Possible changes to the Retail Prices Index: what they are and why they matter

Peter Levell of the IFS analyses changes in the way the Retail Prices Index (RPI) is calculated and discusses what they entail. Most benefit payments and tax rates have already switched to being linked to the CPI and so any change to the RPI would not affect them, but government bondholders may be adversely impacted

Trade and inequality in Europe and the US

The share of low-income countries in global exports nearly tripled between 1990 and 2015, driven largely by the rapid emergence of China as an exporting powerhouse. While research in economics had long acknowledged that trade with lower-income countries could raise income inequality in Europe and the US, empirical estimates indicated only a modest contribution of trade to growing national skill premia. However, if workers are not highly mobile across firms, industries and locations, then the unequal impacts of trade can manifest along different margins. Recent evidence from countries across Europe and the US shows that growing import competition from China differentially reduced earnings and employment rates for workers in more trade-exposed industries, and for the residents of more trade-exposed geographic regions. These adverse impacts were often largest for lower-skilled individuals. We show that domestic manufacturing employment declined much more in countries that saw a large growth of net imports from China (such as the UK and the US), than in countries that maintained relatively balanced trade with China (such as Germany and Switzerland). Drawing on a new analysis for the UK, we further show that trade with China contributed to job loss in manufacturing, but also to substantial declines in consumer prices. However, while the adverse labour market impacts were concentrated on specific groups of workers and regions, the consumer benefits from trade were widely dispersed in the population, and appear similarly large for high-income and low-income households. Globalisation has thus created pockets of losers, and recent evidence indicates that in addition to financial losses, residents of regions with greater exposure to import competition also suffer from higher crime rates, a deterioration of health outcomes, and a dissolution of traditional family structures. We argue that new import tariffs such as those imposed by the US in 2018 and 2019 are unlikely to help the losers from globalisation. Instead, displaced workers may be better supported by a combination of transfers to avert financial hardship, skills training that facilitate reintegration into the labour market, and place-based policies that stimulate job creation in depressed location

Essays on Consumption and Labour Supply over the Life-cycle

This thesis contains six self-contained chapters on the microeconomics of household consumption and labour supply behaviour, an introduction and a conclusion. // Chapter 1 provides an introduction. Chapters 2 and 3 address issues of measurement. The first of these considers the quality of household budget surveys relative to the national accounts. The second considers how we measure the inflation (with a focus on how price changes should be calculated across goods for which there is no corresponding spending data). The following two chapters discuss consumption patterns at older ages. Chapter 4 discusses spending declines in two countries - the US and the UK - and the role of medical expenses in accounting for these differences. Chapter 5 attempts to shed light on long-standing puzzles surrounding consumption around retirement using non-parametric, ‘revealed preference’ tests of different models of consumption behaviour over the life-cycle. // The Chapters 6 and 7 examine how consumers’ spending and labour supply choices are affected by changes in their economic environment. Chapter 6 looks how households responses to house price changes are affected by their initial leverage. Chapter 7 looks at how women’s labour supply responds to changes in wages along both intensive and extensive margins. // Chapter 8 concludes

What are the economic consequences of May’s deal – and of no deal?

What will the economic impact of Theresa May’s deal be? And how does it compare to the no-deal scenario?The LSE’s Centre for Economic Performance, in association with The UK in a Changing Europe, has modelled both scenarios and examined the effects on migration, fiscal policy, trade and productivity. The authors – Anand Menon, Jonathan Portes (King’s College London), Peter Levell (Institute for Fiscal Studies) and Thomas Sampson (LSE) – also look at the relative cost of the ‘divorce bill’ – the payments the UK has agreed to make to the EU

Aggregating Elasticities: Intensive and Extensive Margins of Women's Labour Supply

We show that there is substantial heterogeneity in women's labour supply elasticities at the micro level and highlight the implications for aggregate behaviour. We consider both intertemporal and intratemporal choices, and identify intensive and extensive responses in a consistent life-cycle framework, using US CEX data. Heterogeneity is due to observables, such as age, wealth, hours worked and the wage level as well as to unobservable tastes for leisure: the median Marshallian elasticity for hours worked is 0.18, with corresponding Hicksian elasticity of 0.54 and Frisch elasticity of 0.87. At the 90th percentile, these values are 0.79, 1.16, and 1.92. Responses at the extensive margin explain about 54% of the total labour supply response for women under 30, although this declines with age. Aggregate elasticities are higher in recessions, and increase with the length of the recession. The heterogeneity at the micro level means that the aggregate labour supply elasticity is not a structural parameter: any aggregate elasticity will depend on the demographic structure of the economy as well as the distribution of wealth and the particular point in the business cycle.MCYT. Grant Number: ECO2009‐0961

Regression with an imputed dependent variable

Published online: 29 September 2022Researchers are often interested in the relationship between two variables, with no single data set containing both. A common strategy is to use proxies for the dependent variable that are common to two surveys to impute the dependent variable into the data set containing the independent variable. We show that commonly employed regression or matching-based imputation procedures lead to inconsistent estimates. We offer a consistent and easily implemented two-step estimator, “rescaled regression prediction.” We derive the correct asymptotic standard errors for this estimator and demonstrate its relationship to alternative approaches. We illustrate with empirical examples using data from the US Consumer Expenditure Survey (CE) and the Panel Study of Income Dynamics (PSID)

A year of COVID: the evolution of labour market and financial inequalities through the crisis

We use high-quality UK panel data to document the extent that pre-existing labour market and financial inequalities were exacerbated by the pandemic between April 2020 and September 2021. Some inequalities worsened, others did not, and in some cases, initial widening of labour market inequalities was subsequently reversed. We find no evidence of an overall divergence in labour market outcomes by gender. Initial changes for ethnic minorities and the young were largely reversed by March 2021. Those in the top third of the long-run income distribution experienced income falls, but also increased saving. Net wealth increased not for only the affluent, but also for middle deciles of the long-run income distribution. These deciles were most protected by the furlough scheme. Those at the bottom of the income distribution were more likely to report a decline in net wealth over the year

Stimulus payments and private transfers

Published online: 5 December 2022Private transfers can affect the spending response to stimulus payments, as those receiving income windfalls may transfer resources to other households in greater financial need. We report a survey experiment where individuals were asked how they would respond to a £500 payment, with a randomly selected subset of individuals explicitly told that all households would receive the same payments (a ‘public windfall’ scenario). This additional information increased MPCs by 11%. Reported transfer intentions in response to windfalls suggest that public payments crowd out private transfers, partly accounting for the higher MPCs in the public windfall case