Trust, parental leave, wealth tax and more

Top of the Charts 'Insights' round-up: January 2020

The latest from Resolution Foundation Chief Executive Torsten Bell’s weekly Observer column, Insights. Read more of the latest economics and policy research in our weekly reading email, Top of the Charts (sign up here).

Why we’ll never get rich by putting cash away for a rainy day

Norway has a wealth tax. Now, I’m in favour of a greater role for wealth taxes but, whatever your view, there’s at least one benefit we should all appreciate: lots of data on who owns what.

Recent research delves into this Norwegian data mine and helps us investigate the popular view that those with more wealth build it up by saving more. You might call this the “wealth as the reward for doing the right thing” view of the world. But the research finds it’s nonsense – Norwegians save around 7% of their income, however much they may own.

Despite saving the same proportion as those with much less, those with lots accumulate more. Why? Because we can accumulate wealth by the rising value of assets, such as property and shares. The wealthier have more assets and more capital gains. These are banked, not consumed, so the gap grows.

This is a huge deal, explaining 80% of wealth growing faster than income in Norway. The UK has also seen a wealth boom from rising house prices. These unexpected windfalls – rather than active savings like paying off a mortgage – explain 82% of increased property wealth since the early 1990s.

Yet we pretend that wealth comes from savings and we ignore these capital gains when considering who is doing well, and so we make a dog’s dinner out of taxing them. It’s time we woke up to where wealth has actually come from in modern Britain … and Norway.

Originally published in The Observer.

Having children is an expensive business, but not for businesses

Kids cost a fortune to those of us foolish enough to have them. They’re also not cheap for the state since we worked out that educating them is a good idea.

But what about the cost to businesses, at least in terms of parental leave? Those costs are central to debates about maternity and paternity leave policies. But new research says those costs are “small at best”. The study dug into evidence from Denmark and examined the usual worries about parental leave – that firms will struggle without the worker or that their colleagues will be stressed by filling the gap.

The authors tracked specific employers and employees to see what happened to the former when the latter procreated. The findings are clear cut. Firms saw very little change in the number of hours of work done because they were usually able to respond by hiring temporary staff or increasing the hours of existing employees. Colleagues didn’t seem particularly overworked and there was no effect on the number of sick days taken.

Overall, having an employee on parental leave had little impact on wage costs, sales or the firm’s likelihood of survival.

Obviously, this was specific to Denmark’s (very generous) system. In Britain, many firms do face costs from offering more than the statutory minimum maternity pay but the study should ease the fears of any business dreading a Brexit baby boom.

Originally published in The Observer.

We’re right to trust our public servants. Up to a point

Jim Hacker, the minister of Yes Minister fame, did not always trust his civil servants. Which was fair enough – they loved stitching him up. But how much do we trust our civil servants today? A lot more than our politicians and bankers is the answer from a recent survey. And we trust other public servants such as the police and nurses even more.

We’re right to place our faith in public servants, according to a new study examining Denmark. In one of the least corrupt countries in the world, the study surveyed the career choices of students in law, economics and political science, while also testing their dishonesty. Honest students were more likely to prioritise careers benefiting others and to self-select for public service, while dishonest students were much less interested.

Are there any policy lessons from this? Yes, although they may not all be universally popular. The first is that, in debates about how countries reduce corruption, we have to think about the kind of people who are encouraged to apply for a job and hired, not just the incentives for people to behave well once they’ve got the public service uniform on.

But it’s not all good news for civil servants – the researchers went on to examine what would happen if public sector wages were higher (they are famously stingy in Denmark). More dishonest students would apply. So those in the public sector can either have a pay rise or more honest colleagues. Choices, choices.

Originally published in The Observer.

Women literally pay the price of being denied an abortion

Abortion policy is controversial in many countries, although thankfully less so in the UK. Alongside big moral arguments on both sides, most research focuses on health outcomes for mothers and children.

However, a recent paper takes a different perspective, examining instead the financial impact of women seeking abortions but being denied them. Looking at those seeking abortions in the US close to a gestation limit after which abortions are not allowed, the study considered years of detailed credit reports of two groups of women – one that had abortions because they were under the gestation limit and the other made up of women who were denied one because they were just over it.

The effects were huge. Those denied an abortion were 81% more likely to face bankruptcies or evictions than before being denied an abortion, and 78% more likely to be in arrears on debt. Giving birth is of itself a cause of financial distress but the research shows it is greater for women denied an abortion, possibly highlighting the economic impact on women of being able to control the timing of when they give birth.

The backdrop is that, in the US, twice as many abortion restrictions were enacted between 2011 and 2017 as the entire preceding decade. It was sobering reading last week to see Donald Trump become the first US president to attend the March for Life, the country’s annual anti-abortion march.

Originally published in The Observer.