Christopher Martin's picture
Affiliation: 
University of Bath
Credentials: 
Professor of economics

Voting history

National Living Wage and the UK economy

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Question 2: Do you agree that the new NLW will have a muted effect on wages and prices?

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Answer:
Disagree
Confidence level:
Confident
Comment:
The UK economy has been blighted by low wage growth since before 2008. This has been a significant drag on the public finances and a major reason for the consistent undershoot of inflation below the 2% target. Something important seems to have changed in the labour market, giving rise to suggestions that the UK is caught in a low-wage-low-skills trap. If that is right, might the new minimum wage get us out of this trap? Raising the cost of labour gives more incentive for firms to invest in skills, an area where the UK is chronically weak at the bottom end of the wage distribution. This is all good, but it is not a short-term fix. The direct effect of a minimum wage hike on inflation is muted at best.

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Question 1: Do you agree that the new National Living Wage is likely to lead to significantly lower employment?

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Answer:
Strongly disagree
Confidence level:
Very confident
Comment:
A large increase in minimum wage was introduced by a Chancellor who had recently been re-elected on a manifesto that contained no hint of such a bold move. Although this is a substantial hike in the minimum wage, the evidence suggests it will have only a modest direct impact on employment. And it might actually increase employment. The increase in the minimum wage will switch income from low-wage employers to the government (through reductions of in-work benefits paid as wage supplements) and to low paid workers. Both these groups have higher propensities to spend than firms and so we might expect an increase in aggregate demand and, through this, higher employment. In addition, income tax receipts ought to increase income tax receipts, taking pressure off a Chancellor constrained by self-imposed and unnecessary fiscal rules. If these additional receipts were used to fund infrastructure investment, further increases in employment might result.

Brexit and financial market volatility

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Question 2: Do you agree that the possibility of Brexit significantly increases uncertainty and volatility in financial markets and the economy in general?

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Answer:
Strongly Agree
Confidence level:
Very confident

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Question 1: The value of the pound fell sharply this week. Do you agree that the public debate on Brexit can be expected to (continue to) lead to a substantially higher level of exchange rate volatility in the upcoming months?

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Answer:
Strongly Agree
Confidence level:
Very confident
Comment:
The UK is highly dependent on foreign trade and is a major global financial hub. Brexit would be a major dislocation to the UK's financial and trading relationships with considerable uncertainty about what new system would emerge in the aftermath of an exit decision. The electorate seems divided but uninformed and disengaged and responsive to idiosyncratic populist politicians.

Market Turbulence and Growth Prospects

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Question 2: Do you agree that the falls in share prices, low oil prices and the slowdown in some emerging market economies will have a significant negative impact on the UK’s economic recovery?

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Answer:
Agree
Confidence level:
Confident
Comment:
It probably won't affect consumption or investment greatly at this stage, but it will increase the current account deficit, which is already alarmingly large. But the global slowdown should not be used as an alibi for the underlying weaknesses of the UK economy. Productivity growth is low and a continual concern. This holds back wage growth,meaning that consumption growth is fuelled by excessive borrowing. A major factor in this dismal picture is the persistently low level of investment, something that shows no sign of improving. There is government investment in infrastructure; this needs to be extended and increased.

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