Epidemics of unhappiness and getting lost at sea

Top of the Charts 'Hidden gems' round-up: September 2020

The latest from Resolution Foundation Chief Executive Torsten Bell’s weekly Observer column, Hidden gems from the world of research and academia. Read more of the latest economics and policy research in our weekly reading email, Top of the Charts.


How coronavirus piled misery on India’s workers

Cities are the centres of this crisis, but not all cities are the same.

While we’re spending time making decisions about the pace of returning to city centre offices into an unnecessary sideshow, cities in many developing economies confront the virus with large informal sectors and growing youth populations.

This point is made clear in a new study of crisis-related economic research focusing on advanced economies.

Examining the impact of lockdown imposed in late March on more than 8,500 urban workers aged 18 to 40 of India’s 1.3 billion population, it reminds us that under half of those surveyed were salaried employees.

A staggering 52% of urban workers went without work or pay during lockdown, while less than a quarter had access to government or employer financial assistance. Our support schemes had gaps, but our state was paying the wages of a third of the private sector workforce.

Loss of work without support saw incomes halve in India, compared with a 4.5% fall in the UK. This is also a story of inequality, with the poor worst affected.

This crisis is called a pandemic for a reason and its global effects will determine the strength of our recovery. So it’s time to pay attention to the path of the virus elsewhere, not just when trying (and failing) to plan quarantine-free holidays.

Originally published in the Observer.

It’s the government’s job to erase racial wage gaps

Persistent living standards gaps between ethnic groups have received badly needed attention in recent years. Theresa May, when she was leading the government rather than attacking it, commissioned the Race Disparity Audit, reminding us that Pakistani, Bangladeshi and black workers earn Britain’s lowest wages. In 2018, workers of Pakistani and Bangladeshi heritage earned 16.9% and 20.2% respectively less than white British workers.

But doing something about pay gaps, not just reporting them, is government’s job. Two recent US studies show that policies can make a big difference, for good or ill. The first examines the decision to segregate the US civil service under President Wilson in 1913, revealing it drove up wage inequality for black civil servants by seven percentage points. State-driven discrimination saw more senior black civil servants shifted to lower-paid positions. The second study, focusing on the 1967 extension of the minimum wage, brings more positive news. It drove down racial pay gaps, with the impact on wages for black workers nearly double that for white employees. That’s a big deal, accounting for more than a fifth of the overall civil rights-era reduction in the racial pay gap.

There is welcome news in the UK, too, where minimum wage rises have benefited our lowest earners without costing jobs. Indeed the employment gap between BAME and white people fell by 21between 2008 and 2018. So the bad news is we’ve got a long way to go to tackle discrimination and disadvantage. The good news? We can ensure that change is gonna come.

Originally published in the Observer.

How monopolies can leave you all at sea

Economic history is to economics what historical fiction is to literature – underappreciated, but recently returned to the limelight. Hilary Mantel’s Wolf Hall reinforced the idea that reimagining the past could be literature, while the first global pandemic in 100 years proved that history can be as useful to economists as spreadsheets. Economic history also teaches you things squeezed out by British schooling’s mania for Henry VIII and the Nazis.

Take new research on the Manila galleons – ships working the lucrative trade route between Manila and Acapulco from the late 16th century. It examines a puzzle: why were vessels on this route, a monopoly of the Spanish crown, three times more likely to sink than those journeying between the Netherlands and East Asia?

Historians cite the weather as the main reason why one in eight ships, carrying incredibly valuable spices and silver between the Philippines and Mexico, sank. But the researchers pose a different possibility – that monopoly restrictions on ship numbers incentivised bribe-taking by galleon officials, undermining limits on cargo weight. Overloaded vessels have a tendency to sink, and one galleon, the San José, went down with cargo equivalent to almost 2% of the entire Spanish empire’s GDP.

We spend a lot of time worrying about the negative impact of monopolies in raising prices. But we need to take a wider view of their damage, which can include lower wages for workers and, it turns out, being lost at sea.

Originally published in the Observer.

Supporting workers in the Covid-19 era is as much about emotion as economics

We are entering the grim jobs-being-lost phase of this crisis: 695,000 fewer of us are on payrolls and the Bank of England expects unemployment to rise by 1.2m. The chancellor’s new measures will reduce, but far from halt, this tide.

Economic policy specialists tend to focus on the financial effects of redundancies. And they are painfully large. A worker earning £20,000 loses 71% of their income if they lose their job and fall back on universal credit.

But the danger of thinking simply in such terms is that we underestimate the wider impact of what is to come. Jobs aren’t just about wages – they are crucial to our wellbeing. That insight comes from the recent trend towards collecting data on people’s self-reported happiness. UK research shows we are happier when we have a job than when we don’t, even once we discount the impact of higher income.

These findings also offer a warning to those saying we should let jobs in hard-hit sectors go this winter, hoping the workers concerned find new employment elsewhere. The impact of job gains and losses is asymmetric: the drop in wellbeing from losing a job is substantially bigger than the gain from finding one.

So supporting workers during these difficult times is about far more than the pounds and pence of wage packets. The task isn’t just to help Britain through this pandemic, but to contain the epidemic of unhappiness it risks leaving behind.

Originally published in the Observer.