Smokers’ bonuses and the Italianification of UK millennials

Top of the Charts

Afternoon all,

Too much choice is a dangerous thing. Normally that doesn’t matter – I can get over being overwhelmed by browsing Netflix. But excessive choice over what to worry about in 2022 is a big problem – preventing policy makers concentrating on any given problem, or judging the relative importance of the tsunami of them coming down the track.

Early 2022 worries about Omicron feel eons ago: today’s GDP data show decent growth of 0.8 per cent in January. Then we spent some time panicking about surging wage rises – with the Governor of the Bank of England asking you nicely to stop it. Now it’s dawning that 2022 is actually going to be about our wages getting absolutely hammered by surging inflation.

Ukraine isn’t the main cause, but it’s deepened the energy bill pain and the breadth of price rises (to food). It’s also led politicians to focus on being pro-a bigger army or anti-net zero. Energy diversity and defence spending matter, but neither will immediately alleviate the nightmare in Ukraine, nor the living standards crisis here at home. We can’t prevent Britain from becoming poorer, but we do have choices about how that pain is shared. That must be the top (economic) priority for the Chancellor as the Spring Statement looms. At present benefits are set for a £10bn real terms cut in 2022-23 and that will mean destitution for thousands of families unless something changes urgently. It’s time to focus people.

Have a good weekend,

Chief Executive
Resolution Foundation

Puffing pay. When I was a youth I spent years working in pubs passive smoking. I was very happy when the smoking ban came in, mainly because my clothes stank a lot less. But I should have seen it as a mixed blessing according to a great paper (free version). It examines the German 2007/8 smoking ban, finding that it knocked the earners of workers in bars/restaurants down by 2.4 per cent. Why? Opponents of bans generally argue it’ll hit revenues for pubs/bars, but that didn’t happen and doesn’t explain wage falls. Instead the paper argues that we have to be compensated for unpleasant working environments – bar workers had to be paid more to prevent them taking a similar job that didn’t involve an elevated risk of lung cancer. When that environment improves, pay falls. Those pesky trade-offs are everywhere.

Boosting Uber. We focus a lot on the impact of the minimum wage on employment (not much) and wages (massive for low earners). But what impact do increases have in terms of changing the kind of jobs people do i.e. whether people are employees (covered by minimum wages) or self-employed (not covered)? Theoretically either’s possible: with workers preferring to be an employee or firms switching to self-employed labour. A US study (free version) finds the effects in practice can also vary: during the early 2000s increases tended to be associated with falls in traditional self-employment. However, over the past decade (in the gig economy era) a minimum wage rise led to slightly more self-employment (and lower earnings for them on average) in transportation. The result was driven by high population areas where Uber exists. The lesson? The labour market is a big beast and policy in one part of it can often be seen elsewhere.

Representative representatives. The House of Commons Library celebrated international women’s day this week with a spreadsheet of all the female members of parliament throughout the ages. The good not as bad as it used to be news is that a record 225 of the 650 seats in the House of Commons are held by the women (half of Labour’s MPs are female, meaning the Party has had to abandon the all women shortlists that drove lots of the progress). The scale of progress/the problem is highlighted by the amazing fact that until December 2016 there had been fewer female MPs EVER than there were male MPs at that time.

Ethnicity and employment. Rising employment is a big feature of the last few decades. Male unemployment fell from 13 per cent in the 1990s to 4 per cent pre-pandemic, with bigger falls for ethnic minorities (Bangladeshi male unemployment fell from 27 per cent to 5 per cent). But a new paper warns us against premature celebration, noting that some are disproportionately likely to have switched unemployment for ‘bad jobs’ (defined as low earning or insecure). The result? While 75 per cent of white male workers have a ‘good’ job, only around 60 per cent of Pakistani or Bangladeshi men do. More positively the research shows significant progress for second generation ethnic minority individuals – which is consistent with staggeringly fast educational progress for many.

Whither wages. The extent to which wages are surging and leaving us at risk of the kind of domestically generated inflation that higher interest rates/unemployment would be required to tackle matters a lot. That’s what will determine whether we need to just worry about the current global price shock squashing our incomes or a full on return to 1970s style stagflation here in the UK. Today the Bank of England’s own survey on Inflation Attitudes offers some reassuring news. As Andy Bruce of Reuters notes, the average pay growth workers are expecting is just 2.1 per cent, with under a quarter of us expecting a rise of over 3 per cent. That is not what you’d expect to see if a wage-price spiral was well underway, as some of the frothier coverage seems to suggest

Chart of the Week

We’ve previously warned of the risk of the UK experiencing ‘Italian-style’ relative economic decline, without the benefits of Italian style weather/food. Now Italianification is spreading to British society too, as Chart of the Week shows. Back in the olden days (1996), the fields were green and only around one-in-four of the then youthful Gen X men, and one-in-seven Gen X women, lived with their parents. Fast forward 25 years, and today over one in three millennial men aged 20-34 are at it vs one in five women. This is a great example of a big economic shift – a huge long-term fall in youth home ownership – driving a big societal shift, as young people take longer to become fully independent of their parents. Should we care? My (prejudiced) view is hell yes – it sounds grim. More reasonably, of course there are lots of positive reasons why young people might want to stay in their hometown/live with their parents. But do we really think this is a genuine choice rather than the result of not having a choice? Young people not being able to afford their independence isn’t what we were all hoping the 21st century had in store.

Chart showing the number of UK adults aged 20-34 living with parents, by gender, in the UK - showing higher numbers of males living at home compared to females.