Bad Policies And The Benefits For Working In Berlin Over Boston

Afternoon all,

It’s been an emotional week – separation anxiety, tears, tantrums and every parent’s worst fear – bullying in the playground. Yes, it’s been an emotional return to Westminster for our elected officials, and the school run’s back too. One of the features of modern politics is lots of depression about the inability for any domestic policy to happen – so I thought we’d provide some reading this week to remind us all that policy can often go very wrong indeed. Maybe our current stasis isn’t that bad*.

Hope you enjoy,

Torsten
Director, Resolution Foundation

*(I’m lying, it really is)

Must try harder. One of the iron rules of policy making is that good intentions do not necessarily mean good policies. A textbook case of this is taking place in the US now, with the (Bernie) Sanders-Khanna Bill. It is trying to encourage stronger wage growth – a goal very close to RF’s heart – by forcing companies to make federal tax payments equal to the means-tested health and social security benefits that their employees and their families receive. The intention is that firms will have a strong incentive to pay higher wages if they bear the costs of state support that tops up the living standards of lower income families. The (unintended) result, as this piece outlines, would be firms with strong incentives to avoid employing people from lower income families. Worse, because they won’t know the incomes of job applicants in advance that might well manifest itself by avoiding certain groups – most obviously ethnic minorities – and give businesses strong incentives to lobby for less state support for all low income families. It’s not a radical policy, it’s a rubbish one.

While we’re at it. On the subject of good intentions/bad policy, this week’s long read from John Kay and Mervyn King on defined benefit pensions is well worth a look. It focuses on the high profile dispute over the university pensions scheme, but reminds us all of the more general point that younger generations should blame policy makers not just economic shifts for the fact that they are too often basically left to cope alone in our new pension landscape. Those policy makers thought they were defending the rights of those that already had defined benefit schemes, but in doing so contributed to the near extinction of those schemes.

Hours count. One of the coming big issues of political economy in the 21^st Century is the hours we work – and the control we have over those hours. Next January members of the big German trade union IG Metall will begin to have the right to work less than the standard 35 hours, as low as 28 hours per week, in exchange for less pay (obviously). An interesting new policy brief provides some context, comparing German industrial workers’ hours with those in the USA. It finds the typical American worker spends 400 hours (TEN weeks) longer at work per year than their German counterpart. As well as encouraging those in Boston to move to Berlin, this should remind us that societies can make very different choices about hours worked – there’s room for more policy innovation in this area. PS. the study also points to a big change in US working hours over the past century: 100 years ago the longest hours were worked by the lowest-paid people. Today it’s the other way around, with the longest hours being worked in the top echelons of company hierarchies. We find related trends in the UK – with lower earning men in particular (reluctantly) working fewer hours.

The French go Anglo-Saxon. The received wisdom is that France is much more egalitarian than the likes of the USA or UK. This is true, but a new blog by economic Thomas Piketty and others shows that the times have been a changin’ over the other side of the channel: with France seeing ‘a sharp rise in inequality’ in recent years. This trend is generating political salience too, with lots of debate around President Macron’s replacement of the wealth tax with a new property tax. Vive la (slightly less equal) France.

Red flag flying high. Debates about the lack of income growth, and its distribution, are all over the place in the West (see above), partly because there’s a huge amount of data to feed that debate. But the more positive news from China gets far too little attention – partly because we’ve got very little data to be looking at.  So this short and sharp piece from Branko Milanovic is interesting. Using an great way of thinking about the relationship with income levels in the US he shows that back in 2002 the poorest Americans were still better off than 77% of the Chinese. By 2013, that number has fallen to 30%. That’s a huge shift in just one decade – the Chinese middle isn’t being squeezed, it’s booming. Not everyone thinks things are so rosy in China – we’re shortly hosting an event for George Magnus’s new book Red Flags, Why Xi’s China is in jeopardy. Come along.

Chart of the week. This week steps back from the day to day madness of Westminster to look at one of the huge trends shaping our politics – the generation game of voting in 21^st Century Britain.  The chart below from a forthcoming Resolution Foundation article shows the extent to which politics has changed from a generational perspective by looking at the General Election results in 1974 and 2017.

Probability of voting Conservative or Labour by age, October 1974 and 2017 General Elections