Flexibility, quality and competitiveness are all hallelujah words in current debate about national economic performance. The achievement of more flexibility or higher quality or greater competitiveness, it is said, will help the UK become a more successful economy. At the same time increased labour market flexibility and deregulation has been seen by UK governments since the early 1980s as a means of creating jobs and tackling unemployment. In following this line the UK government has looked to the North American example, and has suggested on numerous occasions that overregulation and inflexibility in most European countries' labour markets has worsened unemployment. While the record of enhanced labour market flexibility in boosting employment is not the focus of this article (for details of the debate, see Solow, 1998; Walwei, 1998), this job creation aspect of flexibility is important because it has coloured discussions of flexible forms of employment in the UK and has often led to our conflating flexibility with deregulation. As will be argued below, the evidence from Europe in fact suggests that the use of some forms of flexible employment are not incompatible with relatively high degrees of labour market regulation.

“I do not know what the word ‘flexibility’ is. Rarely in international discourse has a word gone so directly from obscurity to meaninglessness without any intervening period of coherence. Some people when they talk about labour market flexibility are talking about the freedom of employers to fire workers, the freedom of employers to reduce wages. I tell you something. That kind of freedom is not going to lead to higher standards of living in any of our countries.” Robert Reich, speaking at the International Labour Organisation, 10 June, 1994.

This article describes an attempt to establish by regression analysis the form of the relationships which determine wage-rates and average earnings in the United Kingdom.

If official figures overstated the growth of banking output in the UK in the recent boom, does this mean that GDP growth was overstated too? The answer is no. It is truer to say that if banking output was overstated then the output of some other industry or industries must have been understated, leaving GDP relatively unaffected. The reason is that the Office for National Statistics measures the real growth of GDP primarily from the expenditure side. And from the expenditure side most of the problematic part of banking output drops out since it constitutes intermediate consumption not final expenditure. Consequently, the effect of any mismeasurement of banking output on GDP growth in the boom of 2000–7 is likely to have been small; GDP growth might have been overstated by about 0.1 per cent per annum.

Childcare may affect the earnings of mothers, not just by enabling them to take employment while using it, but also by conserving human capital and increasing earnings at later stages of the mother's life. This paper simulates the lifetime earnings of a ‘typical’ British mother under a variety of childcare regimes. Childcare which continues into the years of schooling is particularly valuable. For a woman who changes her labour force participation behaviour as a result of the availability of childcare, the resources generated are shown to exceed the resource costs of the childcare, and the revenue gain to the exchequer may exceed the costs of 100 per cent subsidy.

Economists who regularly use econometric models are well aware of the problems which arise if those models are not updated frequently. Updating is more than mere mechanical revision in the face of new data. This article will reveal that quite substantial changes have taken place in the National Institute's model as a result of a comprehensive re-estimation exercise, undertaken over the last year, which encompassed most of the behavioural equations in the model. Although there will not be space to describe all of these changes in full, the next section provides a brief account of the main developments. More information on some of the equations is given in an appendix, and the final section of the main text describes the results of a range of simulation exercises using the whole model.

This article examines the problems of the machine tool industry in Britain by contrasting its performance and structure with the corresponding industry in Germany and the United States. The industry is one in which Britain's productivity, export performance and technology have lagged behind Germany and the United States since before the Second World War; these aspects are discussed in the first half of the article. The latter half considers how Britain's deficiencies in technical skills have affected the machine tool industry; the engineering industries as a whole are of course affected in varying degrees by similar factors.

This article investigates international productivity differentials in one industry over the last 10 years, and the impact of skills differences. In 1981-3 interviews were held with Chief Executives and other personnel down to the level of the shop floor, in 56 matched vehicle component manufacturers in Britain, Germany, the USA and Japan. In 1989-90 further, more limited, interviews were carried out in 22 British and 23 German vehicle component manufacturers to gauge the effects of past differences and to investigate more recent progress. Findings suggest that substantial progress on manning levels and labour flexibility has resulted in some narrowing of the productivity gap against Germany, but a large gap remains against Japan. It is suggested that Britain may need to look to the Japanese skills model, emphasising high standards of basic education and vigorous programmes aimed at continuous employee development.

Macroeconomic performance in Europe was generally agreed to have been poor in the 1970s, with high inflation and low growth. The 1980s saw a significant improvement, with inflation being reduced to under 5 per cent by the end of the decade, and growth reaching some sort of peak in 1989. There were many factors contributing to this improved performance, and the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS) has been given much of the credit. The ERM was supposed to have given the monetary authorities in France and Italy increased anti-inflationary credibility. Their decision to link their exchange rates to the D-Mark involved a commitment to follow German monetary policy and hence involved taking on German anti-inflationary credibility.

In writing recently about the economic problems that Northern Ireland faces (Begg and Mayes, 1994) we argued, uncontroversially, that an end to the ‘Troubles’ would significantly alter the region's prospects. Our analysis, nevertheless, focused on other factors which might be amenable to policy action. With an end to the Troubles in Northern Ireland now on the cards, these other characteristics of the Northern Ireland economy must be expected to be of increased importance in determining the Province's competitiveness compared with other parts of the UK and, indeed, other regions of the European Union. In particular, Northern Ireland is a prime example of a ‘peripheral’ economy, located as it is at the North-Western corner of the EU and facing the further barrier of a sea crossing to markets other than the Republic of Ireland. It is also a region that shares a number of the characteristics of the older industrial regions of Britain, such as high unemployment, persistent emigration of working-age population and difficulties in achieving industrial restructuring (Harris et al., 1990; Harris 1991).

The financial crisis that started in the summer of 2007 and worsened in the autumn of 2008 has involved a repricing of risk and a reduction in the level of potential output in the OECD of between 3 and 5 per cent. In addition it has caused a major recession, leaving output gaps in the UK, the US and the Euro Area currently standing at 3 to 5 per cent of potential GDP despite active policy responses. We show that monetary policy (and especially quantitative easing) has increased output growth in the US and the UK by half a per cent in 2009, and will do the same in 2010Q1. Fiscal policy is also shown to have been effective, but we argue that more could have been done if unfounded worries about excess borrowing had not arisen.

The consumption function is probably the most widely researched area in macro-economics and until the early seventies it seemed to be one of the most stable relationships. However, in the 1970s there was a sharp and rapid rise in the saving ratio of the personal sector that was not predicted by existing equations. Moreover the rise in the saving ratio coincided with an increase in the rate of inflation and the conventional view had been that inflation would discourage saving. This prompted a search for theories that would explain the ‘paradox’ of saving behaviour.

Movements in exchange rates attract much attention, both for the signals they may contain about future inflation prospects and for their implications for the competitiveness of firms. However, movements in bilateral exchange rates, for instance in sterling against the dollar or the euro, do not convey enough information for either policymakers or for firms except in relation to specific bilateral transactions. It is useful to construct summary measures of exchange rate movements, and there are a number of ways of doing this. The choice of measure depends upon the use to which it is to be put. Some measures, such as the effective exchange rate, are summary indicators, whilst others such as export competitive indices are more relevant when evaluating the prospects for export developments. Some indicators weight together nominal exchange rates. Others are measures of real exchange rates, weighting together exchange rate adjusted relative prices. The indicators chosen should be seen in the context in which they are used.

Reliable measures of the gross replacement cost of fixed assets are needed for a variety of reasons. It is generally accepted that this is the valuation concept which is most appropriate for assessing the output capacity of capital and for analysing developments over time in output, labour force and capital stock relationships. The gross replacement cost of fixed assets is also the benchmark for deriving measures of net capital stock which, taken in conjunction with other capital elements and profit data, yield rates of return to capital. Furthermore it is the concept which constitutes the fundamental ingredient in the quantification of the depreciation allowances that are used in national accounts.

We examine the forecasting record of HM Treasury for GDP and the RPI from 1971 to the present. As well as presenting the usual statistical measures of performance, such as Root Mean Squared Errors, and regression tests of forecast efficiency and bias, we test for any relationship between the errors in GDP and RPI forecasts. Confidence intervals are constructed using a classical statistical approach based on past forecast errors, which is similar to that employed in this Review to describe forecast uncertainty.

This article analyses the forecasts of inflation and GDP growth supplied by the individual respondents to the Bank of England's quarterly Survey of External Forecasters, 1996-2005, using a recently released dataset. This comprises a conventional incomplete panel dataset, with an additional dimension arising from the collection of repeated forecasts for the last quarter of each year. This fixed-event forecast structure allows study of the forecast revision process, its weak and strong efficiency, and its relation to macroeconomic news. The collection of density forecasts as well as point forecasts allows study of the revision process of forecast uncertainty.

Over the past twenty years the expansion of the British economy has been supported by growth in the financial services industry. With the onset of the financial crisis it seems most unlikely that the financial services industry can, in the future, act as the sort of motor of growth that it had done in the past. This commentary provides an overview of the role of the financial services sector in the economy over the past twenty years and assesses likely developments in the future. It first assesses the contribution of the sector to the economy and then considers the issues surrounding its likely shape in the future.

In 2020–2021, the world has been gripped by a pandemic that no living person has ever known. The coronavirus pandemic is undoubtedly the greatest challenge the world has faced in over a generation. The imperative of statistical modelling is not only to manage the short-run crisis for the health services, but also to explain the pandemic’s course and establish the effectiveness of different policies, both non-pharmaceutical and with vaccines. This difficult task has been undertaken by the epidemiologists and others in the face of measurement data problems, behavioural complications and endogeneity issues. This paper proposes a simple taxonomy of the alternative different models and suggests how they may be used together to overcome limitations. This perspective may have important implications for how policy-makers cope with future waves or strains in the current pandemic, or future pandemics.

The financial crisis and the recession it induced have wrought havoc with our understanding and decision-making on the medium-term fiscal position. The crisis will leave us with a higher debt stock and a lower level of sustainable output, and both of these will have implications for the optimal paths for spending and for taxes. If sustainable output has changed then spending plans need to be revised, even if there is no excessive accumulation of debt. If debt has been accumulated in excess of that seen as wise before the crisis, then a plan must be in place to raise taxes and reduce spending in order to return to (or towards) a desired level of debt, even if sustainable output has not been affected. In addition to adjustments in response to changes in trend output and in the debt stock, there may also be a need for an adjustment in response to any structural deficit that existed before the crisis broke.

The objective of this note is to compare the econometric performance of several different equations which attempt to model the behaviour of export volumes of manufactured goods. Such equations usually explain export volumes in terms of an index of world economic activity and an index of competitiveness. This note concentrates on the issue of competitiveness; namely, how should competitiveness be defined and measured when employed in an export volumes equation?

OECD projections for European countries imply that the crisis will have no long-term effect on trend growth. An historical perspective says this is too optimistic. Not only is the legacy of public debt and its requirement for fiscal consolidation unfavourable but the experience of the 1930s suggests that much needed supply-side reforms are now less probable – indeed policy may well become less growth friendly. Whereas the 1940s saw the Bretton Woods agreement and the Marshall Plan pave the way for the ‘Golden Age’, it is unlikely that anything similar will rescue Europe this time around.