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

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:
Disagree
Confidence level:
Very confident
Comment:
I answered this in the previous question. Such policies need to be accompanied by other policies and this will take time.

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:
Very confident
Comment:
Wage increases - for example through high(er) minimum wages - may spur sustained productivitiy growth but only to the extent that they spur investment in skills and in technology which, in most cases, go hand in hand. Investment in skills requires government investment in education of the population from an early age throughout to apprentices, university graduates, and further adult education. This requires aboloshing the UKs dual education market which caters for those who can invest in private education mainly. It requires providing families with child care to prevent skill loss during times out of the labor market and social safety nets for those whose investments do not pay off. It requires a flexible labor market. These are all policies seen in Scandinavia which also rely on low levels of government debt, efficient pension systems, and this takes time. Just increasing real wages by themselves may not do much apart from exporting jobs and motivating firms to invest in labor saving technologies. A high wage economy without investment in skills will force individuals with lower skills out of the workforce. There might be shorter run motivating factors of higher wages but they cannot sustain longer run productivity enhancements, Britain's main problem.

Post-Covid Fiscal Rules for the UK

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

Answer:
No opinion
Confidence level:
Confident
Comment:
Many of these specific rules can be constructed to attain the same goal. In terms of effectiveness, the importance is that they are simple to communicate, that they can easily be evaluated, and that they are not changed too often.

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:
Neither improved nor harmed
Confidence level:
Very confident
Comment:
I think fiscal rules have been good to the extent that they have helped communicate fiscal policy outlook and provided some - if imperfect - credibility of the fiscal framework. On the bad side, the rules have been altered too often to provide the level of credibility seen in, eg., Sweden. More importantly, using the rule set to motivate the fiscal austerity that followed the global financial crisis was, in my opinion, a mistake, as is the outlook for more austerity following Covid-19. I think this has harmed the UKs ability to invest in education, to address low productivity issues, and to tackle issues of inequality. Of course, the rules are not the real reason for this, but they have been used as an "excuse" removing partially the blame from politicians.

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:
Obviously this is an impossible question to answer since we do not know the counterfactual. But my impression looking broadly at the experiences with fiscal rules in many countries is that they tend to have limited debt creation regardless of whether they are debt rules or deficit rules. I think the reaons is that they make it harder for governments to engage in debt creation even if the rules are there for politicians to change. Whether this is good or bad is another question.

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