Examining the past and policy prep for the future Top of the Charts 8 May 2020 Torsten Bell Morning all, Today the nation’s meant to be celebrating – happy VE day to you all. Here’s the totally clear summary of how you’re expected to celebrate. Ahead of a sunny three-day weekend the government says sunbathing is back on… but only after the weekend (and the sun) have gone. Hurrah at lockdown being lifted. But be “cautious” about it. Now, this is partly a comms cock-up. But it also reflects that getting policy right on the way out of lockdown is MUCH harder than on the way in. That’s true on the balancing act of easing restrictions while keeping R below 1, and also in our own area of focus – the future of the Job Retention Scheme. Ignore those calling for the plaster to be ripped off (a huge unemployment surge is a very bad idea), but do start planning for change. That’s the short version of a paper we’ll publish next week on the dilemma facing the Government. If you want more on how to get policy right, we’re discussing how to support the ‘Class of 2020’ on Monday, and comparing the UK and US economic responses to the crisis on Tuesday. Hope to see you there. Have a great long weekend – three whole days for sunbathing getting through this week’s reads. Torsten Chief Executive Resolution Foundation PS – for the stay-at-home VE day enthusiasts, check out this long-read by Adam Tooze. Working hours. With 1.8 million Universal Credit claims by the end of April, and a further 6.3 million people currently ‘furloughed’, there’s a staggering number of people in the UK who are not currently working. But we don’t just care about who is and isn’t working – we also care a lot about what hours people are doing. So it’s good to see Scotland’s Fraser of Allander Institute launching an important project looking at trends in working hours. Check out their opening blog for a summary of recent shifts in working hours. One important trend to note is that hours worked by lower-paid men declined significantly from 1990-2010, much more than for higher earners, pushing up earnings inequality. Since then hours worked have increased for most groups – although that’s mainly the result of wages not really increasing, as we’ve argued previously. Looking back. Forget the grim present, take a look back at the past. In honour of its fiftieth anniversary, the Journal of Economic Theory has published the forty most cited works of economic theory in their back catalogue, and ten specially selected contributions on important debates. Their list includes some seriously big names, and theories that have stood the test of time – from Tony Atkinson on the measurement of inequality to Jess Benhabib on Taylor Rules. So, if you’re finished binge-watching Tiger King and Normal People, and fancy some ‘light’ reading, this is the commemoration for you. If nothing else, amid the (welcome) turn to empirics/data in modern economics, this impressive reading list will remind you that theory was the future once. The ghosts of crises past. While we’re in the business of looking back, it’s worth checking out the ‘Waiting for Work’ documentary which has returned to BBC iPlayer. It was an influential look at mass unemployment in Hartlepool and its effects on the local population, first screened in 1963. Now luckily today’s unemployment looks likely to be fairly spread out geographically, but this is hopefully a reminder that no-one should be taking the return to the highest unemployment for a quarter of a century lightly. Illegal bonds. It turns out it’s not just the Brits who love some EU-related court drama. The Germans are at it as well. On Tuesday their highest court ruled that the European Central Bank’s 2015 quantitative easing programme could be illegal. Which is a problem seeing as that programme’s successors are central to keeping not just Italy but the Euro afloat. The court’s basic argument is that while the ECB is able to engage in QE to achieve it’s monetary policy objective of price stability, it is still required to ensure that doing so doesn’t lead to disproportionate wider economic impacts (which the court sees as helping governments pay the bills while hurting savers). The huge legal controversy (summary) here is having a domestic member state’s court challenge existing rulings of the (supposedly superior) ECJ. On the economics, the ruling is basically nuts because the wider economic impacts it talks about are integral parts of the impact of monetary policy, not side effects of it. The ECB’s response? To ignore the ruling. At least for now. To get up to speed listen to podcasts from European think tank Breugel and the Economist. Targeted solutions. The Government are not very keen on treating different age groups differently when it comes to lifting the lockdown. For the counter argument you can read this paper (good Twitter summary). The short version: because mortality rates are so different for different ages you can have both fewer deaths and a smaller hit to economic activity by having tighter lockdown measures for older and more at-risk groups, while loosening measures for those less at risk. It’s an interesting take – although the authors do admit that it leaves some question unanswered – like what are the wider social costs of such differentiation. And who is actually meant to be caring for those of our older population in need… Chart of the Week This week’s chart focuses on the class of 2020: the 800,000 young people who are due to leave education this year just as unemployment is projected to more than double. History teaches us that unemployment rates for recent education leavers skyrocket in downturns, especially those with fewer qualifications (those with GCSE level qualifications or less saw unemployment rates of over 30 per cent in the financial crisis). And while the Class of 2020’s immediate outlook is pretty dire, it’s their longer-term prospects that should really worry us. Those that graduated from university in 2009 still have higher unemployment than those that left in 2013. New RF analysis finds that these worrying patterns being repeated could mean new graduates having a 13 per cent lower employment rate, even in three years’ time. For those with lower level qualifications make that around 30 per cent. If they find work their pay will also be scarred. The Government needs to pull out the stops to limit this pain. They must support more young people to ride out the crisis by staying in education longer and step up labour market support, with Job Guarantees for young people. It’s what we owe the Class of 2020.