Close encounters of the productive kind

Afternoon all,

Last weekend I wrote a short article on Britain’s dangerous habit of getting distracted public policy wise. Luckily (for the article’s accuracy, not for Britain) the last week has rather proved the point.

The response to the ULEZ/Uxbridge row? Government playing footsie with the idea of scrapping plans to phase out new petrol/diesel car sales by 2030. It’s a distraction because the roll-out of EVs is actually the bit of the Net Zero transition that saves consumers money, and we’ve just created uncertainty about UK EV policy exactly as we’re trying to persuade car manufacturers to make big investments to build those EVs here. Distractions have costs.

Then there’s the Farage row. No-one wants extreme woke tests for who gets to bank where, but I would just gently note that an entire week of coverage has seen zero discussion of where the real financial exclusion/not having a bank account risk lies – not politicians, left or right, but low income Britain. COTW spells it out.

Have a great – distracted if you so choose – weekend. But come Monday, nothing compares to a bit of focus.

Torsten
Chief Executive
Resolution Foundation

Bomad bonus. Having loaded parents helps. At least financially. We’ve documented before the growing role of the Bank of Mum and Dad (Bomad) in deciding who becomes a home owner. But a new Bank of England blog uses mortgage data to show that 28 per cent of homeowners aged under 25 received help and adds more colour to how much difference the Bomad can make: those getting help become homeowners earlier (on average at 26, rather than 30 for those without help), put down deposits two and a half times larger ,and buy a more expensive home (£15,000 more on average). Plus, unlike the actual banks, the Bomad won’t be jacking up your interest rate right now.

Productive proximity. The research debate on home working hasn’t been great since the pandemic – with academics claiming it drives implausibly large productivity gains being as ubiquitous as grumpy CEOs muttering it’s the end of the world. For a more nuanced (and common sense matching) view this note examining the impact of remote/office working for software engineers. The headline findings = working near colleagues can reduce short term-productivity, especially for more senior staff, but raises it in the longer-term, particularly for the youth who get more (22 per cent) feedback if they’re co-located. Basically interruptions and learning from colleagues are two sides of the same working in office coin. And what about what really matters – pay? Being closer to colleagues leads to fewer early pay rises, but increased raises in the long run. So eventually it pays to listen to your betters elders.

Rainy religion. This is a bit of fun. Obviously we’re all a product of our environment – but so it turns out are our religions. This paper provides evidence that people are obviously more likely to pray for rain in agriculture dependent areas, but also in places where it is more likely to “work” (stay with me). Here’s the theory: in places where environmental factors mean the chance of rain rises the longer it hasn’t rained, religious authorities will engage in rainmaking prayers (or similar) during a prolonged dry spell because those prayers are likely to be perceived as being answered. There’s a great example from the Catholic church in Murcia, Spain: between 1600 to 1833 a prayer in the last month was associated with an 80 per cent increase in the probability of notable rainfall on a given day – no wonder farmers there believed in god. Around the world, the authors show ethnic groups are 50 per cent more likely to be in on the rainmaking malarkey if the chance of rain rises with each dry day (e.g as in Namibia as well as Murcia). Climate matters.

Infectious inequality. I enjoyed this unusual take on trickledown economics this week. The paper’s notes that increased income inequality among the top (e.g within the top 10 per cent) largely reflects increased inequality within occupations (think the top CEOs racing ahead of your run of the mill chief execs). But the interesting bit is showing that a shock (e.g tech/globalisation) that increases inequality in one occupation can actually drive increases for other occupations not affected by those underlying shifts. Think of inequality increases among, for example, bankers increasing inequality of income for the providers of some services to those bankers – specifically where those service providers vary in quality and consuming a higher quantity of that service isn’t a substitute for its quality. The key example is doctors (who make up 13 per cent of the American top one per cent) – where the top bankers cough up more for the best doctors, thus increasing inequality among doctors. So income inequality can trickle down across.

Marvellous minimums. A quick one from the We’ve Told You This Before, But It Continues To Be True folder: recent research spells out the 2015 German €8.50 minimum wage introduction did good. 12.4 per cent of workers benefitted, with an average hourly pay rise of 39 per cent. Big potatoes. Obviously, a higher minimum reduces hourly wage inequality but what matters for living standards is weekly or monthly pay – where the paper shows the minimum wage contributed to putting the rising inequality of the 2000s into reverse (wage inequality fell within east and west Germany but the wage differential between the two also came down). Note half of the minimum wage induced inequality reduction came from spillovers ie wage gains by those who were already earning above the minimum wage). This and the last read should remind us that when it comes to wages, no man/women is an island.

Chart of the week

Right, having got distracted by those reads I’m now back onto what we should all really concentrate on bank account wise: who the 1.1 million households across Britain are who don’t have a bank account at all (not just those who can’t get one at Coutts). As COTW shows, Britain’s ‘unbanked’ are hugely disproportionately likely to be poor (close to half are in the poorest fifth of the income distribution). They’re also disproportionately likely to be young and living in a major city (where you’re four times more likely not to have a bank account than village dwellers). This data doesn’t tell us exactly why these households don’t have bank accounts – but given the huge concentration among poorer households I think we all know it’s got more to do with poverty than political views.