Ins&tute for Fiscal Studies

Transcription

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2 Living standards since the recession Paul Johnson Prepared for UCL economics society, 12/11/2013 Institute for Fiscal Studies

3 Big picture Na&onal income is s&ll below its 2007 level This is extraordinary Incomes are, as a result, lower than in 2007, and no higher than in 2001 Also extraordinary Driven almost wholly by falls in real earnings Which had not kept up with growth pre- recession Falling earnings have been accompanied by rising employment Completely different from previous recessions Consump&on has also fallen substan&ally

4 Output following each recession Quarter 0 = Quarters since the last pre-recession quarter 2008Q1 output 1979Q4 output 1990Q2 output

5 Incomes Grew slowly pre- recession Rose during the recession Have fallen fast since

6 Household incomes grew slowly from Mean income Median Income = Source: Family Resources Survey, various years

7 Rose in recession Mean income Median Income = Source: Family Resources Survey, various years

8 ... and fell swi^ly a^er the recession Mean income Median Income = Source: Family Resources Survey, various years

9 Income growth to due to growth in benefits/tax credits Earnings Benefits and tax credits 2.2 Savings and private pension income Self- employment income Other Taxes and other deduc&ons Total income Contribu&on to income growth between to (in percentage points) Source: Table 2.4 of Living Standards, Poverty and Inequality: 2013 Notes: This is a very slightly different sample to the overall income sta&s&cs. Households with nega&ve incomes are dropped. This makes a small difference to falls in income

10 Big falls in earnings from Earnings Benefits and tax credits Savings and private pension income Self- employment income Other Taxes and other deduc&ons 2.4 Total income Contribu&on to income growth between to (in percentage points) Source: Table 2.4 of Living Standards, Poverty and Inequality: 2013 Notes: This is a very slightly different sample to the overall income sta&s&cs. Households with nega&ve incomes are dropped. This makes a small difference to falls in income

11 Income sources: to Earnings Benefits and tax credits 1.2 Savings and private pension income Self- employment income Other Taxes and other deduc&ons 2.7 Total income Contribu&on to income growth between to (in percentage points) Source: Table 2.4 of Living Standards, Poverty and Inequality: 2013 Notes: This is a very slightly different sample to the overall income sta&s&cs. Households with nega&ve incomes are dropped. This makes a small difference to falls in income

12 Cumula4ve real change Weekly earnings inequality (among workers) rose between to % - 1.0% - 2.0% - 3.0% - 4.0% - 5.0% - 6.0% - 7.0% - 8.0% - 9.0% % % % Note: towards bottom, much driven by falls in hours worked (not falls in hourly wages) Percentile point Notes and source: see Figure 3.10 of Living Standards, Poverty and Inequality in the UK: 2013

13 But overall inequality fell - simula&ons: to % 0% Income change -2% -4% to % -8% Percentile point Source: Figure 3.3 of Living Standards, Poverty and Inequality: 2013

14 2% Inequality simula&ons: to and to % Income change -2% -4% to to % -8% Percentile point Source: Figure 3.3 of Living Standards, Poverty and Inequality: 2013

15 Inequality simula&ons: to % 0% Income change -2% -4% to to to % -8% Percentile point Source: Figure 3.3 of Living Standards, Poverty and Inequality: 2013

16 Old doing much beger than young 4% 3% to to Average annual growth 2% 1% 0% -1% -2% -3% -4% 0s 10s 20s 30s 40s 50s 60s 70s Age Notes and source: see Figure 5.7 of Living Standards, Poverty and Inequality in the UK: 2013

17 Median incomes now vary ligle by age 500 After housing costs, After housing costs, Median income ( per week) Age Notes and source: see Figure 5.6 of Living Standards, Poverty and Inequality in the UK: 2013

18 And old less likely to be poor than the working age % 35% 30% 25% 20% 15% 10% 5% 0% Source: Figure 6.3a of Living Standards, Poverty and Inequality: 2013

19 And less likely to be poor than the working age % 35% 30% 25% 20% 15% 10% 5% 0% Source: Figure 6.3a of Living Standards, Poverty and Inequality: 2013

20 Wages and employment Current labour market is unusual But first what was happening pre- recession? That was odd too In 2000s median real wages barely rose became decoupled from produc&vity

21 Median earnings rose much less than produc&vity

22 Wages and employment Current labour market is unusual But first what was happening pre- recession? That was odd too In 2000s median real wages barely rose became decoupled from produc&vity But in fact no change in rewards to workers overall. Explained by: Bigger rewards for the top earners Big increases in pension and NI costs

23 Earnings growth greater near the top

24 Employer contribu&ons to pension funds in constant prices terms Source: Office for National Statistics Notes: Data for Q is not yet published so has been estimated based on Q to Q data

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26 Since the recession Employment has risen Real hourly wages have fallen Despite increasing produc&ve types of workers in workforce Produc&vity has fallen In sharp contrast to previous recessions

27 In contrast to previous recessions, real output per hour has at best been stagnant since Real output per hour Quarter since the labelled one 1979Q4 1990Q2 2008Q1 Linear trend (90Q2-08Q1)

28 Average real hourly wages have also fallen Real hourly wage (first year of recession = 100) Average real male hourly wage (using GDP deflator) Years since the year in which the recession began Linear trend

29 The UK is different UK, GDP per hour US, GDP per hour France, GDP per hour Germany, GDP per hour UK, average wage US, average wage France, average wage Germany, average wage

30 Employment and labour market par&cipa&on Labour market par&cipa&on has held up beger during this recession than previous ones. For example: Employment rates fell less (and unemployment rates increased less)

31 Significant private sector employment growth Private sector employment (millions) Public sector employment (millions) Q Q Q Q Q1 Private sector including all financial corpora&ons (LH axis) Public sector excluding financial corpora&ons (RH axis) Source: IFS calcula&ons using ONS Public Sector Employment Sta&s&cs Notes: Employment measured by headcount. Excludes reclassifica&on of workers in English Further Educa&on Colleges to the private sector from 2012 Q2

32 Employment rate of year- olds by recession 0.0% -1.0% % -3.0% -4.0% -5.0% -6.0% -7.0% male, from 1979 male, from 1990 male from % -9.0% -10.0% Year since the start of recession Source: LFS every year. No data point for year 1980, Quarter 2 is used for years since 1992.

33 Change to the propor&on of year- olds who are unemployed by recession 6.0% 5.0% 4.0% 3.0% 2.0% male, from 1979 male, from 1990 male from % 0.0% Source: LFS every year. No data point for year 1980, Quarter 2 is used for years since 1992.

34 Employment and labour market par&cipa&on Lone parents and older workers have seen robust employment levels Partly down to policy change e.g. : Labour supply has increased among lone parents as a result of job search condi&ons agached to benefit claims Older workers are re&ring later as a result of increased SPA for women Younger workers have done much less well

35 Employment of 60 year old women has risen 80% 70% Employment rate 60% 50% 40% 30% 20% Age 60 Age 61 10% 0% Sources and Notes: Figure 2.2 of Cribb, Emmerson and Tetlow (2013)

36 Employment and self- employment rate of older people 4% 2% 0% 2007Q4 = 0-2% - 4% - 6% - 8% - 10% 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 employment rate male employment rate female self- employment rate male self- employment rate female

37 Employment status of year- olds 80% 70% 60% 50% 40% 30% 20% 10% 0% % in work % unemployed Source: LFS 2 nd quarter every year

38 Employment and labour market par&cipa&on Fall in wages/produc&vity cannot be put down to changing composi&on of workforce Already seen rise in older workers Numbers of beger qualified workers also rising

39 Educa&onal composi&on of the workforce Propor&on of public and private workforce by highest qualifica&on, to % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% No qual Other qual GCSE A* to C A level Other HE Degree or equiv Higher degree Private Public Notes: IFS calcula&ons using the Labour Force Survey

40 Employment rate by highest qualifica&ons achieved, year olds 95% 90% 85% 80% 75% 70% 65% degree or above level 2 and 3 level 1 or below 60% 55% 50% Note: level 2 is GCSE grade C or above.

41 Employment shares of occupation groups Note: the discontinuities in occupation classification in 2001 and 2011 have been addressed in the following way. For the conversion of SOC 1990 to SOC 2000, we look at individuals who were surveyed in 2000Q4 and 2001Q2 and stayed with the same employer and infer the transition matrix from this group. For the conversion of SOC2010 to SOC 2000, we used the ONS two-way tabulation of the LFS 2007 Q1 sample by the major occupation groups under the two SOC systems.

42 Consump&on Expenditure falls have been deeper and longer las&ng than in previous recessions Unusually steep falls in spending on non- durables Effects again bigger for the young than the old Evidence that loss of income is seen as permanent

43 Non- and semi- durables Change since beginning of recessions (quarter prior to recession = 100) Quarters since beginning of recession

44 Durables 125 Change since beginning of recessions (quarter prior to recession = 100) Quarters since beginning of recession

45 Components of GDP 15 Change since 2008 Q1 ( b) Net exports Govt. purchases Consumer durables Nondurable consump&on Corporate investment

46 Consump&on Homeowners have made the largest cuts Unlike in previous recessions Savings ra&os are lower than early 1980s and 1990s But have risen drama&cally since 2008 Data points to expecta&on of permanent fall in living standards Especially among young and middle aged

47 Summary Incomes have fallen since 2008 Following a period of rela&ve stagna&on Largely driven by the labour market Increased employer costs Low wages and the produc&vity puzzle Big falls in incomes for younger workers rela&ve to older Con&nued out- performance by pensioners

48 Prospects Younger workers and families ac&ng as if they expect a long run fall in living standards Real wages, produc&vity and capital investment slow to pick up Likely to be a period of low wages and rela&vely robust employment un&l produc&vity and investment catch up Further significant benefit cuts to come Though pensioners look likely to remain protected Longer term earnings growth likely to favour those at top, and possibly at the bogom, where demand is growing Many in the middle may remain squeezed by lack of demand