The benefits of minimum wages and alcohol prices, and minimising pre-payment meters

Top of the Charts

Afternoon all,

Happy Trump indictment day everyone. The ‘innocent until proven guilty’ crowd will have to make do with celebrating ‘happy CPTPP accession day’ instead – which doesn’t have quite the same ring to it. You might argue the biggest post-Brexit trade deal is a bigger deal for the UK but I’m not so sure. Donald Trump becoming President again has got to cost us at least 0.08 per cent of GDP. And that’s even if he doesn’t end democracy/start a world war.

If neither of those two reasons to party floats your fussy boat, COTW should do. It maps the pay inequality reducing power of the minimum wage (which goes up almost 10 per cent tomorrow). If you don’t want to celebrate that then TOTCs probably isn’t for you – in which case you’ll probably be ecstatic that we’ve got a two-week break coming up because I’m up in the Lake District rain for Easter. I’ll have dried out in time for TOTCs to return on 21st April.

Have a great weekend/holiday/few weeks.

Chief Executive
Resolution Foundation

Superficial sentiment. There’s a slight negative vibe around the UK economy these days – a 15 year pay stagnation will do that. The Chancellor’s even giving speeches telling people to “stop declinist talk”, worrying doomster chat will hold back growth. But he can chillax says new research examining the long established finding that positive consumer confidence is correlated with higher economic growth. The headline is that for advanced economies, sentiment improvements/declines do raise/lower consumption temporarily but there is no lasting effect on growth. In contrast, in less advanced economies sentiment changes have permanent effects – places that perk up then grow faster. The authors argue this is because in less developed financial markets it’s harder to disentangle improvements in sentiment from better economic fundamentals – so either can encourage more investment/a boom there, while mood matters less in advanced economies like the UK. So, let’s worry less about the talk of decline and more about stopping the actual decline.

Privatising paramedics. People generally have VERY strong views on privatisation in the abstract, but a great study (free version) gets into its concrete effects by exploring the Stockholm Ambulance market. In the Swedish capital you can get picked up by publicly or privately run ambulances (Sweden isn’t the simple social democratic nirvana that’s normally assumed). What did private ambulance firms do better at? The stuff that was in their contracts by way of quality measures – especially speed of response: they were 7 per cent faster in reaching a patient. What were they less good at? Keeping people alive: those attended by a private ambulance had a 1.4 per cent increased risk of death within three years, thanks to firms cutting corners on ambulance staff quality. This is a big deal – it’s roughly equal to 420 more deaths/year in Stockholm, which is far more than the total number of traffic deaths across Sweden in a year.

Sobering statistics. A big benefit of a quarter century of Scottish/Welsh devolution has been the UK’s nations learning from each other’s policy innovations. Since 2018 Scotland has had a 50p minimum unit pricing (MUP) for alcohol (Wales followed suit in 2020). We already knew this had cut alcohol consumption but a new Lancet article investigates the health impacts, which were big. By comparing outcomes in Scotland with England (which does not plan to introduce an MUP) the paper shows it cut deaths (especially those due to liver disease) and hospitalisations directly attributable to alcohol by 13 and 4 per cent respectively. The effect was most pronounced in more deprived parts of Scotland. The less good news is that Scotland still has far higher alcohol related deaths than the rest of the UK – so this issue should still be in the new First Minister’s in-tray.

Eating or heating. One side effect of the current energy cost crisis is that politicians have woken up to pre-payment meters having a lot of downsides to them – and that’s leaving aside the habit of forcibly entering homes to fit them in the first place. A new paper highlights how they sharpen the heating or eating dilemma for poorer households. The headline result is that those on a PPM have 2.7 fewer fruit/veg portions a week – and this is after taking into account levels of household income so doesn’t merely reflect that PPM customers are poorer. The government recently announced plans to ban energy firms from charging PPM customers more than other customers. About time.

Doing de-globalisation. Globalisation has fallen out of fashion. Post- post-pandemic talk of ‘reshoring’ production combines with policy shifts in that direction, most famously in the US (Inflation Reduction Act) and China. Europeans are finding this moderately traumatic (here’s my view on the UK’s response) but at least one American doesn’t love it either: read Adam Posen’s new Foreign Policy article. He covers a lot of ground, but a crucial point is that many low-and-middle-income countries may actually be the big losers. The lesson for us pondering the implications of increasing protectionism? It’s not all about us.

Chart of the Week

The minimum wage goes up almost 10 per cent tomorrow and 1.7 million workers will gain directly. That’s a reason to celebrate. But to really get the party started COTW steps back to examine what the minimum wage has done to pay inequality in Britain. In the pre-minimum wage era (1980-1998) we had decent pay growth (2 per cent a year for the typical worker). But it was deeply unequal: pay growth for the top hourly earners (3.4 per cent for the top fifth) was more than twice as strong as the bottom (1.4 per cent). This is the era that gave us the unequal Britain we live in today. The National Minimum Wage completely reversed that pattern. Between 1998 and 2015 hourly pay growth at the bottom was around 50 per cent stronger than at the top (1.4 per vent vs 0.6 per cent). And that’s continued as the National Living Wage turbo-charged minimum wage rises: between 2015 to 2022 real pay has actually fallen at the top but grown at the bottom by around 2.5 per cent. The result is low pay (workers earning below two-thirds of typical hourly wages) halving from 22 per cent of employees in 1998 to just 10.5 per cent in 2022. This doesn’t mean job done – we need to improve work more generally (we’ve got an important paper on that topic forthcoming) and these falls in hourly pay inequality have not fed through into similarly large falls in weekly pay or income inequality – which is what matters for living standards. But it’s definitely something worth celebrating.