The benefits of better work, superstar firms and drunken hordes Top of the Charts 21 April 2023 Torsten Bell I was wrong. Obviously on lots of things, but I mean specifically on precipitation on last week’s ‘holiday’. It was more hail than rain throughout Cumbrian walks. I tried the Dominic Raab approach of telling the kids to toughen up and enjoy the “direct critical feedback” from the British weather, but unsurprisingly this led to them both 1) calling for my resignation and 2) going on strike. I shouldn’t moan because this makes me just one of the “four in ten adults affected by industrial action in the last month” (according to today’s ONS release). Anyway, TOTCs is back with reads on why it’s fine for crowds to be drunk and big firms to exist. COTW makes the case for improving low paid work – and the impact that may have on the shape of the UK economy. It comes from the first of a great duo of Resolution reports – this week on what the rules of our labour market should be (read it) and next week on how to actually enforce those rules (come along to the conference on that, featuring Angela Rayner). Have a good weekend. Torsten Chief Executive Supplying superstars. I know it’s not fashionable to want foreign firms here, to like big firms at all, or to think international trade matters much. But a new paper has an (impressively techy) reminder of something we’ve long known and can’t be wished away by current fashion: domestic firms’ productivity gets boosted a lot by teaming up with multinationals. Looking at company transactions, the authors show that forming a new relationship with a multinational raises productivity by 8 per cent – alongside raising sales. These big spillover effects (including from technology transfers) aren’t just about multinationals though – getting into business with any “superstar firms” (i.e. big ones or those that do lots of exporting) has the same effect. Supplying superstars has big benefits. Cap cost. Since 2013 we’ve had a benefit cap in the UK – limiting the total amount a household can receive. Today this affects just over 100,000 households – mainly those with kids and high rents. In 2016 the cap was reduced to £23,000 a year per family (or £15,400 for single adults) in London and £20,000 (£13,400 for singles) elsewhere. Did this achieve the objective of forcing more people into work? DWP has released new research that argues yes: for each 100 households affected by the lower cap, 5 more than otherwise would have done entered employment (2 more also moved home). But what about the remaining 90 households not affected in these ways? They just got poorer. Alcohol averages. This one isn’t new but is good. Most of you have probably worked out that being drunk makes you individually less effective at almost everything (except slurring). But the impact on groups is more interesting. The researchers got some of 286 undergraduates drunk (getting consent wasn’t hard…) and examined whether it affected their performance as individuals or as a group in a task requiring them to count occurrences of “the” in a spoken passage. Obviously drunk individuals made more errors (whether in groups or not), but groups asked to come to a consensus didn’t do any worse if they were drunk. Basically, the booze didn’t destroy the “wisdom of the crowd” effect i.e. groups generally choose an answer near the middle of their individual guesses and individual errors average out to make it more accurate. Welcome news at every pub quiz in Britain. Global Growth? The turns in sentiment among economic commentators on the global economy are impossible to keep track of. Each week people decide things are better (lower wholesale energy prices – yay) or worse (banks going bust – nay) than previously thought. The focus on how things are compared to “previously thought” (rather than just focusing on how things are in absolute terms) is part of the problem here – it’s just far less useful amid really high uncertainty. For a quick update you can read the IMF chief economist’s blog summary of their World Economic Outlook – there’s the usual spuriously specific forecasts for global growth (and for the UK to be bottom of the growth league tables). But huge uncertainty, as sticky inflation and recent financial instability combine, is the main takeaway. Beware anyone being too certain in 2023. Succession economics. The fourth season of Succession is out so I’m watching it to top up my sense of moral superiority (the images of squillionaires jetting around on helicopters is predictably less useful for boosting your financial self-esteem). Most people say you should watch it for the great characters, but that’s missing the real attraction: the corporate governance. Who controls what happens to Waystar Royco is a central plot device – and also a very confusing one. Luckily FT Alphaville (SPOILER ALERT) has an entertaining blog setting it all out – like how many shares “Jack the Ulsterman” has, what the holding company is and how big the hit to the share price Logan Roy dying was (20 per cent). This is just a bit of fun, but maybe it’s also a glimpse of the future: when AI has taken over writing about real companies, FT journalists can focus full time on the imaginary ones. Might be more fun. Chart of the Week Eating out or in is bloody expensive right now – food price inflation is at a 45-year high of 20 per cent. But stepping back from today, the relative cost of hotels and restaurants in the UK versus other things is actually pretty cheap compared to other countries. And it’s no coincidence we spend a bigger share of our money on eating out/staying away than other European countries. Relative prices matter for consumption choices. But they also reflect policy choices: lower wage labour in the UK has traditionally been cheap – explaining the cheapness of services, like restaurants, that rely on it. Whacking up the minimum wage in recent years has partially changed that but it’s still ‘cheap’ in lots of other ways: no real sick pay and firms can push lots of risk (e.g. hours not being guaranteed) onto low earners. It’s time we made different choices – further improving work for those low earners while being honest that means higher prices for those eating out (who are, on average, higher income individuals). This type of approach, as much as different tax and benefit policies, is what a ‘get inequality down’ economic strategy looks like.