All these visualisations are interactive. Please use this touchscreen (or your mouse) to explore the charts and learn about how they were designed and built.

Figure 1: Economic metrics, by US state

Source: FRED

This first chart plots a range of economic metrics over a state map of the US (see Figure 1). Using the dropdown menu, you can toggle between measures and see the trends across the country. Note the economic might of California (home to Silicon Valley and several wealthy cities) in comparison to states like Louisiana and Mississippi in the South.

Figure 2: Crime statistics, by US state

Source: FBI, 2019

Next, we show a map of different crimes across the country. Again, you can toggle between the crime types using the dropdown menu to see which type of offences are found most frequently in each state. Alaska and New Mexico stand out in terms of violent crime, but Louisiana has the highest rate of homicide (based on FBI data from 2019). Note: we used 2019 data to avoid the effects of Covid-19 on crime.

Figure 3: Crime rates vs income, by US state

Sources: FRED, FBI

What about plotting the data against each other? This final chart combines the datasets and plots different crime type rates (y axis) against a state's median household income (x axis). The idea here is to get a picture of how relative prosperity and crime rates/types might be correlated.

By toggling through the crime types, you can find outliers. For example, both Alaska and Hawaii appear to have surprisingly large arson rates.

Of course, there are numerous factors that affect crime. This is simply one example of how we can use data visualisation to spot patterns.

Where can I find out more?

• All the code and underlying data can be found via Joshua Hellings' GitHub account.
• Our data visualisation principles can be be found here.

Authors: Joshua Hellings, Charlie Meyrick

The post Festival of Economics: US data explorer appeared first on Economics Observatory.

As this group has become increasingly formalised and institutionalised – hosting regular summits and establishing collective bodies – many observers have worried that its growing influence might be accompanied by the normalisation of authoritarian forms of ‘state capitalism’, and even the unravelling of the liberal order.

Others have taken a more sanguine view, arguing that Eastern forms of state-led development appear superior in many ways to Anglo-American economic and political structures, and this is reconcilable with – and, indeed, depends on – an open global economy.

Either way, the concerns of many Western liberals have resurfaced following Russia’s invasion of Ukraine. Recent news that other mostly non-democratic states – Egypt, Iran, Saudi Arabia, Turkey (and Argentina) – have either applied to join the BRICS, or are considering doing so, is also cause for concern among Western governments.

What are the BRICS and why do they matter?

At one level, the idea of the BRICS is confected. The former Goldman Sachs economist (and now crossbench peer) Jim O’Neill coined the term BRIC in the early 2000s to describe the four fast-growing countries that, at the turn of the millennium, seemed most likely to begin catching up with the West (O’Neill, 2001).

Looking back, this notion appears quite problematic (Bishop, 2012). Brazil’s growth slowed dramatically around 2014 as it struggled with early de-industrialisation (Muzaka, 2017).

Russia was an erstwhile superpower. To describe it as ‘rising’ therefore was and remains questionable, particularly as its industrially atrophied post-communist economy has stayed small in global terms. Even today, as the country mounts a major military offensive, its GDP is still barely half that of the UK despite a population almost three times the size and the largest, most resource-rich territory on the planet.

India‘s growth has been impressive, but its relative share of global GDP has actually shrunk and its economy is now around one-fifth the size of China’s. One author describes the pair comparatively as the ‘slouching tiger’ and ‘roaring dragon’ (Kennedy, 2016).

South Africa is arguably not a rising power at all in global terms and was primarily tagged on to the grouping later for reasons of regional representativeness.

In fact, the story of the BRICS is largely about China’s staggering rise. Its development has been so sustained over such a long period of time that it has genuinely reshaped the distribution of global economic power (Bishop, 2016).

Figure 1: GDP by BRICS country (2000-21), in current dollars

Source: World Bank (Creative Commons License CC-BY 4.0)

As the chart shows, China’s GDP is more than double that of the other four BRICS combined: almost $18 trillion compared with Brazil ($1.6 trillion), Russia ($1.8 trillion), India ($3.2 trillion) and South Africa ($400 billion). For comparative purposes, GDP in the United States is $23 trillion but China’s economy is arguably the largest in the world in purchasing power parity (PPP) terms.

In the early research on the subject, there were fierce debates over which countries should and should not be included in the next generation of emerging powers (Cooper et al, 2006).

Some questioned whether the ‘MINT’ countries – Mexico, Indonesia, Nigeria and Turkey – might be next (O’Neill, 2013). Others stressed that a focus on large middle-income countries ignores the many small ones – such as New Zealand, Norway, Qatar and Singapore – that have achieved high levels of income and development while exercising power in unconventional ways (see Long, 2022).

There have always been question marks over which countries, exactly, should comprise the rising or emerging powers, and what criteria best capture this. What does it even mean to ‘rise’ or ‘emerge’, and how do we know when a state has finally ‘risen’ or ‘emerged’?

By the same token, as some rise, other must decline relatively: do we even have a language to describe developmental decline – or ‘undevelopment’ – in supposedly ‘developed’ countries (Bishop and Payne, 2019)?

These questions aside, the BRICS have, over time, become more deeply institutionalised. Since 2009, the countries have held annual summits with an increasingly widened agenda.

The establishment of the New Development Bank (NDB) in 2014 with $50 billion of start-up capital was another milestone. So too was the simultaneous creation of the BRICS Contingent Reserve Arrangement (CRA), a liquidity mechanism that provides support for members facing short-term balance of payments squeezes or currency instability (see Cooper, 2017).

It is in this context, at a time when much of the world is still reeling from the pandemic, that this institutionalisation process may be intensifying.

Why are countries seeking new forms of cooperation?

The motivations of prospective BRICS members are complex. Take Saudi Arabia: it is already an exceptionally wealthy country, it has a close security relationship with the United States and it can mobilise substantial sovereign wealth for investment in pursuit of economic expansion (see Trudelle, 2022). But domestic political modernisation remains slow, and the economy is highly dependent on energy and threatened in the long run by global decarbonisation.

A degree of diplomatic isolation has also followed the murder of the journalist Jamal Khashoggi. Like all authoritarian states, Saudi Arabia has to search for sources of domestic and international legitimacy. Increasingly dense trade links with China will be critical to this endeavour, by simultaneously diversifying the economy and sources of international support (Martin, 2021).

Similar stories apply to Egypt, Iran and Turkey, where the respective regimes have all experienced volatile economies, political conflict and diplomatic isolation in recent history. The Arab Spring of a decade ago still casts a very long shadow over the Middle East as a whole, leaving rulers feeling insecure and repression enduring (Josua and Edel, 2021).

Another potential BRICS member, Argentina, is a little different. Growth has fluctuated constantly since the dramatic financial crisis of 2001 (Stiglitz and Weisbrot, 2022). Periods of expansion and policy experimentation have occurred in tandem with buoyant export revenues during the late 2000s and early 2010s (Grugel and Riggirozzi, 2012).

But inflation has remained high and the currency has tanked. One US dollar bought one peso prior to 2001; a decade later it bought eight to ten pesos; and yet a decade further on, it now buys 148. Debt is also growing again. It exploded from around 40% of GDP to 160% in the aftermath of the 2001 crisis, declined again to around 40% alongside the commodity boom by 2014, and then rose once more to over 100% of GDP by the time the pandemic arrived in 2020.

Argentina has long required new sources of capital and international institutional power. Indeed, its demand for inclusion in the Group of 20 (G20) during the global financial crisis of 2007-09 in part reflected resentment at Brazil’s membership and relatively higher perceived status as an emerging power.

But what is in it for the BRICS as an organisation? New members, in theory, imply new economic resources that can be mobilised and greater strength in numbers. The expansion of the group also provides greater legitimacy and reinforces the sense that the club is worth joining – an effect that could become self-perpetuating.

At the same time, while these potential new members are certainly regionally significant, they are not the largest, most powerful, economically dynamic or diplomatically influential of countries that could theoretically join (certainly compared with the MINT countries). Furthermore, the BRICS would no longer really comprise mainly the ‘rising powers’ in a global sense with Argentina, Iran and Saudi Arabia joining.

Consequently, the broader issue is that the BRICS as an organisation still lacks deeper institutionalisation. Beyond the establishment of the NDB, ‘it is difficult to see what the group has done other than meet annually’ (O’Neill, 2021).

This problem is compounded by the fact that economic growth trajectories have been so uneven, and the group lacks clear unifying ideological principles or a shared vision for managing the global order.

Expanding the membership, then, is at least partly about gaining renewed impetus in a context where the BRICS remain beset by divergent interests, development trajectories, relative levels of geo-economic significance and ability to exercise substantial influence over the international system.

In all of these areas, China’s power resources far outstrip those of the other members, while as an aspirant hegemon, it also depends most on – and has additional responsibility for – maintaining a calm, stable and open global economy (Beeson and Zeng, 2019).

But the level of openness that China adopts, or the extent of its accommodation to liberal, Western mores, depends to a significant degree on the policy area under discussion (Hameiri and Zeng, 2019; Weinhardt and ten Brink, 2020).

How could the expansion of the BRICS affect the global economy?

The worry, from a Western perspective, relates to the fact that – with the partial exception of South Africa (Reddy, 2022) – the BRICS have become, to differing degrees, more nationalist and authoritarian over the past decade.

Xi Jinping has cemented his dominance in China. Brazil under Jair Bolsonaro – who will shortly face a presidential election run-off against Lula da Silva – and India under Narendra Modi have both experienced a starkly populist turn (de Souza, 2020; Sinha, 2021). Vladimir Putin’s Russia has become a pariah state that poses numerous thorny geopolitical questions extending well beyond the immediate Ukraine crisis (Burns, 2019; d’Eramo, 2022). In all four, minorities are persecuted and civil rights restricted.

Consequently, some European and US policy-makers worry that the BRICS may become less an economic club of rising powers seeking to influence global growth and development, and more a political one defined by their authoritarian nationalism.

Yet both the BRICS and the West share much in common. Economically, people the world over have long been disenchanted with market-led globalisation. The United States and many European countries – and even the European Union (EU) itself – have marvelled at China’s expansion and reassessed their own desperate need for new institutions and mechanisms to drive interventionist industrial policy to keep up (Lavery and Schmid, 2021; Hopewell, 2021).

Politically – with continuing constitutional upheaval wrought by Brexit and the election of Donald Trump only the most obvious examples – Western countries have also experienced declines in the quality of democracy. As European states elect (or come close to electing) nationalists like Georgia Meloni in Italy or Marine Le Pen in France, they appear more vulnerable to further democratic decay than at any other time in recent history.

Diplomatically, the war in Ukraine appears to have drawn a stark dividing line between an Eastern-backed Russia and the West. But this only obscures the complicity of many of the latter’s banking institutions and political elites in fostering Putin’s regime, even as its excesses became progressively more evident (Bienkov, 2022).

So as the BRICS rise, they disrupt the global order in problematic ways that give incentives to the West to adopt illiberal mores (Hopewell, 2017). But the East also faces the countervailing pressure to become more liberal themselves, thereby reinforcing as well as reshaping that order (Bishop and Murray-Evans, 2020).

This is evident in the ‘ambivalent’ way that China and India are torn between their self-identity as developing countries, with a purported mission to lead the Global South, and the unavoidable reality that their economic interests increasingly align with the Global North (Cooper, 2021).

The web of constraints that China and India face – notably the tension inherent in preserving an uneasy BRICS unity while becoming responsible global diplomatic powers themselves – was highlighted starkly in September 2022 when both made their displeasure at Russia’s quagmire in Ukraine public for the first time (Lau, 2022).

Will globalisation endure?

It is difficult to envisage a decisive decoupling of West from East, or a definitive process of ‘deglobalisation’. The sheer volume of trade in goods and services, the flows of capital, data and people across borders to facilitate it, the extent of economic interdependence and the complexity of global value chain-based production, which relies on inputs sourced from around the world, all militate against it (Bishop and Payne, 2021a).

We will not see a decisive retreat behind national borders. Authoritarian autarky is not a viable or credible development strategy today. But at the same time, the pressures facing states from below mean that high levels of unmediated and destabilising economic openness also remain politically toxic.

The future of the global economy will plausibly remain globalised in general – with globalisation itself changing shape – while simultaneously becoming more national in certain respects.

This is not as contradictory as it sounds. Globalisation is a process driven substantially by states that are embedded within it. The two co-exist: they are not alternatives.

We require a recalibration of the nature of the relationship – an attempt to find greater policy space for nations within a renewed overarching global framework of institutions, rules and norms.

Between the two, the regional level is crucial. Indeed, even if we are witnessing some degree of ‘reshoring’ in light of Ukraine and wider upheavals in the global economy, many production networks are likely to reconstitute themselves regionally rather than nationally (Grey, 2019). Modern forms of production at the highest points of a value chain require economies of scale that are frequently continental in scope.

The key question is not if the global economy will evolve and change shape, but rather whether this occurs in a well-managed or increasingly fraught way. This will be determined by how the framework of global governance adapts to new realities.

International bodies are unquestionably in desperate need of reform and revitalisation (Bishop and Payne, 2021b). But the system that they collectively comprise is not as dysfunctional as is often believed (Drezner, 2014).

All states require the public goods that they provide and, as Lord O’Neill (2021) notes, the greatest disappointment with the performance of the BRICS is that they have not yet lived up to their promise in terms of sustaining the G20 on the next chapter of its development.

Overcoming this will be necessary for the body to carry out its crucial role of ‘steering’ the global economy in coming years and ensuring that tensions between West and East are mollified rather than magnified.

Where can I find out more?

• The End of American World Order by Amitav Acharya (Polity Press, 2018).

• Handbook of BRICS and Emerging Economies edited by PB Anand, Shailaja Fennell and Flavio Comim (Oxford University Press, 2021).

• BRICS: A Very Short Introduction by Andrew Cooper (Oxford University Press, 2016).

• Clash of Powers: US-China Rivalry in Global Trade Governance by Kristen Hopewell (Cambridge University Press, 2021).

Who are experts on this question?

• Gregory Chin, York University, Toronto, Canada
• Tom Chodor, Monash University, Australia
• Andrew Cooper, University of Waterloo, Canada
• Kristen Hopewell, University of British Columbia, Canada
• Valbona Muzaka, Uppsala University, Sweden
• Amrita Narlikar, GIGA Hamburg, Germany

Author: Matthew Bishop, University of Sheffield

Photo by William_Potter on iStock

The post The BRICS countries: where next and what impact on the global economy? appeared first on Economics Observatory.

Voters are likely to be presented with the same question on the ballot paper as in 2014, when 55% of them selected ‘no’ in answer to: ‘Should Scotland be an independent country?’

Economic issues were important to how voters chose between independence and remaining part of the UK back in 2014. If asked to choose again in a second referendum, the major economic events in the intervening years – from Brexit to the fluctuating value of North Sea oil – mean that the economic arguments in a second referendum campaign are likely to look a little different.

Amid all the uncertainty around Scotland’s future, economic research can help voters and policy-makers to understand the big decisions that an independent Scotland would face and whether its choices would be in the best interests of its economy and its people.

Should an independent Scotland re-join the European Union?

In the 2016 Brexit referendum, 62% of the Scottish electorate voted in favour of the UK remaining in the European Union (EU). The UK’s departure from the EU has fuelled the Scottish government’s demand for a second independence referendum. Indeed, polling data suggest that Brexit is a factor in attitudes to independence.

Would EU membership be in Scotland’s best interests?

There may be many reasons for wanting to be part of the EU again, but on the critical subject of international trade, research suggests that an independent Scotland may be better off outside the EU.

It is true that re-joining could expand trading opportunities with EU member states for Scotland by reducing border costs. These are the costs that stem from import tariffs, customs checks and differences in regulations between countries, among many factors.

An analysis of international trade in goods finds that border costs between EU countries are 13% lower than those between countries where at least one of the partners is not in the EU. This is why most economists expected Brexit to make the UK worse off (Sampson, 2017).

But the costs of trade between EU countries are still higher than trade costs within the same country. Border costs within the EU are 23% more than trade costs between US states, for example (Comerford and Rodriguez Mora, 2019).

Four out of Scotland's top five international export markets are in the EU: the Netherlands, Germany, France and the Republic of Ireland.

But Scotland’s biggest export market overall is the rest of the UK, comprising 60% of Scotland’s total exports, including North Sea oil, whisky and seafood.

The magnitude of the change in border costs between Scotland and the rest of the UK if Scotland were to become independent is highly uncertain, and would depend on the outcome of negotiations between the governments of Scotland and the rest of the UK.

Some estimates suggest that they could increase by 15-30% if Scotland were to remain in a common market with the rest of the UK (Comerford and Rodriguez Mora, 2019; Huang et al, 2021). This is similar to the expected effects of Brexit on trade costs between the UK and the EU (Scottish Government, 2018; Bevington et al, 2019).

On balance, research suggests that for as long as the rest of the UK remains Scotland’s most important trading partner, Scotland would be better off prioritising integration with the rest of the UK. This means not re-joining the EU. That said, there are countries that have found new markets for exports in the EU following independence, including the Republic of Ireland, the Czech Republic and Slovakia. While these changes in trade patterns are possible, they also happen over decades, if not longer.

Could an independent Scotland rely on North Sea oil and gas revenues?

The fortunes of North Sea oil and gas have been on a tumultuous journey in the past decade. They have bolstered pro-independence arguments when profits have been plentiful, but played a smaller role in independence debates at times of severe decline.

Research suggests that the sector’s recent rise in revenues – thanks to rocketing oil and gas prices – could offer a short-term boost to Scotland’s economy but cannot be relied on over the long term.

While offshore revenues played an important role in the 2014 referendum debate, between 2014 and 2020/21, the industry faced a sharp fall in the price of oil. This had knock-on effects on Scotland’s economy and North Sea tax revenues, which dropped from £7 billion a year to just £500 million.

This has had a significant impact on the onshore economy, and it is a big reason why Scotland’s economy has grown more slowly than that of the UK as a whole over the past few years.

Russia’s invasion of Ukraine has precipitated a spike in global energy prices, with oil prices rising from $18.38 per barrel in April 2021 to $117.25 in March 2022. Over the same period, gas prices rose from £0.55 per therm to £3.14. As a result, North Sea revenues soared to £3.2 billion in 2021/22 and are now forecast to reach levels not seen in over a decade.

The effect has been a slightly larger reduction in Scotland’s net fiscal balance compared with the UK’s, although it remains roughly twice the size. Scotland’s net fiscal balance fell by just over 10 percentage points: from 22.7% of GDP in 2020/21 to 12.3% of GDP in 2021/22. In comparison, the UK’s fell by just over 8 percentage points, from 14.5% of GDP in 2020/21 to 6.1% of GDP the following year.

But this revenue stream is clearly volatile, and the long-term trend for oil and gas revenues is for a phased decline. Production peaked in 1999, and remaining reserves are now in more challenging and costly areas of the North Sea. At the same time, governments – including the Scottish government – are committed to reaching net-zero carbon emissions, which means moving away from fossil fuels.

Relying on high oil and gas revenues would not be a safe long-term option for securing a sustainable source of tax income for an independent nation. Tough choices on tax and spending, and efforts to improve economic growth beyond what North Sea reserves can offer, would be needed.

Which currency should an independent Scotland use?

The question of currency continues to be controversial. Independence would offer Scotland a choice of currency and choosing one of its own would give the country control over its monetary and fiscal policy. But research suggests that sticking with sterling would have benefits for Scotland’s economy.

In the 2014 referendum, the Scottish government’s official policy was to remain part of the UK’s formal monetary union. This was despite George Osborne, then Chancellor of the Exchequer, ruling out this option. Uncertainty over currency is seen as a big reason why more people voted ‘no’ than ‘yes’ to independence in 2014.

The Scottish National Party (SNP) now says it favours the continued use of sterling even without a formal agreement. Many in the pro-independence movement favour a transition to a new separate currency in the future.

The use of sterling in an informal relationship has never been tried in a country of Scotland’s size or level of economic development. There would be no typical ‘lender-of-last-resort’ and the health of Scotland’s economy, including its public finances, would be closely tied to its balance of payments position. Scotland is currently estimated to run a deficit on both its public finances and its balance of payments.

Continuing with sterling would have the benefit of preventing an increase in the costs of trade with Scotland’s main trading partner, the rest of the UK. There are the conversion costs, but also the uncertainties that come from fluctuating exchange rates that, with them, affect the value of goods and services. The sterling option also avoids the costs of setting up a new currency – not just for government, but also for households and businesses.

It is also possible that a newly minted currency would be more volatile, at least during the early stages. In 2014, such costs were argued to be between 0.5% and 1% of GDP for Scotland – between £500 million and up to £2.5 billion (see MacDonald, 2014).

Scotland could also look to the Republic of Ireland for historical lessons on currency. Over the past century, since independence, Ireland has had five currency regimes, including sterling, its own currency and the euro. In the immediate post-independence era, sterling was Ireland’s default currency, followed in 1927 by a one-for-one peg with sterling against the Irish punt – that is, the value of the punt was tied to sterling.

Sterling was the obvious peg of choice as the UK was Ireland’s main trading partner – as would be the case for Scotland today, Irish banks had sizeable sterling assets in London, and sterling was seen as a stable currency. 

At first, this relationship cushioned the punt from the effects of global volatility – a world of economic depression and hyperinflation. But in the longer term, maintaining the sterling peg constrained fiscal policy considerably, effectively keeping the Irish economy tied to the turbulent fate of the UK’s.

Scotland’s choice of currency has major implications for its fiscal institutions too. At independence, Scotland would be likely to want to set up its own central bank and debt management office, and to expand the powers of its fiscal watchdog. Its currency would shape what these institutions could do.

For example, a new Scottish currency would not only give Scotland more power over fiscal and monetary policy, it could also allow its central bank to become involved in political issues.

Central bankers around the world may debate how far they should be involved with issues like inequality or climate change, forming policies that redistribute wealth, for example, or which manage financial risks brought by rising temperatures. But Scotland’s central bank would be limited in its ability to influence these issues without its own currency.

What would be the effects of independence on Scotland’s public finances?

Should Scotland become independent, it would need to make big decisions to ensure a better balance of public finances. As things stand, it is likely to have a large budget deficit – the gap between public spending and tax revenues – which may mean its government would have to make spending cuts or increase taxes.

One major consequence of independence would be that Scotland would have the power to oversee the collection of broad-based taxes, such as income tax and VAT. Even though the Scottish government can vary tax bands and rates on income tax, administration is still undertaken by HM Revenue and Customs (HMRC).

Total public expenditure – which comprises spending by the UK government for and on behalf of the people of Scotland, as well as Scottish government spending in devolved areas – is currently higher than tax revenues raised in Scotland (hence the negative net fiscal balance mentioned earlier).

For example, during the period between 2014/15 and 2019/20 spending per person in Scotland was £1,550 (or 12.3%) higher than the UK average, while tax revenues were £325 (or 2.8%) lower per person. 

In the short term, independence might weaken Scotland’s economy and reduce rather than increase tax revenues. A harder border between Scotland and the rest of the UK, for example, would suppress trade.

To avoid higher taxes or lower spending continuing in the longer term, stronger growth would be needed post-independence to make up for the loss of money from the rest of the UK. This longer-term picture would depend on how Scottish policy-makers choose to respond to the challenges and opportunities presented by independence.

Independence would give the Scottish government additional powers – currently held by the UK government – potentially to strengthen the economy. Faster growth is easier to promise than deliver, and many of the key elements of a successful economic strategy would take time to have an impact.

There are a number of policy areas where a different path might be taken. For example, independence would give Scotland an opportunity to develop a different immigration policy to the UK’s. This might help to attract skilled migrants into Scotland and ease the pressure of the country’s ageing population and skill shortages.

Similarly, there may be opportunities to use trade policy to shift trade away from the UK and towards other countries, as Ireland did in the late 20^th and early 21^st century. But these changes take time, with changes in trade patterns likely to take decades rather than years.

What can Scotland learn from other countries?

There is no precedent for establishing a new economically advanced country, which adds to the uncertainties when debating Scotland’s future. But in making its choices around whether to be independent, and what to do with independence if achieved, Scotland could turn to other newly independent and/or small countries for economic inspiration.

Other countries may offer hope that things could work out well for an independent Scotland in the long term, despite initial economic difficulties.

The experiences of Ireland and the Czech Republic/Slovakia offer some clues to life post-independence. Disruption and short-term costs followed the split of Czechoslovakia in 1992, for example, and unemployment in Slovakia rose sharply. But the longer-term picture has been one of rising prosperity.

Both the Czech Republic and Slovakia joined the EU in 2004 and are also members of the OECD. In terms of GDP per capita, both are making progress at closing the gap with the EU average. But a big part of their success lies in the strong economic ties that they have maintained with one another. This would suggest that an independent Scotland would have much to gain from keeping its strong links with the UK.

Pro-independence campaigners often point to the successes of small independent countries elsewhere in the world, especially Nordic ones – claiming that these show that a country can be both small and prosperous.

Smallness has the benefit of strengthening public sector accountability because citizens can monitor bureaucrats’ behaviour more easily. Communication and coordination are also easier. But evidence suggests that it is medium-sized countries that tend to have the most effective bureaucracies, all else being equal (Jugl, 2019).

A medium-sized population of between 15 and 94 million gives a country economies of scale for efficient public sector spending. Any smaller, and a country runs the risk of an over-stretched government that lacks specialist skills and knowledge.

With a population of just 5.5 million, Scotland’s size falls below this ‘golden mean’. But an effective bureaucracy at this scale is clearly not impossible. The lesson here is that an independent Scotland would have to take steps to improve its administrative effectiveness and reduce inefficiency.

This would need strong communication and coordination between agencies and departments, with a greater focus on common goals and ‘big picture’ questions. Research shows that some smaller European countries – such as Estonia, Iceland, Latvia and Luxembourg – have mastered this challenge (Sarapuu and Randma-Liiv, 2020; Jugl, 2020). 

But being small also comes with challenges: from the risk of greater economic volatility and less scope to manage fluctuations in the economy. Smaller countries typically have to run tighter fiscal policies as they have less influence over international capital markets.

Some smaller countries also have lower economic diversity and often depend on larger economies for much of their exports. It is also possible that smaller countries can lack influence over major economic decisions, for example, at the International Monetary Fund or the World Trade Organization, and in the setting of international standards in areas such as financial services.

Ultimately, Scotland’s success or otherwise as a small independent state would depend less on its size than on its leaders’ ability to exploit the benefits and overcome the disadvantages of small population size.

Yes or no?

If there is one conclusion that can be drawn from the research, it is this: in the run-up to a possible second referendum, any bold claims – made by either side of the debate – stating exactly what will happen to the Scottish economy after independence need to be taken with a pinch of salt. 

Post-independence, it is likely that there would be a number of significant economic challenges in the short term. But over the longer term, the path would depend heavily on Scottish leaders’ choices and abilities.

Polls show that recent voting intentions among Scottish people are close: 47% say ‘yes’ to independence, and 53% ‘no’, as of September 2022. But the polls also show that the balance towards either answer regularly flips.

Research shows that some voters will say ‘yes’ to independence if they can’t see that the economy would be any better off by sticking with the UK. This was true of some pro-Leave voters in the UK’s EU referendum in 2016 (Curtice, 2017).

This means that in the event of a second referendum, unionists would need to demonstrate clear economic benefits of staying with the UK to win the argument. For nationalists, on the other hand, a draw might well be enough.

Where can I find out more?

• This article draws on the Economics Observatory’s series of articles on Scottish independence: a collection of the articles is available as a pdf here.
• Scottish independence: The Institute for Government.
• Scottish Government Economic Statistics.
• Government Expenditure and Revenue Scotland.
• What Scotland Thinks?

Who are experts on this question?

• Anton Muscatelli
• Nicola McEwen
• Graeme Roy
• Stuart McIntyre
• Ronald MacDonald
• John Curtice

Author: Michelle Kilfoyle

Editors' note: This article is part of our series on Scottish independence - read more about the economic issues and the aims of this series here.

Photo by barmalini on iStock

The post An independent Scotland: what would be the options for economic success? appeared first on Economics Observatory.

While there is no imminent threat of legal restrictions on abortion in the UK, access already varies across the constituent countries. For example, despite abortion being decriminalised in Northern Ireland in October 2019 and regulations coming into effect in March 2020, access remains limited, forcing hundreds of women either to travel to other countries or to continue their pregnancy.

Abortion rates also differ within regions in the UK. They are higher for women living in deprived areas, indicating that abortion is an economic issue as well as a legal one.    

What is the legal status of abortion in the UK?

Women in the UK are legally entitled to an abortion through the 1967 Abortion Act (for England, Scotland and Wales) and the Abortion (No. 2) Regulations 2020 (in Northern Ireland).

The conditions under which women can access abortion according to these two pieces of legislation are broadly similar. They include risk to the life of the mother, to the physical or mental health of the mother or any existing children in her family, or risk that if the child were to be born, they would suffer from severe physical or mental abnormalities.

In the light of the US Supreme Court decision, Labour MP Stella Creasy has warned that abortion rights in the UK are ‘more fragile than people realise’. In particular, in England, Scotland and Wales, abortions are still deemed a criminal act and doctors who do not comply with the terms of the 1967 legislation can face punishment.

As such, Creasy intends to table an amendment to the Bill of Rights to protect and enshrine women’s access to abortion into law.

How accessible are abortions in the UK?

The abortion rate has increased in England, Wales and Scotland over the last 40 years (see Figure 1).

In 2021, the abortion rate for England and Wales reached its highest ever rate of 19.2 per 1,000 women residents. In Scotland, the rate has been consistently lower – at 13.4 per 1,000 in 2020 (GOV.UK, 2022; Public Health Scotland, 2021). This figure is even lower than that of the United States – 14.4 per 1,000 women in 2020 (Guttmacher Institute, 2022).

Figure 1: Abortion rate per 1,000 women residents of England and Wales and Scotland, aged 15-44

Source: GOV.UK, 2022; Public Health Scotland, 2021

How do abortion access and abortion rates differ across the UK?

England and Wales

The number of abortions performed in England and Wales reached their highest levels in 2021. A total of 214,256 were carried out, of which 206,664 occurred in England (GOV.UK, 2022). One possible reason for the high rate is the increased availability of early abortion pills (mifepristone and misoprostol).

These were introduced in the 1990s for abortions up to ten weeks of pregnancy. They were initially both required to be taken at a clinic but from December 2018, mifepristone was allowed to be taken at home. Then, in 2020, taking both pills at home was temporarily approved under the 1967 Act as a response to the Covid-19 pandemic (Calkin and Berny, 2021). This change has now been made permanent in England and Wales. 

The overwhelming majority (around 98%) of abortions were carried out on grounds of risk of mental harm for the woman. This provision leads to what has been described as a system of de facto ‘abortion on demand’.

Nevertheless, one study suggests that the requirement of two doctors’ approval may cause undue stigma among abortion-seekers, and delays in rural settings where there tend to be lower availability of doctors (Calkin and Berny, 2021).

Further, research finds that women living in rural areas also face greater barriers to abortion than those in urban areas due to longer travel distances and lack of abortion services (Caird et al, 2016; Heller et al, 2016).

Longer travel distances can also impose financial barriers and necessitate unwanted disclosure of information, making it harder for women to maintain privacy. One study reports that more time away from home requires many women to turn to their family or ex-partners for childcare, which often requires an explanation (Heller et al, 2016).

Scotland

The abortion rate in Scotland is lower than in England and Wales (see Figure 1). Since 1980, the rate has risen from 7.3 to 13.5 per 1,000 women, reaching a record of 13,896 abortions in 2020 (Public Health Scotland, 2022). An additional barrier in Scotland is that abortion is not provided up to 24 weeks of pregnancy, as it is in England and Wales.

One report suggests that it is even difficult for women to access abortion services in Scotland after 18 weeks of pregnancy, although the legal maximum for England, Scotland and Wales is currently at 24 weeks under most circumstances (Sexual Health Scotland, 2021).

Apart from lack of training, it has also been suggested that a deficiency of support among medical professionals may be an important factor in explaining lower abortion accessibility in Scotland (Purcell et al, 2014). Research suggests that this may be due to negative attitudes towards late abortion among Scottish abortion providers and senior management, as well as local anti-choice views (Cochrane and Cameron, 2013).

Northern Ireland

Before March 2020, abortion access for women in Northern Ireland was severely restricted. Women in Northern Ireland were only able to access abortion services in other parts of the UK and they were not provided with funding to do so until 2017. On 31 March 2020, regulations came into effect that enabled women to access abortions legally in Northern Ireland (Armitage, 2022).

The number of Northern Irish women who obtained an abortion in England and Wales fell from 1,014 in 2019 to 371 in 2020, a drop of 641. The number of abortions accessed in Northern Ireland increased but only by 41 (from 22 in 2019 to 63 in 2020).  

These numbers indicate that approximately 600 abortions that were ‘expected’ to occur in 2020 did not take place. One suggestion is that Northern Irish women in want of abortion services were prevented from travelling to England and Wales (largely because of Covid-19 restrictions). And further that they did not have knowledge of local services that could be accessed, resulting in these abortions not being undertaken (Armitage, 2022).

Access to abortion in Northern Ireland is still limited for many women since the relevant services have not yet been commissioned by the Department of Health and the Northern Ireland Executive. This is in spite of a deadline of the end of March 2022 that was put in place by the secretary of state in July 2021.

Regional differences

The number of non-resident abortions in England and Wales fell from roughly 32,000 in 1980 to 613 in 2021. Out of these, residents of the Republic of Ireland accounted for 33.6%, those from Northern Ireland for 26.3%, Scotland for 24.5% and the rest of the world for the remaining 15.7% (GOV.UK, 2022).

Within regions, there are also differences in the number of women accessing abortions. Those living in the most deprived areas in England are twice as likely to access an abortion compared with women living in the least deprived areas (see Figure 2). Similar patterns apply to Wales and Scotland.

This is also consistent with evidence from the United States, where studies report that nearly 50% of abortion patients live under the federal poverty line (Guttmacher Institute, 2016).

The least deprived women aged 40-44 have the lowest abortion rate at 4.7 per 1,000 women, while the most deprived women aged 20-24 have the highest at 46.4 per 1,000 women. This is almost ten times higher.

For all deprivation levels, women aged 20-24 form the largest group obtaining an abortion in England, Wales and Scotland (29% of all abortions in the UK are sought by women in this age group). The second largest group accessing abortions are women aged 25-29 (GOV.UK, 2022; Public Health Scotland, 2021).

As a result, it appears that abortion services to a great extent concern young and vulnerable women in society, for whom abortion accessibility can be highly critical in shaping their future.

Figure 2: Demographic disparities in abortion rates across the UK

Source: GOV.UK, 2022

Are abortion rights under threat in the UK?

There is strong support for abortion rights in the UK. A recent survey indicates that 90% of UK adults think that women should have access to abortion services (MSI Reproductive Choices UK, 2020). By contrast, in the United States 61% of adults agree that abortion should be legal in all or most circumstances (Pew Research Centre, 2022).

But there is still a worry that the reversal of Roe v. Wade will provide momentum for UK anti-choice organisations and an increase in funding coming from the United States (Oppenheim, 2022).

Jonathan Lord, medical director of MSI Reproductive Choices UK, has pointed out that UK-based anti-abortion campaigners are ‘very small in number, but they are exceptionally well-organised and well-funded. The funding, which all pretty much comes from America as far as we know, will just ramp up [following the rollback of Roe v. Wade]’ (Oppenheim, 2022).

A more direct threat may come from an apparent reversal of previous commitments to women's sexual health and abortion rights by the UK government in recent weeks.

As part of an intergovernmental conference on freedom of religion or belief held in London in July, the government issued a multinational statement that 22 countries signed up to. This included a pledge to repeal any laws that ‘allow harmful practices, or restrict women’s and girls’ […] sexual and reproductive health and rights [and] bodily autonomy’. 

But the statement was later amended with references to these rights removed. The new document has been signed by only six countries, including the UK and Malta (where abortion is illegal). Human rights, pro-choice and international aid organisations have urged the immediate reversal of the amendments and a clarification of the reasons for which the deletions were made in the first instance.

This is a reminder that there needs to be appropriate government support for the supply of abortion services. This is especially the case as, despite a common legal framework, access and rates of abortion vary across the UK. Recent events in the United States show that abortion rights cannot be taken for granted.

Where can I find out more?

• Roe v Wade: UK anti-abortion activists use US reversal to build support: Article from Maya Oppenheim.
• Abortion statistics in England and Wales: Department for Health and Social Care.
• Termination of pregnancy statistics: Public Health Scotland.
• Abortion in Northern Ireland: decriminalisation, Covid-19 and recent data: Paper in The Lancet.
• Stella Creasy moves to make abortion a human right in British Bill of Rights: Article in The Independent.

Who are experts on this question?

• Ernestina Coast, London School of Economics
• Samantha Lattof, Maila Health
• Yana Rodgers, Rutgers University
• Brittany Moore, University of North Carolina at Chapel Hill

Authors: Alicja Kobayashi and Madeline Thomas

Photo by Amparo Garcia from iStock

The post Does access to abortion vary across the UK? appeared first on Economics Observatory.

In reality, this may be an underestimate because it does not reflect the large increase – since 2019 – in workers who occasionally work from home. Further, the proportion of workers who are doing their jobs from home is not evenly distributed between sectors or regions of the UK.

Will the transition to home working be permanent?

The pandemic has led to important and seemingly permanent structural changes in how we work. So far, the expected reversal of the massive Covid-19-induced increase in remote working is only partial, and few expect a full return to pre-pandemic office working in the long run.

The UK is not alone in this shift. In the United States, for example, roughly half of paid work hours were done from home between April and December 2020, compared with 5% before the pandemic (Becker Friedman Institute, 2021).

Employers in the United States plan for workers to supply 20.5% of full working days from home after the pandemic ends. Most workers welcome the option to work remotely one or more days per week, according to the Survey of Working Arrangements and Attitudes (SWAA; see Barrero et al, 2021).

There is now substantial evidence to suggest that the increase in remote working – and the corresponding decline in working at the office – will be a permanent shift (De Fraja et al, 2022a; Bloom et al, 2022).

In the UK, recent estimates based on employers’ plans indicate that remote working will be 20 percentage points higher in the foreseeable future than it was in 2019 (De Fraja et al, 2022b). This is roughly in line with the change shown in data from the UK quarterly LFS, and similar to figures for the United States.

A key determinant of whether or not an individual works remotely is the nature of their job (Dingel and Neiman, 2020a; Adams-Prassl, 2020; Dingel and Neiman, 2020b). Job characteristics are also important in determining which occupations will see the largest permanent increases in remote working (De Fraja et al, 2022b).

The biggest growth in remote working tends to be in occupations that already had relatively high rates before the pandemic (see Figure 1). This is important for the regional implications of working remotely in the UK. Specifically, differences in occupational composition across regions lead to variation in the permanent change in working from home.

In 2019, Greater London had 6.7% of workers in health and caring occupations, but 20% in corporate management and business or media, compared with 12.5% and 8.9% respectively in Tees Valley (ONS, 2019).

Because health and care workers have much lower rates of remote working than business and management workers, these labour force composition differences may drive persistent disparities in remote working. This has potentially profound implications for local economies.

Figure 1: Remote working before and after the pandemic by occupation

Source: De Fraja et al, 2022a

How and why does remote working differ across the UK?

Data from the quarterly LFS show substantial regional variation in the proportion of employees who reported normally working from home in the first half of 2022 (see Figure 2).

In London and the South East, around 30-34% reported normally working from home. Comparably, in the North East and Yorkshire and the Humber, this was below 20%. Notice that in 2019, we did not see the same pattern: remote working rates in London were comparable to those in the North of England.

Figure 2: Normally working from home, 2019 compared with 2022

Source: Quarterly LFS, January-June

Note: Values indicate the percentage of respondents who report ‘normally working from home in their main job’.

This regional variation is also reflected in employers’ plans, as reported in the SWAA. For example, in the South West, employers expect a reduction of up to 44% in the amount of work performed at the office, compared with 36% in the West Midlands (see Figure 3).

Figure 3: Expected reduction in work done on business premises by region

Source: SWAA

Note: The sample includes workers who are able to work from home (as revealed by having done so at some point during the pandemic). From the January 2021 to June 2022 SWAA waves, we obtain employer plans for remote working post-Covid-19. We estimate that the reduction in person days on business premises as the average percentage of full working days from home planned is minus 4.7% (the pre-Covid-19 working from home average based on Understanding Society survey estimates).

Urban areas in England and Wales are expected to see the largest changes in remote working from pre-pandemic levels. Rural areas are likely to see much more modest changes (see Figure 4).

Figure 4: The employer-planned change in remote working for England and Wales

Source: De Fraja et al, 2022a

Note: Values indicate the percentage of work that will be done from home, according to responses to the SWAA question ‘After Covid-19, in 2022 and later, how often is your employer planning for you to work full days at home?’

What are the implications of remote working for regional economies and policy?

The shift to remote working will benefit millions of workers in England and Wales. The average UK employee views working from home two to three days a week as equivalent to a 6% pay raise (Mizen et al, 2021). But the aggregate shift to remote working will affect the economy in several other ways.

Locally consumed services

The change means that many workers are spending more time in the residential neighbourhoods in which they live, and less time in the city centres where they work (De Fraja et al, 2021).

This shift in the geography of where work is done will have consequences for locally consumed services, such as cafes, hairdressers and retail shops. It is estimated that working from home will reallocate £3 billion in retail and hospitality spending from city centres to residential neighbourhoods in England and Wales (De Fraja et al, 2022a). Local authorities in central London will be hit hardest by this change.

Other work finds that, on average, a neighbourhood that experiences a 20% decrease in commuter traffic, due to remote working, will experience a 7% reduction in spending on locally consumed services (De Fraja et al, 2022b). This is in line with recent reports of restaurant closures in city centres and business districts.

There are also reasons to think that the outlets that are forced to close in city centres will not be replaced by corresponding new outlets in the areas where people live and work remotely. These areas, where demand for locally consumed services has increased, are beset by constraints on supply affecting their profitability (De Fraja et al, 2021).

Some constraints could be removed by legislation and active policy, including altering transport routes and easing planning restrictions. Others, such as the population density of the area and the availability of suitable accommodation, cannot be relaxed in the medium term.

Commuting and public transport

Having reduced commuting substantially during the pandemic, working adults in the UK now say that they would prefer to commute just two to three days a week. Further, only one in seven expect to return to commuting five days a week.

These changes imply a substantial reduction in costs and time spent travelling to work. Workers responding to the SWAA spent, in 2019, on average 29 minutes commuting and spent £5.50 per day on travel and parking costs. Over 60% commuted by private vehicle and 34% by public transport (Mizen et al, 2021).

In March and April 2021, the average commuter was travelling four days a week, compared with five before the pandemic, when 10% were not commuting at all. This figure had hardly changed a year later.

When asked about their preferences, working adults in the UK showed a preference for commuting less than they had before the pandemic, favouring just two to three days a week.

Any such reduction in commuting brings other benefits, in terms of faster and cheaper commutes for everyone, including the workers who are unable to work remotely. Traffic management regulations and, in the longer term, infrastructure planning will need to take these changes into account to maximise the positive effects of these externalities.

Housing markets

There is a growing body of evidence about the consequences of increased remote working for housing markets. By reducing the need for daily commuting, a rise in remote working weakens the link between where workers live and where they work.

Empirical evidence supports this idea, finding that the housing market premium paid for living close to the city centre has declined in many large US cities (Gupta, 2021). This has also been seen in Greater London (Gokan et al, 2022).

These findings are consistent with the predictions of theoretical analysis that working from home may reverse trends towards gentrification observed in the last two decades (Althoff et al, 2022; Brueckner et al, 2021; Delventhal et al, 2021).

The consequences for housing markets within the UK could also reach well beyond London. Needing to commute two days per week rather than five makes moving to larger and more affordable housing in smaller cities, villages and rural locations more of an option. Evidence of greater housing price increases in recent years for less productive local authorities in England and Wales is consistent with this behaviour (Gokan et al, 2022).

How might remote working affect the levelling-up agenda?

There is a dearth of research on the effects of these changes and differences between regions on inequalities across the UK, apart from recent use of transactions data (Levelling Up Live 2021). As a result, we can only speculate on the implications for the levelling-up agenda.

Differences in remote working may directly affect regional productivity. Research suggests that adoption of remote working has a small positive effect on firm performance (Harker Martin and MacDonnell, 2012; Bloom et al, 2015). Self-reported evidence suggests a 7% improvement in productivity relative to expectations, but workers claim to be 4% more efficient in the office (SWAA).

These effects are small compared with the differences in productivity between industries. As a result, the largest impact on regional productivity is still likely to be industrial composition by region.

But if firms in relatively productive industries relocate to below-average productivity regions and those workers also work remotely 20% more than five years ago, we might expect productivity to rise in those places and fall elsewhere.

The weakening link between where workers live and work also has the potential to affect the levelling-up agenda by reallocating high-skilled workers from the South of England – where property is relatively expensive – to regions further north – where property is relatively affordable (Brueckner et al, 2021; Gokan et al, 2022).

This reallocation will lead to high-productivity workers continuing to work in high-productivity parts of the country but living in lower-productivity areas.

What further evidence is needed?

The ONS has published data for regional labour productivity at the ITL1 level (for example, East Midlands, Greater London, and Yorkshire and the Humber) in 2020 (ONS, 2020). It is beginning to make regional capital data available at the same disaggregated level and intends to make multi-factor productivity (MFP) estimates – which account for capital inputs as well as labour inputs – available as part of its 2021-23 plan. When these data are available, the ONS should be able to estimate disaggregated/regional total factor productivity (TFP) – a measure of growth in output in excess of growth in inputs (labour and capital).

The ONS has good quality data on housing at the local authority level, allowing an analysis of the impact of remote work on housing. It also has data on commuting from the census. But evidence on remote working patterns is more limited, except through analysis of job vacancy data, the Opinion and Lifestyle Survey and data from the Annual Population Survey. Importantly, none of this is published at the regional level.

Where can I find out more?

• Working from home survey: The Survey of Working Arrangements and Attitudes collects information on current and future working from home from a representative sample of workers in each country. It is led by Jose Maria Barrero, Nicholas Bloom and Steven Davis for the United States, and by Paul Mizen and Nicholas Bloom for its UK counterpart.
• Homeworking in the UK – regional patterns: Using data from the UK LFS, Owain Nolan, James Probert, Nick Chapman, Chris Hendry and Addie Knight document regional patterns in working from home across the UK from January 2019 to March 2022.
• Remote working and the new geography of local service spending: Gianni De Fraja, Jesse Matheson, Paul Mizen, James Rockey and Shivani Taneja estimate the effect that the increase in remote working will have on spending on locally consumed services across England and Wales. They estimate that a neighbourhood experiencing a 20% decline in commuter traffic is expected to experience a 7% decrease in local service spending.
• How the rise in teleworking will reshape labor markets and cities: Toshitaka Gokan, Sergei Kichko, Jesse Matheson and Jacques-Francois Thisse show that teleworking will lead to a movement of skilled workers from high- to low-productivity cities. They find that empirical evidence from housing prices in England is consistent with this behaviour.

Who are experts on this question?

• Brent Nieman, The University of Chicago Booth School of Business
• Jesse Matheson, University of Sheffield
• Paul Mizen, University of Nottingham
• Nicholas Bloom, Stanford University
• Jonathan Dingel, The University of Chicago Booth School of Business
• Henry Overman, London School of Economics and Political Science
• Gianni De Fraja, University of Nottingham
• James Rockey, University of Birmingham

Authors: Gianni De Fraja, Jesse Matheson, Paul Mizen, and James Rockey

Picture by JSX80 on iStock

The post What does remote working mean for regional economies in the UK? appeared first on Economics Observatory.

Despite significant Ukrainian gains in September, neither side currently appears powerful enough to win the conflict outright. As a line of contact stabilises and parts of eastern Ukraine remain under Russian occupation, is a military stalemate likely? And what might be the economic consequences of the absence of a negotiated agreement?

How has the conflict progressed and is a military stalemate likely?

Russia launched its so-called ‘special military operation’ in Ukraine in February 2022. But Russia’s military involvement in Ukraine dates back to 2014 when it supported separatists in the eastern regions of Donbas and Luhansk, and the southern peninsula of Crimea. Russia annexed the latter after an illegal referendum in the same year.

The conflict in eastern Ukraine was fought between separatists backed by Russia and Ukrainian forces that were, at first, an amalgam of informal militias and the Ukrainian army. Over time, this became an increasingly centralised and effective military force.

The conflict simmered at low intensity, with a relatively stable line of contact stretching from north of the city of Luhansk to east of the city of Mariupol. Despite sporadic episodes of heavy fighting, movement of people and goods across the contact line resumed, although this was heavily controlled through a small number of border crossings.

Russia’s role in the conflict was initially debatable, but the origin of the ‘little green men’ became well known, and in 2015, Russian president Vladimir Putin admitted to their presence. Military support often guised as humanitarian aid and the direct involvement of military personnel ensured high levels of control over the separatist armed groups and region by Russia.

Russia began amassing troops near the Ukrainian borders with Russia and Belarus around March 2021. Claiming to want to protect ethnic Russians from genocide, Vladimir Putin launched a full-scale invasion of Ukraine on 24 February 2022. This included bombing across the entire Ukrainian territory and an attempt to take the capital city, Kyiv.

Despite predictions of imminent defeat for the Ukrainian army, the Russian army ultimately failed to achieve their primary military objectives. This was due to a combination of staunch Ukrainian resistance and poor logistics.

In late March, the Russian defence ministry refocused its military power on eastern Ukraine, aiming to create a land bridge between Crimea and the separatist regions. Russia employed brutal and often indiscriminate military tactics to take the strategic cities of Kherson in March, Mariupol in mid-May and Severodonetsk in late May.

Russia didn’t succeed in achieving its initial goals, and while significant tracts of land in eastern and southern Ukraine came under occupation by Russian forces, Ukrainian forces are increasingly pushing the Russian army back.

Indeed, in recent weeks, Ukrainian forces have forced Russian troops to retreat, especially in the north-eastern region of Kharkiv, where the Ukrainian government claims to have liberated over 3,000 square kilometres. In response to this military setback, Putin ordered the mobilisation of army reservists to support the ailing campaign.

But despite a successful Ukrainian counter-offensive, there are early signs of a military stalemate. Neither side appears strong enough to win the conflict outright.

What are the prospects for a negotiated settlement?

The international community will play an important role in how Russia’s war in Ukraine ends. The invasion was largely condemned, although there were some notable absences, such as China, North Korea, Iran and Syria.

Western states have responded in two ways. First, the West imposed debilitating sanctions that targeted the Russian economy. Sanctions are inflicting large costs on people in Russia, but their effectiveness in making the Russian elite abandon their foreign policy goals in Ukraine is not clear.

Generally, economic sanctions can inflict costs on target states, but many question whether they are the most effective foreign policy tool for forcing states to change their course of action. Writing over two decades ago, Robert Pape argued that: ‘Pervasive nationalism often makes states and societies willing to endure considerable punishment rather than abandon what are seen as the interests of the nation.’ Iran has since become testament to this claim.

While it is difficult to assess public opinion in Russia, early polls suggested that its citizens supported the invasion, and polls show high approval rates for Russian leadership. As winter approaches, Russia is flexing its own economic muscles by halting important energy supplies to Europe. While unprecedented in scale and scope, it is not obvious whether economic sanctions will stop Russia’s aggression in Ukraine or force the country to the negotiating table.

Second, the West has supplied military equipment to support Ukraine in its fight against Russia. In an unprecedented move, the European Union sent military assistance to support the Ukrainian armed forces. At the same time, the UK and the United States have provided effective weaponry aimed at providing Ukraine with the tools to overcome Russia’s important military advantages.

While surveys indicate that the Western public overwhelmingly supports their states’ response to the Russian invasion, a small but growing group are raising concerns over warmongering. For example, in the UK, the former leader of the opposition Labour Party, Jeremy Corbyn, urged Western countries to stop arming Ukraine because it will ‘prolong and exaggerate’ the war.

There is a large body of relevant research on the role of external states in civil wars and, specifically, the mixed track record of interventions in ending hostilities. Interventions affect the capabilities of opposing sides in a conflict and, ultimately, conflict duration.

Existing theories tend to focus on a balance of power between government and rebel forces, which is often measured in troop numbers, military capabilities and resources. External support may shorten wars if it is provided to one side, but not both. Certain forms of support – mainly money and weapons – cause greater uncertainty over fighting capability, which causes sides to continue fighting rather than settle the dispute.

Although there is variation in the role of external states and conflict duration, a consensus has emerged that conflicts tend to be harder to resolve when external states intervene, especially if the two sides achieve some form of military parity. With increasingly effective military support reaching Ukrainian troops on the frontline, it is unlikely that the conflict will end soon.

There is a larger trend for conflicts not to end in victory or an agreement. Researchers have argued that a norm emerged in the 1990s that led the United States to accept high costs to achieve negotiated settlements despite having the ability to help proxies achieve outright military victories. Due to a logic of appropriateness, Western policy-makers came to think that wars should end a certain way, namely through compromise based on democratic principles.

These experts also note that an emerging goal of stabilisation marked conflicts in Iraq and Afghanistan. Indeed, conflict termination data from the Uppsala Conflict Data Program (UCDP) show that conflicts are increasingly likely to end in low-intensity activity – that is, conflict continues but does not amount to more than 25 battle-related deaths per year. Combined, most research points to a military stalemate and, ultimately, a low-intensity or frozen conflict.

What might a frozen conflict look like?

It is difficult to predict how Russia’s war in Ukraine will develop. A settlement that sees Russia retreating to the pre-conflict line of contact is hard to imagine. Neither Russia nor Ukraine is prepared to agree to a negotiated settlement that ultimately amounts to failure to achieve their aims.

And yet a United Nations-backed deal negotiated by Turkey to allow the export of grain from Ukraine provides ‘a beacon of hope’ that Russia and Ukraine may cooperate, at least in economic matters that benefit both sides.

Taking both the unlikelihood of a negotiated settlement to the war and emerging cooperation in trade, a possible future scenario is a protracted conflict with a volatile line of contact. In time, occupied lands in eastern Ukraine may be annexed by Russia through unrecognised referenda or a de facto state may emerge from an increasingly cold conflict.

De facto states are not recognised by most states and thus do not have access to the legal rights afforded to states. As there is no international legal protection for their existence, they are often at risk of being forcibly re-integrated into their ‘parent’ state – in this case, Ukraine – and rely heavily on their external patron for protection – in this case, Russia.

There is a rich body of research on de facto states with a regional focus on the post-Soviet space. Places like Transnistria, Nagorno-Karabakh, Abkhazia and South Ossetia were part of the Soviet Union. But de facto states also exist elsewhere in the world, for example Taiwan, Somaliland and Rojava.

Researchers focus on how these state-like entities emerge and how long they last until they are either re-incorporated into their parent state – as was the case when Russia invaded Chechnya in 1999 – or they are recognised by the international community – as was the case with South Sudan in 2011. Scholars therefore often focus on the dynamics of recognition and non-recognition, or on processes aimed at settling the conflict between the de facto state and its parent.

What will be the economic consequences of a frozen conflict?

The economic consequences of the war are dwarfed by the current human suffering and loss of life. Yet the economic impacts of war on Ukraine and beyond are immense. In the short term, Ukrainian economic output is currently a fraction of its pre-war levels.

Ukraine and Russia are the biggest producers in agriculture and food globally. Described collectively as the breadbasket of the world, restricted economic activity within Ukraine and its limited ability to export raw goods, particularly food, have led to soaring food costs.

This is directly linked to inflation in Europe, but crucially, record goods prices have triggered a global crisis that is driving millions into poverty and hunger, especially in low- and lower-middle income countries. Despite recent shipments of grain, the Russian blockade of Ukrainian ports and sanctions against Russia mean that food prices are likely to increase further.

The long-term economic costs of the war are equally alarming. People directly affected by violence are maimed, killed and displaced. Children miss out on crucial years of education and training. Combined with the loss of property and infrastructure – such as roads, bridges and equipment – all of this will significantly reduce future economic activity of people and areas most affected by the war.

The destruction of human and physical capital has reduced Ukraine’s macroeconomic performance, and a frozen conflict will prolong the economic costs of this war. While post-conflict states often experience a rapid economic rebound, a frozen conflict is unlikely to follow such a path.

As the conflict cools and a de facto state emerges in contested parts of Ukraine, a semblance of order will return for civilians in their everyday lives. But economic activity in de facto states is often restricted because they are not internationally recognised.

There may be informal trade into the de facto state over the line of contact. This dynamic was clear in Northern Ireland during the conflict known as the ‘Troubles’ and the civil war in Colombia – two wars heavily marked by cross-border smuggling and narco-trade.

But exports from government and Russia controlled areas are unlikely to resume to pre-war levels. In the absence of concessions by Russia to allow Ukrainian exports, sanctions that limit Russian agricultural exports will remain while Ukraine’s most industrial lands are ravaged by war.

Exports from occupied lands in the east and south will be limited to Russia and its allies, both of which will not be able to trade on international markets due to economic sanctions. Ultimately, a frozen conflict will ensure that the global economic crisis persists.

It is thus no surprise that Ukraine launched a counter-offensive in late August and September. It aims to signal the ability to regain Russian occupied lands to external supporters whose resolve will weaken if Ukraine cannot show that they can prevent a frozen war with such high economic costs.

Where can I find out more?

• The puzzle of peace – towards inclusive development in fragile contexts: United Nations University-WIDER Development Conference.
• The institutional legacies of violent conflict: United Nations University-WIDER project.
• The economic consequences of the war: articles and video from CEPR.
• The economic consequences of the Ukraine war: ebook by Luis Garicano, Dominic Rohner and Beatrice Weder di Mauro.
• The war in Ukraine: civilian vulnerability, resilience, and resistance: article by Patricia Justino.
• Ukraine has become a bloody stalemate – we need a settlement to end the fighting: Democracy Now interview with Anatol Lieven.

Who are experts on this question?

• Kristin Bakke (University College London)
• Anastasia Shesterinina (University of Sheffield )
• Dominic Rohner (University of Lausanne)
• Patricia Justino (UNU-WIDER)

Authors: Patricia Justino, UNU-WIDER and Kit Rickard, UNU-WIDER

The post What would be the economic consequences of a military stalemate in Ukraine? appeared first on Economics Observatory.

In recent months, various politicians in the UK have been celebrating what they see as the healthy state of the post-pandemic labour market. At 3.6%, the unemployment rate is currently at its lowest level since May 1974. And in June this year, the total number of workforce jobs rose by 290,000 on the quarter, going past its pre-pandemic level to a record 35.8 million.

But the reality is more complex. Economists have been quick to push back against the narrative that the labour market has recovered with high employment rates alone. For example, other labour market data from the Office for National Statistics (ONS) show that in May to July 2022, the economic inactivity rate – the share of people not working and not actively seeking work – increased by 0.4 percentage points on the quarter to 21.7%.

The important distinction here is that when people who are out of work stop looking for a job, they are no longer counted as ‘unemployed’ and are instead listed in the data as ‘economically inactive’. These data indicate that while the UK’s unemployment rate is low, there is a large number of people not working. What’s more, with prices rising – particularly for food and energy – many people in work are struggling to make ends meet.

With all this in mind, this week on the Observatory we looked at a number of challenges facing the UK labour market.

Late to work

On Tuesday, we posted an article by Jonathan Cribb, Bee Boileau and Laurence O’Brien (Institute for Fiscal Studies, IFS) on how employment of older workers has changed since the pandemic.

They note that since the 1990s, more and more people in their 50s and 60s have stayed in work. Indeed, the share of these age groups in paid employment increased from around 46% in 1994 to about 61% just before the Covid-19 crisis. This shift was driven mainly by women aged 60-65, whose employment rate increased by 25 percentage points.

But this trend is changing. On one side, there were large increases in employment rates among 65 year olds between 2018 and 2021 (due to the most recent rise in the UK’s state pension age). In contrast, employment rates of those in their 50s and 60s (a larger group) have fallen by around 1.2 percentage points since March 2020 – partially reversing the pattern seen since the 1990s. This change has been driven by increasing rates of economic inactivity and is not the result of rising unemployment rates for this age group. Specifically, there were over a quarter of a million more economically inactive people in their 50s and 60s between October 2021 and March 2022 compared with October 2019 to March 2020 (immediately before the pandemic).

Figure 1: Number of people aged 50-69 moving from employment to inactivity (and vice versa) and from unemployment to inactivity (and vice versa) within three months, by half-year

Source: Boileau and Cribb, 2022

Note: The vertical line indicates the final data point unaffected by the Covid-19 pandemic.

Figure 1 shows the trend more clearly. The rates at which people in their 50s and 60s are moving directly from employment into economic inactivity (top dark blue line) are higher than at any point since 2006 (just before the global financial crisis of 2007-09).

The IFS team find that these movements explain two-thirds of the overall increase in economic inactivity during this period. In short, since the pandemic, more and more people in their 50s and 60s have been quitting their jobs work and not looking for new ones.

Feeling insecure

A further recent trend in the UK labour market has been the rise of the gig economy (see here for a piece on how Covid-19 affected the gig economy, and here for a study on Uber drivers’ employment status). Another new article this week, by Rebecca Florisson (Lancaster University), asks whether work is becoming less secure.

According to The Work Foundation, ‘insecure work’ is characterised as a job where a worker is not guaranteed future hours or future work; has unpredictable pay or very low pay; or has low, or no, access to employment rights, protections and entitlements (such as sick pay or maternity leave).

Rebecca highlights that in 2021, over six million UK workers experienced ‘severely’ insecure work. Longer-term evidence shows that in the past two decades, at least one in five workers will have experienced severely insecure work in any given year (see Figure 2).

Figure 2: Change in the proportion of the UK workforce experiencing severely insecure work, 2000-21

Source: Work Foundation analysis of the Office for National Statistics (ONS) Labour Force Survey data, April-June 2000-2021

Note: The first pink shaded area highlights the global financial crisis. The second shaded pink area highlights the Covid-19 crisis.

Research shows that there are other knock-on effects. For example, workers in insecure jobs are at greater risk of job loss. They may also face increased negative health, wellbeing and employment outcomes. Studies show that this is particularly problematic for women, disabled workers and people from minority ethnic backgrounds.

Rebecca stresses that in the absence of any clear plan from government to reform the safety nets that insecure workers often fall through (such as statutory sick pay), nor to change the current classification of employment status, policy should focus on enforcing and protecting people’s existing rights.

Working remotely… or not even remotely working?

Many thought that the surge in working from home seen during Covid-19 would change people’s professional lives forever, for better or for worse.

On the negative side, the image of this new world of work was one of empty offices, deserted lunchtime cafes and an atomised workforce. With each employee hidden away in bedrooms, at kitchen tables or in converted garden sheds, urban centres would be left eerily quiet, a forgotten relic of an outdated system.

But on the plus side, free from the pains of commuting and office life, post-Covid-19 workers would be happier, healthier and more productive, able to enjoy more leisure time while businesses’ running costs quickly plummeted as commercial property rents nosedived.

But what does the evidence show has happened with remote working, what has it meant for productivity and is it here to stay?

One concern about the shift to remote working relates to the effects on productivity. This was examined in a new piece this week by Cristian Escudero and Mark Kleinman (King’s College London).

They are quick to establish that assessing the effects of working from home is not easy, as the change in working patterns has occurred alongside other negative effects associated with the pandemic (such as lower investment, an erosion of human capital and a decline in global trade and supply chains).

What is clear is that many employees were not provided with the necessary support or infrastructure for remote work, nor did many have the skills required. Similarly, productivity may have gone down due to increased distractions and communication costs.

But on the other hand, in this new way of working, greater job autonomy and self-leadership could have led to higher individual productivity. Further, some of the time saved from not commuting may now be being devoted to work-related activities, boosting output per worker.

Survey data indicate that almost half of the respondents felt their efficiency while working from home was about the same as working on company premises, while nearly 40% said their efficiency at home is higher (see Figure 3).

Figure 3: Efficiency of working from home versus working on business premises

Source: Barrero et al, 2021

Note: Responses to the question ‘how does your efficiency working from home during the Covid-19 pandemic compare to your efficiency working on business premises before the pandemic?’

Cristian and Mark conclude their piece by arguing that policy-makers should be sceptical of general claims being made about the impact of remote working on productivity, either in a negative or positive direction. Overall, research indicates that it may be necessary for employees to return to the workplace to regain pre-pandemic economic performance.

But they also stress that employee preferences and wellbeing should not be overlooked and should be considered carefully by policy-makers. To increase worker productivity in the UK, speaking with – and listening to – workers is a starting point.

Difficult times lie ahead for the country. Keeping workers on side – be that older employees, people working within the gig economy or those pushing for a remote/hybrid lifestyle – will be vital.

Observatory news

Meanwhile, this morning’s ‘fiscal event’ in Parliament will generate numerous takes over the coming days. We plan to post pieces related to many of the big issues – energy costs, inflation, taxes, bankers’ bonuses, growth and so on – drawing, as ever, on top quality, independent economic analysis and research evidence. Do submit any questions to which you would particularly like to see answers.

In case you missed the announcement earlier this week, the Festival of Economics will be returning to Bristol on Monday 14 to Thursday 17 November. We’re delighted to announce a packed programme of talks and events, details of which can be found here. Tickets are on sale now.

Author: Charlie Meyrick

Picture by Tirachard on iStock

The post Working backwards appeared first on Economics Observatory.

Proponents of independence have argued that North Sea revenues strengthen Scotland’s fiscal position and control from Edinburgh would lead to better decision-making. This could include saving for future generations (like in Norway) and support for the transition to renewable energy sources.

Those against argue that an independent Scotland would inherit a weaker budget position than the UK as a whole and that oil revenues are likely to be insufficient to close that deficit.

How have North Sea revenues changed over the years?

Receipts from taxes and royalties on North Sea oil and gas production have fluctuated significantly over the last 50 years. These have followed peaks and troughs in world oil prices, trends in investment, levels of production and changes in the tax regime.

Currently, companies operating in the North Sea pay three different taxes on oil and gas production: including a ring-fenced corporation tax, supplementary charge and petroleum revenue tax (PRT).

Figure 1: North Sea revenues (£ million)

Source: Statistics of government revenues from UK oil and gas production, 2022

Oil and gas revenues peaked in the early 2000s, hitting an all-time high (in cash terms) in 2008/09. But adjusting for inflation, revenues were much higher in the early 1980s, amassing – in today’s prices – nearly £35 billion in 1984/85. To put that in context, total health spending in Scotland last year was around half that, at just over £18 billion.

In recent years, receipts have fallen sharply, driven by falling production and a relatively low oil price. At the same time, changes to the fiscal regime – which determines how revenues are shared between the government and energy firms – have reduced the government’s take on each barrel of oil produced.

These changes were designed to prolong investment in the North Sea as the basin enters its twilight years. Companies can also offset some of their tax liability for decommissioning.

Until recently, revenues from the North Sea were projected to raise less than £1 billion per annum for the foreseeable future (Office for Budget Responsibility, OBR, March 2021 forecast).

But Russia’s war in Ukraine and the spike in global energy prices have sparked a dramatic turnaround. Oil prices increased from $18.38 per barrel in April 2021 to $117.25 in March 2022. Over the same period, gas prices rose from £0.55 per therm to £3.14. 

As a result, North See revenues jumped from just £500 million in 2020/21 to £3.2 billion in 2021/22.

In their March 2022 forecast, the OBR projected that North Sea revenues could rise further to £7.8 billion in 2022/23. This is well over ten times higher than pre-pandemic receipts and would be the highest fiscal return from the North Sea since 2010/11.

Others point out that the outturn figure for this year could be even higher (Phillips, 2022). Why? So far, oil and gas prices have exceeded the OBR’s March forecast.

At the same time, the UK government has increased the tax rate on profits from oil and gas production by 25 percentage points (through the energy profits levy or ‘windfall tax’). It is estimated that this alone could raise £5 billion in 2022/23.

How much North Sea activity takes place in Scottish waters?

Under the UK fiscal and regulatory regime, responsibility for North Sea revenues is ‘reserved’ to the UK government, and pooled for the benefit of the UK as a whole.

It is still possible to provide an estimate of ‘Scotland’s share’ of these revenues by measuring how much production, investment and profit are generated in waters that could be described as being ‘Scottish’.

In most statistical publications, the Scottish government uses the definition set out in the Scottish Adjacent Waters Boundary Order (1999), which paved the way for the devolution of marine policy. This is shown in Figure 2.

Figure 2: UK continental shelf and Scottish boundary

Source: Marine Scotland

Over the decades, the majority of North Sea production has taken place in Scottish waters. In 2019, 82% of total production (and 95% of oil production) is estimated to have taken place in the dark blue sector denoted as Scottish waters.

How important are North Sea revenues for Scotland's fiscal position?

Under the current constitutional settlement, there is no one government responsible for all public sector activity in Scotland. Nor is there a set of income and expenditure accounts that track all revenues collected from people in Scotland and money spent.

But each year, the Scottish government publishes a consolidated set of fiscal accounts for Scotland – the Government Expenditure and Revenue Scotland (GERS) report.

It includes both Scottish government and local government spending and tax revenues, but also UK government spending and taxes spent for and raised on behalf of the people of Scotland.

For context, Figures 3 and 4 illustrate the balance of devolved (i.e. Scottish government) versus reserved (i.e. UK government) expenditures and revenues in Scotland.

Figure 3: Devolved and reserved revenues, 2020-21

Figure 3 shows that over 64% of revenues in Scotland are set and collected by the UK government even after significant fiscal devolution through the Scotland Acts of 2012 and 2016.

In contrast, Figure 4 shows the share of expenditure in Scotland that is controlled by the Scottish government. Here we see the opposite picture, with the majority (55%) of public expenditure in Scotland now devolved.

Figure 4: Devolved and reserved expenditure, 2020-21

Each year, the GERS report attracts considerable attention given its relevance for the Scottish independence debate. It is regularly used to argue the case for or against Scottish independence.

It is important to note that they are based upon the current constitutional settlement. But there is widespread recognition that while any such estimates are subject to margins of error and most importantly different choices (depending on the decisions an independent Scotland may take on spending and taxes or the outcome of negotiations with the UK government on any transition and division of assets and liabilities), they remain the best place to start for analysis of what an independent Scotland’s public finances might initially look like.

Figure 5 shows the estimated difference between revenue and expenditure – the net fiscal balance – for Scotland since 1998.

Figure 5: Net fiscal balance: Scotland and UK, 1998/99 to 2021/22

Source: GERS, 2022

As Figure 5 shows, North Sea revenues have important implications for any assessment of Scotland’s notional ‘fiscal deficit’.

First, until the fall in revenues from 2010 onwards (see Figure 1 above), including a geographical share of North Sea revenues significantly improved Scotland’s estimated fiscal position.

Second, in most years, Scotland is estimated to have a weaker position than the UK as a whole – largely driven by higher spending per head – but this relative gap is closed (and even eliminated on occasion) when oil revenues are included.

What might the recent spike in oil revenues mean for the independence debate?

The Scottish government has announced plans to hold a referendum on Scottish independence in 2023 (although this is currently subject to a referral to the UK Supreme Court). As we set out in our series of articles earlier this year, debates over the economics of independence are likely to feature heavily in any prospectus, as they did in the 2014 referendum.

The most recent figures show that Scotland’s estimated budget deficit fell from 22.7% of GDP in 2020/21 to 12.3% of GDP in 2021/22. This is a reduction, relative to GDP, of just over 10 percentage points. The UK’s deficit fell from 14.5% of GDP in 2020/21 to 6.1% of GDP the following year – a reduction of just over 8 percentage points. The key reason for this relatively ‘better’ performance in Scotland was the increase in the value of North Sea oil and gas output and revenues.

Remember that revenues for 2022/23 are expected to be higher still. So, will this be universally good news for Scotland?

Whether Scotland’s fiscal position improves in 2022/23 won’t just depend on what happens to energy prices. Broader economic developments will also play an important role.

For example, in recent months, the UK government has announced a package of financial support for households to help them with rising energy bills, with more measures currently being announced. This will increase spending across the UK, including in Scotland. At the same time, if the economy enters a recession, this will weaken growth in tax revenues more broadly, while higher inflation will feed through to higher debt interest.

The net effects of all of this on the deficit are complex and, at this stage, uncertain. Nevertheless, it is very likely that the different factors affecting the public finances at the current time will be – in relative terms – ‘better’ for Scotland than the UK as a whole.

In short, the key beneficial public finance effects – oil and gas revenues – will be concentrated in Scotland, whereas the costs – such as higher spending or the effects of a recession – are spread across the UK as a whole.

The Institute for Fiscal Studies (IFS) estimates that oil and gas revenues would need to total around £14.5 billion this year for the Scottish implicit deficit to match that of the UK as a whole. They conclude that ‘such a figure is plausible, and may be exceeded’.

This may well change the context of debate around Scottish independence and be more favourable to the ‘Yes’ campaign.

But it is important to note that the long-term trend for oil and gas revenues is for a phased decline. Oil and gas production peaked in 1999 and remaining reserves are now in more challenging and costly areas of the North Sea.

At the same time, governments – including the Scottish government, in which the Green Party holds two ministerial positions – are committed to the transition from fossil fuels to renewable forms of energy, with the objective of reaching net-zero carbon emissions.

Conclusion

North Sea revenues are on track this year to jump to levels not seen in over a decade. Higher oil prices are likely to strengthen Scotland’s relative fiscal position vis-à-vis the UK as a whole, although it is likely that the overall public finances will weaken. Relying upon high oil and gas revenues is unlikely to be a long-term strategy for an independent Scotland’s public finances. Tough choices on tax and spending, and efforts to improve economic growth, will still be needed.

Irrespective of this outlook, Scotland – like many other countries – faces important long-term fiscal challenges associated with an ageing population and rising healthcare spending. Whether constitutional change will make these challenges easier or harder to solve is likely to be a key fault-line in any future debate on Scottish independence.

Where can I find out more?

• Government Expenditure and Revenue Scotland, 2021-22: Scottish government publication on revenue, spending and the overall position of the public finances in Scotland.
• Government Expenditure and Revenue Scotland (GERS): A look beyond nearly 30 years of controversy at what it does and doesn't tell us about Scotland: by Graeme Roy and Mairi Spowage.
• Approach to fiscal sustainability consultation paper and Trends in Scotland’s population and effects on the economy and income tax, Scottish Fiscal Commission, August 2022.
• Country and regional public sector finances: financial year ending 2021: Office for National Statistics publication on revenues, spending and public finances by UK nation and region.
• Scotland – the new case for optimism: The report of the Scottish National Party’s Sustainable Growth Commission.
• The Scottish National Party’s economic prospectus for independence: Out with the old? Article in Political Quarterly.

Who are experts on this question?

• David Bell, University of Stirling / University of Glasgow
• Stuart McIntyre, University of Strathclyde
• James Mitchell, University of Edinburgh
• Gemma Tetlow, Institute for Government
• David Phillips, Institute for Fiscal Studies
• Graeme Roy, University of Glasgow

Authors: Stuart McIntyre and Graeme Roy

Picture by nielubieklonu on iStock

The post Higher North Sea revenues: what impact on Scotland’s independence debate? appeared first on Economics Observatory.

Unemployment rates

The headline UK data indicate a tight labour market with low numbers of people unemployed and high numbers of vacancies. The unemployment rate sits at 3.8% for the period between March and May 2022, down 1.1 percentage points from the previous year. Similarly, there is around one unemployed person for every vacancy that exists at the moment, compared with 1.9 this time last year.

While we do not have a regional breakdown of data on vacancies, we can see what is happening to unemployment across regions of the UK.

Most regions now have lower unemployment rates than they did in the immediate pre-pandemic period (see Figure 1). Unemployment rates were generally around historic lows at that time (see Figure 2).

Figure 1: Change in the regional unemployment rate (16+) between January-March 2020 and April-June 2022 (latest data)

Source: Office for National Statistics (ONS)

Figure 2: Regional unemployment rates (16+), post 1992 high/low, January-March 2020 and April-June 2022 (latest data)

Source: ONS

Economic inactivity

The headline measure of economic inactivity covers a broad range of situations in which people of working age (16-64) are unable to be economically active. These include some we might think of as ‘good’ reasons for economic inactivity, including being a student, as well as more worrying reasons, such as long-term ill health.

Given the impact of the pandemic on the health of the UK population, there has been a significant amount of attention paid to economic inactivity over the past year, as public health restrictions have all but ended. An additional trend that seemed to emerge during the pandemic has been a rise in retirement, which is another reason why people of working age might be economically inactive.

Figure 3: Change in economic inactivity among people aged 16 to 64 by reason, April 2021 to March 2022 compared to April 2019 to March 2020

Source: ONS

Most regions have more people who are economically inactive now than in the year prior to the pandemic (the white squares in Figure 3 indicate the overall change by region in Figure 3).

In most regions, the key drivers of more people being economically inactive are ill health, retirement and because they are students. At the same time, the number of individuals who are economically inactive because they are looking after family or the home is generally declining.

Earnings

Undoubtedly, the big story in the labour market remains wage growth lagging well behind inflation, which means that many households face a cost of living crisis.

New data also show that inflation has hit 10.1%, while this week’s labour market data highlight that over the past year, average total pay growth was 5.1%. Pay growth was higher for those working in the private sector – at 5.9% – while public sector pay grew by only 1.8%.

The headline monthly measure of earnings does not come with a regional breakdown, but there is a relatively new data source – known as the ‘pay as you earn real time information’ dataset – that does provide this.

The measure is designated as an ‘experimental statistic’, as it is still in the development phase, and so should be used with more caution than ‘national statistics’ publications.

What do these data show?

While median pay growth for the UK as a whole in these data is slightly higher (at 6.6%) than the headline measure (which is only 5.1%), there is variation across regions (see Figure 4). The biggest increase in median pay over the past year has been in the South West and the lowest in Northern Ireland, at 7.6% and 4.7% respectively.

Just as there is variation across regions, there are also differences within regions. Both the East Midlands and Yorkshire and the Humber have a difference of 1.7 percentage points between the areas with the fastest and slowest pay growth.

Median pay in North Yorkshire grew by 8.2% over the past year, but only by 6.6% in West Yorkshire. Meanwhile, in the East Midlands, median pay in Derbyshire and Nottinghamshire grew by 7% over the past year compared with only 5.4% in Lincolnshire.

A number of factors are driving these differences, including the types of businesses and the nature of work in these areas.

Figure 4: Annual growth in median pay of payroll employees by region ITL1 and ITL2

Source: ONS

The coming months will be very difficult for households across the UK, with inflation forecast by the Bank of England to rise above 13%, and wage growth struggling to keep pace.

Figure 5: Consumer price index (CPI), percentage change

Source: ONS

What these new data highlight is the diversity of economic experience across different parts of the UK over the past couple of years. It is this that should provide the starting point for analysis as we head into exceptionally challenging economic times.

Where can I find out more?

• Labour market in the regions of the UK: This publication from the Office for National Statistics provides a comprehensive overview of all the available data.
• The labour market is making history for the wrong reasons: Resolution Foundation article by Nye Cominetti and Hannah Slaughter.
• Long Covid and the labour market: Report by the Institute for Fiscal Studies.

Who are experts on this question?

• Stuart McIntyre
• Jonathan Wadsworth
• Stephen Machin

Author: Stuart McIntyre

The post The UK’s regional labour markets: what do the latest data reveal? appeared first on Economics Observatory.

For months, many people did their jobs without travelling into work, often in makeshift offices and workspaces, which led to a substantial reduction in commuting. This caused a surge in demand for larger, rural and/or suburban houses with extra rooms, and was at one stage hailed as the start of a big city exodus.

But now that the worst of the pandemic has eased, effective vaccines have been rolled out and many people are returning to their places of work, how have remote working patterns developed?

Between the end of 2019 (Q4) and the start of this year (2022 Q1), the number of people in the UK working from home more than doubled, climbing from 4.7 million to 9.9 million. That’s according to new data from the Office for National Statistics (ONS) – see Figure 1.

Compared with before the pandemic, there are now over five million more people working remotely in the UK. This is roughly the equivalent of the entire working population of Austria.

The increase has varied by nation, with the largest growth in home-working seen in Scotland (up by 203.5%, or 544,000 people). The smallest change has been in Northern Ireland (increasing by 56.4%, or 49,000 people).

Figure 1: Changes in home-working by UK nation/region (2019 Q4 to 2022 Q1)

Source: ONS

Looking at the regions of England, it is the richer places where the share of home-working grew the most. The places with the highest percentage of people working from home in 2022 Q4 were London (increasing by 37%, up by 1.9 million), the South East (36.9% or 1.6 million) and the East of England (31.1% or 903,000). In contrast, the regions with the lowest share were the North East (22.4% or 262,000) and Yorkshire and the Humber (26.2% or 668,000).

People with traditionally higher-paid jobs – such as those working in finance or professional services – can do their jobs at home more readily. In most cases, all that is required is a stable internet connection and perhaps a private room.

In contrast, jobs that are typically lower paid – such as retail, hospitality, manufacturing or social care – require personal interaction, physical labour and/or tools and machines located in the workplace.

It is therefore unsurprising that richer parts of the country, with a higher concentration of people working in higher-paid desk-based roles, saw a greater shift to home-working over the course of the pandemic.

How did this affect commuting between regions?

Unsurprisingly, commuting patterns also changed drastically – see Figure 2. Between late 2019 and early 2022, the number of regional commuters – defined as those working in one region but living in another – fell across the UK by 26.1% (down by a total of 629,000 individuals).

This decline was seen in all UK regions, but was largest in London (decreasing by -36.8%, down by 367,000 people), followed by the South East (-19.1%, down by 117,000) and the East Midlands (-21.2% or 32,000 fewer commuters).

Figure 2: Commuting patterns by UK nation/region (2019 Q4 to 2022 Q1)

Source: ONS
Note: There were no commuters in or out of Northern Ireland from other UK regions in either the October to December 2019 sample or the January to March 2022 sample. Northern Ireland is therefore absent from the figure.

What about hybrid working?

As restrictions eased, some workers adopted a hybrid working pattern, choosing to work remotely on some days and travelling into the office on others. Many enjoyed some benefits from home-working during lockdown, such as reduced commuting times and costs.

The latest ONS data capture the change in hybrid working from 2019 Q4 to 2022 Q1 – see Figure 3. By the spring of 2022, 14.3% of people (2.8 million workers) who do not mainly work from home said they did so at least once per week. This share was highest in London, with 24.3% of people working flexibly (627,000 workers), and lowest in the East Midlands, at 9.1% (126,000 workers).

Figure 3: Share of hybrid workers by UK nation/region (2022 Q1)

Source: ONS

Does home-working benefit men and women equally?

The data also highlight differences in home-working patterns between men and women. In the UK, 16.5% of men reported that they worked from home in 2019 Q4, compared with 12.3% of women. Although a greater proportion of men still worked from home in early 2022, the gap had narrowed, with 31.2% of men home-working compared with 29.9% of women.

Both men and women saw an increase in home-working across all UK regions between 2019 Q4 and 2022 Q1 (see Figure 4). Women in London represented the largest overall rise (at 24.9 percentage points). The smallest increase was for men in Northern Ireland (at only 4.2 percentage points).

Figure 4: Change in home-working percentage, by sex (2019 Q4 to 2022 Q1)

Panel A – women

Panel B – men

Source: ONS

Conclusion

The data suggest that working from home is here to stay, at least in some form. For many workers, the benefits of working remotely are clear, with less time spent commuting seen as particularly positive.

But working from home is not possible for everyone, and its popularity varies according to location, occupation and even gender. It is also unclear exactly how the rise of remote working will affect the wider economy.

Should current trends continue, it seems unlikely that we will ever return fully to pre-pandemic work patterns. How this will affect productivity, growth, working conditions and wages remains to be seen.

Where can I find out more?

• The ONS data release covering home-working are available here.
• More data on employment and employee types can be found here.

Who are experts on this question?

• Jonathan Haskel
• Paul Mizen
• Nick Bloom
• Jonathan Dingel
• Jesse Matheson
• Henry Overman

Author: Charlie Meyrick

The post Working from home: what can we learn from the latest UK data? appeared first on Economics Observatory.