Council of Management

NATIONAL INSTITUTE OF ECONOMIC AND SOCIAL RESEARCH

COUNCIL OF MANAGEMENT

President Director

Sir Brian Corby Martin Weale Appointed November 1994; Appointed October 1995; formerly Chairman of Prudential formerly Economics Fellow, Corporation plc Clare College Cambridge

Chairman of Council Secretary

John Flemming Francis Terry Appointed November 1996; Appointed October 1999; Warden of Wadham College formerly Head of Research, Oxford and a former Executive Nottingham Business School Director of the Bank of England

PROFESSOR CHARLES BEAN Professor of Economics, London School of Economics PROFESSOR WILLEM H BUITER Chief Economist, European Bank for Reconstruction and Development SIR IAN BYATT Former Director General of Water Services FRANCES CAIRNCROSS Media Editor, The Economist SIR BRIAN CORBY Former Chairman, Prudential Corporation plc SIR JOHN CRAVEN Chairman, Lonmin plc JOHN FLEMMING Warden of Wadham College, Oxford PROFESSOR CHARLES GOODHART Professor of Banking and Finance, London School of Economics SIR STANLEY KALMS Chairman, Dixons Group plc RUTH KELLY MP Member of Parliament for Bolton West HANS LIESNER Former Deputy Chairman, Monopolies and Mergers Commission SIR PETER MIDDLETON Group Deputy Chairman and Group Chief Executive, Barclays Bank plc JOHN MONKS General Secretary, TUC DR SUSHIL WADHWANI Member, Bank of England Monetary Policy Committee PROFESSOR KENNETH WALLIS Professor of Econometrics, University of Warwick MARTIN WEALE Institute Director

The Institute is an independent non-profit-making body, incorporated under the Companies Acts, limited by guarantee and registered under the Charities Act 1960 (Registered Charity Number 306083). CONTENTS

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CHAIRMAN’S PREFACE 2

DIRECTOR’S REPORT 3

RESEARCH IN 2000 Macroeconomic impact of UK withdrawal from the EU by Nigel Pain 5 Disaggregate business survey data by James Mitchell 6 International comparison of personal sector saving by James Sefton 7 Financial exclusion by Pamela Meadows 8 Unemployment to self-employment: the role of micro-finance by Hilary Metcalf 9 Moving up the ladder of improvement in mathematics by Julia Whitburn 10 The new deal for young people by Rebecca Riley and Garry Young 11 Student satisfaction with university provision by Philip Stevens 12 Trade union influence on wages by John Forth and Neil Millward 13 Designing monetary policy rules in an uncertain world by Karen Dury 14 Productivity in the electricity supply industry by Mary O’Mahony and Michela Vecchi 15 Skills, knowledge transfer and industrial performance by Geoff Mason 16 Estimates of EU industrial production (‘now-casting’) by Andrew Blake 17 The new British economy by Richard Kneller and Garry Young 18

PUBLICISING INSTITUTE RESEARCH Events during 2000 19 Books and major reports 21 Subscriber Scheme 22 National Institute Economic Review 23 Other published articles and papers presented 24 Discussion papers 27 Econometric models 27

SUPPORTERS OF THE INSTITUTE Corporate membership 28 Financial supporters 29

FINANCIAL SUMMARY 30

PEOPLE AT THE INSTITUTE Institute governors 31 Institute staff 32

1 CHAIRMAN'S PREFACE

In 2000, the National Institute concluded a review with Sage Journals to market and distribute the of its strategic directions. It aims to continue produc- National Institute Economic Review world-wide ing high quality academic research which is relevant on its behalf. The Institute retains ownership of to the needs of business and public policy makers the title, copyright and full editorial control. The and, in keeping with its original purpose, will do so journal is also adopting a more ‘open’ approach from an independent, non-aligned position. to the publication of articles by non-members of staff. We expect these changes to increase the Last year, I reported on the first phase of the appeal of the journal and widen its readership. Institute’s review of its research and future strategy. The encouraging results from that exercise In association with Cambridge University Press provided the basis for a specially-constituted (CUP), a series of public lectures has been set up Strategy Committee to consider options for to commemorate the life and work of Professor future development and to make recommenda- Richard Stone (1913–91), distinguished Cam- tions to the Institute’s Council of Management. bridge economist and Nobel Prize Winner. A report was subsequently made at the Annual Stone’s Prize-winning study was originally pub- General Meeting in November 2000. lished by the Institute and the Department of Applied Economics at Cambridge following his The Strategy Committee found a clear consensus wartime research here. Lectures given in the among our constituents on some key issues. First, series, commencing in 2001, will result in full- the Institute’s international links – already very length published texts dealing with contempo- diverse – are being strengthened and formalised. rary problems in economic theory and policy. A European Economic Interest Grouping (EEIG) is being set up in association with the The Strategy Committee also looked at how the Deutsches Institut für Wirtschaftsforschung in Institute could utilise its healthy finances to Berlin and the Observatoire Française des provide for future development. Against a back- Conjonctures Economiques in Paris. The EEIG ground in which there is strong competition in will simplify our ability to compete for funding many areas of research, the Committee con- from European Union (EU) sources, an area cluded that we should enhance our complement where the Institute has a growing record of of senior researchers by appointing Senior Visit- success. With the benefit of EU funding, the ing Fellows who hold university posts but work Institute has already begun to play an active role with us part-time in stimulating new fields of in the work of the Brussels-based Centre for enquiry. Professor Philip Davis from Brunel Economic Policy Studies. A renewed agreement University is the first such appointment. with our colleagues at the Lehrmittelverlag des Kantons Zurich in Switzerland will facilitate the Finally, the Institute has redefined its mission: continued development of educational materials for teaching primary school mathematics; and The National Institute aims to promote, through our model of the world economy continues to quantitative research, a deeper understanding of the attract new subscribers from overseas. interaction of economic and social forces that affect people’s lives, so that they may be improved. Second, there was a feeling that the Institute could disseminate its outputs more actively and We believe this encapsulates both our distinctive promote dialogue in research. After a competitive research approach and a commitment to a better tendering exercise involving major journal pub- quality of life for all. lishers, the Institute has signed an agreement

2 DIRECTOR'S REPORT

The National Institute has always been in a research institutes of which NIESR is one. A position to contribute to the public debate and central part of the analysis is that it is built round to enhance the effectiveness of public policy the National Institute’s Global Econometric from a position outside and independent of the Model (NiGEM). It is hoped that this is the Government. This sort of involvement has seen beginning of a regular programme of cooperation two important milestones in the last year. First of between the National Institute and our partners all, I became a Statistics Commissioner, joining in the rest of Europe. A large part of our pro- the new body that the Government has set up to gramme of work on international issues is sup- monitor the output of the Statistical Service. The ported by the user group for NiGEM; by the end main contribution I expect to make to the of 2000 the number of users had risen towards Commission is of a technical nature, helping the 40 and we hope to find scope for further expan- Commission to monitor the quality of statistical sion in 2001. The standing of the model and its products. This is beginning with an assessment forecasts is illustrated by the fact that these of what the Statistical Service knows about the forecasts are the only ones produced by non- reliability of its outputs, a study which will government organisations which the European eventually, I hope, lead to users having more Central Bank quotes on a regular basis. information than they currently do about the accuracy of the data with which they are pro- An increasing amount of our research involves vided. cooperation with other research organisations in Europe and with European Union institutions. The second milestone concerns public funding The two themes of Europe and statistics are of a commentary on the state of the economy. brought together by our programme of work on Until 1991 HM Treasury, the Bank of England economic statistics. This has received support and the ESRC had funded the provision of a from grants made under the European Commis- regular commentary as part of the activity of the sion’s Fifth Framework programme. A two-year Macroeconomic Modelling Consortium. This programme of work is beginning, involving four was, in itself, a continuation of the funding that partner organisations, to find ways of producing HM Treasury had provided for the National estimates of GDP and other key aggregates for Institute since the 1950s. But, in part because of the European Union earlier than are currently a confusion between, on the one hand, an eco- available. The work builds on the methods used nomic forecast like many of those produced in to produce our estimates of monthly GDP in the City and, on the other hand, an independent this country and on the work related to prompt commentary and policy analysis incorporating a estimates of EU industrial production described forecast, public support for the commentary on page 17 of this report. Other research, sup- ceased. Since then the continuing regular com- ported by the Statistical Office of the European mentary on the UK economy has been possible Commission (EUROSTAT) has looked at thanks to the support of our Corporate Members whether a business cycle can be identified in the and Financial Supporters. Euro Area. In the coming year we hope to see a further expansion of this fruitful cooperation However, I am glad to report that, once again, with EUROSTAT. the Institute is receiving funding to produce an economic commentary, albeit this time on the The current government is rightly concerned European Union rather than the UK. On this about Britain’s productivity performance, which occasion it comes from the European Parliament a number of studies at the Institute has shown to and is provided to an international consortium of be poor compared to some other industrial

3 countries. Our work has provided a basis for primary school children. Thanks largely to the further analysis both here and elsewhere. Like efforts of the Institute Secretary, I am glad to other researchers we endeavour to publish our report that much progress has been made with work in academic journals and the list of publica- publishing the teaching materials developed by tions in this report shows that we are succeeding the programme so that they can be of use to in this respect. But journals are not suitable for schools throughout the country. A web site all our output and it is gratifying to see the providing information on them is available at widespread references, particularly in official www.ipmaths.co.uk. I hope to be able to report documents, to the Institute’s publication on on an expansion of this activity at this time next comparative productivity.* Meanwhile we have year. The merit of the project and the underlying under way a study of local authority productivity, materials themselves can be deduced from the investigating how the various authorities in the fact that school test scores in Barking and country match up against each other in the Dagenham have risen more sharply than in the provision of local authority services. Other work country as a whole. For the first time Barking on productivity is planned to explain factors and Dagenham’s performance now matches the which lead to efficiency differences between national average. This exercise has required us, in countries. We hope to develop this area with order to comply with the law on charities, to set further support from the European Union, also up a trading company, NIESR Services Ltd. Any as part of its fifth framework programme. profits which accrue to this company are then covenanted to the Institute. Last year I reported that the Institute had received a large grant from the ESRC under its The strategic review of the Institute suggested evolving macroeconomy programme. In the that it would be sensible for us to strengthen our second round of applications we received a activities by increasing senior input through the second grant for work on means testing. The appointment of a number of Visiting Fellows. As study will look at the link between means testing our first step in this direction we have recruited and saving; while the Government has proposed Professor Philip Davis from Brunel University. a number of reforms of the benefit system, it has, He is working with our international economics at present, no means of assessing their impact on group on looking at international differences in savings behaviour. This work represents a devel- financial market structures. We are also making opment of earlier studies of the effects of tax and use of the Institute’s resources to provide the seed social security structures on savings behaviour finance needed to build up research links with and, in turn, we hope to build on it to expand university researchers who, for geographic rea- our work in this area. I hope that future research sons, may not be able to visit the Institute on a will include an investigation of the effects of the frequent basis. During the coming year we hope various tax exemptions and reliefs offered on to develop this further insofar as our resources different types of saving, in order to understand allow. their influence both on the level of aggregate saving and on the distribution of income and wealth in the economy.

Over a number of years I have reported on the *O’MAHONY, M. (1999), BRITAIN’S PRODUCTIVITY cooperation between the Institute and the Lon- PERFORMANCE, 1950–1966. AN INTERNATIONAL don Borough of Barking and Dagenham in PERSPECTIVE, LONDON, NATIONAL INSTITUTE OF developing new means of teaching maths to ECONOMIC AND SOCIAL RESEARCH.

4 THE MACROECONOMIC IMPACT OF UK WITHDRAWAL FROM THE EU

During 2000, research led by Garry Young and research using panel data evidence that foreign Nigel Pain has contributed, from an independent direct investment and imports both affect the standpoint, to the longstanding debate over the rate of labour-augmenting technical progress in a benefits to the British economy of membership of the number of different industries in the UK. The European Union (EU). The Institute’s location of multi-national activity was also macroeconometric model of the UK economy has examined, using a panel data set of the level of been used to assess the consequences of UK with- fixed capital formation by US-owned companies drawal from the EU, with particular reference to in nine European countries, since the mid-1960s. jobs, investment and the long-term growth prospects From this analysis, it emerges that membership of the British economy. of the EU or membership of the European Economic Area (and hence participation in the Over the past 30 years the British economy has Single Market Programme) both have a signifi- become increasingly integrated with that of the cant positive impact on the location and scale of other EU members. There have been noticeable investment. Thus the size of national economies changes in trade patterns since entry into the has to be viewed as partially determined by the EU, with a rising share of UK trade in goods and degree of integration with Europe. services now taking place with other member states. Detailed estimates from input-output This does not necessarily mean that the number tables suggest that up to 3.2 million UK jobs are of jobs in the economy is similarly affected. In an now associated directly with exports of goods economy such as the UK with flexible real wages, and services to other EU countries. This has trade and direct investment might ultimately be given rise to popular concern that some of these expected to affect only the types of jobs available jobs might be at risk if Britain were to leave the rather than the quantity. In the short term there Union. Opponents of membership on the other might be some job losses if British consumers hand argue that many of the benefits flowing and firms were denied free access to European from the increasingly integrated European markets, but higher unemployment would put Economic Area might still be available even if the downward pressure on wages and prices so that UK were to withdraw, particularly since the those losing their jobs as a consequence of trade Uruguay Round Agreement has imposed signifi- and investment ‘shocks’ could price themselves cant limits on the trade barriers that the EU can back into work. Of course national income and place on non-members. In conjunction with the living standards could still decline, even if the potential gains from withdrawing from the quantity of jobs was ultimately unchanged. Common Agricultural Policy and no longer paying net fiscal contributions to the EU, there is The provisional conclusion from the Institute’s a case that withdrawal from the EU might actu- model-based estimates is that the level of real ally offer net economic benefits. gross national income would be around 1½–1¾ per cent lower outside the EU than inside, with New theories of economic growth in open GDP at constant prices being 2¼ per cent lower economies stress the importance of knowledge, permanently than in the baseline case of contin- both codified and tacit, brought in through ued EU membership. These estimates appear international trade and direct investment in the broadly equivalent to the gains that other EU economy by foreign firms. Such transfers may economies are estimated to have made from the indeed have permanent effects on output and the European integration process. growth process by affecting total factor productivity and technical change. It is clear from ENQUIRIES TO: [email protected]

5 DISAGGREGATE BUSINESS SURVEY DATA

Survey data are widely used to provide indicators of Firm-level response data from the CBI’s Indus- economic activity ahead of the publication of trial Trends Survey are used to compare our official data. Traditionally, survey based indicators disaggregate indicator with the traditional aggre- exploit only aggregate survey information, namely gate indicators. Using the CBI’s firm-level survey the proportion of respondents who reported a rise or data we have constructed both aggregate and fall in activity. A new project at the National disaggregate indicators of manufacturing output Institute, supported by the ESRC, considers growth by examining the responses to the ques- disaggregate or firm-level survey responses and tion: ‘Excluding seasonal variations, what has derives an alternative indicator of economic activity. been the trend over the past four months with regard to volume of output?’ Firms can respond The use of survey data as a complement to either ‘up’, ‘same’, ‘down’ or ‘not applicable’. official sources of statistics about the economy continues to be popular. The data are available The results so far have shown that the more promptly and are generally believed to offer disaggregate indicators provide more accurate a good guide to the current state of the economy early indicators of manufacturing output growth and to its prospects in the near future. Survey (MQ) than their aggregate counterparts. An responses are typically ordered and categorical; illustration is given in the chart below. The respondents report ‘rise’, ‘stay the same’ or ‘fall’ disaggregate indicator is (1) better correlated relative to the previous period. Traditionally the with the outturn for MQ than the aggregate aggregate survey responses (weighted by firm indicator (an R2 of 0.719 rather than 0.484), and size) are then converted into a quantitative series (2) has a lower root mean squared forecast error to provide early indicators of economic activity. against the outturn (2.080 versus 2.873). Results We have compared these ‘aggregate’ indicators at the sectoral level confirm this finding. Group- with ‘disaggregate’ indicators based on firm-level ing the firms into seven industrial sectors, we survey responses. The disaggregate indicators, consistently find the disaggregate indicator of recently developed at the National Institute, are sectoral output growth to be more accurate than derived by relating firms’ micro-responses to the the traditional indicator. official data using ordered discrete choice econometric models. ENQUIRIES TO: [email protected]

Survey data and growth of manufacturing output

% p.a. 0

-5

-10 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Aggregate Disaggregate Manufacturing Output (Quarterly Growth at an Annual Rate)

6 INTERNATIONAL COMPARISON OF PERSONAL SECTOR SAVINGS RATES

It is already known that personal savings rates savings behaviour, we have been able to answer differ dramatically between countries. Financial the following question: if an average Italian institutions and public policy makers have a strong expected to receive the same income in the interest in understanding why this is so. Current course of a lifetime as an American, would he or research at the Institute, related to earlier work on she save more or less than the average American? generational accounts, seeks to address this question The answer to this and similar questions has by analysing personal sector savings rates in three enabled us to deduce the causes of the difference countries (Italy, USA and the UK) within a coher- in the savings rates between the countries. ent and comprehensive framework. Our work has suggested that all the difference Italians save more than 16 per cent of their between the personal sector savings rates in the disposable income, the British just under 10 per US and Britain could be explained by the differ- cent on average and the Americans almost ence in retirement ages between the two coun- nothing. Is this because the British and the tries. To illustrate this, in the figure below we Americans, relative to the Italians, are not saving have plotted the income profile of the average adequately for their retirement? Or are they individual in each of these three countries. saving less because the welfare state is doing the The average American tends to work almost six saving for them? Or does the incentive structure years longer than the average Briton or Italian. As implicitly or explicitly built into the tax and expected lifetimes are almost identical in each of benefit systems actually have the effect of dis- these countries, the average American needs to couraging savings? save less. In fact the difference is enough to explain all the difference in the savings rates For the average or representative individuals in between the US and the UK. each of the three countries, we have compiled a complete picture of all their expected revenues To explain the difference between the UK and and expenditures throughout their lifetime, using Italy we focused on a very different mechanism. a wide variety of survey data sources; we have The evidence available to us suggests that the also included all income in kind such as govern- Italians saved more than the British because they ment education and health expenditure. By using were unable to borrow, particularly when they the now widely accepted life-cycle model of were young. In Italy, the capital markets and especially the mortgage markets are far less developed than in the UK. Hence the average Italian tends to make a down payment of at least Age profiles of labour income 40 per cent on the initial purchase of a house.

0.04 Also, he or she is far more likely to be unable to 0.035 borrow when young, meaning that the average 0.03 Italian has typically very low levels of debt. 0.025 0.02 0.015 ENQUIRIES TO: [email protected] 0.01 0.005 0 20 30 40 50 60 70 80 90 100 WE ARE GRATEFUL FOR THE FINANCIAL SUPPORT OF United Kingdom United States THE ECONOMIC AND SOCIAL RESEARCH COUNCIL IN Italy CARRYING OUT THIS WORK.

7 FINANCIAL EXCLUSION

Around one in every six adults in Britain has no similar person who lives in a household where bank or building society current account, and someone else has a current account. Similarly, around one in every twelve has no bank, building people who say that few or none of their friends society or Post Office account of any kind. Almost and relatives have accounts are twelve times more all those without accounts are not in paid employ- likely not to have an account than an identical ment. The question addressed by this research was person who says that all or most of their friends whether those who do not have accounts differ in and family have accounts of some kind. Social any significant way from apparently similar people networks make a much larger difference to drawn from the same population groups who do. someone’s chances of having an account than any of their other characteristics. For instance, social The research, using the 1997/98 Family Re- housing tenants are twice as likely as owner- sources Survey and a series of questions inserted occupiers not to have an account. in the Office of National Statistics Omnibus Survey, found that the members of the non- The policy debate, sparked in part by the govern- working population who do not have accounts ment’s decision to pay all social security benefits are very similar in most respects to those who into bank accounts from 2003, has concentrated have them. There are some differences. For on special accounts and new financial institu- example, those without accounts tend to have tions. Our research suggests that most of those lower incomes. However, more than four out of without accounts have a similar profile to exist- five people with incomes of less than £100 a ing customers of financial institutions; they are week do have accounts. Those who live in large just less well informed. It may therefore be more cities are less likely to have accounts than similar practical for institutions to encourage non- people living in other areas. Social tenants and customers to take up the existing range of ac- those of Indian, Pakistani or Bangladeshi origin counts rather than develop new ones. However, are also less likely to have accounts than owner there will continue to be the problem that some occupiers and people from other ethnic groups. benefit claimants, including some elderly people, Those who have some financial assets, a car, or a those with poor English, those with literacy telephone, or who get a pension from a former problems and those with poor mental health, employer or maintenance from a former partner may find it impossible to cope with the complex- are more likely to have accounts than those who ity and organisation required. In these cases, the do not. risks for the government, for financial institutions and for the individuals themselves appear On the basis of their characteristics and social to be large. and economic circumstances, most people without accounts might well be expected to have ENQUIRIES TO: [email protected] them. In other words, they are statistically indis- tinguishable from the majority who are already being served by the existing range of accounts offered by existing financial institutions. Only when we included information about usage of financial services by members of people’s social WE ARE GRATEFUL TO THE BRITANNIA BUILDING networks were we able to identify more than half SOCIETY FOR SUPPORTING THIS PROJECT. A COPY the non-users. Those who live in households OF PAMELA MEADOWS’ REPORT ENTITLED ACCESS where nobody else has an account are twenty-five TO FINANCIAL SERVICES IS AVAILABLE FREE ON times more likely not to have an account than a REQUEST FROM THE NATIONAL INSTITUTE.

8 UNEMPLOYMENT TO SELF-EMPLOYMENT: THE ROLE OF MICRO-FINANCE

For the past two decades, the state has assisted support needed improvement. As a prerequisite, unemployed people to become self-employed. Previ- government needs to develop a strategic ap- ous research has indicated that initial financing has proach to assisting unemployed people into self- tended to be very restricted and may contribute to employment, encompassing all micro-financial business failure. Against this background, the ILO provision for unemployed people across the commissioned NIESR to examine whether there was commercial, voluntary and state sectors. In a case for government micro-financial assistance to England, the introduction of the Small Business enable unemployed people to enter self-employment, Service provides a major opportunity for this. and to identify the way in which support might best The aim of government support for business be structured and provided. start-up by unemployed people also required clarification: our research suggested this should Assistance with a move from unemployment to be to increase entry into employment (whether self-employment has varied over time and by self-employment or as an employee) and that location, with, variously, advice, training, grants, regeneration and the stimulation of a small loans and income support being available. At the business sector were inappropriate aims. Many of same time, unemployed people have been able to the improvements recommended would be cost- access assistance from mainstream business free and may indeed reduce costs. support agencies, mainly providing advice and training. The study examined access to commer- Selected recommendations cial loans for business start-up and found unem- • The structure should seek to maximise access ployed people were at a disadvantage, including to commercial funds, with the government through indirect discrimination in lending playing an enabling role (through, for exam- criteria. Some of the discriminatory criteria were ple, the provision of business start-up and justifiable in commercial terms; others were not. continuation advice and training to unem- Irrespective of justification, the disadvantage, ployed people and loan guarantees); govern- inter alia, suggested a need for government ment provided grants and loans should be action. available to fill remaining gaps. • Assistance should be available equally to all Analysis of the current system of support across unemployed people across the country, irre- the UK revealed a plethora of programmes, spective of local economic conditions. schemes and providers, including government • The criteria for targeting assistance among the agencies and quangos, local authorities, the unemployed should be financial disadvantage voluntary sector and the private sector. In some not labour market disadvantage. Targeting the constituent countries of the UK, up to four latter diverts support from those most need- government departments were involved, each ing micro-financial assistance (increasing with different aims (including tackling unem- deadweight) and, potentially, encourages less ployment, business development, regeneration appropriate individuals to enter self-employ- and income maintenance). The result was confu- ment (increasing the risk of business failure). sion, inefficient provision and variation in assist- • Delivery of public sector support should be ance across the country. Unemployed people had rationalised at the local level to counter the difficulty identifying support and lack of co- diseconomies of scale, multiple bidding and ordination resulted in a range of inefficiencies. confusion over access.

The study concluded that government interven- ENQUIRIES TO: [email protected] tion was appropriate and that the system of

9 MOVING UP THE LADDER OF IMPROVEMENT IN MATHEMATICS

Collaboration between researchers at the National began, Barking and Dagenham was one of the Institute and inspectors at the London Borough of lowest achieving education authorities in the Barking and Dagenham to improve standards of country in terms of mathematical attainment. mathematics among primary school pupils of all Since the project began, levels of achievement levels of ability has continued. The partnership has have risen markedly, and this year the percentage been developing teaching materials and teaching of pupils achieving Level 2 or better has reached methods based on successful practice observed in the national average of 91 per cent (see chart). primary schools in Switzerland as part of the Improving Primary Mathematics (IPM) project. The growing evidence of the project’s success, This school year, more than 18,000 pupils in over together with the cumulative refinement of the 60 schools are using the materials and teaching teaching materials after each year’s teachers’ methods developed by the project. evaluation, suggests that we should be The project, which began in 1995 in Year 2 of making the project primary school, now involves pupils in all six materials more widely years of primary schooling; the first cohort of available. With this pupils to participate in the project will transfer to objective in mind, we secondary schooling in September 2001. It is have plans for publica- expected that at that time secondary schools in tion. Teaching materi- Barking and Dagenham will benefit from the als for use with pupils higher standards of average mathematical attain- in Years 1 and 2 ment and the smaller proportion of lower attain- should be available for ing pupils. Plans to introduce reforms in second- schools to purchase in ary school teaching are under discussion. time for use in Sep- tember 2001, with The first workbook Evidence regarding the effectiveness of the materials for other in the series. project in raising standards is provided by the years being available nationwide tests at the end of Key Stage 1 by September 2002 and 2003. It is planned to (National Curriculum tests). When the project launch the materials in the spring of 2001; a web site containing more detailed information and KS1 Mathematics Test Results 1998–2000 examples of pupils’ and teachers’ materials is % of pupils gaining level 2 or better available at www.ipmaths.co.uk.

LBBD 100 extrapolated 2001 95 ENQUIRIES TO: [email protected]

90 England 85 extrapolated 2001 80 % of pupils SALES AND DISTRIBUTION OF THE IPM TEACHING 75 AND LEARNING MATERIALS IS BEING CARRIED OUT 70 ON BEHALF OF THE NATIONAL INSTITUTE AND THE 1998 1999 2000 2001 LONDON BOROUGH OF BARKING AND DAGENHAM Year BY THE MODBURY GROUP, SENTINEL HOUSE, National Curriculum Level 2 or better POUNDWELL, MODBURY, DEVON PL21 0XX (TEL: LBBD Level 2 or better 01548 830710. E-MAIL MISNET.CO.UK)

10 THE NEW DEAL FOR YOUNG PEOPLE

The New Deal for Young People (NDYP) is one of people helped out of unemployment by the NDYP the main components of the government’s Welfare- become unemployed again fairly soon, the pro- to-Work strategy aimed at reducing unemployment gramme has reduced overall youth unemployment. and benefit dependency and at raising the number of people in jobs. NIESR research on the macro- The overall beneficial effects of NDYP on the economic implications of NDYP aims to assess the youth labour market have implications for the impact of the programme on employment and whole economy. By creating a greater pool of unemployment and how much it has cost. effective job-seekers, the NDYP has reduced wage pressure and so allowed the economy to NDYP was introduced nationally in April 1998. grow further without triggering policy action to It is intended to help young people, who have restrain inflation. While the precise magnitude of been unemployed for over six months, find these effects is difficult to quantify, estimates lasting jobs and to increase their long-term suggest that national income is around £½ employability. During the initial Gateway stage billion per annum higher as a consequence of the of the programme, participants are given assist- programme and private consumption is raised, ance in job search and basic skills development. indicating a welfare gain to the economy as a Those who are still unemployed four months whole. By March 2000, the NDYP had probably after entering the Gateway are offered a number reduced unemployment among all age groups, of options, including further skills development including the young, by around 45,000 and through full-time education and training, and raised employment, excluding those on govern- work experience through job placements and ment employment schemes, by around 25,000. subsidised employment. Importantly, there is no ‘fifth’ option to opt out of the programme and During its first two years, £668 million had been remain on unemployment benefits. spent on the NDYP programme. This is much lower than was originally anticipated, partly because Comparing the experiences of young people to of the continued fall in unemployment throughout that of other age groups in local labour markets, the period, and because most participants leave the NIESR research suggests that the programme has programme during the cheaper Gateway period of had a beneficial impact on youth employment intensive job search assistance. The overall net and unemployment. Due to the programme, exchequer cost is smaller than this because of lower young people experience shorter spells of unem- expenditure on Job Seekers’ Allowance and higher ployment and find jobs quicker than they would tax revenues, estimated to be worth about £3 in otherwise have done. Although some young every £5 spent on the programme. This implies an exchequer cost per extra person in employment of Youth unemployment with and without NDYP around £7,000 per annum. However, since NDYP 600 raises both national income and private consumption, there is an economic benefit rather than a cost 500 to the whole economy.

400 ENQUIRIES TO: [email protected] without thousands 300 NDYP MORE INFORMATION IS GIVEN IN: RILEY, R. AND with NDYP YOUNG, G., NEW DEAL FOR YOUNG PEOPLE: IMPLI- 200 CATIONS FOR EMPLOYMENT AND THE PUBLIC Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 FINANCES, RESEARCH AND DEVELOPMENT REPORT Note: Dashed lines indicate high and low counterfactuals ESR62, EMPLOYMENT SERVICE. for youth unemployment without NDYP.

11 STUDENT SATISFACTION WITH UNIVERSITY PROVISION

As part of a two-year study into the effects of the below shows the percentage of respondents who introduction of tuition fees on British universities, reported a particular level of satisfaction, taking financed by the Leverhulme Trust, the Institute has into account other influences, such as personal conducted the first of two surveys of final year degree characteristics. students. Preliminary analysis suggests that how students finance their higher education has little Most students have their fees funded by their impact on their levels of satisfaction, once differences local education authority, although in a small in personal characteristics and the type of university number of cases fees are paid by the students are taken into account. themselves, their parents, employer or health authority. Those who are funded by their health The first phase of the study consisted of a postal authority report significantly higher levels of survey of final year students from four universi- satisfaction with the content of their course and ties in the spring of 2000. This was the last the quality of practical facilities (as do students cohort of undergraduates who did not have to funded by their employer in respect of the latter). pay student fees. Considerable variation in the methods by which students finance their studies In the absence of maintenance grants, the major- and living costs was revealed, allowing us to ity of students will have to find other sources of investigate the possibility of links with student money. There is a systematic negative effect of satisfaction. A second survey, to be conducted in funding on satisfaction for a number of aspects the spring of 2001, will allow us to establish of university provision. The exception to this are whether the introduction of fees has had an effect. those who still receive some form of maintenance grant (e.g. those on nursing degrees), who gener- As part of the survey, respondents were asked ally have a higher level of satisfaction. Finally, how satisfied they were with various aspects of disabled students are less satisfied with all aspects their university’s overall service. Using an ordered of university services, as, in general, are students logit analysis that takes into account differences from non-white ethnic minorities. Conversely, in individual respondents, we found that many students with parents who are from higher socio- of the apparent relationships with student satis- economic groups (professional, managerial and faction (e.g. the positive influence of A-Level/ technical workers) are often happier with their Higher grades) disappear (with students having university’s provision. higher entry qualifications choosing a university with higher levels of satisfaction). The table ENQUIRIES TO: [email protected]

Students’ satisfaction with university provision

Aspect of provision Dissatisfied Satisfied Very Somewhat Somewhat Very Organisation of course 5.1 44.6 30.9 19.5 Content of course 22.2 61.7 14.4 1.7 Overall quality of teaching 21.2 59.0 16.3 3.5 Quality of facilities for practical work 4.8 33.9 40.7 20.7 Access to tutors/lectures for help and advice 23.5 49.5 19.5 7.5 Feedback on written work/assignments 20.2 58.9 16.3 4.6 Fairness of grades for course work/exams 11.0 64.3 19.1 5.6

Note: Table shows the percentage of respondents who report a given level of satisfaction with that aspect of university provision, taking into account other influences, such as personal characteristics.

12 TRADE UNION INFLUENCE ON WAGES

The declining coverage and influence of trade benefitted from the gains achieved by trade unions throughout the 1990s raised the prospect of a unions. The chart plots the proportion of em- vanishing union wage premium. Analysis of ployees gaining from the direct and spill-over matched employer–employee data for over 14,000 effects of unions by their position in the private employees has produced some novel findings on the sector wage distribution. size, location and durability of the ‘union effect’ on wages in the private sector in Britain. Single union arrangements, often advocated as providing fertile ground for the new ‘partnership’ As suspected for some time, there is now no deals, show no advantage for employees over general premium for employees covered by union having no union negotiating their pay for them. bargaining in Britain. But specific types of This is matched by the ineffectiveness of non- employer-union arrangement do show a sub- union representation. Where managers consult stantial premium compared with cases where the with employees, either through a consultative employee’s pay is not the result of union negotia- committee or with individual non-union repre- tions. What matters most is how extensive the sentatives, pay levels are unaffected. collective bargaining is in terms of the proportion of the workforce that it applies to – also a Unions continue to have a role in whether matter of voluntary agreement. employers in the private sector offer enhanced fringe benefits, but only in particular circum- Only where bargaining covers between 70 and stances. Controlling for other factors, pension 99 per cent of employees is there a demonstrable schemes are more common where unions negoti- pay premium over similar employees in similar ate at workplace or enterprise level, but not where non-union workplaces. The union premium in there is multi-employer bargaining over pay. As these circumstances is estimated at 8 per cent of with pay, non-union representation makes no hourly pay. It applies to 14 per cent of all em- difference as to whether employers provide ployees in the private sector, just half of those pensions. Sick pay provision closely follows the whose pay is determined by collective bargaining. pattern of higher pay, with the same types of workplace and union representation having an There are other beneficiaries of union activity in increased likelihood of providing the benefit. these workplaces – mostly managers and profes- ENQUIRIES TO: [email protected] sional workers. They may even benefit to a greater degree than the majority of their subordi- Percentage of private sector employees with a union nates and junior colleagues who are directly wage premium, by hourly earnings covered by the union negotiations. 40 35 Multi-union representation, long recognised as 30 25 one of the most potent forms of unionism, 20 15

brings in a wage premium of around 11 per cent. Per cent Again, employees not in union membership in 10 5 the same workplaces as those who were 0 1 3 5 7 9 11 WE ARE GRATEFUL TO THE JOSEPH ROWNTREE Hourly earnings (£ per hour) FOUNDATION FOR SUPPORTING THIS RESEARCH AND TO THE FOUR SPONSORING BODIES OF THE Direct wage premium 1998 WORKPLACE EMPLOYEE RELATIONS SURVEY. Spill-over wage premium

13 DESIGNING MONETARY POLICY RULES IN AN UNCERTAIN WORLD

The debate over the ‘best’ policy reaction to shocks to ing inflation variability except in large closed the economy can depend on the objectives of the inflexible economies such as the Euro Area. It is authorities, the pattern of shocks the economy faces clear that the preferred rule depends on the and the response of the private sector to those shocks. structure of the economy. Policy regimes that are Recent research at the Institute has investigated these appropriate for small open economies or very issues and brought a number of insights into the flexible ones may not be the best choice for large nature of the problems facing monetary authorities. and inflexible groupings such as the Euro Area.

Research over the past year has continued to The research has also examined the stabilisation focus on evaluating the stabilisation properties of properties of the rules over time and results two types of monetary policy rules (nominal suggest that a rule that contains a nominal targets versus inflation targets) using stochastic aggregate can take the price level back to its simulation techniques on the National Institute’s baseline trajectory in the medium term more Global Econometric Model, NiGEM. The reliably than an inflation targeting rule. This has research has investigated the stabilisation proper- important implications for economic growth, ties of these rules under different objectives of especially in economies where longer-term the authorities and varying policy horizons over contracting is prevalent. Contracts that can be which the objectives are sought. Research has safely made in real terms are probably better also focused on what the appropriate fiscal for enhancing growth. The chart shows the targets should be for the European economies so variability of the price level over time for inflat- that automatic stabilisers are allowed to work ion targeting compared to nominal targeting freely given the constraints imposed by the (NOM) which is given a value of 100. In general Stability and Growth Pact. we see a rise in price level variability over time under inflation targeting compared to nominal Results suggest that a nominal aggregate target- targeting. ing rule can be superior to inflation targeting at stabilising output and the price level but that Rigidities in the labour markets were also shown inflation targeting can perform better at stabilis- to have important implications for policy setting. Different models of the European labour markets were constructed using panel estimation tech- Price level variability over time niques. Results show that imposing common- Index value for inflation targeting, NOM = 100. alities in the transmission mechanisms introduces substantial amounts of inertia into the wage 140 First Year setting process. Results from the stochastic 130 Last Year simulations suggest that the more inertial the economy, the more the authorities will favour a 120 nominal aggregate rule.

110 ENQUIRIES TO: [email protected] NOM = 100 100

90 THIS RESEARCH WAS FINANCED BY AN ESRC 80 AWARD. IT IS CONDUCTED BY MEMBERS OF THE MACRO MODELLING TEAM UNDER THE DIRECTION UK US Japan Euro area OF RAY BARRELL.

14 PRODUCTIVITY IN THE ELECTRICITY SUPPLY INDUSTRY

This research, financed by the Leverhulme Trust, A PRELIMINARY REPORT ‘THE ELECTRICITY SUPPLY examined the productivity performance of the INDUSTRY: A STUDY OF AN INDUSTRY IN TRANSI- privatised electricity supply industry (ESI) in the TION’ HAS BEEN PRODUCED BY MARY O’MAHONY UK relative to the industry in the United States, AND MICHELA VECCHI. FURTHER INFORMATION France and Germany as well as its own past FROM [email protected]. achievements. The report considers the justification for privatisation, notably that it would deliver efficiency improvements and eventually lead to growth rates of 1.5 per cent per annum, about 60 lower prices for consumers. per cent lower than the growth rates experienced when the industry was in monopoly control and The electricity industry witnessed radical changes lower than that achieved in the USA and France. in ownership and structure in 1990, when it was The report also considers the change in consumer transferred into private ownership and broken up prices, adjusting for changes in fuel prices, and into its four components, generation, transmis- concludes that UK consumers did not gain before sion, distribution and supply. Following privati- 1993; thereafter there is evidence of more rapid sation, the acceleration in labour productivity declines in prices in the UK than elsewhere. growth achieved by the UK ESI was seen initially as evidence of the success of restructuring. Given The low rates of productivity growth in the UK the unimportance in the ESI of labour as an occurred primarily as a result of the ‘dash for gas’ input relative to capital and fuel however, we with high rates of investment by new independ- considered it would be preferable to focus on ent power producers at a time when there was total factor productivity (TFP) performance (see over-capacity in the industry. Moreover, the chart). transition to a more competitive market structure may have been longer than originally envisaged. Over the entire period UK TFP growth of 2.2 The experiment may yet yield the desired results per cent per annum was about equal to that in as the excess coal-fired generating capacity is the USA, marginally above that in Germany and retired, replaced by more efficient gas-fired only about 60 per cent of rates achieved in plants, and as competition in supply develops France. In the post-privatisation period the UK’s further. relative performance was poor, achieving TFP ENQUIRIES TO: [email protected]

Relative levels of TFP, 1960–97 (US 1993 = 100)

120 100

80 60 40

20 0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996

UK US FR GE

15 SKILLS, KNOWLEDGE TRANSFER AND INDUSTRIAL PERFORMANCE

By some measures, the performance of the British British industry has also fared better in terms of electronics industry has much improved compared to export performance in recent years. continental European industries. Some of the reasons for this are highlighted in a recent ESRC- The study found a more dynamic and market- funded study of British and French electronics driven pattern of research interactions and establishments carried out by researchers at the exchange of ideas with customers in Britain, National Institute and at the University of stimulated in part by the regular recruitment of Bourgogne. Foreign investment in the UK industry experienced personnel who bring new networks far exceeds that in France and this has contributed of contacts with them – in contrast to the lack of to a relatively high level of transatlantic networking mobility of French engineers and scientists. and knowledge exchange in the British industry. Finally, there was a faster rate of new relationship building in enterprise-university R&D interactions During the 1970s the French electronics industry in Britain. This strongly reflected the budget enjoyed a substantial advantage over the British constraints enforced on British universities, which in patenting new ideas, which peaked at a ratio have led them to adopt a highly proactive approach of 2.4:1 in 1979. Since then there has been a to research collaboration with industry. gradual decline in the French–British patent ratio to a point of near-parity in 1995 and 1996 (see The findings suggest that the greater ‘openness’ chart). This British catch-up in electronics to new ideas and knowledge of British R&D patenting has occurred despite much lower networks may be particularly advantageous in a average levels of R&D expenditure in British fast-changing ‘high-tech’ industry such as elec- electronics sectors compared to France. The tronics. However, these recent trends in relative performance may not persist far into the future. A relatively weak level of investment in basic and Ratio of French to British patents granted in the United States in electronics and in all sectors, 1969–96 strategic research in electronics in the UK continues to be a potential Achilles heel which could lead to long-term deficiencies in knowledge 2.50 generation and the ability of enterprises to

2.00 absorb relevant knowledge produced elsewhere. Conversely, the French electronics industry is in 1.50 the early stages of adaptation to deregulated markets for telecoms and defence electronics 1.00 products and could now conceivably make rapid improvements in competitiveness. 0.50

ENQUIRIES TO: [email protected]

Ratio of French to British patents 0.00 1969 1973 1977 1981 1985 1989 1993 FURTHER DETAILS ABOUT THIS RESEARCH HAVE Electronics ALL SECTORS BEEN PUBLISHED BY GEOFF MASON, JEAN-PAUL BELTRAMO AND JEAN-JACQUES PAUL IN ‘KNOWL- Source: Data supplied to Science Policy Research Unit EDGE INFRASTRUCTURE, TECHNICAL PROBLEM- (SPRU) by the US Patent and Trademark Office Note: Industrial classification (SPRU product areas): SOLVING AND INDUSTRIAL PERFORMANCE: ELEC- Electronics: 24 Telecommunications, 25 Semiconduc- TRONICS IN BRITAIN AND FRANCE’ (PAPER TO DRUID tors, 27 Calculators, computers and other office SUMMER CONFERENCE ON THE LEARNING equipment, 28 Image and sound equipment, 29 Photo- graphy and photocopy. ECONOMY, AALBORG, DENMARK, JUNE 2000).

16 ESTIMATES OF EU INDUSTRIAL PRODUCTION (‘NOW-CASTING’)

One of the difficulties faced by the European Union rather than one which is imposed. To simulate and the Euro Area is the delay with which its practical use of this model, the equation has to be statistics become available. It can take up to three re-estimated each month and assessed on the basis months before quarterly estimates of Euro Area of the performance of this recursive estimation. industrial output are published. An important The third method was to take the indicators on statistical problem is the development and assess- board and to treat each lag as a separate variable. ment of methods for ‘now-casting’ industrial produc- One could then search over all possible combination so as to provide estimates shortly after the end of tions to choose the best-fitting equation and use each quarter and ahead of the data compiled from this to forecast one period ahead. With more national statistical offices. data, the best-fitting equation has to be chosen again and the new equation used to make the There are a number of indicators which can be prediction for the next month. A close alternative used for now-casting. The European Commission to this is a vector autoregressive model compris- and EU member states conduct business surveys ing both the indicator and the predicend, with which provide a prompt view of the state of statistical tests used to determine the lag length. business activity in the country. There is a The fifth approach is to set up a neural network question how best to extract a signal from these model, often found to be better than conven- surveys, but the historic data present a balance tional models at coping with non-linearities. showing the extent by which the proportion of They readily adapt to fit the past pattern of data. those who think that things have improved exceeds those who think that things have worsened. We assessed all of the models on the basis of their recursive performance. We found that, when This study compared five different models which forecasting seasonally adjusted industrial produc- explain growth of industrial production on the tion, the first naïve model was the best forecast- basis of past movements and also in the light of ing tool. Looking one month ahead, its root business survey information. The first, a very mean square forecast error is 0.19 per cent while naïve model, assumed that the rate of growth in that of the autoregressive model, the second-best each month to be forecast would be the same as performer, is 0.21 per cent. The chart shows the that last observed in the data. This was a special quarterly growth rate of industrial production case of the second, autoregressive, model in together with a now-cast where the last quarter is which output growth is forecast on the basis of estimated by the preferred model. For forecasting past movements using a statistical relationship manufacturing output growth the autoregressive model does slightly better than the naïve model. Quarterly growth rate of EU industrial production More complicated models are generally worse. For forecasting data before seasonal adjustment all the 2.5 models perform very poorly, and the best one can 2 1.5 do is simply to represent the seasonal effects. 1 0.5 These results suggest that early estimates of Euro- 0 11 growth of industrial production can be pro- -0.5 duced to an identifiable quality. -1 -1.5 ENQUIRIES TO: [email protected] 1996 1997 1998 1999 THIS STUDY WAS UNDERTAKEN WITH SUPPORT Industrial Production Forecast FROM EUROSTAT.

17 THE NEW BRITISH ECONOMY

It is clear from casual observation that we are in the This is true whether or not it is measured after midst of a revolution in information technology. adjusting for quality change using so-called However, in contrast to the US experience, there has ‘hedonic’ prices. The growth in computer been little obvious impact on the British economy as investment could not be expected to account conventionally measured. Research at the National for a pick-up in productivity growth in the Institute has been exploring the characteristics of the late 1990s of more than a quarter of a per- present situation in an effort to identify possible centage point. Similarly, the growth in the explanatory factors. widespread use of the internet is very recent and it is unrealistic to expect it to have had an In the second half of the 1990s, productivity important impact so far. growth was about 1 percentage point lower than in the first half of that decade when measured on • The fast rates of productivity growth in the an output per hour basis. While goods price US have largely been attributed to the manu- inflation has remained very subdued as unem- facture of computer equipment. In the UK ployment has fallen, this appears to be due to an productivity growth of computer equipment improvement in the behaviour of the labour has in fact been slower after 1995 than before. market rather than a ‘new economy’ effect on This appears to be due to differences in the pricing. composition of output. An increasing share of IT production in the UK has been taken up Despite this negative assessment of the effect of by services – software and computer mainte- ICT on recent performance, there are some nance. indications that its benefits are just about to reveal themselves: • The slowdown in UK aggregate productivity growth in the second half of the 1990s is • As far as we are able to tell from official relatively easy to explain in terms of the old figures, there has been extensive investment in economy. Its main causes are the slowdown ICT equipment and infrastructure in recent in the manufacturing and oil industries, years and it is only now becoming an impor- alongside a reduction in the rate of capital tant component of the aggregate capital stock. deepening as the economy has generated another 1.5 million jobs. Contrary to the US The stock of computers at 1995 hedonic prices experience, there is evidence of a strong pick- up in productivity growth in the key business 7 services sector. With the manufacturing sector 6 poised to recover from its recent weakness and 5 with little slack left in the labour market, the 4 factors that have obscured an underlying 3 improvement in the economy are now exper cent 2 pected to evaporate. As such, there is now a 1 good chance of a strong revival in productiv- 0 ity growth even without allowing for any 1978 1982 1986 1990 1994 1998 special new economy effects. Adding the Gross capital stock, hedonic prices effects of ICT investment strengthens the Net stock, hedonic prices likelihood of this. Gross stock, non-hedonic prices

Net stock, non-hedonic prices ENQUIRIES TO: [email protected]

18 EVENTS DURING 2000

INTERNATIONAL CONFERENCE ON PENSIONS AND Adviser, HM Treasury); Vincent Cable MP; Dr SOCIAL INSURANCE Diane Coyle (Economics Editor, The Independ- ent); Gerald Holtham (Norwich Union); Anatole In April 2000, the National Institute joined Kaletsky (Assistant Editor, The Times); Lord forces with the Centre for Pensions and Social Lawson of Blaby and Martin Weale, Director, Insurance at Birkbeck College, London, to NIESR. The meeting was chaired by Sir Peter organise a one-day conference on Guarantees: Middleton, Chairman of Barclays plc. Social Protection and Pensions. The international character of the conference was reflected in the Contributions from the panel provided the list of leading speakers, which included David stimulus for a lively debate on the policy and Lindeman from the World Bank and John research issues relating to exchange rates, and an Turner from the American Association of Retired account of the meeting appeared in the July Persons. The organisers were also pleased to edition of the National Institute Economic Review. welcome the former social security minister, the Rt Hon Frank Field MP, to give the opening CONFERENCE ON THE ‘NEW ECONOMY’ address. Professor Robert Gordon of Northwestern The conference attracted substantial interest University and Professor Jack Triplett of the from overseas academics working in the field, Brookings Institution in Washington DC were among them Professor Peter Jorgensen from the among the contributors to a highly successful University of Aarhus in Denmark, who presented conference held at the London Chamber of a paper on return guarantees. A second con- Commerce in September. The conference, tributor on this topic was Professor David Miles entitled Technical Progress, Economic Growth and of Imperial College, London. Dr Hugh Davies the ‘New Economy’, attracted an audience of over of Birkbeck College and Dr Heather Joshi from 150 with nine countries represented. Again, the the School of Longitudinal Studies at the Lon- Institute demonstrated the appeal of its confer- don University Institute of Education discussed ences to a broad range of academics, business problems associated with income generation, people, commentators and policy makers. while Andrew Smith of Bacon and Woodrow contributed a practitioner’s perspective. A report The conference programme consisted of papers on the progress of the National Institute’s work which addressed various dimensions of techno- on pension funding issues was presented by Dr logical progress and their relationship to eco- James Sefton. nomic growth. Professor Danny Quah of the London School of Economics (LSE) explored SEMINAR AT THE HOUSE OF COMMONS ON THE some of the distinctive characteristics of the new LEVEL OF THE EXCHANGE RATE

The Institute organised a seminar in June 2000 Professor Danny to discuss the highly topical subject of the level Quah of the London of the exchange rate and its effect on economic School of Economics prosperity. The seminar began with individual introductions to the topic by experts brought together for the event. The panel consisted of leading policy makers, business people and commentators: Ed Balls (Chief Senior Economic

19 economy, while Professor Triplett discussed why Kate Barker,Chief Economist at the productivity growth in the United States had Confederation of increased and what part technology had played. British Industry. A comparative perspective was offered by Jonathan Wadsworth of LSE and Royal Holloway College, who had examined trends in home computer ownership in the United States and Britain and their influence on education.

Professor Willem Buiter from the European Bank for Reconstruction and Development (repre- Economics and a former member of the Mon- sented at the conference by the Director of etary Policy Committee). He spoke about ‘Some NIESR, Martin Weale) looked at economic aspects of the work of the MPC’ (see ‘The development and policy responses; Professor inflation forecast’, National Institute Economic Gordon dealt with technological advances in a Review, 175, January 2001). historical context. Garry Young of the National Institute presented findings from its current In addition to the Governors’ seminar series, His research on the topic, with a look at how techno- Excellency Professor Pang Eng Fong, High logical change had both affected the UK Commissioner for the Republic of Singapore, economy in recent time and might do so in the gave a presentation to invited guests at the future. Finally, Jonathan Haskel of Queen Mary Institute in December 2000. The topic of his talk College, London, addressed the question of was ‘Foreign direct investment: recent trends and restructuring and productivity growth in UK implications’ and Mr Ken Warwick from the manufacturing and Martin Brookes of Goldman Department of Trade and Industry chaired the Sachs considered the shocks caused to the event. The seminar was organised jointly by the economy by the internet. National Institute and the Association of Com- monwealth Universities. GOVERNORS SEMINARS

The Institute continued its popular series of His Excellency Professor Pang Eng seminars given by members of its Board of Fong, High Commis- Governors. These seminars are informal events at sioner for the Republic which the Institute’s supporters and friends are of Singapore. particularly welcome. Sir Geoffrey Owen (Lon- don School of Economics) presented the first seminar of the year with a talk entitled: ‘Falling behind and catching up: British industry since 1945’. The Institute wishes to record its grateful thanks In April, Kate Barker (Chief Economist at the to all those who have contributed to our semi- Confederation of British Industry), presented ‘A nars and conferences throughout the past year. business view of the productivity debate’.

Our speaker for the autumn seminar was Profes- sor Charles Goodhart FBA (London School of

20 BOOKS AND MAJOR REPORTS

Econometric modelling: techniques and with a discussion of differences in productivity applications between nations, and provides a comprehensive Edited by Sean Holly and Martin Weale set of discussions as to why they exist. ISBN 521 65069 0 hardback. Price £45. Pub- lished by Cambridge University Press. Inward investment, technological change and growth: the impact of multinational Macroeconomic modelling has been one of the corporations on the UK economy most important and influential areas of econo- Edited by Nigel Pain mic research. This book brings together contri- ISBN 0 333 92536 X £45 hardback. Published butions from the leading researchers working in by Palgrave Publishers Ltd. the area. The papers combine a description of the latest techniques used in modelling the economy At a conference held in September 1999, the with an account of the way that models can be speakers identified the channels through which used for purposes of policy analysis. The book inward investment can affect host economies and will be of interest to students and professional provided some quantitative evidence on the economists who want a better understanding of extent to which it has acted to shape the indus- the questions that macroeconomic models can trial structure of the UK economy and other address and the techniques used to address them. industrialised economies over the past decade. The papers in this book are by leading authors in the fields of international investment and the Productivity, innovation and economic behaviour of national and multinational firms. performance They have all published widely in leading aca- Edited by Ray Barrell, Geoff Mason and Mary demic journals and some have acted as informal O’Mahony academic advisors to government departments in ISBN 0 521 78031 4 £45 hardback. Published by the UK and overseas. Cambridge University Press. All change at work? British employment Productivity and its determinants are at the heart relations 1980–98, as portrayed by the of economic debate. Output per person or per Workplace Industrial Relations Survey capita is still the most influential measure of the series prosperity of nations. Productivity depends on Neil Millward, Alex Bryson and John Forth the quantity and quality of the factors of produc- ISBN 0-415-20634-0 £60 hardback and 0-415- tion available to a country and the social frame- 20635-9 £20 paperback. Published by Routledge. work within which they operate. Education and the research base affect both the quality of factors Have new configurations of labour-management and the ability of a nation to produce. This practices become embedded in the British volume brings together papers from a number of economy? Did the dramatic decline in trade authors from a variety of traditions. The impor- union representation in the 1980s continue tance of the growth and measurement of service throughout the 1990s, leaving more employees productivity are addressed. The role of human without a voice? Were the vestiges of union capital in adapting to new technologies is dis- organisation at the workplace a hollow shell? cussed. The creation of knowledge through These and other contemporary issues of em- research and development and its diffusion ployee relations are addressed in this report. This through trade, investment and the interaction of book is the latest publication which reports the firms are fully investigated. The volume starts results from the series of workplace surveys

21 conducted by the Department of Trade and Industry, the Economic and Social Research NATIONAL INSTITUTE SUBSCRIBER Council, The Advisory, Conciliation and Arbitra- SCHEME tion Service, and the Policy Studies Institute. Its focus is on change, captured by gathering to- The Subscriber Scheme offers the opportu- gether the enormous bank of data from all four nity to receive all Institute publications on of the large-scale and highly respected surveys, the day of publication, for a single subscrip- and plotting trends from 1980 to the present. In tion. addition, a special panel of workplaces, surveyed in both 1990 and 1998, reveals the complex In addition to all Institute books, Occasional processes of change. Comprehensive in scope, Papers and Discussion Papers, subscribers the results are statistically robust and reveal the receive two copies of the quarterly National nature and extent of change in all but the small- Institute Economic Review (which can be est British workplaces. mailed to separate addresses if required) and invitations to a range of Institute seminars Forthcoming publications and events.

Monetary regimes of the twentieth The annual subscription to the scheme is century £395 (which can be set against any existing by Andrew Britton subscription). A reduced rate of £245 (in- To be published by Cambridge University Press in cluding one copy of the National Institute 2001. Economic Review only) is available for companies with fewer than fifty employees, Abstract economic theory may be timeless and universities and non-profit organisations. potentially universal in its application, but macroeconomics has to be seen in its historical For further details, please contact Gill context. The nature of the policy regime, the Clisham on 020 7222 7665. behaviour of the economy and the beliefs of professional economists all interact, and influence each other. This short historical account of monetary regimes since 1900 shows how the role of policy has changed, and how this has related to experience of inflation and the real economy, as well as to changes in political philosophies. The narrative concentrates on developments in America, Britain, Germany, France and Japan. It begins with the era of the classical gold standard and ends with the ‘neo-liberal’ regimes of today. The decades in between saw much more active policy intervention, and much less faith in the Dr Paul Ashworth (left) and Dr Joe stability of markets. The ‘grand narrative’ of the Byrne, who obtained their PhD qualifications in 2000. century is a journey ‘to Utopia and back’. It is argued that no school of macroeconomics is right for all time; different theoretical models may be appropriate for different periods and regimes.

22 NATIONAL INSTITUTE ECONOMIC REVIEW

The Institute’s quarterly Economic Review contin- Domesday economy: analysis of the English ued to provide a unique combination of analysis, economy early in the second millennium forecasts and research results. The year 2000 was John McDonald marked with a special issue in April on various aspects of the second millennium and another, in No. 173 (July) October, on monetary and fiscal policy in Europe. A tale of two cycles: closure, downsizing and Each edition contains widely quoted forecasts for the productivity growth in manufacturing, 1973–89 UK and all major world economies, based on the Nicholas Oulton Institute’s own models, together with articles from Effects of minimum wages on the gender pay gap leading commentators, and a comprehensive statisti- Shirley Dex, Holly Sutherland and Heather Joshi cal appendix. Christopher Dow on major recessions Michael Artis, John Flemming, Robin Matthews Articles which appeared during the year were as and Martin Weale follows: No. 174 (October) Themed issue on Monetary and Fiscal Policy in Europe No. 171 (January) Monetary and fiscal policy in Europe: Should the UK join EMU? an overview Michael Artis Ray Barrell and Nigel Pain How well can we measure graduate over- Price level stability: some issues education and its effects? Vitor Gaspar and Frank Smets H. Battu, C.R. Belfield and P.J. Sloane Optimality and Taylor rules The implications of the comprehensive spending Andrew P. Blake review for the long-run growth rate: a view from Open issues in the implementation of the the literature Stability and Growth Pact Richard Kneller Marco Buti and Bertrand Martinot Comparative properties of models of the UK An evaluation of monetary targeting regimes economy Ray Barrell and Karen Dury Keith B. Church, Joanne E. Sault, Silvia Sgherri and Kenneth F. Wallis Job creation and the 1999 reform of National Insurance Robert A. Hart and Robin J. Ruffel

No. 172 (April) Themed issue on Aspects of the Second Millennium Living standards in Britain 1900–2000: women’s century? Sara Horrell 1300 years of the pound sterling FROM JANUARY 2001, THE REVIEW WILL BE PUB- Martin Weale LISHED BY SAGE PUBLICATIONS LTD AND SUBSCRIP- ‘The generous Utopia of yesterday can become TION ENQUIRIES SHOULD BE ADDRESSED TO SAGE the practical achievement of tomorrow’: 1000 AT 6 BONHILL STREET, LONDON EC2A 4PU AND IN years of monetary union in Europe NORTH AMERICA TO SAGE PUBLICATIONS LTD, PO Luca Einaudi BOX 5096, THOUSAND OAKS, CA 91359, USA. TELEPHONE: + 44 (0)20 73740645 EMAIL: [email protected]

23 OTHER PUBLISHED ARTICLES AND PAPERS PRESENTED

Anderton, R., Riley, R. and Young, G., ‘The New Deal for Eastern Europe: a comparison of survey and economet- Young People: first year analysis of implications for the ric evidence’, Transnational Cooperations (forthcom- macroeconomy’, Labour Market Trends, March. ing). Arrowsmith, J., Barrell, R.J. and Taylor, C., ‘Managing the Blake, A.P., ‘Solution and control of linear rational euro in a tri-polar world’, in Artis, M. and Hennessy, expectations models with structural effects from future C. (eds), The Euro: A Challenge an Opportunity for instruments’, Economics Letters, 67, 3, pp. 283–8. Financial Markets, Routledge. Blake, A.P. and Kapetanios, G., ‘A radial basis function Atkinson, A.B. and Weale, M.R., ‘James Edward Meade’, artificial neural network test for ARCH’, Economics Proceedings of the British Academy (forthcoming). Letters, 69, 1, pp. 15–23. Barrell, R., ‘Strong growth and robust budgets in Europe’, Blake, A.P., Weale, M.R. and Young, G., ‘Optimal in Barrett, A. (ed.), Budget Perspectives, Dublin, ESRI. monetary policy’, in Holly, S. and Weale, M.R. (eds), — ‘Forecasting the uncertain environment’, in Hendry, D. Econometric Modelling: Techniques and Applications, (ed.), Forecasting, MIT Press. Cambridge University Press, pp. 209–36. Barrell, R., Byrne, J., Dury, K., Holland, D. and Hurst, I., Bleaney, M., Gemmell, N., and Kneller, R.A., ‘Testing the ‘Interdependency and the EMU outsiders’, in Nilson, endogenous growth model: public expenditure, H. (ed.), Britain and Scandinavia – Four North taxation and growth over the long run’, Canadian European States in the Gravitation Field of the EMU, Journal of Economics (forthcoming). Europa Idag, 1/2001 (forthcoming). Cardarelli, R. and Sefton, J., ‘Rolling back the welfare Barrell, R. and Dury, K., ‘The stability and growth pact, state’, European Economy, 6, pp. 193–206. will it ever be breached? An analysis using stochastic Cave, M. and Weale, M.R., ‘Higher education: expansion simulations’, in Brunila, A., Buti, M. and Franco, D. and reform’, in Jenkinson, T. (ed.), Readings in (eds), The Stability and Growth Pact: The Architecture of Microeconomics, 2nd edn, Oxford University Press, pp. Fiscal Policy in EMU, Basingstoke, Macmillan (forth- 230–43. coming). Chambers, R., Weale, M.R. and Youll, R., ‘The average —‘Choosing the regime: macroeconomic effects of UK earnings index’, Economic Journal, 110, 461, pp. 100– entry into EMU’, Journal of Common Market Studies, 21. 28, 4, November. Darby, J., Hart, R. and Vecchi, M., ‘Wages, work intensity Barrell, R. and Holland, D., ‘Foreign direct investment and unemployment in Japan, UK and USA’, Labour and enterprise restructuring in Central Europe’, Economics (forthcoming). Economics of Transition, 8, 2, pp. 477–504. —‘Labour force participation and business cycle fluctua- —‘Foreign direct investment in Central European manu- tions: a comparative analysis of Europe, Japan and the facturing’, in Weresa, M. (ed.), Foreign Direct Invest- United States’, Japan and the World Economy (forth- ment in a Transition Economy: The Polish Case (forthcoming). coming). Dutta, J., Sefton, J. and Weale, M.R., ‘Income distribu- —‘A three-dimensional panel analysis of FDI in Central tion and income dynamics in the United Kingdom’, European manufacturing’, in Welfe, W. and Journal of Applied Econometrics (forthcoming). Wdowinski, P. (eds), Proceedings of AMFET99 Confer- Dutta, J. and Weale, M.R., ‘Consumption and the means ence – Modelling Economies in Transition, Rydzyna, of payment: an empirical analysis for the United Absolwent, Lodz, pp. 222–40. Kingdom’, Economica (forthcoming). Barrell, R. and Pain, N., ‘Macroeconomic management in Finegold, D., Wagner, K. and Mason, G., ‘National skill- the EU’, in Brewer, T. and Boyd, G. (eds), Globalizing creation systems and career paths for service workers: Europe, Macmillan (forthcoming). hotels in the US, Germany and Britain’, International Barrell, R. and te Velde, D.W., ‘Catching-up of East Journal of Human Resource Management, 11, 3, pp. German labour productivity in the 1990s’, German 497–516. Economic Review special issue on German Unification 10 Forth, J. and Kirby, S., Guide to the Analysis of the Years After, 3, pp. 271–97. Workplace Employee Relations Survey 1998, WERS98 — ‘German monetary union and the lessons for EMU’, in Data Dissemination Service. Baimbridge, M. and Whyman, P. (eds), Europe, Theory, Gokhale, J., Kotlikoff, L., Sefton, J. and Weale, M.R., Evidence and Practice, Edward Elgar. ‘Simulating the transmission of wealth inequality via Benàèek, V., Gronicki, M., Holland, D., Sass, M., ‘The bequests’, Journal of Public Economics (forthcoming). determinants and impact of FDI in Central and Hubert, F. and Pain, N., ‘Inward investment and technical progress in the United Kingdom’, in Pain, N. (ed.),

24 Inward Investment, Technological Change and Growth: Inward Investment, Technological Change and Growth: The Impact of Multinational Corporations on the UK The Impact of Multinational Corporations on the UK Economy, Palgrave. Economy, Palgrave. —Inward Investment in France and the Effectiveness of —‘Openness, growth and development: trade and invest- Investment Incentives, report prepared for the Direction ment policy issues for developing economies’, in de la Prévision. Rugman, A. and Boyd, G. (eds), Millennium Round —‘Economic integration in Europe and the pattern of Trade and Investment Issues, Edward Elgar (forthcom- German foreign direct investment’, in Korres, G.M. ing). and Bitros, G.C. (eds), Economic Integration: Limits Pain, N. and Wakelin, K., ‘Foreign direct investment and and Prospects, Macmillan (forthcoming). export performance in Europe’, in Read, R., —‘Inward investment and technical progress in the United Thompson, S. and Milner, C. (eds), New Horizons in Kingdom manufacturing sector’, Scottish Journal of International Trade and Industry, Macmillan (forthcom- Political Economy, 28, 2 (forthcoming). ing). Mason, G., ‘Production supervisors in Britain, Germany Pain, N. and te Velde, D., Exposure to International and the United States: back from the dead again?’, Markets and Corporate Performance, report prepared for Work, Employment and Society (forthcoming). the Department of Trade and Industry. Mason, G., Keltner, B. and Wagner, K., ‘Productivity and Pain, N. and Young, G., Continent Cut Off? The Macroeco- service quality in banking: commercial lending in nomic Impact of UK withdrawal from the EU, report Britain, the United States and Germany’, in Barrell, R., prepared for Britain in Europe. Mason, G. and O’Mahony, M. (eds), Productivity, Prais, S.J., ‘International education comparisons and their Innovation and Economic Performance, Cambridge limitations’, in Lawlor, S. (ed.) Comparing Standards: University Press. The Report of the Politeia Education Commission, Mason, G., Wagner, K., Finegold, D. and Keltner, B., London, Politeia. ‘The “IT Productivity Paradox” revisited: international —‘Discussion on Richard Aldrich’s paper, Educational comparisons of information technology, work organi- standards in historical perspective’, in Goldstein, H. sation and productivity in service industries’, Quarterly and Heath, A. (eds), Educational Standards, Oxford. Journal of Economic Research (forthcoming). Riley, R. and Young, G., New Deal for Young People: Meadows, P., Access to Financial Services, Britannia Build- Implications for Employment and the Public Finances, ing Society, November. Research and Development Report ESR62, Employ- —‘Pensions and the labour market’, New Economy, 7, 4, ment Service. December, pp. 234–8. Rolfe, H., Improving Responsiveness to the Labour Market —Young Men and Work, York Publishing Services for the among Young People: an evaluation of four pilot projects, Joseph Rowntree Foundation (forthcoming). Research Report RR190, Department for Education Meadows, P. and Campbell, M., What Works at a Local and Employment. Level, York Publishing Services for the Joseph —Solution Focused Guidance: an initial evaluation of its use Rowntree Foundation. in Humberside Connexions, Report to the Humberside Meadows, P., Supiot, A. et al., Beyond Employment, Oxford Partnership, October. University Press (forthcoming). Sefton, J., ‘A solution method for consumption decisions Millward, N., Forth, J. and Bryson, A., Who Calls the Tune in a dynamic stochastic general equilibrium model’, at Work? The Impact of Trade Unions on Jobs and Pay, Journal of Economic Dynamics and Control, 24, 5–7, York, Joseph Rowntree Foundation (forthcoming). pp. 1097–119. Mitchell, J., ‘Identification and estimation of impulse Sefton, J., Cardarelli, R. and Agulnik,P., ‘The Pensions response functions in VAR models: analysing monetary Green Paper: a generational accounting perspective’, shocks in the G7 economy’, PhD thesis, University of Economic Journal, 110, pp. 598–610. Cambridge. Sefton, J., Cardarelli, R., Kotlikoff, L.J., ‘Generational O’Mahony, M. and Vecchi, M., ‘Tangible and intangible Accounting in the UK’, Economic Journal, 110, 467, investment and economic performance: evidence from November, pp.F547–74. company accounts’, in Buiges, P., Jacquemin, A. and Terry, F., ‘Transport: beyond predict and provide’, in Marchipont, F. (eds), Competitiveness and the Value of Davies, H.T.O., Nutley, S.M. and Smith, P.C., What Intangible Assets, Edward Elgar. Works? Evidence-based policy and practice in public Pain, N., ‘The growth and impact of inward investment in services, Policy Press. the UK: introduction and overview’, in Pain, N. (ed.), Vecchi, M., ‘Increasing returns versus externalities:

25 pro-cyclical productivity in US and Japan’, Economica, NIESR Conference, September; seminars at the 67, pp. 229–44. University of Kent and for the House of Commons —‘Book review of Griliches, Z., ‘The relationship between Treasury Committee. Investment in R&D and Productivity. The Economet- —‘Business cycle volatility, uncertainty and long-run ric Evidence’, Journal of Economic Studies (forthcom- growth’, Conference on Growth and Business Cycles in ing). Theory and Practice, University of Manchester, July. Whitburn, J., ‘Moving the goal posts’, in Goldstein, H. Meadows, P., ‘Beyond employment’, Annual Conference and Heath, A. (eds), Educational Standards, Oxford of the Society for the Advancement of Socio-econom- University Press. ics, London, July. —‘A tail of two systems’, Special Children, May. —‘Gender segregation and labour market regulation’, Workshop on Women’s Conditions in Working Life, Papers presented Brussels, September. Barrell, R. and Holland, D., ‘International capital flows in Mitchell, J., ‘Analysing short and long run behaviour in central and eastern Europe’, European Economic the G7 using cointegrating VAR models’, Royal Association Annual Conference, Bozen-Bolzano, Economic Society Conference, St Andrew’s, July; August. Money Macro and Finance Research Group Annual —‘Foreign direct investment and enterprise restructuring Conference, London, September. in central Europe’, Sunderland University, December. Mitchell, J., Smith, R.J. and Weale, M.R., ‘Estimation of Barrell, R., Holland, D. and Pain, N., ‘Openness, integra- output movements from semi-disaggregate survey tion and transition: prospects and policies for econo- data’, Macroeconomic Modelling Seminar, Warwick, mies in transition’, IESG Annual Conference, Univer- July. sity of Sussex, September. O’Mahony, M. and Vecchi, M., ‘Productivity performance Blake, A. and Young, G., ‘Evaluating macroeconomic in the electricity supply industry: a study of an indus- models of the business cycle’, City, Kent and Warwick try in transition’, E.A.R.I.E. Conference, Lausanne, Universities. September. Darby, J., Hart, R., and Vecchi, M., ‘Wages, work inten- Riley, R. and Young, G., ‘Youth employment and active sity and unemployment in Japan, UK and USA’, labour market policy: evidence from the New Deal’, EALE/SOLE Conference, Milan, June. Department for Education and Employment seminar, Dutta, J., Sefton, J. and Weale, M., ‘Capital income London, June; Royal Economic Society conference, St. taxation and public policy’, Universities of Sussex and Andrews, July. Birmingham. —‘Analysis of the effects of New Deal for Young People on Forth, J., ‘Compositional versus behavioural change: wages and the macroeconomy’, Department for combined analysis of the WERS98 Panel Survey, Education and Employment seminar, London, June. Closures and New Workplaces’, First meeting of the —‘Skill heterogeneity and unemployment’, European WERS98 User Group, London, March. Economic Association Conference, Bolzano, September. Forth, J., Kirby, S. and Millward, N., ‘An introduction to Sefton, J., ‘The demand for pensions’, NIESR Confer- the content, methodology and analysis of WERS98’, ence, April, INQUIRE Conference, September, Inland University of the West of England, May. Revenue, December. Forth, J. and Millward, N., ‘Institutional change in British Sefton, J. and Weale, M., ‘Real national income’, Univer- industrial relations, 1980 to 1998’, University College, sity of Birmingham. Dublin, April. Weale, M., ‘Lessons from average earnings’, Conference of —‘The changing nature of employee voice: features and Government Statisticians, Reading, October; Statistics implications’, Warwick University Business School, Users Conference, November. November. Whitburn, J., ‘Changes to primary mathematics education Holland, D. and Pain, N., ‘On the road to the market: the in England’, Tokyo Gakugei, Shizuoka and Nara prospects for growth in central Europe’, IESG Easter Universities. Conference, Wales, April. —‘Disadvantage and low achievement in mathematics’, Hubert, F. and Pain, N., ‘Inward investment and technical British Society for the Learning of Mathematics progress in the United Kingdom’, Royal Economic Conference, University of Surrey, November. Society Conference, St Andrews, July. Kneller, R. and Young, G., ‘The New British Economy’,

26 NATIONAL INSTITUTE DISCUSSION NATIONAL INSTITUTE PAPERS ECONOMETRIC MODELS Discussion papers exist to foster debate on Institute research. Recent papers listed below are £4.00 each or on subscription at £30.00 for 10 consecutive papers. The global model – NiGEM – is widely regarded as one of the world’s leading 160. International monetary policy coordination: an models and is used extensively for forecasting evaluation of cooperative strategies using a and analytical purposes in both public and large econometric model Ray Barrell, Karen private sectors. NiGEM patrons include the Dury and Ian Hurst Bank of England, the European Central Bank, 161. The mix of graduate and intermediate-level the Economic Planning Agency of Japan and skills in Britain: what should the balance be? Geoff Mason many other European Central Banks and 162. Capital income taxation and public choice Finance Ministries. Jayasri Dutta, James Sefton and Martin Weale 163. Real national income J.A. Sefton and M.R. The 1500-equation model contains individual Weale models for all OECD countries within a 164. Testing for a unit root against nonlinear star framework which embraces all major world models George Kapetanios, Yongcheol Shin and Andy Snell economies. NiGEM’s flexible design supplies 165. Model selection uncertainty and dynamic users with the freedom to produce their own models George Kapetanios forecasts and simulations. Subscribers to 166. Information criteria, model selection uncer- NiGEM are provided with a comprehensive tainty and the determination of cointegration support and training package including rank George Kapetanios regular user’s meetings, training targeted to 167. Incorporating lag order selection uncertainty in parameter inference for AR models George their areas of interest and a model-dedicated Kapetanios web site. 168. Choosing the regime: macroeconomic effects of UK entry into EMU Ray Barrell and Karen The domestic model – NiDEM – has over Dury 400 variables which provide an unusually rich 169. Cointegrating VAR models with endogenous description of the workings of the UK I(0) variables: theoretical extensions and an application to UK monetary policy George economy. A major use within the Institute is Kapetanios, James Mitchell and Martin R. Weale to drive the quarterly economic forecast 170. From unemployment to self-employment: produced in the National Institute Economic developing an effective structure of micro- Review, but it is also used by outside organisa- finance support Hilary Metcalf and Roger tions for a wide variety of forecasting pur- Benson poses. 171. The determinants of pay levels and fringe benefit provision in Britain John Forth and Neil Millward Trial copies of both models, and further 172. The importance of long-run structure for information, can be obtained from the impulse response analysis in VAR models James contacts listed on the inside back cover. Mitchell 173. Pay settlements in Britain John Forth and Neil NiGEM, NiDEM, NiBUILD and NIESR are Millward 174. Openness, growth and development: trade and registered trademarks of the National Institute investment issues for developing economies of Economic and Social Research. Nigel Pain 175. Inward investment and technical progress in the UK manufacturing sector Florence Hubert and Nigel Pain 176. Evaluating macroeconomic models of the business cycle Andrew P. Blake and Garry Young

27 CORPORATE MEMBERSHIP

Corporate membership of the Institute was Further details about the Corporate Membership introduced in 1994 to facilitate a close link between Scheme are available from the Secretary. The the Institute and its leading financial supporters. In minimum subscription is normally £5,000 a year. 2000 we were especially pleased to welcome Marks & Spencer back after a brief interval and Morgan Other supporters of the Institute’s work are Stanley Dean Witter into membership for the first invited to contribute to the Development Fund, time. A full list of current corporate members can be established in 1998 to mark the NIESR’s sixtieth found on page 29. year of operation.

The Corporate Membership Scheme is designed to create a working relationship with key spon- Members Forum meetings in 2000 were as follows: sors of the Institute’s work. Corporate members can play a vital role in helping to develop the 17 February • Pay and Fair Treatment at research agenda, in two ways. First, the subscrip- Work: the impact of unions and other tions which they make act as a channel of sup- forms of employee participation in the port for new areas of inquiry which may not be late 1990s easily funded by other means. Second, corporate Discussion led by Neil Millward and members can act as an informal sounding board John Forth for research ideas and can facilitate access to Guests: Mike Emmett, Chartered information and other resources. Institute of Personnel and Development John Hougham, ACAS In return for their support, the Institute offers Ian Brinkley, TUC corporate subscribers a range of benefits: 25 May • The Benefits of Inward Invest- • quarterly meetings at which there is an oppor- ment for the UK tunity for briefings on current research and Discussion led by Nigel Pain policy topics; Guests: Professor John Cantwell, University of Reading • the Newsletter Economic Agenda which con- Nicholas Oulton, Bank of England tains summaries of reports issued by the Dr Nicholas Owen, DTI Institute and news of events; 17 October • Monetary and Fiscal Policy • a digest of economic forecasts made each in Europe: Implications for Britain’s quarter by NIESR staff; Membership Discussion led by Ray Barrell • invitations to all Institute conferences and Guests: Christopher Allsopp, Monetary seminars, usually featuring new contributions Policy Committee to research and a programme of distinguished Andrew Bailey, Bank of England speakers; Ben Norman, Bank of England

• free copies of Discussion Papers and other research publications on request;

• free access to the Institute’s library and information services.

28 FINANCIAL SUPPORTERS

The Institute would like to record its thanks to United Biscuits (UK) plc the following organisations for their support. Vickers plc Contributions of this type are vital in preserving our independence, and are much appreciated by Research Supporters Barber White Property Economics our officers and staff. Britannia Building Society British Council Corporate Members City of London Corporation Bank of England Commissariat Général du Plan, France Barclays Bank plc Daiwa Anglo-Japanese Foundation Dixons plc Department for Education and Employment Glaxo Wellcome plc Department of the Environment, Transport and the 3i plc Regions ICI plc Department of Health INVESCO Europe Ltd Department of Social Security Marks and Spencer plc Department of Trade and Industry Morgan Stanley Dean Witter Direction de la Prévision, Ministère de l’Economie, The National Grid Company plc des Finances et de l’Industrie, France Nomura Research Institute Europe Ltd Economic and Social Research Council Pearson Management Services Ltd Equal Opportunities Commission Post Office European Central Bank Rio Tinto plc European Centre for the Development of Vocational StandardChartered Bank plc Training TI Group plc European Commission UBS Warburg European Parliament Unilever plc EUROSTAT Willis Corroon Group plc Foreign and Commonwealth Office Higher Education Funding Council for England Financial Supporters Humberside Partnership Abbey National plc Institute for Manufacturing Industry Anglian Water plc Institute for Quantitative Investment Research The Bank of Scotland International Labour Office BNP Paribas The Law Society BOC The Leverhulme Trust Bradford & Bingley Building Society London Borough of Barking and Dagenham Bristol & West London Chamber of Commerce & Industry Cazenove & Co LCCI Commercial Trust Centrica Netherlands Economic Institute Du Pont Company (United Kingdom) Ltd Office of National Statistics Ernst & Young Pinnacle Partnerships plc Robert Fleming Holdings Ltd Regulated Industries Network GMB Joseph Rowntree Foundation Laporte Industries plc HM Treasury Lazard Brothers & Co Ltd Leopold Joseph London Forfaiting Company plc Professor WG McLelland T Miller News International plc Norsk Hydro (UK) Ltd Norwich Union plc Northern Foods plc Schroders Charity Trust Slough Estates plc Transport and General Workers Union

29 FINANCIAL SUMMARY

In the year to 31 March 2000 the Institute was able to generate an operating surplus for the fifth successive year. The policy of the Council is to balance income and expenditure over the long term, while recognising that fluctuations may occur in individual years. Full accounts for each of the years listed, including an un- qualified audit report from KPMG Audit plc, have been filed at Companies House and the Charities Com- mission.

1999–2000 1998–99 1997–98 £ £ £ INCOME Research 1,346,399 1,336,088 1,098,949 Publications 443,721 404,339 412,004 Corporate supporters 86,630 124,805 123,415 Investments and interest 150,905 162,742 152,503 Total income 2,027,655 2,027,974 1,786,871

EXPENDITURE Research 1,349,369 1,303,458 1,190,856 Publications 252,640 247,179 249,937 Premises 87,581 93,317 79,117 Administration and general services 207,006 200,006 176,936 Total expenditure 1,896,596 1,843,960 1,696,846

OPERATING SURPLUS/(DEFICIT) 131,059 184,014 90,025

72 70 68

t 66 n e c

64 r e P 62 60 58 56 1994-5 1995-6 1996-7 1997-8 1998-9 1999-00 Income Expenditure

30 INSTITUTE GOVERNORS

DI Allport T Hillgarth Sir Bob Reid Professor MJ Artis FBA Mrs M Hodge MBE MP The Rt Hon Lord Richardson of Professor AB Atkinson FBA Sir Geoffrey Holland KCB Duntisbourne KC MBE RJ Ayling G Holtham GB Richardson CBE Professor AD Bain OBE FRSE The Rt Hon Lord Hunt of Tanworth Sir Thomas Risk NC Bain GCB The Rt Hon Lord Roll of Professor Sir James Ball KB Sir Roger Hurn Ipsden KCMG CB Sir John Banham Professor JP Hutton Ms E Rothschild NCF Barber W Hutton JR Sargent Ms K Barker Sir Robin Ibbs Sir David Scholey CBE Professor C Bean Sir Martin Jacomb Professor A Sen FBA W Beckerman L Jayawardena* Sir Alfred Shepperd Sir Terence Beckett KBE C Johnson Professor ZA Silberston CBE Sir Kenneth Berrill GBE KCB Mrs K Jones Lord Simpson of Dunkeld Professor R Blundell FBA Professor H Joshi RDN Somerville CBE Lord Borrie QC Ms D Julius JG Speirs CBE F Bourgignon Sir Stanley Kalms Ms C Spottiswoode The Rt Hon Lord Briggs FBA Professor JA Kay FBA Professor N Stern FBA Sir Samuel Brittan G Keating Professor DK Stout AJC Britton W Keegan PD Sutherland Professor AJ Brown CBE FBA The Rt Hon Lord Keith of Sir Richard Sykes FRS Professor WA Brown Castleacre AR Thatcher CB Sir Alan Budd Ms R Kelly MP Professor AP Thirlwall Professor WH Buiter Professor MA King FBA The Rt Hon Lord Tombs Lord Burns GCB The Rt Hon Lord Kingsdown KG PC of Brailes Sir George Burton CBE DL FRSA Sir Arthur Knight A Turner* Sir Ian Byatt Sir Martin Laing CBE D Verey Sir Adrian Cadbury Baron Alexandre Lamfalussy Professor J Vickers FBA Sir Dominic Cadbury N Land Professor D Vines Ms F Cairncross JW Leng S Wadhwani W Callaghan B Larcombe Sir David Walker Sir John Cassels CB Lord Lea OBE Professor KF Wallis FBA M Cassidy Ms P Leith R Watabe C Cheetham Sir Christopher Lewinton R Wilson R Chote HH Liesner Professor TM Wilson OBE Sir Michael Clapham KBE Professor SC Littlechild FBA FRSE Sir Brian Corby A Lord CB Sir Brian Wolfson Sir John Craven MA Loveday GDN Worswick CBE FBA The Rt Hon Lord Croham GCB Professor WG McClelland Professor S Wren-Lewis Lord Currie Sir Donald MacDougall CBE FBA Professor P Dasgupta FBA Sir Ronald McIntosh KCB G Davies Professor Sir Donald MacKay IF Hay Davison FCA Sir Kit McMahon Professor PM Deane FBA E Macpherson Lord Dearing CB Professor RCO Matthews CBE FBA KHM Dixon CBE DL Sir Peter Middleton GCB Professor DV Donnison Professor MH Miller The Hon John Eccles R Milner THE GOVERNORS ARE FOR- J Edmonds Professor Sir James Mirrlees FBA MALLY THE MEMBERS OF THE Piet-Jochen Etzel Sir Nigel Mobbs DL INSTITUTE. THE ARTICLES OF Professor CH Feinstein FBA Sir Nicholas Monck KCB The Rt Hon F Field MP* J Monks ASSOCIATION LIMIT THE NWA FitzGerald Professor PG Moore NUMBER OF GOVERNORS TO A JS Flemming FBA DJ Morris HJ Foulds Ms KMH Mortimer MAXIMUM OF 200. THESE ARE Sir Campbell Fraser FRSE Sir Claus Moser KCB CBE FBA RECRUITED BY INVITATION E George The Rt Hon Lord Murray OBE AND REFLECT EXCELLENCE IN Professor N Gilbert MA FREng CEng FBCS* Professor RR Neild Sir Paul Girolami, FCA Professor S Nickell FBA BUSINESS, ACADEMIC AND Professor WAH Godley AJ Norman MP PUBLIC LIFE. THE FUNCTIONS Professor CAE Goodhart CBE FBA PM Oppenheimer Professor D Greenaway Sir Geoffrey Owen OF GOVERNORS INCLUDE Sir Richard Greenbury Professor Pang Eng Fong* ELECTION OF THE COUNCIL The Rt Hon Lord Greene of Harrow Professor Sir Alan Peacock DSC FBA FRSE AND APPROVAL OF THE Weald CBE Professor the Lord Peston of Mile End Lord Griffiths of Fforestfach Sir David Plastow ACCOUNTS. MANY ALSO Sir David Hancock KCB SG The Rt Hon Lord Plowden PROVIDE INVALUABLE ADVICE Lord Haskins KCB GBE The Rt Hon Lord Haslam of Bolton MV Posner CBE IN THEIR AREAS OF EXPER- Professor PD Henderson G Radice MP TISE. GOVERNORS APPOINTED Professor DF Hendry FBA JM Raisman CBE IN THE PAST YEAR ARE Sir Michael Heron Professor WB Reddaway CBE FBA The Rt Hon the Lord Higgins, KBE DL J Reeve MARKED WITH AN ASTERISK.

31 INSTITUTE STAFF AND VISITORS

Institute staff DIRECTOR Martin Weale, MA, Cantab, CBE

SECRETARY Francis Terry, BA, Oxon; MA, Nottingham; FCIT, FILT, MIMgt

SENIOR RESEARCH FELLOWS John Arrowsmith, MA, Oxon; MSc(Econ), London Neil Millward, BSc, Bristol; PhD, Manchester (on secondment to Foreign Office) Nigel Pain, BA(Econ), Exeter Ray Barrell, BSc(Econ), MSc, London; Visiting SJ Prais, MCom, Birmingham; PhD, ScD, Cantab; Professor at Imperial College, London Hon DLitt (City); FBA Hilary Metcalf, BA, Oxon; MSc, London

RESEARCH FELLOWS Andrew P Blake, BA, Liverpool; MA, Essex, PhD, Heather Rolfe, BA, Sheffield; PhD, Southampton London James Sefton, BA, PhD, Cantab Geoff Mason, BA, Auckland; MSc(Econ), London Julia Whitburn, BSc, Leicester; MA, London; PhD, Mary O’Mahony, MA, Dublin Oxford Brookes

SENIOR RESEARCH OFFICERS A Ian Hurst, BEng, DipEng, PhD, Hull, IEng John Forth, BSc, UMIST; MA, Warwick

RESEARCH OFFICERS Tracy Anderson, BSc, MSc, London Tatiana Kirsanova, MSc, Moscow; MA, Moscow; Paul Ashworth, BSc, Strathclyde; MSc(Econ), MSc, London Warwick; PhD, Strathclyde Richard Kneller, BA, Liverpool; MSc, Liverpool John Joseph Byrne, BA(Econ), Strathclyde; Moores; PhD, Nottingham MSc(Econ),Glasgow; PhD, Strathclyde James Mitchell, BA, Dunelm; MSc, Bristol; PhD, Karen Dury, BSc (Econ), PhD, Sheffield Cantab Dawn Holland, BA, Tufts; MSc (Econ), London Rebecca Riley, BA (Econ), Copenhagen; MSc (Econ), Florence Hubert, BA, Licence, Maîtrise, London Nantes; MSc (Econ), Warwick Philip Stevens, BA, Leeds Metropolitan; MA(Econ), Simon Kirby, BA, Keele; MSc(Econ), London Leeds Michela Vecchi, Laurea, Macerata; MSc, Glasgow; PhD, Ancona

RESEARCH ASSISTANT Fiona Thirlwell, BA, Newcastle

ADMINISTRATION AND Robert G Coles, FCCA, MIMgt Michele Ockenden, BA, East Anglia; Grad IPD FINANCE Jean MacRae Pat Shaw

COMPUTING Hassan K Feisal, BSc, London

LIBRARIAN Claire Schofield, BA, Portsmouth; Dip LIS, Newcastle

PUBLICATIONS Fran Robinson, BA, London

EXTERNAL RELATIONS Gill Clisham, BA, Essex

Visitors VISITING FELLOWS AJC Britton, BA, Oxon; MSc London Pamela Meadows, BA, Dunelm; MSc, London Simon H Broadbent, BA, Dunelm; BPhil, Oxon Richard Pierse, MA, Oxon; MSc, London Professor Philip Davis, MA, MPhil, Oxford Professor Richard Smith, MA, PhD Cantab; MA, Jayasri Dutta, BA, Calcutta; MA, PhD, Delhi Essex Professor PE Hart, DSc (Econ), London Christopher Taylor, MA, Cantab; MA, McGill Paul Wallace, MA, Cantab; MPhil, London

CONSULTANTS Rob Allen, NACRO Dr Bohdan Kłos, National Bank of Poland, Warsaw Chris Bainton, Consultancy Research University Dr Paul Brenton, Centre for European Policy Mihály András Kovács, National Bank of Hungary Studies, Brussels Mark Liddle, NACRO Alex Bryson, Policy Studies Institute Dr Urmas Sepp, Bank of Estonia Theresa Crowley, Consultancy Research Mgr Kateřina Šmídková, Czech National Bank Douglas Edmonds Alan Taylor, NACRO Uroš Čufer, Bank of Slovenia Frau Professor Dr Karin Wagner, Fachhochschule Dr Nick Horsewood, University of Birmingham für Technik und Wirtschaft, Berlin Professor AG Howson, University of Southampton Dr Hans Wessels, Deutsches Institut für Wirtschaftsforschung, Berlin

32 WHERE TO FIND US The National Institute welcomes enquiries on all aspects of its work, and suggestions for collaboration with universities, business or government.

Correspondence may be addressed to: The Secretary National Institute of Economic and Social Research 2 Dean Trench Street, Smith Square London SW1P 3HE Tel: 020 7222 7665. Fax: 020 7654 1900 E-mail: [email protected] or to any of the following on specific topics: World economic model Ray Barrell • 020 7654 1925 Dawn Holland • 020 7654 1921 Domestic economic model Andrew Blake • 020 7654 1915 National Institute Economic Review Submission of articles: Fran Robinson • 01650 511783 Subscriptions and other enquiries: Sage Publications • 020 7374 0645 Events and publications: Gill Clisham • 020 7654 1901 Research programmes covered in this report Karen Dury • 020 7654 1909 John Forth • 020 7654 1954 Geoff Mason • 020 7654 1936 Pamela Meadows • 020 7654 1930 Hilary Metcalf • 020 7654 1914 Neil Millward • 020 7654 1953 James Mitchell • 020 7654 1926 Mary O’Mahony • 020 7654 1917 Nigel Pain • 020 7654 1929 Rebecca Riley • 020 7654 1941 James Sefton • 020 7654 1931 Philip Stevens • 020 7654 1927 Michela Vecchi • 020 7654 1918 Martin Weale • 020 7654 1945 Julia Whitburn • 020 7654 1943

Cover design by Ed Walker Further information on Institute activities can Printed in London by also be found on our website: Direct Image Systems and Communications Ltd http://www.niesr.ac.uk