Are we catching the US disease?

The average American household has failed to benefit from the recent era of economic growth and risi

In the 1970s, the policy and political elite obsessed about the 'British disease' -- the failure of our system of industrial relations, and its impact on UK prosperity relative to our competitors, above all the US. Forty years on, their concern should be whether we have caught the 'US disease': the failure of the broad mass of US households on low to middle incomes, the middle-class in American parlance, to benefit from the recent era of economic growth and rising productivity. Typical US family incomes today are at the same level as they were in the late 1980s, and median wages have flat-lined for an even longer period.

As the chart shows, the US has long had a problem with sharing -- that is, sharing out the proceeds of growth.

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Source: Machin, Centre for Economic Performance

The question is: are we catching their bug? Over the last decade the UK (as well as other countries like Germany) has started to show more US-like tendencies, as the relationship between economic growth and the pay rises going to the ordinary worker has weakened.

graph

Source: Resolution Foundation

There's no consensus as to what explains this great American stagnation. The easy bit is to point the finger at US policy mistakes that have certainly made matters much worse. Regressive tax policy, motivated by trickle-down theories; together with weak regulation motivated by a belief in the infallibility of markets, undermined their fiscal position, fuelled inequality and magnified economic instability. And the nature of the US political system itself poses a barrier to economic progress, with the efforts of President Obama -- like those of other Presidents -- being thwarted by deep and intractable political gridlock.

But to appreciate the deeper causes of the problem, we also need to consider the longer term hollowing out of the US jobs market. Leading US economist Jared Bernstein, who is in the UK this week to speak to a major conference on how the UK can avoid the US fate, puts it this way:

The developments that have hurt the US middle class -- and they are related -- are high levels of inequality and weak employment growth. Together, they have created a wedge between growth and broadly shared prosperity. UK policy makers take note: pushback on these forces or be prepared for a prolonged middle income squeeze.

The chart below demonstrates Bernstein's point. Each decade since World War II has seen fast employment growth (usually consisting of a dip during a downturn followed by strong growth as the economic cycle picks up). But prior to the recent recession, there was almost no employment growth: the jobs market was already flat-lining before it went into freefall.

graph 3

There are plenty of potential reasons for this decline -- the rise of an ever sharper focus on shareholder value, and more intense competition from China and India are both regularly blamed.

But the most likely villain is the changing relationship between technology and the jobs market. A leading view is that the rate of technological change has slowed down since the 1970s, and the new innovations which have occurred, particularly in ICT, are far less job-rich than was the case in previous waves of technological change (an argument advocated by US economist Tyler Cowen in his Great Stagnation). Another argument, set out in the latest zeitgeist e-book from the US, Race Against the Machine by Erik Brynjolfsson and Andrew McAfees, is that digital technology is changing faster than many workers can keep up with, rapidly encroaching into new sectors of the economy, leaving many workers economically displaced and disadvantaged (read this to see where these two perspectives converge and diverge).

If either of these are an accurate diagnosis, it's more than a bit worrying for the UK. We are of course exposed to precisely the same technological trends as the US; and prior to the recession we were already exhibiting many of the symptoms of a polarising labour market. Worse still, these long-term and underlying challenges are being made worse by short-term policy mistakes.

For now, our focus is rightly on injecting life into an economy with chronically weak domestic demand, whose main export market is in crisis. Beyond this, we need to contemplate how to avoid the US disease which, if caught, could mean that living standards for much of the country could be divorced from any future growth for a generation to come.

 

Gavin Kelly is a former Downing Street adviser to Gordon Brown and Tony Blair. He tweets @GavinJKelly1.

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A small dose of facts could transform Britain's immigration debate

While "myth-busting" doesn't always work, there is an appetite for a better informed conversation than the one we're having now. 

For some time opinion polls have shown that the public sees immigration as one of the most important issues facing Britain. At the same time, public understanding of the economic and social impacts of immigration is poor and strongly influenced by the media: people consistently over-estimate the proportion of the population born outside the UK and know little about policy measures such as the cap on skilled non-EU migration. The public gets it wrong on other issues too - on teenage pregnancy, the Muslim population of the UK and benefit fraud to name just three. However, in the case of immigration, the strength of public opinion has led governments and political parties to reformulate policies and rules. Theresa May said she was cracking down on “health tourists” not because of any evidence they exist but because of public “feeling”. Immigration was of course a key factor in David Cameron’s decision to call a referendum on the UK’s membership with the EU and has been central to his current renegotiations.  

Do immigration facts always make us more stubborn and confused?

The question of how to both improve public understanding and raise the low quality of the immigration debate has been exercising the minds of those with a policy and research interest in the issue. Could the use of facts address misconceptions, improve the abysmally low quality of the debate and bring evidence to policy making? The respected think tank British Future rightly warns of the dangers associated with excessive reliance on statistical and economic evidence. Their own research finds that it leaves people hardened and confused. Where does that leave those of us who believe in informed debate and evidence based policy? Can a more limited use of facts help improve understandings and raise the quality of the debate?

My colleagues Jonathan Portes and Nathan Hudson-Sharp and I set out to look at whether attitudes towards immigration can be influenced by evidence, presented in a simple and straightforward way. We scripted a short video animation in a cartoon format conveying some statistics and simple messages taken from research findings on the economic and social impacts of immigration.

Targeted at a wide audience, we framed the video within a ‘cost-benefit’ narrative, showing the economic benefits through migrants’ skills and taxes and the (limited) impact on services. A pilot was shown to focus groups attended separately by the general public, school pupils studying ‘A’ level economics and employers.

Some statistics are useful

To some extent our findings confirm that the public is not very interested in big statistics, such as the number of migrants in the UK. But our respondents did find some statistics useful. These included rates of benefit claims among migrants, effects on wages, effects on jobs and the economic contribution of migrants through taxes. They also wanted more information from which to answer their own questions about immigration. These related to a number of current narratives around selective migration versus free movement, ‘welfare tourism’ and the idea that our services are under strain.

Our research suggests that statistics can play a useful role in the immigration debate when linked closely to specific issues that are of direct concern to the public. There is a role for careful and accurate explanation of the evidence, and indeed there is considerable demand for this among people who are interested in immigration but do not have strong preconceptions. At the same time, there was a clear message from the focus groups that statistics should be kept simple. Participants also wanted to be sure that the statistics they were given were from credible and unbiased sources.

The public is ready for a more sophisticated public debate on immigration

The appetite for facts and interest in having an informed debate was clear, but can views be changed through fact-based evidence? We found that when situated within a facts-based discussion, our participants questioned some common misconceptions about the impact of immigration on jobs, pay and services. Participants saw the ‘costs and benefits’ narrative of the video as meaningful, responding particularly to the message that immigrants contribute to their costs through paying taxes. They also talked of a range of other economic, social and cultural contributions. But they also felt that those impacts were not the full story. They were also concerned about the perceived impact of immigration on communities, where issues become more complex, subjective and intangible for statistics to be used in a meaningful way.

Opinion poll findings are often taken as proof that the public cannot have a sensible discussion on immigration and the debate is frequently described as ‘toxic’. But our research suggests that behind headline figures showing concern for its scale there may be both a more nuanced set of views and a real appetite for informed discussion. A small dose of statistics might just help to detoxify the debate. With immigration a deciding factor in how people cast their vote in the forthcoming referendum there can be no better time to try.