The perils of parental leave and the de-growth doldrums

Morning all,

After a brief respite from the daily machinations of the Commons, parliament will return next week. You know what that means – 26 sleeps till Budget day! Which also means it’s only 26 sleeps until our post-budget event for the valiant members of the RF research team who will be up all night on Halloween Eve, crunching the numbers so you don’t have to.

You can now register for that here – book early to avoid disappointment.

Have a great weekend,

Mike

Interim Chief Executive
Resolution Foundation

Ciao coal. This week the UK’s last coal power station ceased operations. This makes the UK the first G7 country to phase out coal power, having been the first country ever to open a coal-fired power station back in 1882. Here’s a helpful run-down of how we got here – and how other economies can follow our example – from Carbon Brief.  We didn’t manage it overnight. The second half of the 20^th century saw the Clean Air Act, the switch to North Sea gas and deindustrialisation, which all drove down demand for coal. But more recently, they identify four key factors behind our rapid phaseout: ensuring alternative sources of electricity generation; ending the building of new coal plants; making sure coal plants face the cost of the pollution they generate; and clear long-term political signals for the market. This is an enormous topic, which can be tackled from many angles. The TUC has got an analysis of how coal plants have successfully reallocated their workforces, and this Twitter thread gives a fun historical perspective on Britain’s changing relationship to the black stuff. Fifty years ago it would have been impossible to imagine a coal-free economy in Britain – a helpful reminder that we can think big about the kind of economy we want to have fifty years from now.

Fiscal fun. Labour politicians place a lot of emphasis on stability as a key pillar in their strategy for growth (secureonomics, as the Chancellor likes to say). As we’ve shown, macroeconomic certainty in general is good for growth – a return to more normal times (i.e. levels of uncertainty typical after the 2008 financial crisis, not counting Brexit or the mini-budget) could increase the growth rate of GDP by 0.1 percentage points – a small but still worthwhile amount. So with that in mind, this paper by the IMF on the impact of fiscal policy uncertainty is timely. The researchers constructed a database of fiscal policy uncertainty across 189 countries (the infamous UK mini-budget gets a specific shout-out…), while also measuring events that generate global attention and create “global fiscal policy uncertainty”. The findings support the conventional narrative that fiscal uncertainty can harm real economic activity and the effects are felt across income groups. Crucially, there are also cross-country spill-over effects. So, the Government is right to emphasise fiscal stability, but it will only take us so far – our ability to control global trends is severely limited.

Clocking cash. Here’s one for my fellow labour market nerds. The UK has a good record on tackling hourly pay inequality, thanks to the ramping up of the minimum wage. But your pay at the end of the day depends too on how many hours you work, and here the UK’s record is not so good. This paper focuses on the missing link – the variations in hours worked, albeit from a US perspective. It finds that about a fifth of the inequality in total lifetime earnings between people can be accounted for by differences in how much people work. Now, there’s two ways in which more hours lead to higher take-home pay. There’s a fairly obvious direct way: you get paid more the more hours you work. But there’s also the more indirect consequences – basically, the more hours you spend investing in your human capital getting better at your job, the more your productivity – and then eventually your pay – increases. The researchers find that between a third and a half of the impact of hours worked on lifetime earnings is from this ‘human capital’ channel. This has serious consequences for parents and others who can’t work full-time (or more) hours – and keep reading for more on parenthood penalties …

Dawdling dads. The UK’s overly-generous/inadequate (delete as appropriate) maternity pay has been in the news this week – but why all the focus on mums? There’s been some fairly compelling, if disheartening, analysis recently showing that the shared parental leave introduced nearly a decade ago is not leading to more dads taking leave, nor did it lead the dads who did take it to spend any more time caring for their offspring. Plus, there’s this eyebrow-raiser of a paper which shows that Spanish dads used their leave to…watch the World Cup. Both of these papers suggest that the Badenoch brouhaha about maternity pay is missing the key challenge around parental leave policies – cultural norms that women ought to be the primary caregiver in a family are proving difficult to shift, enforcing the motherhood penalty and holding back equal pay.

Dunking on de-growthers… has been all the rage on Twitter this week, in part due to the wide circulation of this paper. The abstract alone offers a scathingly bullet-pointed-take-down of the 561 studies included in their literature review. Essentially, the authors conclude that 90 per cent of the papers they reviewed offer opinions rather than analysis, and the few that did provide any generally relied on qualitative analysis with small, non-representative samples. Where policy recommendations were offered, they lacked thorough evaluation – and the vast majority of papers failed to adopt a system-wide perspective, and so did not offer a full picture of the economic consequences of ‘de-growth’. I should also add (as my predecessor in the TOTC hot seat regularly reminded us), that de-growth isn’t a distant ambition for the British economy. We’ve been pretty-much flatlining for fifteen years. And as our Chart of the Week will remind you, it isn’t much fun. I reckon it’s time for a different approach.

Chart of the week

While the Conservative Party has been busy in Birmingham plotting a path back to power, on Monday the ONS mildly revised the economic record of their final months in power. The headline was a small reduction to GDP growth in the second quarter of 2024. But beneath that headline was a strong – and long overdue – rebound in Real Household Disposable Income (RHDI). COTW uses this data to give the definitive judgement on what happened to growth and living standards over the last parliament, and how it compares to previous ones going back to the 1950s. The relatively robust/gangbusters growth in early 2024 can’t hide the poor performance over the past five years – growth in GDP of 2.9 per cent over the entire Parliament is the weakest since the last Labour government (2.6 per cent between 2005 and 2010) and a far cry from the financial crisis norm of 10-15 per cent. On RHDI, the strong bounceback in spring 2024 was enough to confirm that average living standards did in fact rise over the parliament (yay!). But the pitiful growth of 0.8 per cent – equivalent to just £184 per person – means that it remains the worst parliament for living standards since records began. Before the financial crisis, RHDI often increased by over 10 per cent in a single parliament, allowing politicians to talk of household incomes doubling over a generation. Britain is very far off that track today. On the flipside, even getting halfway back to our pre-financial crisis economic trend would be transformative.