Morten Ravn's picture
Affiliation: 
University College London
Credentials: 
Professor of economics
Head of Department

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:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
The evidence for the UK indicates an increase in UK labor supply during the Great Recession probably due to reductions in household sector wealth (see.g. Blundell, Crawford and Jin, EJ, 2014). UK labor markets are also more flexible than they were 20 or 30 years ago which probably means a more pronounced drop in UK real wages in this recession. However, many European countries have also become more flexible over time (eg. Germany) so it is less clear how this should impact on the relative performance of the UK economy. Surprisingly, in the UK there is no evidence that the drop in real wages derive from compositional changes.

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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:
Neither agree nor disagree
Confidence level:
Extremely confident
Comment:
What matters is (a) real wages RELATIVE to productivity, and (b) real wage flexibility. Real wage growth may be high but not obstructing employment growth if productivity growth is high. If the question is meant to be whether low real wage growth relative to productivity is good for employment, I would agree under normal circumstances. Wages is the single largest component of marginal costs for most firms. High real wages relative to productivity make firms uncompetitive, has a negative impact on hiring, and makes it difficult for new workers to enter the labour market. The other way of asking the question, is whether wage flexibility is beneficial for employment. In normal times, wage flexibility should be expected to be stabilizing. To the extend that the value of jobs has declined in the recession, low real wage growth therefore should be expected to have been beneficial for employment. It is possible, however, that in deep recessions, the impact of wage flexibility on demand for goods may introduce an amplification mechanism that may dominate. This will depend crucially on whether wages of existing or new jobs are more flexible and the extent to which workers are insured against the adverse effects of job loss.

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:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
It is clear that there are huge regional disparities in the UK with London and the South East outperforming other regions. It is less clear that such disparities can be addressed in the most efficient manner by regional policies. I would suggest again that investment in education and in infrastructure may be more effective.

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Question 1: Do you agree that the UK needs a new industrial policy?

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Answer:
Disagree
Confidence level:
Confident
Comment:
Britain's problem is low productivity and it has been so for decades. Brexit will probably make this even worse given that there is a risk of comparative advantage in financial services and given the possibility of loss of access to the internal market. To address low productivity, Britain should invest in education, infrastructure and in efficient regulation and institutions. It is hard to believe that policy makers are in a strong position to apply an efficient industrial policy free of concerns about voters and current financial interests and given how strongly parties with vested interests will try to impact on the policies.

The Future of Central Bank Independence

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Question 2: Do you agree that the traditional argument that less central bank independence leads to higher inflation will (still) be relevant over the next 48 months in Western economies?

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
If I am right above, we won't see much change so it will be impossible to answer the question. But I believe the traditional argument about the relationship between central bank independence and inflation. There might be counter examples to this, but they are counter examples in my opinion.

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