Michael McMahon's picture
Affiliation: 
University of Warwick
Credentials: 
Associate Professor of Economics

Voting history

Wages and economic recoveries

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Question 2: Do you agree that the different behaviour of UK real wages relative to Eurozone wages during the Great Recession is in large part due to the UK having different labour market policies?

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Answer:
Disagree
Confidence level:
Confident
Comment:
I'm sure the flexibility of the labour market has contributed. As have differences in inflation - you can easily imagine firms reluctant to increase prices even further in tough demand conditions facing pressures to cut costs across the board and wage restraint was part of this. Weak productivity growth has further limited the scope for pay increases (another difference with the countries mentioned like Germany). Finally, the trend in real wages before the crisis was not necessarily sustainable. As such, some changes in trend were necessary.

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Question 1: Do you agree that lower real wage growth was beneficial for employment levels during the Great Recession?

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Answer:
Agree
Confidence level:
Confident
Comment:
Yes. It is hard to compare across countries since the extent of the shock was different but the UK was certainly amongst the most badly hit. It seems in that most sectors in the UK workers have exchanged (nominal) wage restraint and freezes to protect employment. With higher inflation, this has meant falls in real wages. The positive side of this is that unemployment in the UK, despite the recession, never went above 9% in the official statistics. Other countries hit more severely, such as Greece, Portugal, Ireland and Spain, similarly saw declines in real wages. But in each of these countries employment nonetheless fell over the 2007-2015 period; in the UK it increased.

Happiness and well-being as objectives of macro policy

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Question 2: Do you agree that quantitative well-being analysis should play an important role in guiding policy makers in determining macroeconomic policies?

 
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Answer:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
I am enthusiastic that such well-being analysis can shed light on under-considered interlinkages that matter for macro policy. For example, there is emerging evidence that happier workers are more productive (Oswald et al ) and so when thinking about the UK productivity puzzle, thinking about industrial policy and R&D incentives should be combined with thinking about reforms to improve mental health support over workers lives. Such research may also affect decisions about the rate of adjustment in social welfare programs. Too fast a reduction in benefits, or other policy changes which cause larger stresses (for example to working parents) may be associated with negative productivity consequences. A concern also relates to the Lucas critique. Most of the research that I am aware of from well-being analysis concerns the analysis of historical relationships. While these have shed light on (in many cases causal) relationships, we cannot be certain of the robustness of such relationships in the face of targeted policy changes. So while I welcome the use of such quantitative well-being analysis as complements to the current processes used to evaluate macro policies, I remain somewhat more cautious about the current precision of such analysis to use it as the core way to determine policies.

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Question 1: Do you agree that subjective well-being measures, or at least some of the subindices from the typical survey measures, are now reliable enough to give useful insights when used in macroeconomic empirical analysis?

 
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Answer:
Agree
Confidence level:
Confident
Comment:
I believe that they give useful information on higher frequency movements. As such this may be an advantage over many macroeconomic time-series given that surveys could be done more frequently than just annually or quarterly. As such, I think they would be useful for business cycle analysis. My concern with the measures relates to the ability to pick up up lower frequency movements. For example, slow-moving but significant increases in longevity may not be reflected in the measures. As such it is less clear that these measures are as useful in the analysis of longer-term trends.

A “new” UK industrial strategy ?

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Question 2: Do you agree that the UK needs a new regional policy?

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Answer:
Agree
Confidence level:
Very confident

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