Small pond benefits and big data perils

Top of the Charts

Afternoon all,

The only thing going up faster than Lib Dem votes in Shropshire is Omicron cases. All the chat is about whether the latter means HMT will need to announce more support (they will) and the former means Boris Johnson is doomed (so claim the very same people confidently predicting he’d got 10 more years post-Hartlepool in May).

The slender thread between the two is that if, thanks to the pandemic/time passing/self-harm by No10, UK politics really does move into a post-Brexit phase (i.e. where leave voting Shropshire can vote for remain loving Lib Dems) that is an absolute game changer. Boris without Brexit is a ten-year incumbent running on a ‘how did I manage the pandemic’ ticket. Everyone always focuses on what the political parties are doing/saying, but political outcomes are as much shaped by how the questions the country is asking of its politics change over time.

Obviously, the huge question TOTCs readers will be asking is whether this is it for 2021. Well your Christmas card from everyone at the Resolution Foundation is below, and we know you and your chocolate eating/sherry swilling habits, so won’t bother sending an edition on Christmas Eve. But the week after we’ll have a look ahead to 2022 for you to digest along with the leftover Turkey.

Have a great break everyone, and stay safe amidst this round of the madness.

Chief Executive
Resolution Foundation

P.S. Please forgive an indulgent big thank you to the whole Resolution team for an amazing year of hard work in trying circumstances. Krishan Shah, Lalitha Try, Rebecca Hawkes, Tara Goatley and Rob Holdsworth deserve extra thanks for helping to make TOTCs actually happen each week, and are why it’ll keep coming in 2022.

Picking ponds. Is it better to be a big fish in a small pond, or a small fish in a big pond? A new paper (free version) argues the small pond is where it’s at. Using data from Texas, they compare later outcomes for students with equal achievement at age 8 or 9 but who, due to differences in who their class mates are, have a different rank in their class. Children with a higher rank are more likely to graduate from higher school, enrol in university and have higher earnings 19 years later. The effects are larger for disadvantages groups. See this read as an early Christmas present for everyone who’s strived but failed to get their kids into a high-achieving school.

Pension problems. The strong policy consensus is that as we live longer, governments deal with pressures on state pension spending by increasing the pension age (we’re doing so again in the late 2020s). The main challenge to this consensus at present is that life expectancy isn’t rising like it used to. A new paper also reminds us that significant trade-offs are involved health wise. In 1999, the German government abolished an early retirement program, effectively increasing the retirement age for women from 60 to 63. The health impact was a higher prevalence of mental health problems, arthrosis and obesity. Unfortunately, increased working didn’t provide any offsetting health benefits. There are good reasons we’ve been raising the pension age, but it’s far from cost-free.

Block(ed) Chain. I’m worried you’ll get bored over Christmas and do something rash like investing in a Ponzi scheme Bitcoin. So here’s a public service announcement/blog from Bank of England staff wrestling with what a bitcoin is actually worth. Not much, eventually, is the controversial answer. Bitcoin’s volatility/high transaction costs mean it’s not much use as traditional money (a store of value/medium of exchange/unit of account). So the blog argues its value largely stems from being scarce (there can only ever be 21 million bitcoins). When that number is reached will bitcoin mature into a usable currency? Nope because transaction fees will rise as miners previously remunerated via newly minted bitcoin will need alternative revenue sources. Declining computing power as some miners shut down might also see the blockchain breakdown. Have a read to decide if it’s a bitcoin or bitcon.

Dastardly Data. In stats land we generally assume bigger is better – bigger samples allow us to ask more questions or to get more confident answers. Hence the current fashion for believing Big Data is the answer to everything under the sun. A Nature article provides a concrete example of the dangers this can pose if that data is poor quality. Large household surveys (Delphi-Facebook and Census Household Pulse) were used to estimate US vaccine uptake. Despite being huge, both overestimated uptake by 17 and 14 per cent respectively, and gave very different estimates of vaccine hesitancy. By contrast a tiny sample of 1,000 (ie less than we would use for almost any survey) following research best practice to ensure it was representative of the population as a whole provided a more reliable estimate. Data quantity does not make problems of data quality disappear – and it actually makes problems of bias in how that data is collected worse. Big data isn’t always the messiah, and can in fact be a very naughty boy.

Listen up. Since we’ll all be quarantining soon enough we thought TOTC owed you some podcasts. First up the Economist has a good discussion of whether we’re seeing a ‘new dawn for worker power’ featuring Resolution associates Jason Furman and Anna Stansbury. If recruitment problems are pushing up wages, it’s surging inflation that’s hammering them. A new episode of the Inquiry asks how worried should we be. If you’re not already you should be listening to the ever-excellent Westminster Insider podcast – I should be popping up on it next week. And we’re getting in on the action with new audio recordings of our live events. First up, this week’s discussion of what happens when the cost of living crunch and Omicron wave combine.

Chart of the Week

We got labour market and inflation news this week.  The good bit of the former is the jobs market is in good health – furlough ending hasn’t caused unemployment to spike as feared. The bad news? Prices are surging, but pay packets aren’t. Despite the moral panic about a wage surge a few months back, nominal wage growth is actually weakening. As Chart of the Week shows, this combines with surging inflation to mean that real wages didn’t increase at all in the year to October. Pay packets will have started shrinking last month. How long might this latest real wage squeeze – our third in a decade – last? That’s a big unknown, but with inflation set to peak next Spring, I fear it’ll be the second half of 2022 before wages start rising again. We’ll be covering this in more depth in our TOTC NYE special but check out my colleague Hannah Slaughter’s preview.