Bad reputations, job guarantees, and the Phillips curve is back from the dead

Welcome to the first edition of Top of the Charts – the Resolution Foundation’s weekend email covering the best (or worst) things we’ve been reading this week. Whether you’re a worryingly keen self-improver, or an insomniac who desperately needs something new to try, this is hopefully the email for you. We’ll be covering a broad swathe of economics topics – from the world of work to the politics and policy of how we do better than the disastrous last decade.

The idea came from the fact the team here are forever sending each other interesting reads to distract educate themselves, and we thought they might be of interest to friends of RF. And this is definitely the weekend for some reading – it’s definitely long, and it’s almost certainly very wet.

We’d like to email you these every week, but thanks to (very sensible) new data protection laws you need to sign up here to get them after May 25^th. We’ll be chucking the odd bit of RF content in, but I promise you this won’t become an exercise in self-promotion. And please do hit reply if you’ve got any suggestions for next week or feedback.

Ratings and reputation in the gig economy. Part of a whole new field in economics trying to work out what the brave new world of online rating means – this paper discusses the importance of reputation ratings in marketplaces such as eBay and Uber. Grade inflation it turns out isn’t just for your GCSEs…. Raters are pressured to leave ‘above average’ ratings, so the average is driven up over time. 90 per cent of those selling on ebay for example get the top rating over 98.21% of the time – either we’re all getting great service or we really hate the social awkwardness of not giving top marks. More interestingly, what we really think about transactions can actually decline at the same time as public ratings for the same transactions continue to inflate. Maybe it’s time for honesty to make a comeback.

The Phillips curve isn’t dead. This is good news for anyone thinking of asking for a pay rise – and those making money selling economics text books. Those texts have shown generations of students the so called Phillips curve, telling them that if we got unemployment down low enough, wages would start picking up as employers compete to hire workers. We’ve spent the last few years watching unemployment plummet but, as you’ll have noticed the promised pay rises haven’t exactly kicked in. But the always thoughtful Gertjan Vlieghe from the Bank of England has ridden to the rescue of the embattled Phillips curve. In a speech last Friday he argued that our uber-low unemployment rate (at 4.3% the lowest since 1975) is building up pay pressures – it’s just that some other things are pushing the other way: the public sector wage cap, our awful productivity growth and low expectations of inflation get a mention. So time to get more productive and a bit pushier at work (unless you work at RF).

Low interest rates: The Bank vs Theresa May. The Bank of England has a grudge – and it turns out they can hold them for some time. In her first Conservative Party Conference speech as PM (the one before that speech), Theresa May argued that big cuts to interest rates had fuelled inequality – helping the asset rich, hurting those without much wealth. The Bank was miffed at the time – if Prime Ministers care about inequality they should get on with doing something about it was the general tone. Now rather than just getting upset they’ve got techy, with a new blogpost looking at how low interest rates affect living standards and concluding that monetary policy hasn’t substantially affected overall inequality – although showing that it has big and different effects on different groups. Yes the old did really well out of surging asset prices – but more young people stayed in work because of rate cuts. Key conclusion is that the young have been stuffed recently, but things would have been even worse without the Bank acting – or as they put it: “households where the head was under the age of 40 saw a reduction in their real incomes between 2006-08 and 2012-14, while those aged over 65 saw a rise. Monetary policy merely acted to narrow the gap between these two age groups”.

Will the Democrats embrace a job guarantee in 2020? Everyone likes a shiny new policy – and the Democrats certainly feel like they need some big new economic thinking on the other side of the Atlantic. A jobs guarantee is all the rage – as The Nation points outpotential candidate Senator Kirsten Gillibrand is already backing this approach, and recent papers from the Center on Budget and Policy Priorities and Center for American Progress have set out ways to implement one. International examples of similar policies in action are Argentina’s Jefes y Jefas programme and India’s National Rural Employment Guarantee Act (NREGA). We had our own go in the UK during the financial crisis – anyone remember the Future Jobs Fund?

Chart of the week – wealth up, wealth taxes… not so much
We’ve seen huge surges in household wealth in the last 30 years – it’s grown twice as fast as our economy. So has the tax take from all that wealth gone up alongside it? Not a bit – it’s totally flat over the same period as a % of GDP. I wonder where we should look when we need tax rises to pay for the costs of an older population in the 2020s…