EC114 Introductory Macroeconomics Applications Lecture 2

Who Am I?

• James Reade, j.j.reade@reading.ac.uk, HumSS 191.

• Office hours: 14:30–16, Tuesdays, 11–12:30 Fridays.
• Twitter: jjreade, hashtags #EC114 #pleasebemyfriend
  • Tumblr? jjreade there also.

• Dropbox: Slides, audio, etc will be made available via links/folder share.

Textbook Update

• Firstly: I’m sorry there were no copies in Blackwells.
• Second: They have some in now, and cheaper than Amazon!
• Reference for book:
  • “Macroeconomics: Understanding the Global Economy” by David Miles, Andrew Scott and Francis Breedon, 3rd edition, published by Wiley.

Forecasts?!

• This is macroeconomics, not forecasting!
• However, macro and forecasting are inextricably linked.
  • Most bad economic forecasts are macro forecasts.
• We try to understand the economy in order to make better forecasts.
  • Doesn’t guarantee better forecasts, but it helps.
• Forecasting forces you to get off the fence!
• The numbers coming out this term, more than any other recent year, will be spun out of all proportion.

Forecast Competition?!

• Informal, non-compulsory, but hopefully a bit of competitive fun.
• Each week a variable will be set to be forecast.
• If you wish, submit a forecast.
• The (student) winner gets a prize!
  • Forecasts evaluated on mean absolute error.
  • Rounded to 1DP, with number of forecasts as tie-breaker.
• Staff have been invited to take part:
  • Pit your wits against your profs!

Unemployment-Related Forecasts

• Unemployment: The state of being unemployed.
• Unemployed: (of a person) without paid job but available for work.

How did we all do?

• Outcomes:
  • Claimant count change: -29700.
  • Claimant count rate: 2.6%.
  • ILO rate: 5.8%
• Our forecast ranges:
  • Claimant count change: -10K to -33K.
  • Claimant count rate: 2.6% to 2.8%.
  • ILO rate: 5.8% to 6.2%.
• Two people got 2/3 exactly right:
  • 9 others got one exactly right.

Does it matter?

• There’s an election coming…

Fact Checker…?

• We need to be critical consumers in the coming months.
• What does “jobs lost”, and “jobs created” mean?
• My interpretation:
  • Changes in the employment level:
    • Number of people in work.
  • If employment falls, “jobs lost”.
  • If employment rises, “jobs gained”.
• Then we need to get the ONS figures:
  • http://goo.gl/uL8mth

Looking at the data…

• More recently…

• Specifics:
  • Labour: 25 jobs lost per day over 4 years.
    • \(25\times 365.25\times 4 = \) -36525.
    • Reality: 2010: 29144000, 2006: 29063000.
      • 81000
  • Tories (coalition): 1047 created per day since 2010.
    • Assume since May 2010, so 1722 days.
    • Hence \(1047\times 1722 = \) 1802934.
    • Reality: Now 30801000, 2010: 29144000.
      • 1657000

What are Labour saying?

• The numbers do stack up…

• The “has risen” is the silly part, here.

More Broadly, Election Focussed…

• David Cameron is targetting employment numbers
  • Perverse implication: Better to have 2 people working 20 hours than one working 40.
• From Dave’s graphic, real jobs and things that matter.
• Labour’s focus thus far has been on living standards:
  • Definition? Disposable incomes for…
    • The average family? The median family?
  • Wiki: “Standard of living refers to the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain geographic area.”
  • In reality: Difference between average weekly earnings and inflation.
    • But inflation is low and looks likely to stay low.
    • Bank of England minutes, point 24

Living Standards Crisis?

• Has it always been so low?

Regional Variation amongst us

• Get out your Socrative app…

• I am from:
  • A. England
  • B. Northern Ireland
  • C. Scotland
  • D. Wales
  • E. Elsewhere

Regional GVA

• We all appear to care about regional variation.
  • Guardian: ‘UK’s north-south divide has widened, says thinktank’, Jan 19
  • Mirror: ‘Cancer victims face postcode lottery for NHS care’
  • Telegraph: ‘House price growth on the up in just a handful of UK towns and cities - but would you live there?’
  • Buzzfeed: ‘Tories want people to be proud of their accents’](http://www.buzzfeed.com/emilyashton/the-tories-want-people-to-be-proud-of-their-regional-accents)
• Last week we learnt about measuring national income:
  • The total amount of economic activity in a country.
  • We need not think only about the national level, however.
  • Statistics are produced down to NUTS3 regions.

Recall GVA=Gross Value Added

• Value added: Contribution at each stage of production process.
• Clearly this is added up for firms all around the country.
  • How much regional variation exists?
• Does it matter?
  • Do strong regions drive strong nationwide growth?
  • How big do those regions need to be?
  • Has govt policy addressed imbalances over the years?

Regional Variation: Data

In Ratios

Within Regions: London

Within Regions: Around Here

Rankings for 2013

Rankings for 1997

Has it always been this way?

• Nick Crafts has done some research into this.

Implications

• There has always been regional variation, surely always will be?
• Issues surrounding variation:
  • How mobile is/should labour be?
  • How much difference has govt policy made?