Transcript Discussant-Slides-University-of

GLOBAL TRENDS IN WAGES:
CAUSES & EFFECTS ON
GROWTH
BILL WELLS:
DEPARTMENT FOR BUSINESS,
INNOVATION & SKILLS:
DISCUSSANT
The UK, along with the US is one of the most open economies in
the world. Therefore it is amongst the most likely to be affected by
globalisation…
STRICTNESS OF PRODUCT MARKET REGULATION:
[0 = LEAST STRICT: 6 = MOST STRICT]
3.5
3.0
2.5
2.0
1.5
1.0
0.5
China
Russ
Ind
Isr
Indnes
S.Afr
Gre
Pol
Tur
Bra
Mex
Chile
Slk
Cze
Lux
Kor
Fra
Austria
Slv
Bel
Por
It
NZ
Ger
Est
Swe
Aus
Hun
Nor
Jap
Fin
Swi
Ice
Den
Spa
Net
Can
Ire
US
UK
0.0
…and it is a similar story in the labour market which is also one of
the most open and least regulated in the world.
OECD EMPLOYMENT PROTECTION INDEX: 2008
[Scale from 0 (Lightest) to 6 (Most Restrictive)]
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
In general, the UK tends to be believe that free trade has been one
of the main driving forces of the five-fold increase in growth and
the labour share over the past 65 years.
UK GDP & WAGES: INDEX 1948 =100
600
550
INDEX 1948 =100
500
450
400
350
300
250
200
150
100
1948
1952 1956 1960 1964
1968 1972 1976
GDP
1980 1984 1988 1992
1996 2000 2004 2008 2012
Total Employee Compensation
The effect of free trade is ambiguous as increased competition may, for
example, reduce monopoly power in labour or capital. And the erratic
movements in the UK labour share suggest that it is not the sole
determinant.
UK LABOUR SHARE
68
66
INDEX 1948 =100
64
62
60
58
56
54
52
50
1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
% Of GDP
% of GDP minus Financial Sector Profits
The labour share can also be made up in many different ways. For
example, wages – rather than employment – make up a greater
proportion of the labour share than in the US.
REAL WAGES: UK & US:
[UK = UNDERLYING REAL WEEKLY EARNINGS (Est.): US = PRIVATE EMPLOYEES (WEEKLY) Est.)]
240
220
200
180
Per Cent
160
140
120
100
80
UNITED KINGDOM
UNITED STATES
…and the OECD estimate that the take home pay of the UK is 2nd
only to Switzerland.
TAKE HOME PAY: FULL TIME PRIVATE SECTOR (SINGLE) WORKER: 2011
120
110
100
INDEX: UK = 100
90
80
70
60
50
40
30
20
10
0
Employment rate movements also suggest that free trade is not the major
determinant of labour share. In the UK have shown a structural
improvement from the mid 1980s trough whereas in the US it appears that
there has been a structural deterioration in the 2000s.
US & UK COMPARED: EMPLOYMENT RATE: 16 & OVER: ONS & BLS
65
63
PER CENT
61
59
57
55
53
United States
United Kingdom
…and the UK’s improvement builds on the its existing above
average employment performance.
OECD EMPLOYMENT RATES: 2011
[EMPLOYMENT 16 & OVER AS A % OF POPULATION 16-64]
90
80
70
PER CENT
60
50
40
30
20
10
0
Policies & institutions are at least as important as globalisation. For
example, the low paid in the UK have seen above average wage rises since
the introduction of (a moderate) National Minimum Wage in 1999…
Increase in hourly earnings 1999 to 2012 by earnings
percentile
Percentage increase in
hourly earnings
90%
80%
Low-paying sectors
70%
Non low-paying sectors
60%
50%
40%
30%
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96
Earnings percentile
…and since 2007, the UK implementing the OECD Job Study
Review proposal of cutting taxes for the low paid…
[NB 2013 Budget measures not incorporated.]
SIZE OF TAX CUTS BETWEEN 2007-08 AND 2013-14: £000s:
INCOME TAX & NICs DEDUCTIONS: £000s
[POSITIVE = TAX CUT ; NEGATIVE = TAX RISE ]
4
2
0
-2
-4
-6
-8
-10
-12
-14
-16
ANNUAL EARNINGS £000s
Just Income Tax
Income Tax & Employee NICs
Income Tax: Employer & Employee NICs
…and, hence both increasing the take home pay of the low paid
and also reducing the cost of their labour.
SIZE OF TAX CUTS BETWEEN 2007-08 AND 2013-14: % OF WAGES:
[POSITIVE = TAX CUT ; NEGATIVE = TAX RISE ]
INCOME TAX & NICs DEDUCTIONS %
14
12
10
8
6
4
2
0
-2
-4
-6
-8
ANNUAL EARNINGS £000s
Just Income Tax
Income Tax & Employee NICs
Income Tax: Employer & Employee NICs
Similarly, the re-introduction of the welfare to work ‘activation’ regime from
Restart in 1986 has been a major contributor to the improvement in the
employment rate both by ensuring that people on unemployment benefits
look for work and by increasing the effectiveness of their job search;…
3,200
GB UNEMPLOYMENT BENEFITS BY DURATION: 12 MONTH AVERAGE
2,800
Thousands
2,400
2,000
1,600
1,200
800
400
0
Total Registrants
0-4 Weeks Registrants
0-26 Weeks Registrants
0-52 Weeks Registrants
Total Claimants
0-4 Weeks Claimants
0-26 Weeks Claimants
0-52 Weeks Claimants
…whilst the extension of welfare to work policies to people on
inactive benefits has helped to reduce the numbers on these
benefits to their lowest levels of 20 years; …
'INACTIVE' OUT OF WORK BENEFITS: (ESTIMATED)
4,000
3,600
3,200
2,800
Thousands
2,400
2,000
1,600
1,200
800
400
0
All Inactive Benefits
Lone Parent & Disability Benefits
Lone Parent Benefits
Income Support (Other)
Disability Benefits
…and also the ’activation’ of older workers including through the
equalisation of state pension age…
INACTIVE DUE TO 'EARLY' RETIREMENT - BEFORE AGE 65: LFS
1,600
1,500
Thousands
1,400
1,300
1,200
1,100
1,000
…and promoting more people above the state pension age to stay
or move back into the labour market…
ECONOMIC ACTIVITY RATE: AGE 65 YEARS & OVER: LFS
10
9
Per Cent
8
7
6
5
4
So, with employment rates of lone parents, the disabled & older
workers all rising – including in the recession – welfare to work policy
rather than globalisation, characteristics or demand seem to be the
main driver.
EMPLOYMENT RATES: % POINT CHANGE SINCE 1998:
14
LFS: APRIL TO JUNE: NOT SEASONALLY ADJUSTED:
PERCENTAGE POINTS
12
10
8
6
4
2
0
-2
-4
Not Long Term Disabled (16-59/64)
Long Term Disabled (16-59/64)
Lone Parents (16-64)
Aged 65 & Over
Other structural features such as the policy to promote staying on
rates in education also seem to be important…
SHARE OF POPULATION AGED 16-24 IN FULL TIME EDUCATION: LFS
45
Per Cent
40
35
30
25
20
…whilst there is still more work to do on the transition from
education to work.
LFS WORKLESSNESS: BY WHETHER THEY HAVE HAD A PAID JOB OR NOT:
16-24 YEARS EXCLUDING THOSE IN FULL-TIME EDUCATION:
1,000
800
Thousands
600
400
200
0
HAD A JOB (Inc. Missing Values)
HAD A JOB (Exc. Missing Values)
NEVER HAD A JOB (Inc. Missing Values)
NEVER HAD A JOB (Exc. Missing Values)
CONCLUSIONS
• Free trade and the opening up of market economies have
been one of the drivers of growth and employment in the
Post-War period.
• There are other factors affecting the labour share other
than globalisation. And even the effect of globalisation
itself is ambiguous.
• Labour market policies & institutions are an important
factor and the 2006 OECD Job Study Review identified
the UK as a ‘successful employment performer’.
• Since then strongly progressive tax cuts and the
extension of successful ‘activation’ policies to people on
‘inactive’ benefits have improved the structure further.
• And it is the low paid and the most disadvantaged that
have benefited the most.