The transmission of labour market shocks to living standards
This programme of secondary data analysis will comprise two strands of research: one looking at the short term effects of recessions and one looking at longer term effects (‘scarring’). The project will draw on data from the Family Expenditure Survey (1975 to 1993) and Family Resources Survey (1994 onwards), using regression and micro-simulation techniques to answer the following questions:
- How do households’ disposable incomes and consumption respond to different kinds of labour market shocks (e.g. considering the differences between the 1979-1981 and 1990-1992 recessions that mainly affected employment rates with the 2008-10 which primarily affected wages)?
- What insurance against shocks does the tax and benefit system provide to different kinds of people, and with what implications for the cyclicality of the public finances? How and why has this changed? How would it change under planned policy reforms?
- What should we expect the scarring effects of the most recent recession to be, given the differences between this recession and previous ones?
- What are the appropriate kinds of policy responses to reduce scarring likely to be?
- How much does scarring affect living standards – and for whom – once we account for the insurance that people have against poor labour market outcomes? Hence, how heavily should policy-makers weigh the costs of prolonging a downturn against other objectives (e.g. the public finance position)?