Monthly Archives: October 2010
A £15 billion reduction in benefits bills is a significant transfer from the unemployed to taxpayers. Benefits reform may drive claimants into the jobs market and therefore reduce wages for people already working in low skilled jobs. Whilst the minimum wage prevents labour rates falling beyond a certain level increased competition does mean that more jobs become minimum wage jobs. The transfer to the middle classes is, therefore twofold, a transfer from not paying the benefits bill for those not working and a reduction in wages for those working in low skilled jobs. Continue reading
After some analysis of growth trends from 1955 to the present day it appears that for the UK it is slightly more usual for the economy to fall back into negative growth before it has had two quarters of good growth than not. Given how poor the fundmentals look for the UK economy over the next few quarters I think it likely that we will see a quarter of negative growth before a long slow haul back to sustained close to trend growth. If you want to call this a double-dip recession than by all means be my guest but you also have to say that double-dip recessions are not that rare.
If Type 2 Double-Dip recessions are not that uncommon should we be worried? My view is that whether the economy falls into negative growth for one quarter or not will have a smaller impact on workers, citizens and voters than how long the economy under-performs trend and what the impact on job loses or creation is. For some reasons to be cheerful see Duncan Weldon Economics post