirect result of EU membership because the increase in migration from Europe had led to pressure on the government to curb it elsewhere. But, rather than wanting to restrict immigration, some of the Brexiters wanted to level down the barriers and make it as easy for people from elsewhere to come to the UK as it is for those from the EU. Trevor Phillips remarked that it was the first time he had heard an open borders argument from the Brexit side.

 

This all sounds a bit confusing but there might be a grain of truth in it. It is certainly true that the number of immigrants from elsewhere in the world began to fall at around the same time that the eastern European countries joined the EU.

Long-Term International net migration by citizenship

UK, 1975 to 2015 (YE September 2015)

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This may well be due to the relative ease of employing people from the EU compared to those from elsewhere. As Migration Observatory noted, the number of non-EU people coming to the UK to work fell sharply from the middle of the last decade. It could be that EU migrants met some of the extra demand for labour which might otherwise have been met by people from Commonwealth countries.

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What difference leaving the EU would make to this is difficult to say. Some people think that, if we applied strict immigration criteria to all countries, the resulting labour shortage it would force businesses to invest more in training and technology, thereby employing more British people and raising productivity.

But, as Jonathan Portes says, even if this were achievable, which is by no means certain, it would take some time and, in the meantime, businesses would kick up a fuss:

[W]ould we really ban unskilled migration for economic reasons entirely? At least in theory, it is possible to make a plausible economic rationale for doing so; while this would cut growth in the short term, it might over time incentivise firms into productivity-enhancing investment or training.

But these effects are lengthy and uncertain (and not obvious in previous periods of low migration). Meanwhile, business would suffer and would be vocal in saying so. And the incentives for irregular migration would increase significantly.

Sussex University’s James Hampshire makes a similar point:

Governments have limited capacities to exclude, identify and remove immigrants, and when limited legal entry routes come up against labour market demand on the one hand, and supply of migrant workers on the other, the result is usually irregular migration. Would replacing EU free movers with European irregular migrants represent an improvement? Irregular migrants are more readily exploited, which makes it easier for unscrupulous employers to undercut local wages, and they do not contribute to income tax receipts.

Thus there is a huge gap between the simplistic claims of the Leave campaign, and the complex reality of governing the world’s fifth largest economy, further inconvenienced by the rule of law. In the event of Brexit, the government would come under tremendous pressure from employers and businesses to either admit those (now controllable) European nurses, lawyers, and students as immigrants, or else replace them with people from elsewhere.

Research by Migration Observatory for the Financial Times found that 75 percent of EU citizens working in the UK would not meet the visa requirements applied to non-EU workers.  Even if the EU workers already here were allowed to stay, the restrictions would soon lead to a labour shortage.

Employers who have been used to having a plentiful supply of well qualified labour on tap and who have been running down their training investment for some time, would be unlikely to change their policies overnight. There is also evidence to suggest that some firms’ entire business model is based on the availability of relatively cheap on-demand labour. Businesses would not want to see this supply of labour cut off and would soon put pressure on the government to ease immigration restrictions.

If the UK were to stay in the EEA after Brexit, the rules on free movement would be more or less the same. For many Leave voters, this would defeat the whole object of leaving the EU. Immigration is still the most important issue among people stating their intention to vote Leave. If the Brexit settlement didn’t include the free movement rules, the most likely immigration policy would be a standard set of work-related criteria for a wider group of countries. To avoid a sudden labour shortage, these criteria would have to be much less stringent than they are now. This would probably shift the balance of migration back towards non-EU citizens. There would still be lots of migrants from Europe simply because it is closer but the mix of immigration would probably tilt back towards those from the Indian subcontinent who make up the majority of non-EU migrants and who made up the majority of all migrants before the A8 accession in 2004.

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With the exception of Japan, immigration is a significant factor in the labour markets of all developed economies, whether inside or ousted the EU. As this OECD chart shows, relative to the size of our population, immigration to the UK in 2013 was considerably lower than in some other advanced economies.

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Chart via OECD International Migration Outlook.

It is therefore reasonable to assume that an economy such as Britain’s will require a certain level of immigration regardless of how well we train our people of how much we invest to improve productivity.

In the event of Britain leaving the EU, the Brexiters at the Channel 4 debate might therefore get what they want. Tighter restrictions on EU migration probably would lead to looser restrictions on migration from elsewhere. In this scenario, it is likely that the overall number of immigrants wouldn’t change by much, it’s just that the mix would be different. Fewer people from Poland and more from Pakistan. Somehow, though, I don’t think that’s what most of the immigration focused Brexit voters have in mind.

*Update 1: This might not solve the curry crisis. As this FT article says, the problems faced by Britain’s Indian restaurants are more complex and long-term than just a shortage of staff.

Update 2: A NIESR paper published earlier this month concluded that a sudden tightening of immigration restrictions could have a significant negative impact on per capita GDP and on public finances. People might be willing to pay higher taxes in return for lower immigration but I wouldn’t want to bet on it.

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Talent on tap but productivity splutters

According to the ONS, the discrepancy between the immigration figures and the number of National Insurance numbers issued to EU nationals can be explained by short-term migration. The regularly reported ONS figures only counted people who were in the UK for a year or more. Those dropping in for a few months wouldn’t make it onto the official figures but still might apply for a NI number with the intention of doing some work.

Once the short-term migrants are added in, the total immigration figures look a lot closer to the NI numbers.

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Chart via Guardian

Neither Michael O’Connor, who first spotted the discrepancy, nor Jonathan Portes, who first raised it with the government, are entirely satisfied with the answer. No doubt this debate will rumble on but what the report has highlighted is the number of short-term EU migrants coming to Britain over the last few years.

There appears to be a churn of EU nationals coming to work for a few months. Some take short-term contracts, others come for seasonal work. A few probably just pop over to see what it’s like before committing themselves to longer-term work. The relatively short distances and cheap travel mean that it is far easier for EU migrants to stay for shorter periods than it is for those further away.

What this also means, though, is that UK employers have access to a vast pool of short-term workers. English is the most widely spoken second language in Europe, therefore it is much easier for British and Irish employers to find workers than it is for employers in any other country. With them being nearby, there will always be plenty available for short periods.

Many EU migrants are overqualified for the work they do. According to the ONS, 40 percent of EU10 and 30 percent of EU14 migrants have qualifications higher than the average for their jobs. It is no surprise, then, that the UK has one of the most highly educated workforces in Europe and also one of the highest rates of over qualification.

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Chart via UK Commission for Employment and Skills

Yet, despite this, the UK’s productivity is in the doldrums and lagging behind most of the other G7 countries.

Constant price GDP per hour worked, actuals and projections, 1997 to 2015

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Chart via ONS International Comparisons of Productivity, February 2016

Furthermore, last year’s Global Skills Index study by Hays and Oxford Economics found that the UK had one of the highest gaps between the skills that employers were looking for and those available in the labour market.

Skills Gaps

What have Britain’s companies done about this? Well they don’t seem think training is the answer because it has been in steady decline for the last decade or so.

So we have flatlining productivity, lagging behind that of most other major economies, and one of the highest skills gaps among the developed economies. Yet our employers have access to a huge pool of well qualified labour, larger, relative to the size of our workforce, than that available to most other countries. Furthermore, this labour is highly flexible, with people ready to travel across Europe for relatively short periods of work. Employers have workers available almost on tap.

Together with relatively light regulation, this ready supply of well-qualified labour must make the UK one of the most benign business environments in the world. Why, then, is our productivity so poor?

As the UK Commission for Employment and Skills commented last year

An important backdrop to productivity performance is that we have a workforce which has never been so well qualified. If we have a better-educated workforce, then we have to look at how their talents are being applied: the workplace must have played a role in that productivity slowdown.

Don’t Britain’s employers have some explaining to do?

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What happens when the tax credits go?

UK citizens are among the the least likely in the EU to be trapped in poverty according to ONS statistics released yesterday. Around 6.5 percent of the UK population is in persistent poverty, compared to an EU average of 10.4 percent.

The report uses the EU’s definition of poverty as an equivalised disposable income of less than 60 percent of the national median. Persistent poverty is where people fall below that measure in the current year and at least 2 of the preceding 3 years.

The figures show that, while the percentage of people in overall poverty in the UK broadly tracks that of the rest of the EU, the persistent poverty rate is lower and has been falling since the recession.

Persistent and overall poverty rates, UK and EU average, 2008 to 2014, percentage total population

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The reason for this is that, while the UK has relatively high rate of entry into poverty, it also has a relatively high rate of exit. The chances of falling into poverty are relatively high but so are the chances of getting out of it.

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Of course, the flip side of this is that, while people are less likely to be trapped in poverty, quite a lot of people have recent experience of it. The UK’s poverty rate stayed around the EU average during the 4 years between 2011 and 2014 but, during the same period, almost a third of the population had, at some point, been earning below 60 percent of the median income.

Years in poverty in the UK in a 4 year period, 2005/08 – 2011/14, percentage population

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What we have in the UK, then, is a higher level of poverty churn that most other EU countries. Or, to put it another way, we do a better job of distributing our poverty.

Much of this is due to what the Joseph Rowntree Foundation called the The low-pay, no-pay cycle, where people move between a series of low-paid jobs and worklessness.

A report by the European Foundation for the Improvement of Living and Working Conditions (Eurofound) last year showed the effect this had on the UK’s levels of income inequality relative to other EU countries, based on different measures.

This is a horrid chart* but worth persevering with because the information on it is fascinating.

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The dark blue lines, showing full-time equivalent pay, show that the UK has the most unequal hourly pay rates in Europe.

But not everyone works full-time or has regular hours. As you would expect, monthly earnings (the mid-blue line) show greater income inequality in all countries because this measure builds in the effect of the uneven distribution of working hours. Because the UK has relatively high employment rates, the likelihood of people getting at least some work during a week is reasonably high so our relative position doesn’t look as bad.

Yearly earnings (the light blue line) include those unemployed for some or all of the year. This increases the level of inequality again but this time some countries overtake the UK. Again, Britain’s relatively low unemployment means that, although its pay levels might be polarised, the amount of work is more evenly distributed than in many other EU countries.

Finally, household disposable income, the white line, allows for the distribution of work within families and includes the effects of taxes and benefits. Once this is taken into account, a number of countries (Greece, Spain, Portugal Latvia and Lithuania) are more unequal than the UK.

Taxes and benefits are, in part, what enables the cycling in and out of low-paid work. Low paid jobs are underpinned by tax credits, enabling people to work in jobs that don’t pay enough to support their families. A report by the ONS last month found that the UK had one of the highest levels of pre-tax income inequality in the EU but that, after taxes and benefits, the UK was about average.

As the report comments:

However, the UK’s tax and benefits system appears to be more redistributive than that of many other countries with relatively high inequality of original income, bringing the UK close to the overall EU average for disposable income inequality.

Gini coefficients of equivalised original and disposable income, 2013

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In other words, then, both the UK’s relatively low levels of income inequality and persistent poverty are partly the result of our benefits system. It mitigates the worst of both, facilitating a distribution of low-paid work that means few people experience poverty  for long but quite a lot of people have a frequent taste of it.

So what is likely to happen when those benefits are taken away? As Ben Chu says, things are going to get a lot worse for those of working age and particularly for children.

Forecasts by the Institute for Fiscal Studies suggest that the Conservatives’ tax credit cuts are going to push overall poverty rates much higher over the rest of the Parliament. The IFS sees the overall rate rising by around 2 percentage points by 2020-21. Moreover, the child poverty rate is set to explode.

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A report by the Institute for Social & Economic Research for the Child Poverty Action Group in 2014 found that the UK’s taxes and benefits brought one of the highest rates of child poverty in the EU down to well below the average. Take those benefits away and up the league we go.

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There is, then, some good news on poverty and inequality in the UK. When compared to other EU countries it doesn’t look too bad. But a lot of this is due to this country’s system of in-work benefits. Poverty in the UK has shifted from being a problem of worklessness to one of low pay. In-work benefits rather than unemployment pay is what keeps our poorer families afloat. Increasing the minimum wage will not come anywhere near to compensating for the loss of these benefits. The frequent reports and charts that show the UK’s comparatively benign position on poverty will last only as long as the tax credits and benefits continue to support the low paid. Once they are taken away, the full extent of the UK’s precarious and low-wage economy will be revealed.

* I hope that this fad for using corporate colour palettes on graphs will soon pass. It’s a really silly idea. The OBR has abandoned it and everyone else should too.

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Are we prepared for a low growth world?

Duncan Weldon declared himself a productivity pessimist earlier this week:

Productivity – the amount of output produced for each hour worked – rose at a fairly steady annual rate of about 2.2% in the UK for decades before the recession. Since the crisis though, that annual growth rate has collapsed to under 0.5%. The OBR has decided to revise down its future assumption on productivity from that pre-crisis 2.2% to a lower 2%. That small revision was enough to give the chancellor a large fiscal headache in his latest budget, but it still assumes a big rebound in productivity growth from its current level. What if that rebound doesn’t come?

It’s still perfectly possible to argue that productivity pessimism is overdone, that we are still suffering the lingering after-effects of the financial crisis that will eventually end. But with each passing year that becomes more difficult. A good strategy is to hope for the best but prepare for the worst. And the worst is pretty bad.

Why is it so bad?

Productivity is one of two key factors determining the trend growth rate of an economy; the speed limit at which a country can expand without pushing up prices. The other is population. Falling birth rates across the advanced economies created a demographic “sweet spot” that lasted from the late 70s until fairly recently. Fewer children meant a rising share of the population was of working age. But fewer children in the past means fewer workers today and rising longevity means a rising share of the population who are retired. Across the west, the amount of workers for each retired person is heading in the wrong direction. Increasing the retirement age and more immigration are both theoretical fixes, but the scale of both required to fundamentally change the picture is almost certainly politically impossible.

That demographic sweet spot, a rising working age population and fewer dependents, was one of the factors that caused the spurt of growth after the Second World War. Historians and economists will be debating the causes of the postwar economic boom for years to come but, when compared to previous fifty-year periods,  the last half of the twentieth century saw unusually high GDP growth. It is starting to look as though we have seen the last of it.

Duncan produced this graph a few weeks ago, form the Bank of England’s Three centuries of macroeconomic dataHe notes that, although it is early days, the early 21st century is looking more like the late 19th than the late 20th.

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When compared to most of the last 300 years, the last half of the twentieth century was an extraordinary time. Looked at in the longer term context, it was an extraordinary time within an extraordinary time. As Andy Haldane said, economic growth only really started around 300 years ago.

[T]he long history of growth looks rather different than the short. Secularly rising living standards have become the social and economic norm. No-one can recall a time when the growth escalator has moved anything other than upwards.

Yet viewed through a long lens telescope, ‘twas not ever thus. Chart 2 plots estimates of global GDP per capita back to 1000 BC. This suggests a very different growth story. For three millennia prior to the Industrial Revolution, growth per head averaged only 0.01% per year. Global living standards were essentially flat. Since 1750, it has taken around 50 years for living standards to double. Prior to 1750, it would have taken 6000 years.

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It wasn’t until the start of the 19th century that most people’s living standards began to improve. It is, as Andy Haldane said, as though someone flicked a switch somewhere around 1750 and the technological take-off then fed through into a massive jump in per capita GDP.

Per capita GDP increased gradually during the 19th and early 20th centuries but steepest rise came after the Second World War. The period between the end of the war and the crash of 2007 saw unprecedented economic growth.

Real UK GDP Per Capita

Source: Bank of England: Three centuries of macroeconomic data.

And, to illustrate Duncan’s point, productivity followed a similar pattern.

Productivity BoE Log

Source: Bank of England: Three centuries of macroeconomic data.

If, over the next decade, we are to achieve the same increase in per capita GDP that we saw in the last half of the 20th century, the economy would have to grow by between 3 and 3.5 percent every year. Even the most optimistic forecasts are nowhere near that. As Duncan says, even the government’s revised projections might be a bit optimistic.

In the UK, policymakers once thought trend growth was 2.75% and have now cut that to 2.2%. Without a productivity bounce that could fall to closer to 1-1.5% in the coming years.

It might be early days but the chances are that Duncan’s bar chart won’t look that much different in 2025. Unless there is a sudden productivity spurt, which looks very unlikely at the moment, real per capita GDP growth will probably average something like 1.3 percent for the 25-year period.

It looks like this productivity slow down will be set in for some time. The recent improvement which might have indicated that we had turned a corner came to a halt at the end of last year. That most other western economies are also seeing something similar suggests that the causes run deep, although the UK seems to have particularly severe symptoms. The IMF has urged governments to invest to prevent a slide into what Christine Lagard called the “new mediocrity” but, even if governments rise to this challenge, they may find themselves trying to jump-start a dead battery. We have no idea what the multiplier effect of such a stimulus would be. It might be disappointingly small. What level of investment it would take to return the UK to 3 percent growth is anybody’s guess but it is likely to be a very big number.

This gives us a huge problem. Most of us grew up and formed our opinions and expectations during that extraordinary post-war period. We thought that the growth we enjoyed during that lucky half-century was normal. We assumed that living standards would improve and that each generation would always be better off than the last one. Furthermore, we built a state based on the assumptions of late 20th century growth.

The trouble is, the pressure on state spending will almost certainly increase. The ageing population will cost more even if we all work longer and stay healthier. We have no idea what the effect of climate change will be but it is likely to put extra demands on local authority budgets.

But low productivity means low wages which means low tax revenues and continued reliance on in-work benefits. Governments will struggle to keep public spending down and to raise revenue. A combination of higher taxes, cuts to public services and continuing government deficits looks likely.

This is bad news both for anti-austerians and for state-shrinkers. Governments will have their work cut out just to keep public services running at their current level. The brutal arithmetic of public spending means that even a real-terms freeze means significant service cuts.  A return to 2010 levels of staffing and provision looks unlikely unless people suddenly develop an appetite for much higher taxation. For the same reason, significant tax cuts also look improbable. Governments will be scratching around for every penny they can get.

A lower-growth world means that we will have to adjust the assumptions that we built up in the higher growth world. We will find our views about work, pay, living standards, property ownership, health and retirement challenged but none more so than our assumptions about what the state is there for and what it can and should provide.

Updates:

1. Apologies for the strange disappearance of this post last week. I was away, tried to update it using my phone and lost the post. I really shouldn’t use a touch screen for anything complicated or fiddly.

2. I have changed the scale on the 4th chart to a log scale showing the rate of change. HT to Mark.

3. Interesting piece by Toby Nangle at FT Alphaville on why demographic changes might end the productivity slump.

[W]orkers in countries that allow child labour, have looser environmental regulations, and don’t care about safety, are cheaper than workers elsewhere, even after accounting for the worse infrastructure and lower skill levels.

[M]anufacturing wages having risen nine-fold in China since 2000 and the IMF estimates the country will soon switch, if it hasn’t already, from labour abundance to labour shortages as the working-age population shrinks and the rural-to-urban migration draws to a close.

Combine this with the impending retirement of the baby-boom generation in rich countries and the scene appears to be set for the return of some structural labour bargaining power and upward wage pressures.

4. Three theories on why productivity is so weak, by Neil Irwin in the New York Times. “The possible answers range from utterly depressing to downright optimistic.”

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Brexit is a one-way door

In his annual letter to shareholders, published earlier this month, Amazon CEO Jeff Bezos said this about decision-making:

Some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that – they are changeable, reversible – they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.

And the consequences of using the wrong type of decision-making process:

As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.

The opposite situation is less interesting and there is undoubtedly some survivorship bias. Any companies that habitually use the light-weight Type 2 decision-making process to make Type 1 decisions go extinct before they get large.

Whatever you may think of Jeff Bezos, it’s worth taking a moment to consider this wisdom because the UK is facing a Type 1 decision. The decision to leave the EU is a Type 1 decision because it would be irreversible. The decision to stay is. however, a Type 2 decision because we could still leave at some future date if things suddenly took a turn for the worse. The leave option is a door with a handle on only one side. If we go through and don’t like what we see on the other side we can’t go back to where we were before. Which is why, to use the words of Jeff Bezos, the decision must be made methodically, carefully, slowly, with great deliberation and consultation.

Those who would encourage us to leave the EU must therefore give us compelling reasons for walking through the door. Unless they can show that things are much better on the other side, we would be very silly to take the risk. So far, though, most of the methodical and careful analysis is telling us that we should stay.

A month ago, Chris Giles did a round-up of the academic and consultancy reports, the results of which ranged from Britain being a bit worse off to a lot worse off by 2030. In one of the scenarios it modelled, Oxford Economics concluded we might be very slightly better off but in all the others, per capita GDP was worse by 2030.

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The Treasury’s report was criticisedfor being pessimistic about a post-Brexit future but as Ben Chu’s chart shows, we are talking about degrees of pessimism here.

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Even the more pro-Brexit reports, from Open Europe and Capital Economics, don’t go much further than saying there might be some modest gains from leaving the EU.

Of course, all these reports are only estimates, albeit thorough and well-informed ones. No-one can be sure what the world will look like in 2030. It may be that Britain can leave the EU without any long-term damage.

The trouble is, most of us don’t live in the long-term. People in their 40s are hoping they can make enough in the next decade years to have an outside chance of retiring before 70. People in their 20s have similar thoughts about maybe one day buying a house. Even five years of economic turmoil, coming so soon after the crash, could ruin it for them. Many of the world leaders who are warning against Brexit are not worried so much about our economy as their own. The IMF is warning about the severe impact on an already fragile global economy. Even if the optimists are right and Brexit will slightly improve the UK economy, the process of leaving is likely to be damaging in the short-term. It’s like going for cosmetic surgery to remove a minor blemish but having to endure severe pain for several weeks. Is it really worth it?

And this is where the Leave campaign has failed dismally. They have poked holes in the methodical and careful analysis that questions the wisdom of leaving but they haven’t set up any body of evidence of their own. They have not made a compelling case for walking through that one way door. And, given the risks, that case would have to be very compelling. Their warnings about immigration are a red herring. As the Open Europe report said, most developed countries have relatively high levels of immigration. The likelihood is that after Brexit, the level of immigration will be more or less the same but more immigrants will come from outside Europe. So too are the presumed benefits of deregulation. The most the Brexiteers can come up with is a few things about the EU that make us a bit cross. For that, they want us to storm out of the party in a huff and slam the door behind us.

To persuade people to go through a one-way door you need a really good story. ‘Things might be a little bit better by 2030’ doesn’t really cut it. Leaving the EU might just be worth the risk if there was a convincing vision of a great post-Brexit future but so far, no-one has come up with anything even close to that. At best, what’s on offer isn’t that much better than what we have now and that’s small reward for the aggro in between.

Leaving the EU is what Jeff Bezos would call a Type 1 decision. There is no way back. Most learned opinion is telling us there are serious risks in going through that one-way door. Surely, then, the rational thing to do is to stay put. There is nothing much on offer on the other side.

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Fishing for red herrings

When it comes to the Brexit debate, employment law isn’t really that big a deal. But as Sarah O’Connor says, both sides are trying to make it into one:

Some in favour of Britain leaving the EU, such as Patrick Minford, economics professor at Cardiff University’s business school, say the UK needs to reset its relationship with the EU to “jettison excessive protection and over-regulation, notably in the labour market”. Trade unionists who want to stay in the EU, such as Frances O’Grady, general secretary of the Trades Union Congress, warn that “working people have a huge stake in the referendum because workers’ rights are on the line”. Both these claims give the impression that UK employment law would change significantly in the event of Brexit.

For most employers, though, it’s not that important and the bits they are most worried about have nothing to do with the EU:

The truth is that most employers are not angling for these EU-related rights to be repealed. When I talk to companies, they usually complain about four employment issues: the new higher minimum wage for people aged 25 and over; the “apprenticeship levy”, a payroll tax for large companies; restrictions on skilled migrant workers and the requirement for large companies to publish their gender pay gaps. None of those has been forced on the UK by the EU; all are policies that have been dreamt up by the current Conservative government.

For years, politicos, journalists and policy wonks have made a lot more fuss about regulation than business people. There is no great clamour from employers to change employment law. When the government came up with various hare-brained schemes during the last parliament, the reaction of business leaders was indifference. The Beecroft proposals were treated with derision by lawyers and employers and the shares for rights scheme was almost completely ignored. If the economy was really groaning under the weight of employment protection law, surely such measures would have been greeted by employers with effusive delight, instead of a collective shrug.

Employment law can be irritating and some claims are vexatious but the risks of being taken for a large amount of money are fairly remote. Stories of people being bankrupted by employment tribunal cases are usually put about by hysterical columnists or people trying to sell indemnity insurance. Thanks to the introduction of fees, you are less likely to be taken to tribunal now than you were five years ago and, even if you do lose a case the amount you get stung for will probably be less than £10,000. The vast majority of managers go through their entire careers without ever going anywhere near an employment tribunal.

Furthermore, as Richard Dustan says, a lot of employment law is quite popular:

[I]t would be a bold (or simply daft) Tory government that decided to cut the hardly over-generous statutory entitlement to paid holiday – just four weeks plus bank holidays – or to blatantly roll-back the scope of anti-discrimination law, or to slash (paper) maternity rights. These rights are now well-entrenched and, in most cases, extremely popular. So, even someone as tactically inept as George Osborne would surely see that “Vote Tory, get less holiday” is not a great campaign slogan.

Or, as Sarah says:

It is hard to imagine any government going into the 2020 election with “bring back sexism in the workplace” or “let’s have fewer paid holidays” on their leaflets.

Even after Brexit, the UK would not be the de-regulated heaven or hell that some people on both sides like to claim. It might raise interesting issues at what Darren calls the geeky margins (and he’d know) but the idea that it would be an opportunity to dismantle all the UK’s domestic employment legislation is fanciful.

When it comes to employment protection, the UK is already one of the least regulated countries in the developed world. In some countries, where regulation is very onerous, relaxing it might help to boost the economy. If the UK was ever anywhere near that point it is long past it now. Employment protection laws are now so light that even removing them completely would make very little difference to this country’s competitiveness. It might even make it worse.

Employment law isn’t a Brexit issue because it simply isn’t an issue. Most employers are not that worried about it and its economic impact is fairly small. As red herrings go, they don’t come much redder than this.

red-herring-or-irrelavant-thesis

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