§ Mr. Austin Mitchellasked the Chancellor of the Exchequer to what extent the increase in net exports and expenditure by companies referred to in paragraph 4.04 of his paper on wages and employment would offset the whole of the initial fall in private consumption in his studies and simulations; if he will publish the relevant figures in the Official Report; and if he will set out information predicted by these studies and simulations on the changes in the figures for manufacturing output, investment in plant and machinery, total investment and trade in manufactures.
§ Mr. Peter ReesThe effects on net trade, company sector and personal sector expenditure, and private consumption in simulations of lower real wages under various assumptions about fiscal and monetary policy are contained in tables A to D of annex B of the recent paper by Treasury officials on "The Relationship between Employment and Wages". The other information requested by the hon. Gentleman is shown in the following table.
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Simulated effects of lower nominal wages* Unchanged nominal framework† £ million 1980 prices changes from base Total investment Investment in plant, machinery and vehicles‡ Year 1 220 70 2 930 420 3 940 480 4 760 390
Percentage changes from base Manufacturing output United Kingdom exports of manufactures volume║ United Kingdom imports of manufactures volume║ Year 1 0.2 0.2 -0.2 2 1.1 0.7 1.0 3 1.1 0.6 1.3 4 1.1 0.6 0.9 * Nominal wages are reduced to the extent necessary to reduce real wages by 2 per cent. † Unchanged money supply (average of MO and £M3); unchanged PSBR/GDP ratio achieved by varying income tax; unchanged cash-limited expenditure in real terms. ‡ Excluding shipping and air transport industries. ║ Excluding erratics, 1980 prices.
§ Mr. Austin Mitchellasked the Chancellor of the Exchequer what are the estimated margins of error referred to in paragraphs 4.02 and 4.03 of his paper on the relationship between wages and employment.
§ Mr. Peter ReesThe margins of error referred to in paragraph 4.02 of the paper can be derived from the estimated standard errors of the employment functions corresponding to the real wage elasticities of -½ and -1. These are contained in the studies by Nickell and Andrews (1983) and Layard and Nickell (1984) respectively. No estimates of the margins of error in simulations of the Treasury model are available.
§ Mr. Austin Mitchellasked the Chancellor of the Exchequer what were the elasticities of demand for imports and exports of manufactures used in his simulation of the relationship between wages and employment.
§ Mr. Peter ReesIn the Treasury model the demand for exports of manufactures is measured by the level of world trade and the demand for imports of manufactures by various domestic activity variables (manufacturing output, stockbuilding, consumers' expenditure on clothing, durable, and other goods, and investment in plant, machinery and vehicles). Details of the elasticity of exports of manufactures with respect to world trade used in the simulation can be found on page 6 of Government Economic Service working paper No. 71, "Her Majesty's Treasury Macro-Economic Model: Supplement to the 1982 Technical Manual". Details of the import elasticities can be found on pages 45 to 48 of "Her Majesty's Treasury Macro-economic Model Technical Manual 1982". Copies of both publications are in the House of Commons Library.
§ Mr. Austin Mitchellasked the Chancellor of the Exchequer what is the nature of the increase in company expenditure referred to in table 2 of his paper on wages and employment; and if he will publish a detailed breakdown in the Official Report.
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§ Mr. Peter ReesThe increase in company expenditure referred to in table 2 of the paper on wages and employment consists of investment and stockbuilding. The breakdown is shown below. Columns do not sum to the total because of rounding.
£ billion rounded to nearest 0.1 billion Year Private sector investment Stockholding 1 0.1 0.1 2 0.7 0.4 3 0.8 0.2 4 0.6 0.1
§ Mr. Austin Mitchellasked the Chancellor of the Exchequer whether he will publish in the Official Report a table showing for the items listed in table 3 of his paper on the relationship between wages and unemployment a breakdown for each year covered by the simulation; and if he will add figures for the exchange rate, long-term interest rates, and purchases of gilt-edged stock.
§ Mr. Peter ReesMost of the information requested is contained in tables A and C of Annex B in the paper by Treasury officials on "The Relationship between Employment and Wages". Additional information is shown in the following table.
The hon. Gentleman should also note that there is an error in table 3 of the paper. The figure for "Real Wage Bill" in the second column should read -1.4 and not -0.4.
Simulated effects of lower nominal wages*: Alternative policy assumptions† Fiscal Unchanged PSBR/GDP ratio Unchanged tax rates Monetary Unchanged money supply Unchanged interest rates Nominal GDP Year 1 -1.2 -1.9 Year 2 -1.1 -4.0 Year 3 -1.5 -4.4 Year 4 -1.4 -4.4 Real wage bill Year 1 -1.9 -2.4 Year 2 -1.2 -2.6
1979–80 1980–81 1981–82 1982–83 1983–84 (a) *Public expenditure 100 102 104 106 108 (b) Index of Industrial Production 103 94 93 95 98 (c) ‡Wages and salaries and Income from employment 102 100 96 97 99 (d) †Expenditure on social security benefits 102 105 117 123 124 (e) ‡Revenue from Income Tax 94 93 100 100 98 (f) ‡Revenue from National Insurance Contributions 99 100 103 111 120 * See Table 2.6 of Cmnd 9428 † Using the RPI as the deflator ‡ Using the GDP at market prices deflator