Following four quarters of exceptionally rapid expansion, growth in the US, China and Japan, the world's three largest economies in purchasing power parity terms, slowed in the second quarter of 2004. However, with growth remaining near trend levels in all three economies, this should not be viewed as an imminent collapse of the global recovery. On the contrary, we continue to expect world growth to stabilise at about 4-4¼ per cent per annum from 2004-2006, which is slightly faster than our estimate of trend global growth of just less than 4 per cent per annum. We see the world economy approaching full capacity output and, unless there is a shock to demand, a further acceleration in global growth is unlikely in the near term. In the second quarter of 2004, we also saw a slight dip in the Euro Area recovery, mainly driven by a drop in consumer expenditure in Italy, while growth in India and the Far East also eased slightly. Brazil, on the other hand, continued to strengthen following the recession in the first half of 2003, although recent strikes in demand for higher wages are likely to restrain the acceleration in the second half of the year. Looking forward, we expect to see some rebalancing of world growth by 2006, as the US and Japan slow to more sustainable levels and the recovery in the Euro Area becomes more broadly based. The only significant revisions to our forecast for the major economies since July include an upward revision to the outlook for Japan this year, and an upward revision to the outlook for inflation in the Euro Area in 2005. We have revised our projections for growth in Japan up by 0.4 percentage points, to 4 per cent. This follows the upward revision of 1 percentage point made in July, and primarily stems from an upward revision to growth in Chinese import demand this year.

The lack of savings by the UK personal (and private) sector has been a matter of concern to us for some time, in part because it has been clear that inadequate provision has been made for future pension liabilities. The recently published Turner report has highlighted this problem and suggested that on current commitments some 5.2 per cent more of GDP needs to be directed to pensioners in 2050 than is currently the case. Assets have to be built up to provide this extra income, and increased saving is necessary in order to do this. In this note we consider the macroeconomic impacts of building up assets to ensure that the increasing allocation of income to pensioners that an aging population may require is managed efficiently.

This paper uses a variety of recent sources of information to explore the labour market experiences of those who gained a degree in the 1980s and 1990s. Specifically, we address the issue of ‘overeducation’ — the view that the expansion of higher education in the 1990s created a situation in which increasing numbers of graduates were unable to access employment that required and valued graduate skills and knowledge. Two complementary approaches to this issue are adopted. We review available evidence on the graduate earnings premium and change in the UK occupational structure, and we conduct a detailed examination of the earnings and characteristics of jobs done by a large sample of 1995 graduates seven years after graduation.

We conclude that, while there may have been a decline from the high premium enjoyed by older graduates, for those who graduated in 1995 the average premium was holding up well, despite the expansion. Although we found differences between established graduate occupations and the newer areas of graduate employment, our evidence suggests that the development of new technical and managerial specialisms and occupational restructuring within organisations has been commensurate with the availability of an increased supply of highly qualified people.

This paper provides up-to-date empirical evidence on the socio-economic gap in higher education (HE) participation, for the period spanning the introduction of tuition fees. We assess whether the gap has widened and ask whether the socio-economic gap emerges on entry into university or much earlier in the education system. We do this in two ways. Firstly we consider the likelihood of going to university for school leavers in poor neighbourhoods and analyse changes in this likelihood over time. Secondly, we use more detailed individual level data to model the determinants of HE participation, focusing on changes in the relationship between family background and HE participation over time. We find that the growth in HE participation amongst poorer students has been remarkably high, mainly because it was starting from such a low base. However, the gap between rich and poor, in terms of HE participation, has widened during the 1990s. Children from poor neighbourhoods have become relatively less likely to participate in HE since 1994/5, as compared to children from richer neighbourhoods. This trend started before the introduction of tuition fees. Much of the class difference in HE participation seems to reflect inequalities at earlier stages of the education system.

The problem of recruiting graduates into the teaching profession and retaining them has bedevilled recent UK governments. An obvious question to ask is why is teaching so relatively unattractive for graduates. This paper presents a careful analysis of this problem. We compare the earnings of qualified teachers who choose to teach with the ‘opportunity wage’ for those who do not teach. We find that the ‘rate of return on career choice’ for teachers has been declining for both men and women over the past 25 years although teaching is still relatively well paid for women. From our net present value analysis we estimate that males who enter teaching lose, on average, earnings of £40,000 to £67,000 over their lifetime while females could stand to gain average earnings of £42,000 to £65,000 if they opted to become school teachers.

We examine the wages of graduates inside and outside of academe in both the UK and US. We find that in both the UK and the US an average graduate working in the HE sector would earn less over his or her lifetime than graduates working in non-academic sectors. The largest disparity occurs throughout the earlier and middle career period and so if people discount their future earnings, the difference will be even greater than these figures suggest. Academics in the UK earn less than academics in the US at all ages. This difference cannot be explained by differences in observable characteristics such as age, gender or ethnicity. This leads us to conclude that the differences in UK and US academic wages are unlikely to be due to differences in the academics themselves, but rather to differences in labour markets generally and in systems of higher education between the two countries, which suggests that there is a strong pay incentive for academics to migrate from the UK to the US.