James Smith's picture
Affiliation: 
Head of Macroeconomic Policy, Resolution Foundation

Voting history

Towards a High-Wage, High-Productivity Economy

Question 2: What is your evaluation of the following statement: “A well-designed government-stipulated wage increase can lead to higher productivity”?

Answer:
Agree
Confidence level:
Confident
Comment:
As discussed above, *in some circumstances*, there is evidence that Government policies which increase wages can prompt behavioural changes which are associated with higher measured productivity. At the macroeconomic level, however, longer-term increases in wages will need to be driven by sustained improvement increases in productivity. A key priority, therefore, for government policy should be finding ways to increase productivity. My view is that such improvements will be much more likely if overall macroeconomic performance can also be improved. The latter is a task for macroeconomic policy.

Question 1: Which of the following statements most closely reflects your understanding of the relationship between productivity and wages.

Answer:
Wage increases can in some cases increase long-run productivity
Confidence level:
Confident
Comment:
Obviously productivity developments are the major source of sustained increases in real wages but there is some evidence that setting a floor on wages can incentivise firms to adopt productivity-increasing changes in technology. A good example is the literature on the impact of changes to the minimum wage. (See, for a recent example: Christian Dustmann, Attila Lindner, Uta Schönberg, Matthias Umkehrer, Philipp vom Berge, Reallocation Effects of the Minimum Wage, The Quarterly Journal of Economics, 2021.)

Post-Covid Fiscal Rules for the UK

Question 2: What impact has the sequence of fiscal rules adopted in the UK since 1997 had on the conduct of fiscal policy in the UK?

Answer:
Greatly improved
Confidence level:
Very confident
Comment:
The combination of an independent OBR and clear fiscal rules has improved the conduct of fiscal policy in the UK markedly.

Question 3: Which of the following variables should fiscal rules target to best improve the performance of the UK macroeconomic policy going forward.

Answer:
Public deficit
Confidence level:
Not confident at all
Comment:
A framework in which the flow target is current budget deficit (not an option here, public deficit is closest option, hence 'not confident') and the stock target is net worth (also not an option) would work best in terms of incentivising policy welfare enhancing policy in the long term.

Question 1:  What impact has the sequence of fiscal rules adopted in the UK since 1997 had on the level of UK public debt? 

Answer:
Reduced
Confidence level:
Confident
Comment:
Fiscal rules are important because they formalise a Government's medium-term strategy and priorities. Working well, they should incentivise countercyclical policy and welfare improving long-term decisions, as well as providing a clear sense of the fiscal reaction function. As such, they need not reduce debt to be successful (they could, for example, allow policy to be more active in a downturn, raising debt). Looking at the history of fiscal rules in the UK, however, they probably have come with policy settings being tighter than they would have in their absence.