Reading too much into the label?

The Institute for Fiscal Studies (IFS) recently published a paper claiming that ‘households receiving the winter fuel payment are almost 14 times as likely to spend the money on fuel than would have been the case had their incomes been increased in other ways’. They said this would come as a result of how the benefit is labelled: it’s because it’s called ‘winter fuel’ that people spend it disproportionately more on heating their homes in winter –an example of the fashionable ‘nudge’ theory (i.e. behavioural economics) in practice. For once, the IFS may be wrong.

The IFS economists are very competent, and this paper has been covered in the national media, so the possibility that they may have got it wrong took me by surprise.

Statistical regression analysis investigates whether one variable depends on a number of factors. Needless to say, there are always more potential factors influencing the variable under study than the number any researcher can get hold of. Provided none of the aspects excluded from the analysis are highly relevant, the results would be valid nonetheless. Instead, if some crucial factors were left out, then you cannot say anything about what’s being looked into –preferably, you would not even start crunching the numbers.

The IFS investigated the change in expenditure on fuel as a proportion of total household budget following the receipt of the winter fuel payment benefit. Through various statistical techniques they came to the conclusion above. But –and this is the killer ‘but’- the winter fuel allowance is automatically paid… at the onset of winter.  Would people spend the extra £200-£300 in heating their homes if the allowance were paid in, say, June? Hardly so, even if it were re-labelled ‘the extremely polar conditions mother of all winters payment’. The IFS did not take into account one decisive factor: the time of year the payment is given. True, no-one can disentangle the likely influence of labelling and timing on how the winter fuel allowance is spent –but the consequence of this impossibility is that the existence of a labelling effect is far from established.

We, at Age UK, welcome the fact that recipients of the winter fuel payment spend more on fuel, of course, but this is beside the point: this extra spending may not come as a consequence of the word ‘fuel’ but of the allowance being paid when people need to heat their houses most –it’d be more the ‘winter’ side of things than the ‘fuel’. Hence, it’d be very premature to draw the conclusion that benefit recipients could be nudged towards consuming this or that by merely labelling and re-labelling allowances. It might work, it might not. The IFS paper didn’t prove it.

In some countries in Latin America, the annual salaries are divided into 13 payments –not because there are thirteen months, just in case you wonder. The 13th instalment –known as ‘aguinaldo’ in Spanish- corresponds to a payment given a couple of weeks before Christmas. What do people do with their ‘aguinaldo’? They spend it disproportionately on Christmas gifts, dos and dinners, and the vacations they tend to take shortly after. I remember one year in Argentina the government decided to postpone the payment of the ‘aguinaldo’ until the beginning of January. That year, Christmas dinners lacked some of the usual trimmings and retailers saw their seasonal sales plummet, but the following month there was more pocket money to spend by the seaside than usual. Continue reading “Reading too much into the label?”

The Baby Pop

There is a ‘baby boom’ in London. Births during the first six months of this year have broken all records.” So The Coshocton Tribune reported back in August1920.

However, the term ‘baby boom’ usually refers to the period roughly between 1946 and 1966, during which a high number of births were recorded in the United States of America. Hence, the ‘baby boomers’ epithet lumps together all the people currently between 44 and 65 years of age, give or take one year.

There hardly passes a week when the “baby boomers” don’t make into the local news, as if the UK had experienced a similar demographic explosion to the USA and -given that it is usually used in the context of a fiscal and pension crisis looming just round the corner- at the same time. I contend here that this is far from being the truth: the UK did not experience a ‘baby boom’ but a moderate increase in fertility for only the ten years starting in 1958.

To measure fertility, the best demographic indicator is the ‘total fertility rate’ (TFR). Its definition is rather technical, but I hope it suffices to say here that total fertility rates measure, well, fertility: when the rate goes up, it’s because more babies are being born.

So, let’s start with the US data. The next figure presents annual US total fertility rates between 1940 and 2009. It shows that total fertility rates exceeded 3.0 between 1947 and 1964. In contrast, they have lingered around 2.0 since the late 1980s.

What about the UK? The following figure presents TFR for England and Wales, along with the US data we have already seen. Apart from a blip in 1947, England and Wales experienced a sustained increase in fertility between 1958 and 1968. Hence, fertility started to increase about a decade later in Britain (the earliest cohort, who is turning 52 this year, has a long way to go until reaching state pension age –in contrast to the first American ‘boomers’). As importantly, TFRs in England and Wales never reached the vertiginous 1950s US rates –merely a modest 2.94, at its highest, in 1964.

It depends on your idea of how stentorian an explosion has to be to qualify as a ‘boom’, of course, but you would possibly agree with me that those who state that there was a ‘baby boom’ in the USA shortly after the WWII might have a point but that, according to the data, the news about UK births has been greatly exaggerated.

We estimated how many more people would be alive today if TFR in England and Wales had reached between 1958 and 1968 the average TFR the US experienced between 1947 and 1964. Accounting for age-specific mortality rates, there would be just short of 2 million more people alive today –around twice the size of Birmingham, UK second largest city, or about the size of West Midlands Urban Area (which includes Wolverhampton, Dudley and Walsall, apart from Birmingham) –the second urban area by size in the UK. Then we would be talking. However, compared to the American case, all we saw in Britain was but a baby ‘pop’.

The health and deprivation triple whammy: poor, nasty and short

When in 1651 Thomas Hobbes speculated that life could be solitary, poor, nasty, brutish, and short he certainly did not have in mind the many people over 65 living in poverty in 2011. However, if we said that their lives are poor, nasty and short we would not be far off the mark –according to a study by the Office for National Statistics (ONS).

A recent paper by the ONS looks at inequalities in disability-free life expectancy (DLFE) by area deprivation. DFLE is the number of years an individual is expected to live without a limiting chronic illness or disability. For the UK as a whole, DFLE at age 65 stands at 10.1 years for males and 10.6 years for females. Since 2003, it has virtually stalled both for men and women. Looking across the UK constituent countries, we notice that there have been some improvements in Wales whereas in Scotland and Northern Ireland, men have seen their DFLE reduce since 2004. Continue reading “The health and deprivation triple whammy: poor, nasty and short”

A youth of labour – but no age of ease?

The Irish poet Oliver Goldsmith penned these verses about retirement in 1770:

“How blest is he who crowns, in shades like these,

A youth of labour with an age of ease”

However, this age is far from easy for many who are faced with no choice but to declare bankruptcy in later life.

The number of bankruptcies in England and Wales among people aged 65 and over is relatively low (1,284 or around 3.1 people per 10,000 population in 2009) and even among the 55-64 year olds (at 8,208 –that is, 12.6 people per 10,000 population) is not as high as that for younger groups ( just over 24,000 people aged between 35 and 44 filed for bankruptcy in 2009, roughly 30 people per 10,000 population in this age band). However what is really worrying is an underlying trend: bankruptcies have increased steadily among those over 55 since 2000. In fact as the graph below shows, between 2000 and 2009 the bankruptcies have grown fastest amongst those over 65 years of age (by 7 times!) and those aged between 55 and 64 are the second fastest group (with a fivefold increase). It gets even worse amongst older women: bankruptcies have increased by 10 times since 2000.

Continue reading “A youth of labour – but no age of ease?”

The future face of older workers

Depending on the policy area, an older person is defined as anyone above 60 or 75 for various concessions, or 50, when it comes to sticking on the ‘older worker’ label. For the purposes of this piece let us concentrate only on older people of working age –that is, those between 50 years of age and the state pension age.

According to the latest principal population projections, there are about 9.4 million people of working age over 50 in the UK. Furthermore, figures from the Labour Force Survey suggest that 53% of these people are in full-time employment and another 17.5% are in part-time employment. Also 19% of these 9.4 million people have attained at least a first degree but another 15.7% do not hold any formal qualifications.

Using the population projections and data from the Labour Force Survey for each cohort, we estimated what the labour supply of older workers will be like with regards to economic status and skills between 2015 and 2025. That is, we analysed data for women between 35 years of age (who will turn 50 in 2015) and 57 (who will reach their state pension age in 2016, when they turn 65) and men between 35 and 59 (who will reach their state pension age in 2016). We have factored in the fact that state pension age will rise during this period –more acutely for women.

Furthermore, in order to present these results in context, we compared them with the economic activity and skills structure of current older workers. What did we find? Continue reading “The future face of older workers”

No less Atlases

Along with thousands of people, I picked up a copy of the Evening Standard on the train the other day (9 November). But unlike those thousands, as I read it I recalled a lecturer of mine who used to say, mantra-like, that half-baked evidence is no evidence at all.

What prompted the memories from my cherished years as a university student was an article by Russell Lynch on the so-called ‘Atlas generation’ – i.e. people in their 20s and 30s. Lynch claimed they would be ‘sagging’ under the burden of the concessions for older people announced in the Comprehensive Spending Review (eye tests, concessionary fares, TV licences, and winter fuel payments spared from the cull plus the linkage of pensions to average earnings, and so on).  Continue reading “No less Atlases”

The fiscal clouds and the long-term vision

Pound coins - Photo: Flickr user hitthatswitchOver the last few days and weeks economists and analysts have speculated about the comprehensive spending review. In the build-up, endless rumours and ‘leaks’ and even snapshots of confidential papers inundated the media and kept almost everyone busy – and worried.

After the announcements, some breathed a deep sigh of relief, many felt disappointed while others felt outraged. However important it may be, the CSR only presents a set of fiscal measures to tackle the short term – until 2014 at the most – or, as the Chancellor put it in his speech, measures that ensure “that what we buy, we can afford; that the bills we incur, we have the income to meet; and that we do not saddle our children with the interest on the interest on the interest of the debts we were not ourselves prepared to pay.”

The Chancellor also announced that “a stronger Britain starts here”. Perhaps, but it will take a lot more than fiscal restraint for this attempt not to become a false start.

Fortunately, economics has developed the life-cycle approach, but unfortunately it is taught solely as a way to study consumption and saving decisions. There’s more to it than this.

Let’s consider the Marmot Review on health inequalities, for example. It lists a number of key policies over the life course. When it comes to ‘adults of retirement age’, one of the policy objectives was to increase access to apprenticeships. Certainly most apprentices are young adults – so, how come this is an appropriate objective for people past state pension age? It is, if we look far at the horizon where these young people get to retirement age.

Around 21 per cent of all economically active adults in England have qualifications below Level 2. Students who leave our schools with no or very low qualifications are twice as likely to claim job-related benefits before they are 25 as those with better qualifications. And it is also much more likely that it will be them who may have to struggle most to keep warm in winter and who may have to get by on very low incomes when they get to retirement age, and it is them who are more likely to endure worse health earlier in life and even more likely not to make it to retirement age.

A life-cycle or life-course approach helps dispel the short-term fiscal clouds and focus our effort on the long term vision more clearly. In our submission to the Comprehensive Spending Review, we highlighted 12 key long-term challenges we face as an ageing society. That is, even though we discussed and proposed measures related to public spending over the next four years, we refused to be locked in the short-term fog and never lost our vision.

The best thing about the CSR announcements – if there is such a thing as a ‘best thing’ about it – is that now the focus of the economic discourse may concentrate on the bigger, more meaningful and crucial picture, that of raising productivity and employability, and reducing inequalities, on behalf of everyone – including the people currently in older age and the future older people. This is the real challenge facing us in the longer term and Age UK will be seeking to ensure that it is not forgotten.