Mayors on manoeuvrers, Pandassadors and taxing the rich

Afternoon all,

I am happy to be back in your inboxes today after a restful, rainy trip to Portugal. Nothing like a select committee on the first day back from leave – but thanks to Work and Pensions for having me nonetheless!

Next week, I’m looking forward to a conversation with Andy Burnham about the best way to spend £100 billion (of public investment allocated by the Spending Review). Register soon to avoid disappointment…

Keep reading for employment shocks, panda diplomacy, (more) metro mayors, and a COTW that shows that perceptions of what makes for high earnings confine the “rich” to a very small group.

Have a great weekend,

Ruth

Chief Executive
Resolution Foundation

Equal employment. Expect to hear lots in the coming months about the role of employers in improving living standards and addressing inactivity. This research finds that workplaces *can* mitigate the (gendered) impacts of parental caregiving. Using data that covers “nearly the entire population of parents in Australia” between 2005 and 2022, the authors examine the impact of a childhood cancer diagnosis on a mother’s labour market experience. In the year after a child’s cancer diagnosis, a mother’s earnings decline by 15 per cent (no such decline for fathers). But supportive workplaces can significantly reduce that earnings drop. “Support” is here assessed based on three measures: workplaces with smaller gender pay gaps, lower “work hour intensity” and more female representation. Mothers working in a firm with high-levels of female senior leadership only saw an 8.3 per cent earnings penalty – against an average of 23.4 per cent for all other mothers.

Health shocks and work. Relatedly, this paper examines how severe health shocks (six weeks or more off work) impacted 25- to 55-year-olds in Germany from 1984 to 2020. They find that people who got sick saw a sustained loss in income of around €4,000 annually. That average elides the fact that most of the fall comes from the 16 per cent of people who left work after their illness. Drops were particularly stark in full-time employment, showing the importance of part-time work for the employment of an ailing population. Again, these impacts are also not felt equally among men and women – women were more than twice as likely to stop working after a health shock, seeing an average loss of €4,400 compared to €3,150 for men. Despite falls in individual income, household income was largely insulated by two mitigating factors – support from the state and from spouses. Germany has pretty generous unemployment insurance, so bear that in mind when reading.

Bear necessities. What if all it took to restore global free trade was a few more pandas? Ok, I might be taking these findings a little out of context – but I was thrilled to learn that panda diplomacy has measurable effects. Countries hosting giant pandas experience a significant increase in exports to China (between 5.9% and 7.2%) in the year when a panda cub is born. The effect is only short-lived, lasting up to a few months after their 100-day-old naming ceremony. I will note that this analysis is based on just 42 incidences of panda diplomacy – arguably a small sample size for such big claims. Nonetheless, Panda ambassadors (Pandassadors?) are surely China’s most adorable route to higher trade.

Living wage success. TOTC readers will know that the UK’s National Living Wage is a mandatory minimum wage and we are waiting with baited breath to hear how the government will set the remit for the rest of this Parliament. Happy rebrand to the living wage foundation, which sets the real Living Wage – a voluntary rate based on the cost of living now paid by over 15,000 employers in the UK. But what effect to such voluntary rates have on the labour market? This timely reflection uses regional variation in government procurement rules to provide some fascinating answers. The authors studied one large firm which had some establishments subject to living wage commitments and some that weren’t. The variation comes from local procurement contracts where some local authorities insist on such commitments. Good news: higher wages, lower within-establishment wage inequality and no negative employment effects. In fact, there was a small *positive* employment impact, indicating that higher wages may have helped with recruitment and retention. Time for more local authorities to follow suit?

Something for the weekend? | Let’s get regional

There’s all to play for on Thursday with 1,600 seats and six mayoralties up for grabs. The last time most of these councils were contested was 2021 – Bad Habits was number one (nope, me neither), banana bread wasn’t yet passé, and Boris Johnson was enjoying the “vaccine bounce”. Conservatives gained 235 council seats while Labour lost 327. Reform gained six… up from zero. I’ll leave predictions for next week to other members of the family.

But local elections aren’t just about councils anymore – the UK now has twelve metro mayors (eleven  Labour, one Conservative). There’ll be two more once Greater Lincolnshire and Hull and East Yorkshire elect their inaugural mayors next week – meanwhile London’s had one for a quarter of a century (albeit under a slightly different devolution model) and Manchester, Birmingham and others are coming on for a decade of mayoralty. Next week might see our first ever Green and Reform mayors (in the West of England, Greater Lincolnshire and Hull and East Yorkshire respectively).

Opinions are – as ever – mixed, as to whether further devolution to mayors and local authorities will necessarily deliver growth (although we’re always keen to sing its praises). But it remains popular among the public with 83 per cent of voters in metro mayor areas in favour of more local devolution in 2021. Maybe we can ask Andy Burnham what more powers he would vote for when he join us on Tuesday to talk about public investments.

Chart of the week.

A gloomy IMF economic outlook and higher borrowing than the OBR forecast this week sadly lowers further the odds of the Chancellor meeting fiscal rules in the Autumn without fresh consolidation. Wouldn’t it be nice if taxing ‘the rich’ was an easy way out? For the public taxing the rich is popular, but the rich is other people. As Chart of the Week shows, perceptions of what makes for high earnings confine the rich to a very small group. A gross (pre-tax) salary of £50,000 puts you in the top fifth of the earnings distribution (the median annual salary in Britain is around £30,000). But just one-in-eight people consider this to be a rich person’s salary. You need to earn six figures before most people think you’re rich – at which point you actually earn more than 95 out of 100 people in Britain. Wider data suggests this is partly because people think there are more rich people than there are. Nealy half of people think the top 10 per cent of people should be considered rich, but only 35 per cent identify £75k (in the top decile) as a rich salary. If Britain needs to raise taxes we’ll need to pay a bit more, and admit that some of us are richer than we think (the IFS has a handy tool for figuring out where your households fits in the distribution). For more on this intriguing polling data, including whether the Dursleys are rich, see here.