Weekly economic briefing: 2017 Social Progress Index

The Weekly Economic Briefing is written by two senior Deloitte Economists, David Rumbens from Deloitte Access Economics in Australia and Ian Stewart Deloitte’s Chief Economist in the UK. They provide a personal view on topical financial and economic issues. Subscribe to receive the Weekly Economic Briefing in your inbox!

In this week’s blog:

Australian economic briefing
UK economic briefing
International economic briefing

Australian economic briefing by David Rumbens

This section of the briefing provides a snapshot of key economic data and issues of relevance to Australia.

2017 Social Progress Index

Every year in June, we examine the results of the Social Progress Index (SPI), an initiative of the US-based non-profit Social Progress Imperative, and supported by Deloitte, that tracks human wellbeing in terms of social and environmental outcomes.

Traditional measures of national income, such as GDP per capita, fail to capture the overall progress of societies, so the SPI measures 12 metrics across three main categories – Basic Human Needs, Foundations of Wellbeing and Opportunity.

Global trends

The world as a whole has made progress on social indicators since the Index launched in 2014 – with. 113 countries improving their social progress from through to 2017. Improvements in access to information, communications and advanced education are key drivers of global social progress, particularly in developed countries. The below figure shows the social progress tiers of each country.

weekly-ecn-briefing-270617-1.png

We are seeing some convergence across countries in their progress toward Nutrition and Basic Medical Care, Access to Basic Knowledge, and Water and Sanitation, with the top improvers over the past three years low and lower middle-income countries, which have the most to gain.

But it’s not all good news. Since last year, Personal Rights, Personal Safety, and Tolerance and Inclusion have eroded worldwide. Tolerance and Inclusion in the United States and Canada declined significantly due to decreasing religious tolerance and increasing discrimination against minorities. The United States score was also brought down by deteriorating tolerance for immigrants, and Australia’s Tolerance and Inclusion score also declined – from 80.87 in 2016 to 77.19 in 2017.

How does Australia fit in?

Overall, Australia has consistently ranked in the top 10 of the rankings since 2014, but fell from fourth to ninth in 2017. However, Australia also continues to outperform on the Social Progress Index compared to our GDP per capita, which currently ranks twelfth in the world.

Across the major categories, Australia scored thirteenth for Basic Human Needs and Foundations of Wellbeing, and sixth for Opportunity. Detailed scores are shown in the figure below.

weekly-ecn-briefing-270617-2.png

 

The only broad metrics where Australia was not one of the top 12 countries were:

  • Shelter, which was brought down by Affordability of housing (ranked 61st)
  • Access to basic knowledge, which was brought down by Gender parity (ranked 66th)
  • Access to information and communication, which was brought down by Press freedom (ranked 23rd)
  • Environmental quality, brought down by Biodiversity and habitat (56th) and Greenhouse gas emissions (97th).

More information and insights into this year’s Social Progress Index can be found here.

For more information on the Australian brief, please contact the co-authors, David Rumbens and Jemma Swan.

 

UK economic briefing by Ian Stewart

A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. Subscribe to and view previous Monday Briefings at: http://blogs.deloitte.co.uk/mondaybriefing/

The changing nature of work

  • In what has been a rather lacklustre economic recovery one standout success for the UK has been job creation. In the last eight years the number of people in employment has risen by 10% to record levels. Self-employment is up by a quarter. Britain’s unemployment rate today is one of the lowest in Europe and at the lowest level since 1975. There are three quarter of a million job vacancies in the UK today.
  • Common sense suggests that as unemployment falls, and employers struggle to fill vacancies, wages will rise. This relationship is embodied in a simple economic model, the so-called Phillips Curve. Yet today this model, and this way of thinking about wage pressures, no longer seems to work for the UK.
  • Two years ago real wages, after inflation, were growing at an annual rate of almost 3.0%. Today, with unemployment down sharply, real wages are contracting, and have fallen by about 1.0% in the last year. A golden age for jobs has also seen what the Resolution Foundation, a think tank, describes as the slowest period of wage growth since the Napoleonic wars.
  • How can we explain the apparent breakdown in the relationship between unemployment and wages?
  • Four forces seem to be at work.
  • First, there may be more slack, or spare capacity, in the jobs market than meets the eye. Free movement of people within the EU has expanded the potential supply of labour for UK companies from 32 million UK-based workers to tens of millions of people across Europe. At the same time higher levels of part-time employment, which now accounts for a quarter of UK jobs, means that more people with existing jobs can work longer hours if needed.
  • Second, a series of changes have eroded the bargaining power of labour. Globalisation and technological innovation have led to the loss of many mid-level jobs. Union membership has declined from around 13 million people in the late 1970s to about six million today, in the process eroding the wage premium associated with union membership. The Bank of England estimate that this premium typically adds between 10 to 15% to pay.
  • The composition of the workforce has also shifted away from full time jobs. Part-time and temporary work, self-employment and zero hours contracts have flourished and today account for 43% of the UK workforce. Pay in these growth areas tends to lag behind equivalent full time occupations. The pay ‘discount’ for self-employment is around 15%, for zero hours contracts 7%, temporary contracts 5-6% and for agency workers about 2.5%.
  • Third, business and government have reacted to a volatile, slower growth environment by squeezing costs, particularly wages. Deloitte’s Chief Financial Officers’ survey shows that cost control has remained a consistent business priority in the recent years, even at times of accelerating growth and buoyant confidence. In the public sector pay rises for key workers are capped at 1.0% a year until 2019-20, a level which is well below current and forecast inflation rates.
  • Economic uncertainty has encouraged workers to stick with their current job rather than moving in search of higher paid work. This immobility, which contradicts the popular notion of a footloose workforce, has weighed heavily on the pay of younger people. At the same time the wage premium for older workers which comes with long service has fallen by a third in the last 20 years.
  • Fourth, the boost to wages from having a degree has weakened. Bank of England research shows that the wage premium commanded by those with a university degree has diminished substantially since the mid-nineties. One obvious explanation is that a much expanded supply of new graduates has outstripped demand.
  • Andy Haldane, the Bank of England’s Chief Economist, has argued that growth in alternative forms of working, from self-employment, to part time work and zero hours contracts, has made work and workers more “diffuse, more granular and more divisible than in the past”. Changing forms of work link individual tasks and with individual workers. People are more likely to be paid by the task or the hour and less likely to be represented by unions.
  • Mr Haldane points out that, in some respects, we may be seeing a return to older ways of working. Before the Industrial Revolution most workers were self-employed or worked in small businesses, there were no unions, hours were flexible and work was artisanal, task-based and divisible.
  • The good news is that the number of jobs in the UK has risen substantially in recent years. Yet for many the returns to work have stagnated or fallen. The nature of work itself has changed, in the process altering the relationship between employers and workers. These are profound shifts, which, like the changes in the workforce that occurred in the Industrial Revolution, are likely to have social and political effects.

PS – last week’s Briefing described the growing political opposition to public sector austerity. Chancellor Phillip Hammond used his Mansion House speech last week to acknowledge that voters have grown “weary” of austerity. However, he also sought to reassure markets about the government’s fiscal discipline and signalled that he is not about to drop planned spending cuts or his commitment to balancing the budget. In reality the Chancellor could exploit his new fiscal rules, which are easier than the previous set, for targeted increases in public spending in sensitive areas while continuing to reduce the budget deficit. In this sense austerity and selective increases in public spending may be reconcilable.

OUR REVIEW OF LAST WEEK’S NEWS

The FTSE 100 equity index ended the week down 0.4% at 7,424.

International economic briefing by Ian Stewart

Economics and business

  • Euro area economic activity in Q2 grew at the fastest pace in six years, according to purchasing managers’ data
  • Economic growth in the Netherlands rose in Q1 at the fastest pace since 2008
  • French private sector employment grew in June at its fastest rate in nearly a decade
  • Argentina surprised markets by successfully selling $2.75bn worth of 100-year government bonds, despite the fact Argentina has defaulted on its debts eight times in its 200-year history
  • The IMF praised the “Abenomics” policies of Japanese Prime Minister Shinzo Abe, after loose fiscal and monetary policy delivered Japan’s longest sustained period of growth in more than a decade
  • British households have become more worried about the outlook for their finances in the year ahead, according to a survey by IHS Markit
  • The price of crude oil fell to its lowest so far this year
  • The FT reports that an unnamed financial services company has reduced its pension liabilities by more than £100m in just six months as a rising number of employees swapped final salary benefits for a lump sum
  • The UK population has risen at its fastest pace in nearly 70 years over the last 12 months
  • UK inheritance tax receipts exceeded £5bn in the 12 month to May, rising to their highest share of national income since the 1980s
  • Arab states issued Qatar with a number of demands it must meet to bring an end to the current blockade, including the closure of the Al Jazeera satellite channel and limiting relations with Iran
  • Buy-to-let lending has slowed sharply in the UK following a regulatory and tax crackdown on the sector, according to the Council of Mortgage Lenders
  • Italy has managed to cut public spending by about €30bn a year since a controversial budget review in 2014, according to government officials
  • The US’s chief trade negotiator, Robert Lighthizer, warned against the WTO according China market economy status – a move that would make it harder for other countries to bring anti-dumping cases against Beijing
  • The move by Mr Lighthizer was interpreted as a veiled threat that the US might exit the WTO
  • More than half of the UK’s elite Russell Group universities have failed to achieve the highest award in the first government league table based on teaching quality

Brexit and European politics

  • Philip Hammond made the case for a transitional Brexit deal, saying “We’ll almost certainly need an implementation period”
  • Brexit Secretary David Davis said he is “pretty sure”, but not “certain” that he will be able to get a free trade deal with the EU.
  • The Governor of the Bank of England, Mark Carney, used a speech to say that “firms on either side of the channel may soon need to activate [Brexit] contingency plans”
  • British factories are experiencing their strongest export demand since August 1988, according to the CBI, as the weak pound boosts competitiveness
  • The number of eastern Europeans registering to work in the UK has fallen to its lowest level in over a decade
  • The British public remains almost as equally divided on the issue of Brexit as they were during the referendum, according to a new YouGov survey
  • European Commission President Donald Tusk said he has not given up hope that Britain might stay in the EU; channelling John Lennon in saying “You may say I’m a dreamer, but I am not the only one.”
  • Standing next to Mr Tusk at the press conference that kicked-off a two-day EU summit in Brussels, Jean-Claude Juncker, President of the European Commission, pithily replied: “Let it be.”
  • Michel Barnier, the EU’s chief Brexit negotiator, responded “If the British change their view, that’s their business. But let’s not speculate, let’s not waste time dreaming”
  • The number of locally-sourced components in cars manufactured in Britain has risen since the Brexit vote, according to the Automotive Council, who warn that the trend could result in higher costs
  • Theresa May proposed to offer post-Brexit “settled status” to EU citizens who had lived in Britain for five years, allowing them eligibility to the same healthcare, pensions, benefits and education rights as British nationals
  • Donald Tusk responded to the offer by saying it is “below our expectations” and risked worsening the current situation for EU citizens
  • The cost of British strawberries may “soar” by up to 50% if Brexit restricts EU seasonal workers from picking, according to the British Summer Fruits group
  • The industry body claim that around 95% of those needed to cultivate and harvest soft fruit crops come from other EU nations, mainly Poland and Romania
    German chancellor Angela Merkel said she was open to the idea of giving the euro area a single finance minister and a common budget, offering conditional support to one of President Macron’s signature policies

And finally…

  • A number of French bus drivers in the city of Nantes decided to go to work in skirts in protest against bosses refusing them to dress more casually and wear shorts as temperatures reached 38C across Europe – hot couture

Want to stay up-to-date?

Stay on trend and in the know when you sign up for our latest content

Subscribe