national institute of economic and social research council of

NATIONAL INSTITUTE OF ECONOMIC AND SOCIAL RESEARCH

Professor of Economics, London School ofEconomicsChief Economist, European Bank forReconstruction and DevelopmentFormer Director General of Water ServicesMedia Editor, The EconomistFormer Chairman, Prudential Corporation plcChairman, Lonmin plcWarden of Wadham College, OxfordProfessor of Banking and Finance, London School ofEconomicsChairman, Dixons Group plcMember of Parliament for Bolton WestFormer Deputy Chairman, Monopolies and MergersCommissionGroup Deputy Chairman and Group ChiefExecutive, Barclays Bank plcGeneral Secretary, TUCMember, Bank of England Monetary PolicyCommitteeProfessor of Econometrics, University ofWarwickInstitute Director

PROFESSOR CHARLES BEAN

PROFESSOR WILLEM H BUITER

SIR IAN BYATT

FRANCES CAIRNCROSS

SIR BRIAN CORBY

SIR JOHN CRAVEN

JOHN FLEMMING

PROFESSOR CHARLES GOODHART

SIR STANLEY KALMS

RUTH KELLY MP

HANS LIESNER

SIR PETER MIDDLETON

JOHN MONKS

DR SUSHIL WADHWANI

PROFESSOR KENNETH WALLIS

MARTIN WEALE

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

President

Sir Brian Corby

Appointed November 1994;formerly Chairman of PrudentialCorporation plc

Chairman of Council

John Flemming

Appointed November 1996;Warden of Wadham CollegeOxford and a former ExecutiveDirector of the Bank of England

Director

Martin Weale

Appointed October 1995;formerly Economics Fellow,Clare College Cambridge

Secretary

Francis Terry

Appointed October 1999;formerly Head of Research,Nottingham Business School

COUNCIL OF MANAGEMENT

1

CONTENTS

page

CHAIRMAN’S PREFACE 2

DIRECTOR’S REPORT 3

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

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

SUPPORTERS OF THE INSTITUTECorporate membership 28Financial supporters 29

FINANCIAL SUMMARY 30

PEOPLE AT THE INSTITUTEInstitute governors 31Institute staff 32

2

CHAIRMAN'S PREFACE

In 2000, the National Institute concluded a reviewof its strategic directions. It aims to continue produc-ing high quality academic research which is relevantto the needs of business and public policy makersand, in keeping with its original purpose, will do sofrom an independent, non-aligned position.

Last year, I reported on the first phase of theInstitute’s review of its research and future strat-egy. The encouraging results from that exerciseprovided the basis for a specially-constitutedStrategy Committee to consider options forfuture development and to make recommenda-tions to the Institute’s Council of Management.A report was subsequently made at the AnnualGeneral Meeting in November 2000.

The Strategy Committee found a clear consensusamong our constituents on some key issues. First,the Institute’s international links – already verydiverse – are being strengthened and formalised.A European Economic Interest Grouping(EEIG) is being set up in association with theDeutsches Institut für Wirtschaftsforschung inBerlin and the Observatoire Française desConjonctures Economiques in Paris. The EEIGwill simplify our ability to compete for fundingfrom European Union (EU) sources, an areawhere the Institute has a growing record ofsuccess. With the benefit of EU funding, theInstitute has already begun to play an active rolein the work of the Brussels-based Centre forEconomic Policy Studies. A renewed agreementwith our colleagues at the Lehrmittelverlag desKantons Zurich in Switzerland will facilitate thecontinued development of educational materialsfor teaching primary school mathematics; andour model of the world economy continues toattract new subscribers from overseas.

Second, there was a feeling that the Institutecould disseminate its outputs more actively andpromote dialogue in research. After a competitivetendering exercise involving major journal pub-lishers, the Institute has signed an agreement

with Sage Journals to market and distribute theNational Institute Economic Review world-wideon its behalf. The Institute retains ownership ofthe title, copyright and full editorial control. Thejournal is also adopting a more ‘open’ approachto the publication of articles by non-members ofstaff. We expect these changes to increase theappeal of the journal and widen its readership.

In association with Cambridge University Press(CUP), a series of public lectures has been set upto commemorate the life and work of ProfessorRichard Stone (1913–91), distinguished Cam-bridge economist and Nobel Prize Winner.Stone’s Prize-winning study was originally pub-lished by the Institute and the Department ofApplied Economics at Cambridge following hiswartime research here. Lectures given in theseries, commencing in 2001, will result in full-length published texts dealing with contempo-rary problems in economic theory and policy.

The Strategy Committee also looked at how theInstitute could utilise its healthy finances toprovide for future development. Against a back-ground in which there is strong competition inmany areas of research, the Committee con-cluded that we should enhance our complementof senior researchers by appointing Senior Visit-ing Fellows who hold university posts but workwith us part-time in stimulating new fields ofenquiry. Professor Philip Davis from BrunelUniversity is the first such appointment.

Finally, the Institute has redefined its mission:

The National Institute aims to promote, throughquantitative research, a deeper understanding of theinteraction of economic and social forces that affectpeople’s lives, so that they may be improved.

We believe this encapsulates both our distinctiveresearch approach and a commitment to a betterquality of life for all.

3

DIRECTOR'S REPORT

The National Institute has always been in aposition to contribute to the public debate andto enhance the effectiveness of public policyfrom a position outside and independent of theGovernment. This sort of involvement has seentwo important milestones in the last year. First ofall, I became a Statistics Commissioner, joiningthe new body that the Government has set up tomonitor the output of the Statistical Service. Themain contribution I expect to make to theCommission is of a technical nature, helping theCommission to monitor the quality of statisticalproducts. This is beginning with an assessmentof what the Statistical Service knows about thereliability of its outputs, a study which willeventually, I hope, lead to users having moreinformation than they currently do about theaccuracy of the data with which they are pro-vided.

The second milestone concerns public fundingof a commentary on the state of the economy.Until 1991 HM Treasury, the Bank of Englandand the ESRC had funded the provision of aregular commentary as part of the activity of theMacroeconomic Modelling Consortium. Thiswas, in itself, a continuation of the funding thatHM Treasury had provided for the NationalInstitute since the 1950s. But, in part because ofa confusion between, on the one hand, an eco-nomic forecast like many of those produced inthe City and, on the other hand, an independentcommentary and policy analysis incorporating aforecast, public support for the commentaryceased. Since then the continuing regular com-mentary on the UK economy has been possiblethanks to the support of our Corporate Membersand Financial Supporters.

However, I am glad to report that, once again,the Institute is receiving funding to produce aneconomic commentary, albeit this time on theEuropean Union rather than the UK. On thisoccasion it comes from the European Parliamentand is provided to an international consortium of

research institutes of which NIESR is one. Acentral part of the analysis is that it is built roundthe National Institute’s Global EconometricModel (NiGEM). It is hoped that this is thebeginning of a regular programme of cooperationbetween the National Institute and our partnersin the rest of Europe. A large part of our pro-gramme of work on international issues is sup-ported by the user group for NiGEM; by the endof 2000 the number of users had risen towards40 and we hope to find scope for further expan-sion in 2001. The standing of the model and itsforecasts is illustrated by the fact that theseforecasts are the only ones produced by non-government organisations which the EuropeanCentral Bank quotes on a regular basis.

An increasing amount of our research involvescooperation with other research organisations inEurope and with European Union institutions.The two themes of Europe and statistics arebrought together by our programme of work oneconomic statistics. This has received supportfrom grants made under the European Commis-sion’s Fifth Framework programme. A two-yearprogramme of work is beginning, involving fourpartner organisations, to find ways of producingestimates of GDP and other key aggregates forthe European Union earlier than are currentlyavailable. The work builds on the methods usedto produce our estimates of monthly GDP inthis country and on the work related to promptestimates of EU industrial production describedon page 17 of this report. Other research, sup-ported by the Statistical Office of the EuropeanCommission (EUROSTAT) has looked atwhether a business cycle can be identified in theEuro Area. In the coming year we hope to see afurther expansion of this fruitful cooperationwith EUROSTAT.

The current government is rightly concernedabout Britain’s productivity performance, whicha number of studies at the Institute has shown tobe poor compared to some other industrial

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*O’MAHONY, M. (1999), BRITAIN’S PRODUCTIVITYPERFORMANCE, 1950–1966. AN INTERNATIONAL

PERSPECTIVE, LONDON, NATIONAL INSTITUTE OFECONOMIC AND SOCIAL RESEARCH.

countries. Our work has provided a basis forfurther analysis both here and elsewhere. Likeother researchers we endeavour to publish ourwork in academic journals and the list of publica-tions in this report shows that we are succeedingin this respect. But journals are not suitable forall our output and it is gratifying to see thewidespread references, particularly in officialdocuments, to the Institute’s publication oncomparative productivity.* Meanwhile we haveunder way a study of local authority productivity,investigating how the various authorities in thecountry match up against each other in theprovision of local authority services. Other workon productivity is planned to explain factorswhich lead to efficiency differences betweencountries. We hope to develop this area withfurther support from the European Union, alsoas part of its fifth framework programme.

Last year I reported that the Institute had re-ceived a large grant from the ESRC under itsevolving macroeconomy programme. In thesecond round of applications we received asecond grant for work on means testing. Thestudy will look at the link between means testingand saving; while the Government has proposeda number of reforms of the benefit system, it has,at present, no means of assessing their impact onsavings behaviour. This work represents a devel-opment of earlier studies of the effects of tax andsocial security structures on savings behaviourand, in turn, we hope to build on it to expandour work in this area. I hope that future researchwill include an investigation of the effects of thevarious tax exemptions and reliefs offered ondifferent types of saving, in order to understandtheir influence both on the level of aggregatesaving and on the distribution of income andwealth in the economy.

Over a number of years I have reported on thecooperation between the Institute and the Lon-don Borough of Barking and Dagenham indeveloping new means of teaching maths to

primary school children. Thanks largely to theefforts of the Institute Secretary, I am glad toreport that much progress has been made withpublishing the teaching materials developed bythe programme so that they can be of use toschools throughout the country. A web siteproviding information on them is available atwww.ipmaths.co.uk. I hope to be able to reporton an expansion of this activity at this time nextyear. The merit of the project and the underlyingmaterials themselves can be deduced from thefact that school test scores in Barking andDagenham have risen more sharply than in thecountry as a whole. For the first time Barkingand Dagenham’s performance now matches thenational average. This exercise has required us, inorder to comply with the law on charities, to setup a trading company, NIESR Services Ltd. Anyprofits which accrue to this company are thencovenanted to the Institute.

The strategic review of the Institute suggestedthat it would be sensible for us to strengthen ouractivities by increasing senior input through theappointment of a number of Visiting Fellows. Asour first step in this direction we have recruitedProfessor Philip Davis from Brunel University.He is working with our international economicsgroup on looking at international differences infinancial market structures. We are also makinguse of the Institute’s resources to provide the seedfinance needed to build up research links withuniversity researchers who, for geographic rea-sons, may not be able to visit the Institute on afrequent basis. During the coming year we hopeto develop this further insofar as our resourcesallow.

5

During 2000, research led by Garry Young andNigel Pain has contributed, from an independentstandpoint, to the longstanding debate over thebenefits to the British economy of membership of theEuropean Union (EU). The Institute’smacroeconometric model of the UK economy hasbeen used to assess the consequences of UK with-drawal from the EU, with particular reference tojobs, investment and the long-term growth prospectsof the British economy.

Over the past 30 years the British economy hasbecome increasingly integrated with that of theother EU members. There have been noticeablechanges in trade patterns since entry into theEU, with a rising share of UK trade in goods andservices now taking place with other memberstates. Detailed estimates from input-outputtables suggest that up to 3.2 million UK jobs arenow associated directly with exports of goodsand services to other EU countries. This hasgiven rise to popular concern that some of thesejobs might be at risk if Britain were to leave theUnion. Opponents of membership on the otherhand argue that many of the benefits flowingfrom the increasingly integrated EuropeanEconomic Area might still be available even if theUK were to withdraw, particularly since theUruguay Round Agreement has imposed signifi-cant limits on the trade barriers that the EU canplace on non-members. In conjunction with thepotential gains from withdrawing from theCommon Agricultural Policy and no longerpaying net fiscal contributions to the EU, there isa case that withdrawal from the EU might actu-ally offer net economic benefits.

New theories of economic growth in openeconomies stress the importance of knowledge,both codified and tacit, brought in throughinternational trade and direct investment in theeconomy by foreign firms. Such transfers mayindeed have permanent effects on output and thegrowth process by affecting total factor produc-tivity and technical change. It is clear from

THE MACROECONOMIC IMPACT OF UK WITHDRAWAL FROM THE EU

research using panel data evidence that foreigndirect investment and imports both affect therate of labour-augmenting technical progress in anumber of different industries in the UK. Thelocation of multi-national activity was alsoexamined, using a panel data set of the level offixed capital formation by US-owned companiesin nine European countries, since the mid-1960s.From this analysis, it emerges that membershipof the EU or membership of the EuropeanEconomic Area (and hence participation in theSingle Market Programme) both have a signifi-cant positive impact on the location and scale ofinvestment. Thus the size of national economieshas to be viewed as partially determined by thedegree of integration with Europe.

This does not necessarily mean that the numberof jobs in the economy is similarly affected. In aneconomy such as the UK with flexible real wages,trade and direct investment might ultimately beexpected to affect only the types of jobs availablerather than the quantity. In the short term theremight be some job losses if British consumersand firms were denied free access to Europeanmarkets, but higher unemployment would putdownward pressure on wages and prices so thatthose losing their jobs as a consequence of tradeand investment ‘shocks’ could price themselvesback into work. Of course national income andliving standards could still decline, even if thequantity of jobs was ultimately unchanged.

The provisional conclusion from the Institute’smodel-based estimates is that the level of realgross national income would be around 1½–1¾per cent lower outside the EU than inside, withGDP at constant prices being 2¼ per cent lowerpermanently than in the baseline case of contin-ued EU membership. These estimates appearbroadly equivalent to the gains that other EUeconomies are estimated to have made from theEuropean integration process.

ENQUIRIES TO: [email protected]

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

DISAGGREGATE BUSINESS SURVEY DATA

Survey data and growth of manufacturing output

Survey data are widely used to provide indicators ofeconomic activity ahead of the publication ofofficial data. Traditionally, survey based indicatorsexploit only aggregate survey information, namelythe proportion of respondents who reported a rise orfall in activity. A new project at the NationalInstitute, supported by the ESRC, considersdisaggregate or firm-level survey responses andderives an alternative indicator of economic activity.

The use of survey data as a complement toofficial sources of statistics about the economycontinues to be popular. The data are availablemore promptly and are generally believed to offera good guide to the current state of the economyand to its prospects in the near future. Surveyresponses are typically ordered and categorical;respondents report ‘rise’, ‘stay the same’ or ‘fall’relative to the previous period. Traditionally theaggregate survey responses (weighted by firmsize) are then converted into a quantitative seriesto provide early indicators of economic activity.We have compared these ‘aggregate’ indicatorswith ‘disaggregate’ indicators based on firm-levelsurvey responses. The disaggregate indicators,recently developed at the National Institute, arederived by relating firms’ micro-responses to theofficial data using ordered discrete choice econo-metric models.

Firm-level response data from the CBI’s Indus-trial Trends Survey are used to compare ourdisaggregate indicator with the traditional aggre-gate indicators. Using the CBI’s firm-level surveydata we have constructed both aggregate anddisaggregate indicators of manufacturing outputgrowth by examining the responses to the ques-tion: ‘Excluding seasonal variations, what hasbeen the trend over the past four months withregard to volume of output?’ Firms can respondeither ‘up’, ‘same’, ‘down’ or ‘not applicable’.

The results so far have shown that thedisaggregate indicators provide more accurateearly indicators of manufacturing output growth(MQ) than their aggregate counterparts. Anillustration is given in the chart below. Thedisaggregate indicator is (1) better correlatedwith the outturn for MQ than the aggregateindicator (an R2 of 0.719 rather than 0.484), and(2) has a lower root mean squared forecast erroragainst the outturn (2.080 versus 2.873). Resultsat the sectoral level confirm this finding. Group-ing the firms into seven industrial sectors, weconsistently find the disaggregate indicator ofsectoral output growth to be more accurate thanthe traditional indicator.


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20 30 40 50 60 70 80 90 100

United Kingdom United StatesItaly

It is already known that personal savings ratesdiffer dramatically between countries. Financialinstitutions and public policy makers have a stronginterest in understanding why this is so. Currentresearch at the Institute, related to earlier work ongenerational accounts, seeks to address this questionby analysing personal sector savings rates in threecountries (Italy, USA and the UK) within a coher-ent and comprehensive framework.

Italians save more than 16 per cent of theirdisposable income, the British just under 10 percent on average and the Americans almostnothing. Is this because the British and theAmericans, relative to the Italians, are not savingadequately for their retirement? Or are theysaving less because the welfare state is doing thesaving for them? Or does the incentive structureimplicitly or explicitly built into the tax andbenefit systems actually have the effect of dis-couraging savings?

For the average or representative individuals ineach of the three countries, we have compiled acomplete picture of all their expected revenuesand expenditures throughout their lifetime, usinga wide variety of survey data sources; we havealso included all income in kind such as govern-ment education and health expenditure. By usingthe now widely accepted life-cycle model of

savings behaviour, we have been able to answerthe following question: if an average Italianexpected to receive the same income in thecourse of a lifetime as an American, would he orshe save more or less than the average American?The answer to this and similar questions hasenabled us to deduce the causes of the differencein the savings rates between the countries.

Our work has suggested that all the differencebetween the personal sector savings rates in theUS and Britain could be explained by the differ-ence in retirement ages between the two coun-tries. To illustrate this, in the figure below wehave plotted the income profile of the averageindividual in each of these three countries.The average American tends to work almost sixyears longer than the average Briton or Italian. Asexpected lifetimes are almost identical in each ofthese countries, the average American needs tosave less. In fact the difference is enough toexplain all the difference in the savings ratesbetween the US and the UK.

To explain the difference between the UK andItaly we focused on a very different mechanism.The evidence available to us suggests that theItalians saved more than the British because theywere unable to borrow, particularly when theywere young. In Italy, the capital markets andespecially the mortgage markets are far lessdeveloped than in the UK. Hence the averageItalian tends to make a down payment of at least40 per cent on the initial purchase of a house.Also, he or she is far more likely to be unable toborrow when young, meaning that the averageItalian has typically very low levels of debt.


INTERNATIONAL COMPARISON OF PERSONAL SECTOR SAVINGS RATES

Age profiles of labour income

WE ARE GRATEFUL FOR THE FINANCIAL SUPPORT OFTHE ECONOMIC AND SOCIAL RESEARCH COUNCIL IN

CARRYING OUT THIS WORK.

8

FINANCIAL EXCLUSION

Around one in every six adults in Britain has nobank or building society current account, andaround one in every twelve has no bank, buildingsociety or Post Office account of any kind. Almostall those without accounts are not in paid employ-ment. The question addressed by this research waswhether those who do not have accounts differ inany significant way from apparently similar peopledrawn from the same population groups who do.

The research, using the 1997/98 Family Re-sources Survey and a series of questions insertedin the Office of National Statistics OmnibusSurvey, found that the members of the non-working population who do not have accountsare very similar in most respects to those whohave them. There are some differences. Forexample, those without accounts tend to havelower incomes. However, more than four out offive people with incomes of less than £100 aweek do have accounts. Those who live in largecities are less likely to have accounts than similarpeople living in other areas. Social tenants andthose of Indian, Pakistani or Bangladeshi originare also less likely to have accounts than owneroccupiers and people from other ethnic groups.Those who have some financial assets, a car, or atelephone, or who get a pension from a formeremployer or maintenance from a former partnerare more likely to have accounts than those whodo not.

On the basis of their characteristics and socialand economic circumstances, most people with-out accounts might well be expected to havethem. In other words, they are statistically indis-tinguishable from the majority who are alreadybeing served by the existing range of accountsoffered by existing financial institutions. Onlywhen we included information about usage offinancial services by members of people’s socialnetworks were we able to identify more than halfthe non-users. Those who live in householdswhere nobody else has an account are twenty-fivetimes more likely not to have an account than a

similar person who lives in a household wheresomeone else has a current account. Similarly,people who say that few or none of their friendsand relatives have accounts are twelve times morelikely not to have an account than an identicalperson who says that all or most of their friendsand family have accounts of some kind. Socialnetworks make a much larger difference tosomeone’s chances of having an account than anyof their other characteristics. For instance, socialhousing tenants are twice as likely as owner-occupiers not to have an account.

The policy debate, sparked in part by the govern-ment’s decision to pay all social security benefitsinto bank accounts from 2003, has concentratedon special accounts and new financial institu-tions. Our research suggests that most of thosewithout accounts have a similar profile to exist-ing customers of financial institutions; they arejust less well informed. It may therefore be morepractical for institutions to encourage non-customers to take up the existing range of ac-counts rather than develop new ones. However,there will continue to be the problem that somebenefit claimants, including some elderly people,those with poor English, those with literacyproblems and those with poor mental health,may find it impossible to cope with the complex-ity and organisation required. In these cases, therisks for the government, for financial institu-tions and for the individuals themselves appearto be large.


WE ARE GRATEFUL TO THE BRITANNIA BUILDINGSOCIETY FOR SUPPORTING THIS PROJECT. A COPYOF PAMELA MEADOWS’ REPORT ENTITLED ACCESS

TO FINANCIAL SERVICES IS AVAILABLE FREE ONREQUEST FROM THE NATIONAL INSTITUTE.

9

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

For the past two decades, the state has assistedunemployed people to become self-employed. Previ-ous research has indicated that initial financing hastended to be very restricted and may contribute tobusiness failure. Against this background, the ILOcommissioned NIESR to examine whether there wasa case for government micro-financial assistance toenable unemployed people to enter self-employment,and to identify the way in which support might bestbe structured and provided.

Assistance with a move from unemployment toself-employment has varied over time and bylocation, with, variously, advice, training, grants,loans and income support being available. At thesame time, unemployed people have been able toaccess assistance from mainstream businesssupport agencies, mainly providing advice andtraining. The study examined access to commer-cial loans for business start-up and found unem-ployed people were at a disadvantage, includingthrough indirect discrimination in lendingcriteria. Some of the discriminatory criteria werejustifiable in commercial terms; others were not.Irrespective of justification, the disadvantage,inter alia, suggested a need for governmentaction.

Analysis of the current system of support acrossthe UK revealed a plethora of programmes,schemes and providers, including governmentagencies and quangos, local authorities, thevoluntary sector and the private sector. In someconstituent countries of the UK, up to fourgovernment departments were involved, eachwith different aims (including tackling unem-ployment, business development, regenerationand income maintenance). The result was confu-sion, inefficient provision and variation in assist-ance across the country. Unemployed people haddifficulty identifying support and lack of co-ordination resulted in a range of inefficiencies.

The study concluded that government interven-tion was appropriate and that the system of

support needed improvement. As a prerequisite,government needs to develop a strategic ap-proach to assisting unemployed people into self-employment, encompassing all micro-financialprovision for unemployed people across thecommercial, voluntary and state sectors. InEngland, the introduction of the Small BusinessService provides a major opportunity for this.The aim of government support for businessstart-up by unemployed people also requiredclarification: our research suggested this shouldbe to increase entry into employment (whetherself-employment or as an employee) and thatregeneration and the stimulation of a smallbusiness sector were inappropriate aims. Many ofthe improvements recommended would be cost-free and may indeed reduce costs.

Selected recommendations• The structure should seek to maximise access

to commercial funds, with the governmentplaying an enabling role (through, for exam-ple, the provision of business start-up andcontinuation advice and training to unem-ployed people and loan guarantees); govern-ment provided grants and loans should beavailable to fill remaining gaps.

• Assistance should be available equally to allunemployed people across the country, irre-spective of local economic conditions.

• The criteria for targeting assistance among theunemployed should be financial disadvantagenot labour market disadvantage. Targeting thelatter diverts support from those most need-ing micro-financial assistance (increasingdeadweight) and, potentially, encourages lessappropriate individuals to enter self-employ-ment (increasing the risk of business failure).

• Delivery of public sector support should berationalised at the local level to counter thediseconomies of scale, multiple bidding andconfusion over access.


10

Collaboration between researchers at the NationalInstitute and inspectors at the London Borough ofBarking and Dagenham to improve standards ofmathematics among primary school pupils of alllevels of ability has continued. The partnership hasbeen developing teaching materials and teachingmethods based on successful practice observed inprimary schools in Switzerland as part of theImproving Primary Mathematics (IPM) project.This school year, more than 18,000 pupils in over60 schools are using the materials and teachingmethods developed by the project.

The project, which began in 1995 in Year 2 ofprimary school, now involves pupils in all sixyears of primary schooling; the first cohort ofpupils to participate in the project will transfer tosecondary schooling in September 2001. It isexpected that at that time secondary schools inBarking and Dagenham will benefit from thehigher standards of average mathematical attain-ment and the smaller proportion of lower attain-ing pupils. Plans to introduce reforms in second-ary school teaching are under discussion.

Evidence regarding the effectiveness of theproject in raising standards is provided by thenationwide tests at the end of Key Stage 1(National Curriculum tests). When the project

MOVING UP THE LADDER OF IMPROVEMENT IN MATHEMATICS

SALES AND DISTRIBUTION OF THE IPM TEACHINGAND LEARNING MATERIALS IS BEING CARRIED OUT

ON BEHALF OF THE NATIONAL INSTITUTE AND THELONDON BOROUGH OF BARKING AND DAGENHAMBY THE MODBURY GROUP, SENTINEL HOUSE,

POUNDWELL, MODBURY, DEVON PL21 0XX (TEL:01548 830710. E-MAIL MISNET.CO.UK)

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KS1 Mathematics Test Results 1998–2000% of pupils gaining level 2 or better

began, Barking and Dagenham was one of thelowest achieving education authorities in thecountry in terms of mathematical attainment.Since the project began, levels of achievementhave risen markedly, and this year the percentageof pupils achieving Level 2 or better has reachedthe national average of 91 per cent (see chart).

The growing evidence of the project’s success,together with the cumulative refinement of theteaching materials after each year’s teachers’evaluation, suggeststhat we should bemaking the projectmaterials more widelyavailable. With thisobjective in mind, wehave plans for publica-tion. Teaching materi-als for use with pupilsin Years 1 and 2should be available forschools to purchase intime for use in Sep-tember 2001, withmaterials for otheryears being availableby September 2002 and 2003. It is planned tolaunch the materials in the spring of 2001; a website containing more detailed information andexamples of pupils’ and teachers’ materials isavailable at www.ipmaths.co.uk.


The first workbookin the series.

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THE NEW DEAL FOR YOUNG PEOPLE

The New Deal for Young People (NDYP) is one ofthe main components of the government’s Welfare-to-Work strategy aimed at reducing unemploymentand benefit dependency and at raising the numberof people in jobs. NIESR research on the macro-economic implications of NDYP aims to assess theimpact of the programme on employment andunemployment and how much it has cost.

NDYP was introduced nationally in April 1998.It is intended to help young people, who havebeen unemployed for over six months, findlasting jobs and to increase their long-termemployability. During the initial Gateway stageof the programme, participants are given assist-ance in job search and basic skills development.Those who are still unemployed four monthsafter entering the Gateway are offered a numberof options, including further skills developmentthrough full-time education and training, andwork experience through job placements andsubsidised employment. Importantly, there is no‘fifth’ option to opt out of the programme andremain on unemployment benefits.

Comparing the experiences of young people tothat of other age groups in local labour markets,NIESR research suggests that the programme hashad a beneficial impact on youth employmentand unemployment. Due to the programme,young people experience shorter spells of unem-ployment and find jobs quicker than they wouldotherwise have done. Although some young

people helped out of unemployment by the NDYPbecome unemployed again fairly soon, the pro-gramme has reduced overall youth unemployment.

The overall beneficial effects of NDYP on theyouth labour market have implications for thewhole economy. By creating a greater pool ofeffective job-seekers, the NDYP has reducedwage pressure and so allowed the economy togrow further without triggering policy action torestrain inflation. While the precise magnitude ofthese effects is difficult to quantify, estimatessuggest that national income is around £½billion per annum higher as a consequence of theprogramme and private consumption is raised,indicating a welfare gain to the economy as awhole. By March 2000, the NDYP had probablyreduced unemployment among all age groups,including the young, by around 45,000 andraised employment, excluding those on govern-ment employment schemes, by around 25,000.

During its first two years, £668 million had beenspent on the NDYP programme. This is muchlower than was originally anticipated, partly becauseof the continued fall in unemployment throughoutthe period, and because most participants leave theprogramme during the cheaper Gateway period ofintensive job search assistance. The overall netexchequer cost is smaller than this because of lowerexpenditure on Job Seekers’ Allowance and highertax revenues, estimated to be worth about £3 inevery £5 spent on the programme. This implies anexchequer cost per extra person in employment ofaround £7,000 per annum. However, since NDYPraises both national income and private consump-tion, there is an economic benefit rather than a costto the whole economy.


Note: Dashed lines indicate high and low counterfactualsfor youth unemployment without NDYP.

Youth unemployment with and without NDYP

MORE INFORMATION IS GIVEN IN: RILEY, R. ANDYOUNG, G., NEW DEAL FOR YOUNG PEOPLE: IMPLI-

CATIONS FOR EMPLOYMENT AND THE PUBLICFINANCES, RESEARCH AND DEVELOPMENT REPORTESR62, EMPLOYMENT SERVICE.

12

STUDENT SATISFACTION WITH UNIVERSITY PROVISION

As part of a two-year study into the effects of theintroduction of tuition fees on British universities,financed by the Leverhulme Trust, the Institute hasconducted the first of two surveys of final year degreestudents. Preliminary analysis suggests that howstudents finance their higher education has littleimpact on their levels of satisfaction, once differencesin personal characteristics and the type of universityare taken into account.

The first phase of the study consisted of a postalsurvey of final year students from four universi-ties in the spring of 2000. This was the lastcohort of undergraduates who did not have topay student fees. Considerable variation in themethods by which students finance their studiesand living costs was revealed, allowing us toinvestigate the possibility of links with studentsatisfaction. A second survey, to be conducted inthe spring of 2001, will allow us to establishwhether the introduction of fees has had an effect.

As part of the survey, respondents were askedhow satisfied they were with various aspects oftheir university’s overall service. Using an orderedlogit analysis that takes into account differencesin individual respondents, we found that manyof the apparent relationships with student satis-faction (e.g. the positive influence of A-Level/Higher grades) disappear (with students havinghigher entry qualifications choosing a universitywith higher levels of satisfaction). The table

below shows the percentage of respondents whoreported a particular level of satisfaction, takinginto account other influences, such as personalcharacteristics.

Most students have their fees funded by theirlocal education authority, although in a smallnumber of cases fees are paid by the studentsthemselves, their parents, employer or healthauthority. Those who are funded by their healthauthority report significantly higher levels ofsatisfaction with the content of their course andthe quality of practical facilities (as do studentsfunded by their employer in respect of the latter).

In the absence of maintenance grants, the major-ity of students will have to find other sources ofmoney. There is a systematic negative effect offunding on satisfaction for a number of aspectsof university provision. The exception to this arethose who still receive some form of maintenancegrant (e.g. those on nursing degrees), who gener-ally have a higher level of satisfaction. Finally,disabled students are less satisfied with all aspectsof university services, as, in general, are studentsfrom non-white ethnic minorities. Conversely,students with parents who are from higher socio-economic groups (professional, managerial andtechnical workers) are often happier with theiruniversity’s provision.


Students’ satisfaction with university provision

Aspect of provision Dissatisfied Satisfied Very Somewhat Somewhat Very

Organisation of course 5.1 44.6 30.9 19.5Content of course 22.2 61.7 14.4 1.7Overall quality of teaching 21.2 59.0 16.3 3.5Quality of facilities for practical work 4.8 33.9 40.7 20.7Access to tutors/lectures for help and advice 23.5 49.5 19.5 7.5Feedback 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 universityprovision, taking into account other influences, such as personal characteristics.

13

05

10152025303540

1 3 5 7 9 11

Hourly earnings (£ per hour)

Per

cent

Direct wage premium

Spill-over wage premium

TRADE UNION INFLUENCE ON WAGES

The declining coverage and influence of tradeunions throughout the 1990s raised the prospect of avanishing union wage premium. Analysis ofmatched employer–employee data for over 14,000employees has produced some novel findings on thesize, location and durability of the ‘union effect’ onwages in the private sector in Britain.

As suspected for some time, there is now nogeneral premium for employees covered by unionbargaining in Britain. But specific types ofemployer-union arrangement do show a sub-stantial premium compared with cases where theemployee’s pay is not the result of union negotia-tions. What matters most is how extensive thecollective bargaining is in terms of the propor-tion of the workforce that it applies to – also amatter of voluntary agreement.

Only where bargaining covers between 70 and99 per cent of employees is there a demonstrablepay premium over similar employees in similarnon-union workplaces. The union premium inthese circumstances is estimated at 8 per cent ofhourly pay. It applies to 14 per cent of all em-ployees in the private sector, just half of thosewhose pay is determined by collective bargaining.

There are other beneficiaries of union activity inthese workplaces – mostly managers and profes-sional workers. They may even benefit to agreater degree than the majority of their subordi-nates and junior colleagues who are directlycovered by the union negotiations.

Multi-union representation, long recognised asone of the most potent forms of unionism,brings in a wage premium of around 11 per cent.Again, employees not in union membership inthe same workplaces as those who were

benefitted from the gains achieved by tradeunions. The chart plots the proportion of em-ployees gaining from the direct and spill-overeffects of unions by their position in the privatesector wage distribution.

Single union arrangements, often advocated asproviding fertile ground for the new ‘partnership’deals, show no advantage for employees overhaving no union negotiating their pay for them.This is matched by the ineffectiveness of non-union representation. Where managers consultwith employees, either through a consultativecommittee or with individual non-union repre-sentatives, pay levels are unaffected.

Unions continue to have a role in whetheremployers in the private sector offer enhancedfringe benefits, but only in particular circum-stances. Controlling for other factors, pensionschemes are more common where unions negoti-ate at workplace or enterprise level, but not wherethere is multi-employer bargaining over pay. Aswith pay, non-union representation makes nodifference as to whether employers providepensions. Sick pay provision closely follows thepattern of higher pay, with the same types ofworkplace and union representation having anincreased likelihood of providing the benefit.


Percentage of private sector employees with a unionwage premium, by hourly earnings

WE ARE GRATEFUL TO THE JOSEPH ROWNTREEFOUNDATION FOR SUPPORTING THIS RESEARCH

AND TO THE FOUR SPONSORING BODIES OF THE1998 WORKPLACE EMPLOYEE RELATIONS SURVEY.

14

DESIGNING MONETARY POLICY RULES IN AN UNCERTAIN WORLD

The debate over the ‘best’ policy reaction to shocks tothe economy can depend on the objectives of theauthorities, the pattern of shocks the economy facesand the response of the private sector to those shocks.Recent research at the Institute has investigated theseissues and brought a number of insights into thenature of the problems facing monetary authorities.

Research over the past year has continued tofocus on evaluating the stabilisation properties oftwo types of monetary policy rules (nominaltargets versus inflation targets) using stochasticsimulation techniques on the National Institute’sGlobal Econometric Model, NiGEM. Theresearch has investigated the stabilisation proper-ties of these rules under different objectives ofthe authorities and varying policy horizons overwhich the objectives are sought. Research hasalso focused on what the appropriate fiscaltargets should be for the European economies sothat automatic stabilisers are allowed to workfreely given the constraints imposed by theStability and Growth Pact.

Results suggest that a nominal aggregate target-ing rule can be superior to inflation targeting atstabilising output and the price level but thatinflation targeting can perform better at stabilis-

ing inflation variability except in large closedinflexible economies such as the Euro Area. It isclear that the preferred rule depends on thestructure of the economy. Policy regimes that areappropriate for small open economies or veryflexible ones may not be the best choice for largeand inflexible groupings such as the Euro Area.

The research has also examined the stabilisationproperties of the rules over time and resultssuggest that a rule that contains a nominalaggregate can take the price level back to itsbaseline trajectory in the medium term morereliably than an inflation targeting rule. This hasimportant implications for economic growth,especially in economies where longer-termcontracting is prevalent. Contracts that can besafely made in real terms are probably betterfor enhancing growth. The chart shows thevariability of the price level over time for inflat-ion targeting compared to nominal targeting(NOM) which is given a value of 100. In generalwe see a rise in price level variability over timeunder inflation targeting compared to nominaltargeting.

Rigidities in the labour markets were also shownto have important implications for policy setting.Different models of the European labour marketswere constructed using panel estimation tech-niques. Results show that imposing common-alities in the transmission mechanisms introducessubstantial amounts of inertia into the wagesetting process. Results from the stochasticsimulations suggest that the more inertial theeconomy, the more the authorities will favour anominal aggregate rule.


Price level variability over timeIndex value for inflation targeting, NOM = 100.

80

90

100

110

120

130

140 First Year

Last Year

UK US Japan Euro area

NOM = 100

THIS RESEARCH WAS FINANCED BY AN ESRCAWARD. IT IS CONDUCTED BY MEMBERS OF THE

MACRO MODELLING TEAM UNDER THE DIRECTIONOF RAY BARRELL.

15

0

20

40

60

80

100

120

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996

UK US FR GE

PRODUCTIVITY IN THE ELECTRICITY SUPPLY INDUSTRY

This research, financed by the Leverhulme Trust,examined the productivity performance of theprivatised electricity supply industry (ESI) in theUK relative to the industry in the United States,France and Germany as well as its own pastachievements. The report considers the justificationfor privatisation, notably that it would deliverefficiency improvements and eventually lead tolower prices for consumers.

The electricity industry witnessed radical changesin ownership and structure in 1990, when it wastransferred into private ownership and broken upinto its four components, generation, transmis-sion, distribution and supply. Following privati-sation, the acceleration in labour productivitygrowth achieved by the UK ESI was seen initiallyas evidence of the success of restructuring. Giventhe unimportance in the ESI of labour as aninput relative to capital and fuel however, weconsidered it would be preferable to focus ontotal factor productivity (TFP) performance (seechart).

Over the entire period UK TFP growth of 2.2per cent per annum was about equal to that inthe USA, marginally above that in Germany andonly about 60 per cent of rates achieved inFrance. In the post-privatisation period the UK’srelative performance was poor, achieving TFP

growth rates of 1.5 per cent per annum, about 60per cent lower than the growth rates experiencedwhen the industry was in monopoly control andlower than that achieved in the USA and France.The report also considers the change in consumerprices, adjusting for changes in fuel prices, andconcludes that UK consumers did not gain before1993; thereafter there is evidence of more rapiddeclines in prices in the UK than elsewhere.

The low rates of productivity growth in the UKoccurred primarily as a result of the ‘dash for gas’with high rates of investment by new independ-ent power producers at a time when there wasover-capacity in the industry. Moreover, thetransition to a more competitive market structuremay have been longer than originally envisaged.The experiment may yet yield the desired resultsas the excess coal-fired generating capacity isretired, replaced by more efficient gas-firedplants, and as competition in supply developsfurther.


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

A PRELIMINARY REPORT ‘THE ELECTRICITY SUPPLYINDUSTRY: A STUDY OF AN INDUSTRY IN TRANSI-TION’ HAS BEEN PRODUCED BY MARY O’MAHONY

AND MICHELA VECCHI. FURTHER INFORMATIONFROM [email protected].

16

0.00

0.50

1.00

1.50

2.00

2.50

19

69

19

73

19

77

19

81

19

85

19

89

19

93

Rat

io o

f Fr

ench

to

Briti

sh p

aten

ts

Electronics ALL SECTORS

SKILLS, KNOWLEDGE TRANSFER AND INDUSTRIAL PERFORMANCE

By some measures, the performance of the Britishelectronics industry has much improved compared tocontinental European industries. Some of thereasons for this are highlighted in a recent ESRC-funded study of British and French electronicsestablishments carried out by researchers at theNational Institute and at the University ofBourgogne. Foreign investment in the UK industryfar exceeds that in France and this has contributedto a relatively high level of transatlantic networkingand knowledge exchange in the British industry.

During the 1970s the French electronics industryenjoyed a substantial advantage over the Britishin patenting new ideas, which peaked at a ratioof 2.4:1 in 1979. Since then there has been agradual decline in the French–British patent ratioto a point of near-parity in 1995 and 1996 (seechart). This British catch-up in electronicspatenting has occurred despite much loweraverage levels of R&D expenditure in Britishelectronics sectors compared to France. The

British industry has also fared better in terms ofexport performance in recent years.

The study found a more dynamic and market-driven pattern of research interactions andexchange of ideas with customers in Britain,stimulated in part by the regular recruitment ofexperienced personnel who bring new networksof contacts with them – in contrast to the lack ofmobility of French engineers and scientists.Finally, there was a faster rate of new relationshipbuilding in enterprise-university R&D interactionsin Britain. This strongly reflected the budgetconstraints enforced on British universities, whichhave led them to adopt a highly proactive approachto research collaboration with industry.

The findings suggest that the greater ‘openness’to new ideas and knowledge of British R&Dnetworks may be particularly advantageous in afast-changing ‘high-tech’ industry such as elec-tronics. However, these recent trends in relativeperformance may not persist far into the future.A relatively weak level of investment in basic andstrategic research in electronics in the UK con-tinues to be a potential Achilles heel which couldlead to long-term deficiencies in knowledgegeneration and the ability of enterprises toabsorb relevant knowledge produced elsewhere.Conversely, the French electronics industry is inthe early stages of adaptation to deregulatedmarkets for telecoms and defence electronicsproducts and could now conceivably make rapidimprovements in competitiveness.


Ratio of French to British patents granted in the UnitedStates in electronics and in all sectors, 1969–96

Source: Data supplied to Science Policy Research Unit(SPRU) by the US Patent and Trademark OfficeNote: Industrial classification (SPRU product areas):Electronics: 24 Telecommunications, 25 Semiconduc-tors, 27 Calculators, computers and other officeequipment, 28 Image and sound equipment, 29 Photo-graphy and photocopy.

FURTHER DETAILS ABOUT THIS RESEARCH HAVEBEEN PUBLISHED BY GEOFF MASON, JEAN-PAUL

BELTRAMO AND JEAN-JACQUES PAUL IN ‘KNOWL-EDGE INFRASTRUCTURE, TECHNICAL PROBLEM-SOLVING AND INDUSTRIAL PERFORMANCE: ELEC-

TRONICS IN BRITAIN AND FRANCE’ (PAPER TO DRUIDSUMMER CONFERENCE ON THE LEARNINGECONOMY, AALBORG, DENMARK, JUNE 2000).

17

-1.5-1

-0.50

0.51

1.52

2.5

1996 1997 1998 1999

Industrial Production Forecast

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

THIS STUDY WAS UNDERTAKEN WITH SUPPORTFROM EUROSTAT.

Quarterly growth rate of EU industrial production

One of the difficulties faced by the European Unionand the Euro Area is the delay with which itsstatistics become available. It can take up to threemonths before quarterly estimates of Euro Areaindustrial output are published. An importantstatistical problem is the development and assess-ment of methods for ‘now-casting’ industrial produc-tion so as to provide estimates shortly after the end ofeach quarter and ahead of the data compiled fromnational statistical offices.

There are a number of indicators which can beused for now-casting. The European Commissionand EU member states conduct business surveyswhich provide a prompt view of the state ofbusiness activity in the country. There is aquestion how best to extract a signal from thesesurveys, but the historic data present a balanceshowing the extent by which the proportion ofthose who think that things have improved ex-ceeds those who think that things have worsened.

This study compared five different models whichexplain growth of industrial production on thebasis of past movements and also in the light ofbusiness survey information. The first, a verynaïve model, assumed that the rate of growth ineach month to be forecast would be the same asthat last observed in the data. This was a specialcase of the second, autoregressive, model inwhich output growth is forecast on the basis ofpast movements using a statistical relationship

rather than one which is imposed. To simulatepractical use of this model, the equation has to bere-estimated each month and assessed on the basisof the performance of this recursive estimation.The third method was to take the indicators onboard and to treat each lag as a separate variable.One could then search over all possible combina-tions to choose the best-fitting equation and usethis to forecast one period ahead. With moredata, the best-fitting equation has to be chosenagain and the new equation used to make theprediction for the next month. A close alternativeto this is a vector autoregressive model compris-ing both the indicator and the predicend, withstatistical tests used to determine the lag length.The fifth approach is to set up a neural networkmodel, often found to be better than conven-tional models at coping with non-linearities.They readily adapt to fit the past pattern of data.

We assessed all of the models on the basis of theirrecursive performance. We found that, whenforecasting seasonally adjusted industrial produc-tion, the first naïve model was the best forecast-ing tool. Looking one month ahead, its rootmean square forecast error is 0.19 per cent whilethat of the autoregressive model, the second-bestperformer, is 0.21 per cent. The chart shows thequarterly growth rate of industrial productiontogether with a now-cast where the last quarter isestimated by the preferred model. For forecastingmanufacturing output growth the autoregressivemodel does slightly better than the naïve model.More complicated models are generally worse. Forforecasting data before seasonal adjustment all themodels perform very poorly, and the best one cando is simply to represent the seasonal effects.

These results suggest that early estimates of Euro-11 growth of industrial production can be pro-duced to an identifiable quality.


18

This is true whether or not it is measured afteradjusting for quality change using so-called‘hedonic’ prices. The growth in computerinvestment could not be expected to accountfor a pick-up in productivity growth in thelate 1990s of more than a quarter of a per-centage point. Similarly, the growth in thewidespread use of the internet is very recentand it is unrealistic to expect it to have had animportant impact so far.

• The fast rates of productivity growth in theUS have largely been attributed to the manu-facture of computer equipment. In the UKproductivity growth of computer equipmenthas in fact been slower after 1995 than before.This appears to be due to differences in thecomposition of output. An increasing share ofIT production in the UK has been taken upby services – software and computer mainte-nance.

• The slowdown in UK aggregate productivitygrowth in the second half of the 1990s isrelatively easy to explain in terms of the oldeconomy. Its main causes are the slowdownin the manufacturing and oil industries,alongside a reduction in the rate of capitaldeepening as the economy has generatedanother 1.5 million jobs. Contrary to the USexperience, there is evidence of a strong pick-up in productivity growth in the key businessservices sector. With the manufacturing sectorpoised to recover from its recent weakness andwith little slack left in the labour market, thefactors that have obscured an underlyingimprovement in the economy are now ex-pected to evaporate. As such, there is now agood chance of a strong revival in productiv-ity growth even without allowing for anyspecial new economy effects. Adding theeffects of ICT investment strengthens thelikelihood of this.


THE NEW BRITISH ECONOMY

It is clear from casual observation that we are in themidst of a revolution in information technology.However, in contrast to the US experience, there hasbeen little obvious impact on the British economy asconventionally measured. Research at the NationalInstitute has been exploring the characteristics of thepresent situation in an effort to identify possibleexplanatory factors.

In the second half of the 1990s, productivitygrowth was about 1 percentage point lower thanin the first half of that decade when measured onan output per hour basis. While goods priceinflation has remained very subdued as unem-ployment has fallen, this appears to be due to animprovement in the behaviour of the labourmarket rather than a ‘new economy’ effect onpricing.

Despite this negative assessment of the effect ofICT on recent performance, there are someindications that its benefits are just about toreveal themselves:

• As far as we are able to tell from officialfigures, there has been extensive investment inICT equipment and infrastructure in recentyears and it is only now becoming an impor-tant component of the aggregate capital stock.

The stock of computers at 1995 hedonic prices

0

1

2

3

4

5

6

7

1978 1982 1986 1990 1994 1998

per

cent

Gross capital stock, hedonic prices

Net stock, hedonic prices

Gross stock, non-hedonic prices

Net stock, non-hedonic prices

19

EVENTS DURING 2000

INTERNATIONAL CONFERENCE ON PENSIONS AND

SOCIAL INSURANCE

In April 2000, the National Institute joinedforces with the Centre for Pensions and SocialInsurance at Birkbeck College, London, toorganise a one-day conference on Guarantees:Social Protection and Pensions. The internationalcharacter of the conference was reflected in thelist of leading speakers, which included DavidLindeman from the World Bank and JohnTurner from the American Association of RetiredPersons. The organisers were also pleased towelcome the former social security minister, theRt Hon Frank Field MP, to give the openingaddress.

The conference attracted substantial interestfrom overseas academics working in the field,among them Professor Peter Jorgensen from theUniversity of Aarhus in Denmark, who presenteda paper on return guarantees. A second con-tributor on this topic was Professor David Milesof Imperial College, London. Dr Hugh Daviesof Birkbeck College and Dr Heather Joshi fromthe School of Longitudinal Studies at the Lon-don University Institute of Education discussedproblems associated with income generation,while Andrew Smith of Bacon and Woodrowcontributed a practitioner’s perspective. A reporton the progress of the National Institute’s workon pension funding issues was presented by DrJames Sefton.

SEMINAR AT THE HOUSE OF COMMONS ON THE

LEVEL OF THE EXCHANGE RATE

The Institute organised a seminar in June 2000to discuss the highly topical subject of the levelof the exchange rate and its effect on economicprosperity. The seminar began with individualintroductions to the topic by experts broughttogether for the event. The panel consisted ofleading policy makers, business people andcommentators: Ed Balls (Chief Senior Economic

Adviser, HM Treasury); Vincent Cable MP; DrDiane Coyle (Economics Editor, The Independ-ent); Gerald Holtham (Norwich Union); AnatoleKaletsky (Assistant Editor, The Times); LordLawson of Blaby and Martin Weale, Director,NIESR. The meeting was chaired by Sir PeterMiddleton, Chairman of Barclays plc.

Contributions from the panel provided thestimulus for a lively debate on the policy andresearch issues relating to exchange rates, and anaccount of the meeting appeared in the Julyedition of the National Institute Economic Review.

CONFERENCE ON THE ‘NEW ECONOMY’

Professor Robert Gordon of NorthwesternUniversity and Professor Jack Triplett of theBrookings Institution in Washington DC wereamong the contributors to a highly successfulconference held at the London Chamber ofCommerce in September. The conference,entitled Technical Progress, Economic Growth andthe ‘New Economy’, attracted an audience of over150 with nine countries represented. Again, theInstitute demonstrated the appeal of its confer-ences to a broad range of academics, businesspeople, commentators and policy makers.

The conference programme consisted of paperswhich addressed various dimensions of techno-logical progress and their relationship to eco-nomic growth. Professor Danny Quah of theLondon School of Economics (LSE) exploredsome of the distinctive characteristics of the new

Professor DannyQuah of the LondonSchool of Economics

20

economy, while Professor Triplett discussed whyproductivity growth in the United States hadincreased and what part technology had played.A comparative perspective was offered byJonathan Wadsworth of LSE and RoyalHolloway College, who had examined trends inhome computer ownership in the United Statesand Britain and their influence on education.

Professor Willem Buiter from the European Bankfor Reconstruction and Development (repre-sented at the conference by the Director ofNIESR, Martin Weale) looked at economicdevelopment and policy responses; ProfessorGordon dealt with technological advances in ahistorical context. Garry Young of the NationalInstitute presented findings from its currentresearch on the topic, with a look at how techno-logical change had both affected the UKeconomy in recent time and might do so in thefuture. Finally, Jonathan Haskel of Queen MaryCollege, London, addressed the question ofrestructuring and productivity growth in UKmanufacturing and Martin Brookes of GoldmanSachs considered the shocks caused to theeconomy by the internet.

GOVERNORS SEMINARS

The Institute continued its popular series ofseminars given by members of its Board ofGovernors. These seminars are informal events atwhich the Institute’s supporters and friends areparticularly welcome. Sir Geoffrey Owen (Lon-don School of Economics) presented the firstseminar of the year with a talk entitled: ‘Fallingbehind and catching up: British industry since1945’.

In April, Kate Barker (Chief Economist at theConfederation of British Industry), presented ‘Abusiness view of the productivity debate’.

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

Economics and a former member of the Mon-etary Policy Committee). He spoke about ‘Someaspects of the work of the MPC’ (see ‘Theinflation forecast’, National Institute EconomicReview, 175, January 2001).

In addition to the Governors’ seminar series, HisExcellency Professor Pang Eng Fong, HighCommissioner for the Republic of Singapore,gave a presentation to invited guests at theInstitute in December 2000. The topic of his talkwas ‘Foreign direct investment: recent trends andimplications’ and Mr Ken Warwick from theDepartment of Trade and Industry chaired theevent. The seminar was organised jointly by theNational Institute and the Association of Com-monwealth Universities.

The Institute wishes to record its grateful thanksto all those who have contributed to our semi-nars and conferences throughout the past year.

Kate Barker,ChiefEconomist at theConfederation ofBritish Industry.

His ExcellencyProfessor Pang EngFong, High Commis-sioner for the Republicof Singapore.

21

Econometric modelling: techniques andapplicationsEdited by Sean Holly and Martin WealeISBN 521 65069 0 hardback. Price £45. Pub-lished by Cambridge University Press.

Macroeconomic modelling has been one of themost important and influential areas of econo-mic research. This book brings together contri-butions from the leading researchers working inthe area. The papers combine a description of thelatest techniques used in modelling the economywith an account of the way that models can beused for purposes of policy analysis. The bookwill be of interest to students and professionaleconomists who want a better understanding ofthe questions that macroeconomic models canaddress and the techniques used to address them.

Productivity, innovation and economicperformanceEdited by Ray Barrell, Geoff Mason and MaryO’MahonyISBN 0 521 78031 4 £45 hardback. Published byCambridge University Press.

Productivity and its determinants are at the heartof economic debate. Output per person or percapita is still the most influential measure of theprosperity of nations. Productivity depends onthe quantity and quality of the factors of produc-tion available to a country and the social frame-work within which they operate. Education andthe research base affect both the quality of factorsand the ability of a nation to produce. Thisvolume brings together papers from a number ofauthors from a variety of traditions. The impor-tance of the growth and measurement of serviceproductivity are addressed. The role of humancapital in adapting to new technologies is dis-cussed. The creation of knowledge throughresearch and development and its diffusionthrough trade, investment and the interaction offirms are fully investigated. The volume starts

BOOKS AND MAJOR REPORTS

with a discussion of differences in productivitybetween nations, and provides a comprehensiveset of discussions as to why they exist.

Inward investment, technological changeand growth: the impact of multinationalcorporations on the UK economyEdited by Nigel PainISBN 0 333 92536 X £45 hardback. Publishedby Palgrave Publishers Ltd.

At a conference held in September 1999, thespeakers identified the channels through whichinward investment can affect host economies andprovided some quantitative evidence on theextent to which it has acted to shape the indus-trial structure of the UK economy and otherindustrialised economies over the past decade.The papers in this book are by leading authors inthe fields of international investment and thebehaviour of national and multinational firms.They have all published widely in leading aca-demic journals and some have acted as informalacademic advisors to government departments inthe UK and overseas.

All change at work? British employmentrelations 1980–98, as portrayed by theWorkplace Industrial Relations SurveyseriesNeil Millward, Alex Bryson and John ForthISBN 0-415-20634-0 £60 hardback and 0-415-20635-9 £20 paperback. Published by Routledge.

Have new configurations of labour-managementpractices become embedded in the Britisheconomy? Did the dramatic decline in tradeunion representation in the 1980s continuethroughout the 1990s, leaving more employeeswithout a voice? Were the vestiges of unionorganisation at the workplace a hollow shell?These and other contemporary issues of em-ployee relations are addressed in this report. Thisbook is the latest publication which reports theresults from the series of workplace surveys

22

conducted by the Department of Trade andIndustry, the Economic and Social ResearchCouncil, The Advisory, Conciliation and Arbitra-tion Service, and the Policy Studies Institute. Itsfocus is on change, captured by gathering to-gether the enormous bank of data from all fourof the large-scale and highly respected surveys,and plotting trends from 1980 to the present. Inaddition, a special panel of workplaces, surveyedin both 1990 and 1998, reveals the complexprocesses of change. Comprehensive in scope,the results are statistically robust and reveal thenature and extent of change in all but the small-est British workplaces.

Forthcoming publications

Monetary regimes of the twentiethcenturyby Andrew BrittonTo be published by Cambridge University Press in2001.

Abstract economic theory may be timeless andpotentially universal in its application, butmacroeconomics has to be seen in its historicalcontext. The nature of the policy regime, thebehaviour of the economy and the beliefs ofprofessional economists all interact, and influ-ence each other. This short historical account ofmonetary regimes since 1900 shows how the roleof policy has changed, and how this has relatedto experience of inflation and the real economy,as well as to changes in political philosophies.The narrative concentrates on developments inAmerica, Britain, Germany, France and Japan. Itbegins with the era of the classical gold standardand ends with the ‘neo-liberal’ regimes of today.The decades in between saw much more activepolicy intervention, and much less faith in thestability of markets. The ‘grand narrative’ of thecentury is a journey ‘to Utopia and back’. It isargued that no school of macroeconomics is rightfor all time; different theoretical models may beappropriate for different periods and regimes.

NATIONAL INSTITUTE SUBSCRIBERSCHEME

The Subscriber Scheme offers the opportu-nity to receive all Institute publications onthe day of publication, for a single subscrip-tion.

In addition to all Institute books, OccasionalPapers and Discussion Papers, subscribersreceive two copies of the quarterly NationalInstitute Economic Review (which can bemailed to separate addresses if required) andinvitations to a range of Institute seminarsand events.

The annual subscription to the scheme is£395 (which can be set against any existingsubscription). A reduced rate of £245 (in-cluding one copy of the National InstituteEconomic Review only) is available for com-panies with fewer than fifty employees,universities and non-profit organisations.

For further details, please contact GillClisham on 020 7222 7665.

Dr Paul Ashworth (left) and Dr JoeByrne, who obtained their PhDqualifications in 2000.

23

NATIONAL INSTITUTE ECONOMIC REVIEW

The Institute’s quarterly Economic Review contin-ued to provide a unique combination of analysis,forecasts and research results. The year 2000 wasmarked with a special issue in April on variousaspects of the second millennium and another, inOctober, on monetary and fiscal policy in Europe.Each edition contains widely quoted forecasts for theUK and all major world economies, based on theInstitute’s own models, together with articles fromleading commentators, and a comprehensive statisti-cal appendix.

Articles which appeared during the year were asfollows:

No. 171 (January)Should the UK join EMU?Michael ArtisHow well can we measure graduate over-education and its effects?H. Battu, C.R. Belfield and P.J. SloaneThe implications of the comprehensive spendingreview for the long-run growth rate: a view fromthe literatureRichard KnellerComparative properties of models of the UKeconomyKeith B. Church, Joanne E. Sault, Silvia Sgherriand Kenneth F. WallisJob creation and the 1999 reform of NationalInsuranceRobert A. Hart and Robin J. Ruffel

No. 172 (April) Themed issue on Aspects of theSecond MillenniumLiving standards in Britain 1900–2000: women’scentury?Sara Horrell1300 years of the pound sterlingMartin Weale‘The generous Utopia of yesterday can becomethe practical achievement of tomorrow’: 1000years of monetary union in EuropeLuca Einaudi

FROM JANUARY 2001, THE REVIEW WILL BE PUB-LISHED BY SAGE PUBLICATIONS LTD AND SUBSCRIP-

TION ENQUIRIES SHOULD BE ADDRESSED TO SAGEAT 6 BONHILL STREET, LONDON EC2A 4PU AND INNORTH AMERICA TO SAGE PUBLICATIONS LTD, PO

BOX 5096, THOUSAND OAKS, CA 91359, USA.TELEPHONE: + 44 (0)20 73740645EMAIL: [email protected]

Domesday economy: analysis of the Englisheconomy early in the second millenniumJohn McDonald

No. 173 (July)A tale of two cycles: closure, downsizing andproductivity growth in manufacturing, 1973–89Nicholas OultonEffects of minimum wages on the gender pay gapShirley Dex, Holly Sutherland and Heather JoshiChristopher Dow on major recessionsMichael Artis, John Flemming, Robin Matthewsand Martin Weale

No. 174 (October) Themed issue on Monetary andFiscal Policy in EuropeMonetary and fiscal policy in Europe:an overviewRay Barrell and Nigel PainPrice level stability: some issuesVitor Gaspar and Frank SmetsOptimality and Taylor rulesAndrew P. BlakeOpen issues in the implementation of theStability and Growth PactMarco Buti and Bertrand MartinotAn evaluation of monetary targeting regimesRay Barrell and Karen Dury

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OTHER PUBLISHED ARTICLES AND PAPERS PRESENTED

Anderton, R., Riley, R. and Young, G., ‘The New Deal forYoung People: first year analysis of implications for themacroeconomy’, Labour Market Trends, March.

Arrowsmith, J., Barrell, R.J. and Taylor, C., ‘Managing theeuro in a tri-polar world’, in Artis, M. and Hennessy,C. (eds), The Euro: A Challenge an Opportunity forFinancial Markets, Routledge.

Atkinson, A.B. and Weale, M.R., ‘James Edward Meade’,Proceedings of the British Academy (forthcoming).

Barrell, R., ‘Strong growth and robust budgets in Europe’,in Barrett, A. (ed.), Budget Perspectives, Dublin, ESRI.

— ‘Forecasting the uncertain environment’, in Hendry, D.(ed.), Forecasting, MIT Press.

Barrell, R., Byrne, J., Dury, K., Holland, D. and Hurst, I.,‘Interdependency and the EMU outsiders’, in Nilson,H. (ed.), Britain and Scandinavia – Four NorthEuropean States in the Gravitation Field of the EMU,Europa Idag, 1/2001 (forthcoming).

Barrell, R. and Dury, K., ‘The stability and growth pact,will it ever be breached? An analysis using stochasticsimulations’, in Brunila, A., Buti, M. and Franco, D.(eds), The Stability and Growth Pact: The Architecture ofFiscal Policy in EMU, Basingstoke, Macmillan (forth-coming).

—‘Choosing the regime: macroeconomic effects of UKentry into EMU’, Journal of Common Market Studies,28, 4, November.

Barrell, R. and Holland, D., ‘Foreign direct investmentand enterprise restructuring in Central Europe’,Economics of Transition, 8, 2, pp. 477–504.

—‘Foreign direct investment in Central European manu-facturing’, in Weresa, M. (ed.), Foreign Direct Invest-ment in a Transition Economy: The Polish Case (forth-coming).

—‘A three-dimensional panel analysis of FDI in CentralEuropean manufacturing’, in Welfe, W. andWdowinski, P. (eds), Proceedings of AMFET99 Confer-ence – Modelling Economies in Transition, Rydzyna,Absolwent, Lodz, pp. 222–40.

Barrell, R. and Pain, N., ‘Macroeconomic management inthe EU’, in Brewer, T. and Boyd, G. (eds), GlobalizingEurope, Macmillan (forthcoming).

Barrell, R. and te Velde, D.W., ‘Catching-up of EastGerman labour productivity in the 1990s’, GermanEconomic Review special issue on German Unification 10Years After, 3, pp. 271–97.

— ‘German monetary union and the lessons for EMU’, inBaimbridge, M. and Whyman, P. (eds), Europe, Theory,Evidence and Practice, Edward Elgar.

Benàèek, V., Gronicki, M., Holland, D., Sass, M., ‘Thedeterminants and impact of FDI in Central and

Eastern Europe: a comparison of survey and economet-ric evidence’, Transnational Cooperations (forthcom-ing).

Blake, A.P., ‘Solution and control of linear rationalexpectations models with structural effects from futureinstruments’, Economics Letters, 67, 3, pp. 283–8.

Blake, A.P. and Kapetanios, G., ‘A radial basis functionartificial neural network test for ARCH’, EconomicsLetters, 69, 1, pp. 15–23.

Blake, A.P., Weale, M.R. and Young, G., ‘Optimalmonetary policy’, in Holly, S. and Weale, M.R. (eds),Econometric Modelling: Techniques and Applications,Cambridge University Press, pp. 209–36.

Bleaney, M., Gemmell, N., and Kneller, R.A., ‘Testing theendogenous growth model: public expenditure,taxation and growth over the long run’, CanadianJournal of Economics (forthcoming).

Cardarelli, R. and Sefton, J., ‘Rolling back the welfarestate’, European Economy, 6, pp. 193–206.

Cave, M. and Weale, M.R., ‘Higher education: expansionand reform’, in Jenkinson, T. (ed.), Readings inMicroeconomics, 2nd edn, Oxford University Press, pp.230–43.

Chambers, R., Weale, M.R. and Youll, R., ‘The averageearnings index’, Economic Journal, 110, 461, pp. 100–21.

Darby, J., Hart, R. and Vecchi, M., ‘Wages, work intensityand unemployment in Japan, UK and USA’, LabourEconomics (forthcoming).

—‘Labour force participation and business cycle fluctua-tions: a comparative analysis of Europe, Japan and theUnited States’, Japan and the World Economy (forth-coming).

Dutta, J., Sefton, J. and Weale, M.R., ‘Income distribu-tion and income dynamics in the United Kingdom’,Journal of Applied Econometrics (forthcoming).

Dutta, J. and Weale, M.R., ‘Consumption and the meansof payment: an empirical analysis for the UnitedKingdom’, Economica (forthcoming).

Finegold, D., Wagner, K. and Mason, G., ‘National skill-creation systems and career paths for service workers:hotels in the US, Germany and Britain’, InternationalJournal of Human Resource Management, 11, 3, pp.497–516.

Forth, J. and Kirby, S., Guide to the Analysis of theWorkplace Employee Relations Survey 1998, WERS98Data Dissemination Service.

Gokhale, J., Kotlikoff, L., Sefton, J. and Weale, M.R.,‘Simulating the transmission of wealth inequality viabequests’, Journal of Public Economics (forthcoming).

Hubert, F. and Pain, N., ‘Inward investment and technicalprogress in the United Kingdom’, in Pain, N. (ed.),

25

Inward Investment, Technological Change and Growth:The Impact of Multinational Corporations on the UKEconomy, Palgrave.

—Inward Investment in France and the Effectiveness ofInvestment Incentives, report prepared for the Directionde la Prévision.

—‘Economic integration in Europe and the pattern ofGerman foreign direct investment’, in Korres, G.M.and Bitros, G.C. (eds), Economic Integration: Limitsand Prospects, Macmillan (forthcoming).

—‘Inward investment and technical progress in the UnitedKingdom manufacturing sector’, Scottish Journal ofPolitical Economy, 28, 2 (forthcoming).

Mason, G., ‘Production supervisors in Britain, Germanyand the United States: back from the dead again?’,Work, Employment and Society (forthcoming).

Mason, G., Keltner, B. and Wagner, K., ‘Productivity andservice quality in banking: commercial lending inBritain, the United States and Germany’, in Barrell, R.,Mason, G. and O’Mahony, M. (eds), Productivity,Innovation and Economic Performance, CambridgeUniversity Press.

Mason, G., Wagner, K., Finegold, D. and Keltner, B.,‘The “IT Productivity Paradox” revisited: internationalcomparisons of information technology, work organi-sation and productivity in service industries’, QuarterlyJournal of Economic Research (forthcoming).

Meadows, P., Access to Financial Services, Britannia Build-ing Society, November.

—‘Pensions and the labour market’, New Economy, 7, 4,December, pp. 234–8.

—Young Men and Work, York Publishing Services for theJoseph Rowntree Foundation (forthcoming).

Meadows, P. and Campbell, M., What Works at a LocalLevel, York Publishing Services for the JosephRowntree Foundation.

Meadows, P., Supiot, A. et al., Beyond Employment, OxfordUniversity Press (forthcoming).

Millward, N., Forth, J. and Bryson, A., Who Calls the Tuneat Work? The Impact of Trade Unions on Jobs and Pay,York, Joseph Rowntree Foundation (forthcoming).

Mitchell, J., ‘Identification and estimation of impulseresponse functions in VAR models: analysing monetaryshocks in the G7 economy’, PhD thesis, University ofCambridge.

O’Mahony, M. and Vecchi, M., ‘Tangible and intangibleinvestment and economic performance: evidence fromcompany accounts’, in Buiges, P., Jacquemin, A. andMarchipont, F. (eds), Competitiveness and the Value ofIntangible Assets, Edward Elgar.

Pain, N., ‘The growth and impact of inward investment inthe UK: introduction and overview’, in Pain, N. (ed.),

Inward Investment, Technological Change and Growth:The Impact of Multinational Corporations on the UKEconomy, Palgrave.

—‘Openness, growth and development: trade and invest-ment policy issues for developing economies’, inRugman, A. and Boyd, G. (eds), Millennium RoundTrade and Investment Issues, Edward Elgar (forthcom-ing).

Pain, N. and Wakelin, K., ‘Foreign direct investment andexport performance in Europe’, in Read, R.,Thompson, S. and Milner, C. (eds), New Horizons inInternational Trade and Industry, Macmillan (forthcom-ing).

Pain, N. and te Velde, D., Exposure to InternationalMarkets and Corporate Performance, report prepared forthe Department of Trade and Industry.

Pain, N. and Young, G., Continent Cut Off? The Macroeco-nomic Impact of UK withdrawal from the EU, reportprepared for Britain in Europe.

Prais, S.J., ‘International education comparisons and theirlimitations’, in Lawlor, S. (ed.) Comparing Standards:The Report of the Politeia Education Commission,London, Politeia.

—‘Discussion on Richard Aldrich’s paper, Educationalstandards in historical perspective’, in Goldstein, H.and Heath, A. (eds), Educational Standards, Oxford.

Riley, R. and Young, G., New Deal for Young People:Implications for Employment and the Public Finances,Research and Development Report ESR62, Employ-ment Service.

Rolfe, H., Improving Responsiveness to the Labour Marketamong Young People: an evaluation of four pilot projects,Research Report RR190, Department for Educationand Employment.

—Solution Focused Guidance: an initial evaluation of its usein Humberside Connexions, Report to the HumbersidePartnership, October.

Sefton, J., ‘A solution method for consumption decisionsin a dynamic stochastic general equilibrium model’,Journal of Economic Dynamics and Control, 24, 5–7,pp. 1097–119.

Sefton, J., Cardarelli, R. and Agulnik,P., ‘The PensionsGreen Paper: a generational accounting perspective’,Economic Journal, 110, pp. 598–610.

Sefton, J., Cardarelli, R., Kotlikoff, L.J., ‘GenerationalAccounting in the UK’, Economic Journal, 110, 467,November, pp.F547–74.

Terry, F., ‘Transport: beyond predict and provide’, inDavies, H.T.O., Nutley, S.M. and Smith, P.C., WhatWorks? Evidence-based policy and practice in publicservices, Policy Press.

Vecchi, M., ‘Increasing returns versus externalities:

26

pro-cyclical productivity in US and Japan’, Economica,67, pp. 229–44.

—‘Book review of Griliches, Z., ‘The relationship betweenInvestment in R&D and Productivity. The Economet-ric Evidence’, Journal of Economic Studies (forthcom-ing).

Whitburn, J., ‘Moving the goal posts’, in Goldstein, H.and Heath, A. (eds), Educational Standards, OxfordUniversity Press.

—‘A tail of two systems’, Special Children, May.

Papers presentedBarrell, R. and Holland, D., ‘International capital flows in

central and eastern Europe’, European EconomicAssociation Annual Conference, Bozen-Bolzano,August.

—‘Foreign direct investment and enterprise restructuringin central Europe’, Sunderland University, December.

Barrell, R., Holland, D. and Pain, N., ‘Openness, integra-tion and transition: prospects and policies for econo-mies in transition’, IESG Annual Conference, Univer-sity of Sussex, September.

Blake, A. and Young, G., ‘Evaluating macroeconomicmodels of the business cycle’, City, Kent and WarwickUniversities.

Darby, J., Hart, R., and Vecchi, M., ‘Wages, work inten-sity and unemployment in Japan, UK and USA’,EALE/SOLE Conference, Milan, June.

Dutta, J., Sefton, J. and Weale, M., ‘Capital incometaxation and public policy’, Universities of Sussex andBirmingham.

Forth, J., ‘Compositional versus behavioural change:combined analysis of the WERS98 Panel Survey,Closures and New Workplaces’, First meeting of theWERS98 User Group, London, March.

Forth, J., Kirby, S. and Millward, N., ‘An introduction tothe content, methodology and analysis of WERS98’,University of the West of England, May.

Forth, J. and Millward, N., ‘Institutional change in Britishindustrial relations, 1980 to 1998’, University College,Dublin, April.

—‘The changing nature of employee voice: features andimplications’, Warwick University Business School,November.

Holland, D. and Pain, N., ‘On the road to the market: theprospects for growth in central Europe’, IESG EasterConference, Wales, April.

Hubert, F. and Pain, N., ‘Inward investment and technicalprogress in the United Kingdom’, Royal EconomicSociety Conference, St Andrews, July.

Kneller, R. and Young, G., ‘The New British Economy’,

NIESR Conference, September; seminars at theUniversity of Kent and for the House of CommonsTreasury Committee.

—‘Business cycle volatility, uncertainty and long-rungrowth’, Conference on Growth and Business Cycles inTheory and Practice, University of Manchester, July.

Meadows, P., ‘Beyond employment’, Annual Conferenceof the Society for the Advancement of Socio-econom-ics, London, July.

—‘Gender segregation and labour market regulation’,Workshop on Women’s Conditions in Working Life,Brussels, September.

Mitchell, J., ‘Analysing short and long run behaviour inthe G7 using cointegrating VAR models’, RoyalEconomic Society Conference, St Andrew’s, July;Money Macro and Finance Research Group AnnualConference, London, September.

Mitchell, J., Smith, R.J. and Weale, M.R., ‘Estimation ofoutput movements from semi-disaggregate surveydata’, Macroeconomic Modelling Seminar, Warwick,July.

O’Mahony, M. and Vecchi, M., ‘Productivity performancein the electricity supply industry: a study of an indus-try in transition’, E.A.R.I.E. Conference, Lausanne,September.

Riley, R. and Young, G., ‘Youth employment and activelabour market policy: evidence from the New Deal’,Department for Education and Employment seminar,London, June; Royal Economic Society conference, St.Andrews, July.

—‘Analysis of the effects of New Deal for Young People onwages and the macroeconomy’, Department forEducation and Employment seminar, London, June.

—‘Skill heterogeneity and unemployment’, EuropeanEconomic Association Conference, Bolzano, September.

Sefton, J., ‘The demand for pensions’, NIESR Confer-ence, April, INQUIRE Conference, September, InlandRevenue, December.

Sefton, J. and Weale, M., ‘Real national income’, Univer-sity of Birmingham.

Weale, M., ‘Lessons from average earnings’, Conference ofGovernment Statisticians, Reading, October; StatisticsUsers Conference, November.

Whitburn, J., ‘Changes to primary mathematics educationin England’, Tokyo Gakugei, Shizuoka and NaraUniversities.

—‘Disadvantage and low achievement in mathematics’,British Society for the Learning of MathematicsConference, University of Surrey, November.

27

NATIONAL INSTITUTE DISCUSSIONPAPERSDiscussion papers exist to foster debate on Instituteresearch. Recent papers listed below are £4.00 each or onsubscription at £30.00 for 10 consecutive papers.

160. International monetary policy coordination: anevaluation of cooperative strategies using alarge econometric model Ray Barrell, KarenDury and Ian Hurst

161. The mix of graduate and intermediate-levelskills in Britain: what should the balance be?Geoff Mason

162. Capital income taxation and public choiceJayasri Dutta, James Sefton and Martin Weale

163. Real national income J.A. Sefton and M.R.Weale

164. Testing for a unit root against nonlinear starmodels George Kapetanios, Yongcheol Shin andAndy Snell

165. Model selection uncertainty and dynamicmodels George Kapetanios

166. Information criteria, model selection uncer-tainty and the determination of cointegrationrank George Kapetanios

167. Incorporating lag order selection uncertainty inparameter inference for AR models GeorgeKapetanios

168. Choosing the regime: macroeconomic effectsof UK entry into EMU Ray Barrell and KarenDury

169. Cointegrating VAR models with endogenousI(0) variables: theoretical extensions and anapplication to UK monetary policy GeorgeKapetanios, James Mitchell and Martin R. Weale

170. From unemployment to self-employment:developing an effective structure of micro-finance support Hilary Metcalf and RogerBenson

171. The determinants of pay levels and fringebenefit provision in Britain John Forth and NeilMillward

172. The importance of long-run structure forimpulse response analysis in VAR models JamesMitchell

173. Pay settlements in Britain John Forth and NeilMillward

174. Openness, growth and development: trade andinvestment issues for developing economiesNigel Pain

175. Inward investment and technical progress inthe UK manufacturing sector Florence Hubertand Nigel Pain

176. Evaluating macroeconomic models of thebusiness cycle Andrew P. Blake and Garry Young

NATIONAL INSTITUTEECONOMETRIC MODELS

The global model – NiGEM – is widelyregarded as one of the world’s leadingmodels and is used extensively for forecastingand analytical purposes in both public andprivate sectors. NiGEM patrons include theBank of England, the European Central Bank,the Economic Planning Agency of Japan andmany other European Central Banks andFinance Ministries.

The 1500-equation model contains individualmodels for all OECD countries within aframework which embraces all major worldeconomies. NiGEM’s flexible design suppliesusers with the freedom to produce their ownforecasts and simulations. Subscribers toNiGEM are provided with a comprehensivesupport and training package includingregular user’s meetings, training targeted totheir areas of interest and a model-dedicatedweb site.

The domestic model – NiDEM – has over400 variables which provide an unusually richdescription of the workings of the UKeconomy. A major use within the Institute isto drive the quarterly economic forecastproduced in the National Institute EconomicReview, but it is also used by outside organisa-tions for a wide variety of forecasting pur-poses.

Trial copies of both models, and furtherinformation, can be obtained from thecontacts listed on the inside back cover.

NiGEM, NiDEM, NiBUILD and NIESR areregistered trademarks of the National Instituteof Economic and Social Research.

28

CORPORATE MEMBERSHIP

Corporate membership of the Institute wasintroduced in 1994 to facilitate a close link betweenthe Institute and its leading financial supporters. In2000 we were especially pleased to welcome Marks& Spencer back after a brief interval and MorganStanley Dean Witter into membership for the firsttime. A full list of current corporate members can befound on page 29.

The Corporate Membership Scheme is designedto create a working relationship with key spon-sors of the Institute’s work. Corporate memberscan play a vital role in helping to develop theresearch agenda, in two ways. First, the subscrip-tions which they make act as a channel of sup-port for new areas of inquiry which may not beeasily funded by other means. Second, corporatemembers can act as an informal sounding boardfor research ideas and can facilitate access toinformation and other resources.

In return for their support, the Institute offerscorporate subscribers a range of benefits:

• quarterly meetings at which there is an oppor-tunity for briefings on current research andpolicy topics;

• the Newsletter Economic Agenda which con-tains summaries of reports issued by theInstitute and news of events;

• a digest of economic forecasts made eachquarter by NIESR staff;

• invitations to all Institute conferences andseminars, usually featuring new contributionsto research and a programme of distinguishedspeakers;

• free copies of Discussion Papers and otherresearch publications on request;

• free access to the Institute’s library and infor-mation services.

Further details about the Corporate MembershipScheme are available from the Secretary. Theminimum subscription is normally £5,000 a year.

Other supporters of the Institute’s work areinvited to contribute to the Development Fund,established in 1998 to mark the NIESR’s sixtiethyear of operation.

Members Forum meetings in 2000 were as follows:

17 February • Pay and Fair Treatment atWork: the impact of unions and otherforms of employee participation in thelate 1990sDiscussion led by Neil Millward andJohn ForthGuests: Mike Emmett, CharteredInstitute of Personnel and DevelopmentJohn Hougham, ACASIan Brinkley, TUC

25 May • The Benefits of Inward Invest-ment for the UKDiscussion led by Nigel PainGuests: Professor John Cantwell, Universityof ReadingNicholas Oulton, Bank of EnglandDr Nicholas Owen, DTI

17 October • Monetary and Fiscal Policyin Europe: Implications for Britain’sMembershipDiscussion led by Ray BarrellGuests: Christopher Allsopp, MonetaryPolicy CommitteeAndrew Bailey, Bank of EnglandBen Norman, Bank of England

29

FINANCIAL SUPPORTERS

The Institute would like to record its thanks tothe following organisations for their support.Contributions of this type are vital in preservingour independence, and are much appreciated byour officers and staff.

Corporate MembersBank of EnglandBarclays Bank plcDixons plcGlaxo Wellcome plc3i plcICI plcINVESCO Europe LtdMarks and Spencer plcMorgan Stanley Dean WitterThe National Grid Company plcNomura Research Institute Europe LtdPearson Management Services LtdPost OfficeRio Tinto plcStandardChartered Bank plcTI Group plcUBS WarburgUnilever plcWillis Corroon Group plc

Financial SupportersAbbey National plcAnglian Water plcThe Bank of ScotlandBNP ParibasBOCBradford & Bingley Building SocietyBristol & WestCazenove & CoCentricaDu Pont Company (United Kingdom) LtdErnst & YoungRobert Fleming Holdings LtdGMBLaporte Industries plcLazard Brothers & Co LtdLeopold JosephLondon Forfaiting Company plcProfessor WG McLellandT MillerNews International plcNorsk Hydro (UK) LtdNorwich Union plcNorthern Foods plcSchroders Charity TrustSlough Estates plcTransport and General Workers Union

United Biscuits (UK) plcVickers plc

Research SupportersBarber White Property EconomicsBritannia Building SocietyBritish CouncilCity of London CorporationCommissariat Général du Plan, FranceDaiwa Anglo-Japanese FoundationDepartment for Education and EmploymentDepartment of the Environment, Transport and the RegionsDepartment of HealthDepartment of Social SecurityDepartment of Trade and IndustryDirection de la Prévision, Ministère de l’Economie, des Finances et de l’Industrie, FranceEconomic and Social Research CouncilEqual Opportunities CommissionEuropean Central BankEuropean Centre for the Development of Vocational TrainingEuropean CommissionEuropean ParliamentEUROSTATForeign and Commonwealth OfficeHigher Education Funding Council for EnglandHumberside PartnershipInstitute for Manufacturing IndustryInstitute for Quantitative Investment ResearchInternational Labour OfficeThe Law SocietyThe Leverhulme TrustLondon Borough of Barking and DagenhamLondon Chamber of Commerce & IndustryLCCI Commercial TrustNetherlands Economic InstituteOffice of National StatisticsPinnacle Partnerships plcRegulated Industries NetworkJoseph Rowntree FoundationHM Treasury

30

FINANCIAL SUMMARY

In the year to 31 March 2000 the Institute was able to generate an operating surplus for the fifth successiveyear. The policy of the Council is to balance income and expenditure over the long term, while recognisingthat 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 1,098,949Publications 443,721 404,339 412,004Corporate supporters 86,630 124,805 123,415Investments 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 1,190,856Publications 252,640 247,179 249,937Premises 87,581 93,317 79,117Administration 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

56

58

60

62

64

66

68

70

72

1994-5 1995-6 1996-7 1997-8 1998-9 1999-00

Per

cen

t

Income Expenditure

31

INSTITUTE GOVERNORS

DI AllportProfessor MJ Artis FBA

Professor AB Atkinson FBA

RJ AylingProfessor AD Bain OBE FRSE

NC BainProfessor Sir James Ball KB

Sir John BanhamNCF BarberMs K BarkerProfessor C BeanW BeckermanSir Terence Beckett KBE

Sir Kenneth Berrill GBE KCB

Professor R Blundell FBA

Lord Borrie QC

F BourgignonThe Rt Hon Lord Briggs FBA

Sir Samuel BrittanAJC BrittonProfessor AJ Brown CBE FBA

Professor WA BrownSir Alan BuddProfessor WH BuiterLord Burns GCB

Sir George Burton CBE DL FRSA

Sir Ian ByattSir Adrian CadburySir Dominic CadburyMs F CairncrossW CallaghanSir John Cassels CB

M CassidyC CheethamR ChoteSir Michael Clapham KBE

Sir Brian CorbySir John CravenThe Rt Hon Lord Croham GCB

Lord CurrieProfessor P Dasgupta FBA

G DaviesIF Hay Davison FCA

Professor PM Deane FBA

Lord Dearing CB

KHM Dixon CBE DL

Professor DV DonnisonThe Hon John EcclesJ EdmondsPiet-Jochen EtzelProfessor CH Feinstein FBA

The Rt Hon F Field MP*NWA FitzGeraldJS Flemming FBA

HJ FouldsSir Campbell Fraser FRSE

E GeorgeProfessor N Gilbert MA FREng CEng FBCS*Sir Paul Girolami, FCA

Professor WAH GodleyProfessor CAE Goodhart CBE FBA

Professor D GreenawaySir Richard GreenburyThe Rt Hon Lord Greene of Harrow Weald CBE

Lord Griffiths of FforestfachSir David Hancock KCB SG

Lord HaskinsThe Rt Hon Lord Haslam of BoltonProfessor PD HendersonProfessor DF Hendry FBA

Sir Michael HeronThe Rt Hon the Lord Higgins, KBE DL

T HillgarthMrs M Hodge MBE MP

Sir Geoffrey Holland KCB

G HolthamThe Rt Hon Lord Hunt of Tanworth GCB

Sir Roger HurnProfessor JP HuttonW HuttonSir Robin IbbsSir Martin JacombL Jayawardena*C JohnsonMrs K JonesProfessor H JoshiMs D JuliusSir Stanley KalmsProfessor JA Kay FBA

G KeatingW KeeganThe Rt Hon Lord Keith of CastleacreMs R Kelly MP

Professor MA King FBA

The Rt Hon Lord Kingsdown KG PC

Sir Arthur KnightSir Martin Laing CBE

Baron Alexandre LamfalussyN LandJW LengB LarcombeLord Lea OBE

Ms P LeithSir Christopher LewintonHH LiesnerProfessor SC LittlechildA Lord CB

MA LovedayProfessor WG McClellandSir Donald MacDougall CBE FBA

Sir Ronald McIntosh KCB

Professor Sir Donald MacKaySir Kit McMahonE MacphersonProfessor RCO Matthews CBE FBA

Sir Peter Middleton GCB

Professor MH MillerR MilnerProfessor Sir James Mirrlees FBA

Sir Nigel Mobbs DL

Sir Nicholas Monck KCB

J MonksProfessor PG MooreDJ MorrisMs KMH MortimerSir Claus Moser KCB CBE FBA

The Rt Hon Lord Murray OBE

Professor RR NeildProfessor S Nickell FBA

AJ Norman MP

PM OppenheimerSir Geoffrey OwenProfessor Pang Eng Fong*Professor Sir Alan Peacock DSC FBA FRSE

Professor the Lord Peston of Mile EndSir David PlastowThe Rt Hon Lord Plowden KCB GBE

MV Posner CBE

G Radice MP

JM Raisman CBE

Professor WB Reddaway CBE FBA

J Reeve

Sir Bob ReidThe Rt Hon Lord Richardson of Duntisbourne KC MBE

GB Richardson CBE

Sir Thomas RiskThe Rt Hon Lord Roll of Ipsden KCMG CB

Ms E RothschildJR SargentSir David Scholey CBE

Professor A Sen FBA

Sir Alfred ShepperdProfessor ZA Silberston CBE

Lord Simpson of DunkeldRDN Somerville CBE

JG Speirs CBE

Ms C SpottiswoodeProfessor N Stern FBA

Professor DK StoutPD SutherlandSir Richard Sykes FRS

AR Thatcher CB

Professor AP ThirlwallThe Rt Hon Lord Tombs of BrailesA Turner*D VereyProfessor J Vickers FBA

Professor D VinesS WadhwaniSir David WalkerProfessor KF Wallis FBA

R WatabeR WilsonProfessor TM Wilson OBE

FBA FRSE

Sir Brian WolfsonGDN Worswick CBE FBA

Professor S Wren-Lewis

THE GOVERNORS ARE FOR-MALLY THE MEMBERS OF THEINSTITUTE. THE ARTICLES OF

ASSOCIATION LIMIT THENUMBER OF GOVERNORS TO AMAXIMUM OF 200. THESE ARE

RECRUITED BY INVITATIONAND REFLECT EXCELLENCE INBUSINESS, ACADEMIC AND

PUBLIC LIFE. THE FUNCTIONSOF GOVERNORS INCLUDEELECTION OF THE COUNCIL

AND APPROVAL OF THEACCOUNTS. MANY ALSOPROVIDE INVALUABLE ADVICE

IN THEIR AREAS OF EXPER-TISE. GOVERNORS APPOINTEDIN THE PAST YEAR ARE

MARKED WITH AN ASTERISK.

32

INSTITUTE STAFF AND VISITORS

Martin Weale, MA, Cantab, CBE

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

John Arrowsmith, MA, Oxon; MSc(Econ), London(on secondment to Foreign Office)Ray Barrell, BSc(Econ), MSc, London; VisitingProfessor at Imperial College, LondonHilary Metcalf, BA, Oxon; MSc, London

Andrew P Blake, BA, Liverpool; MA, Essex, PhD,LondonGeoff Mason, BA, Auckland; MSc(Econ), LondonMary O’Mahony, MA, Dublin

A Ian Hurst, BEng, DipEng, PhD, Hull, IEng

Tracy Anderson, BSc, MSc, LondonPaul Ashworth, BSc, Strathclyde; MSc(Econ),Warwick; PhD, StrathclydeJoseph Byrne, BA(Econ), Strathclyde;MSc(Econ),Glasgow; PhD, StrathclydeKaren Dury, BSc (Econ), PhD, SheffieldDawn Holland, BA, Tufts; MSc (Econ), LondonFlorence Hubert, BA, Licence, Maîtrise,Nantes; MSc (Econ), WarwickSimon Kirby, BA, Keele; MSc(Econ), London

Fiona Thirlwell, BA, Newcastle

Robert G Coles, FCCA, MIMgtJean MacRae

Hassan K Feisal, BSc, London

Claire Schofield, BA, Portsmouth; Dip LIS,Newcastle

Fran Robinson, BA, London

Gill Clisham, BA, Essex

AJC Britton, BA, Oxon; MSc LondonSimon H Broadbent, BA, Dunelm; BPhil, OxonProfessor Philip Davis, MA, MPhil, OxfordJayasri Dutta, BA, Calcutta; MA, PhD, DelhiProfessor PE Hart, DSc (Econ), London

Rob Allen, NACROChris Bainton, Consultancy ResearchDr Paul Brenton, Centre for European PolicyStudies, BrusselsAlex Bryson, Policy Studies InstituteTheresa Crowley, Consultancy ResearchDouglas EdmondsUroš Čufer, Bank of SloveniaDr Nick Horsewood, University of BirminghamProfessor AG Howson, University of Southampton

Institute staffDIRECTOR

SECRETARY

SENIOR RESEARCH FELLOWS

RESEARCH FELLOWS

SENIOR RESEARCH OFFICERS

RESEARCH OFFICERS

RESEARCH ASSISTANT

ADMINISTRATION AND

FINANCE

COMPUTING

LIBRARIAN

PUBLICATIONS

EXTERNAL RELATIONS

VisitorsVISITING FELLOWS

CONSULTANTS

Neil Millward, BSc, Bristol; PhD, ManchesterNigel Pain, BA(Econ), ExeterSJ Prais, MCom, Birmingham; PhD, ScD, Cantab;Hon DLitt (City); FBA

Heather Rolfe, BA, Sheffield; PhD, SouthamptonJames Sefton, BA, PhD, CantabJulia Whitburn, BSc, Leicester; MA, London; PhD,Oxford Brookes

John Forth, BSc, UMIST; MA, Warwick

Tatiana Kirsanova, MSc, Moscow; MA, Moscow;MSc, LondonRichard Kneller, BA, Liverpool; MSc, Liverpool JohnMoores; PhD, NottinghamJames Mitchell, BA, Dunelm; MSc, Bristol; PhD,CantabRebecca Riley, BA (Econ), Copenhagen; MSc (Econ),LondonPhilip Stevens, BA, Leeds Metropolitan; MA(Econ),LeedsMichela Vecchi, Laurea, Macerata; MSc, Glasgow;PhD, Ancona

Michele Ockenden, BA, East Anglia; Grad IPDPat Shaw

Pamela Meadows, BA, Dunelm; MSc, LondonRichard Pierse, MA, Oxon; MSc, LondonProfessor Richard Smith, MA, PhD Cantab; MA,EssexChristopher Taylor, MA, Cantab; MA, McGillPaul Wallace, MA, Cantab; MPhil, London

Dr Bohdan Kłos, National Bank of Poland, WarsawUniversityMihály András Kovács, National Bank of HungaryMark Liddle, NACRODr Urmas Sepp, Bank of EstoniaMgr Kateřina Šmídková, Czech National BankAlan Taylor, NACROFrau Professor Dr Karin Wagner, Fachhochschulefür Technik und Wirtschaft, BerlinDr Hans Wessels, Deutsches Institut fürWirtschaftsforschung, Berlin

WHERE TO FIND US

The National Institute welcomes enquiries on allaspects of its work, and suggestions for collaborationwith universities, business or government.

Correspondence may be addressed to:The SecretaryNational Institute of Economic and SocialResearch2 Dean Trench Street, Smith SquareLondon SW1P 3HETel: 020 7222 7665. Fax: 020 7654 1900E-mail: [email protected]

or to any of the following on specific topics:World economic model

Ray Barrell • 020 7654 1925Dawn Holland • 020 7654 1921

Domestic economic model

Andrew Blake • 020 7654 1915

National Institute Economic Review

Submission of articles:

Fran Robinson • 01650 511783Subscriptions 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 1909John Forth • 020 7654 1954Geoff Mason • 020 7654 1936Pamela Meadows • 020 7654 1930Hilary Metcalf • 020 7654 1914Neil Millward • 020 7654 1953James Mitchell • 020 7654 1926Mary O’Mahony • 020 7654 1917Nigel Pain • 020 7654 1929Rebecca Riley • 020 7654 1941James Sefton • 020 7654 1931Philip Stevens • 020 7654 1927Michela Vecchi • 020 7654 1918Martin Weale • 020 7654 1945Julia Whitburn • 020 7654 1943

Further information on Institute activities canalso be found on our website:http://www.niesr.ac.uk

Cover design by Ed Walker

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national institute of economic and social research council of

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