Lessons from Radical Kiwis and Social Democratic Yanks

Top of the Charts

Sign up for our weekly Top of the Charts reading email

Afternoon all,

Some big, if not particularly original, news. I’m off to get vaccinated the second TOTCs leaves my inbox to arrive in yours. Obviously excited about the whole lower risk of infection thing, but the main thrill is to discover that there is one thing the boomers have had that the rest of us can actually catch-up on. Maybe the new slogan for the young should be “vaccines today, housing stock tomorrow”. Or maybe not.

I’ve heard rumours of side-effects, with some friends being flat out in bed for 24 hours post-jabs. For anyone else being vaccinated today and recovering horizontally, TOTCs is here to keep you entertained. We’ve got some lessons from social democrats getting active in New Zealand and the US, to what people think ‘Building Back Better’ actually means.

Have a great weekend everyone – whether you’re already double jabbed or still being held in the queue. We’ll collectively get to the promised land on the other side of this pandemic one day soon.

Chief Executive
Resolution Foundation

Radical Kiwis. Social democracy is getting mullered electorally in Europe. But it’s spreading like wildfire elsewhere. First example: New Zealand has just announced a huge overhaul of their labour market – with the introduction of Fair Pay Agreements. These are sectoral agreements between unions and employers that set minimum standards (such as sectoral minimum wages), with enforced arbitration if employers and workers can’t agree. Kiwi business leaders are not happy, which in part tells you this is a real rebalancing of economic power between workers and employers.

Social Yanks. Meanwhile, for those wanting to know what Bidenomics really is, you can now read it from the horse’s mouth. Or at least in a paper from the White House Council of Economic Advisers, which is basically the same thing in this case (it’s only five pages but see Twitter based summary if you’re in a rush). It is a straight up argument for social democracy i.e. a strong market economy needs to be underpinned by public investment and an engaged government shaping the rules of the game. Yes, yes it does.

Rich parents, rich kids. Everyone knows higher earning parents tend to have higher earning children. And we can all think of lots of ways that could happen – with better schools, home environments and networks to exploit. But what is the relevant importance of different factors and the causal route through which we affect our kids’ life chances? That’s the (hard) question new research investigates using data from the National Child Development Survey. The key conclusion is that it’s investments of parental time and school quality that are the key. These drive up cognition, which in turn determines how many years we spend in education (a key driver of our earnings later in life). Parental income and family background (i.e. how educated our parents are) matter, but mainly in so far as they (independently) affects those investments. The policy lessons? Policies that equalise these investments directly, such as more equal school quality, or indirectly, such as support for poorer households’ incomes, could improve income mobility.

Bruised businesses. Working out what’s happening to British firms is tough right now given we’ve conspired to do the whole leaving the EU and pandemic things together. Luckily some people (in this case our friends at LSE’s Centre for Economic Performance) are trying to keep track. Their work uses CBI surveys to analyse the effects of Covid-19 and Brexit. It’s the impact of the latter that most risks being lost because of the former, so the key results are: 24 per cent of firms reported that Brexit had caused exports to the EU to fall, and 33 per cent of firms reported that imports from the EU fell. Smaller firms were more significantly affected by these changes. This should be a kick up the bum to our policymakers to take much more seriously the structural change that Brexit is going to create, rather than fans of it pretending there’s no increase in trade costs and opponents just screaming about the aggregate effects. Both need to focus more on what comes next, which will be the focus of The Economy 2030 Inquiry (which we and CEP are launching next Tuesday).

Building what? Everyone wants to build back better, but what might that actually mean as far as the punters are concerned? Have a read of a new report from Queen Mary University of London for some ideas. Very decisively 43 per cent of us wanted things to be different post-pandemic while 35 per cent want things to go back to how they were. Maybe ‘building back broadly similar’ should be the slogan? It’ll certainly be what happens. For some gentle mocking of our collective views on higher taxes, based on the report, read this thread from Philip Cowley. Shockingly, we’re more in favour of higher taxes in the abstract rather than on us…

Chart of the Week

We may have mentioned a few times in TOTC that young people have been hit hardest by the Covid-19 economic crisis. It’s worth repeating. In January 2021, one-in-five 18-24-year- olds who were in work pre-pandemic were no longer working – five times the rate of those aged 25-54. But it’s not the only crisis that young people have faced – they have also experienced the biggest deterioration in their mental health – a trend that pre-dated the pandemic – as new Resolution Foundation published research this week has found. There are clearly interactions between these two crises, and those interactions run both ways. We obviously hope these problems ease as time passes. But it would be complacent to assume that happens because, as our Chart of the Week shows, mental health problems developed in a crisis can have lasting impacts. Young people who had experienced mental health problems after the financial crisis were 75 per cent more likely to be out of work five years later than those who hadn’t experienced problems. This should serve as another reminder to both help young people back into work, and to boost the provision of mental health services for all groups.