As in many European countries, labour productivity in the UK has been stagnant since the start of the Great Recession. This article uses individual data on employment and wages to try to understand whether real wage flexibility can help shed light on the UK's productivity puzzle. It finds, perhaps unsurprisingly, that workforce composition cannot explain the reduction in wages and hence productivity that we observe, even compared to previous recessions; instead, real wages have fallen significantly within jobs this time round. Why? One possibility we investigate is that the labour supply in the UK is higher compared to previous recessions. The Macroeconomic ContextThe UK has recently experienced its deepest recession since the Second World War, with real GDP falling by over 6% (see Figure 1). At the same time, there have been substantially smaller falls in employment and hours -decreasing by just over 2% and 4% respectively -leading to falling output per worker and stagnating output per hour. These changes are very different to what happened in previous recessions in the UK in the late 1970s/early 1980s and the early 1990s. For example, Figure 2 shows that, nearly five years later, real output per hour remains 3% lower than it was at the start of the recession in 2008, while it was nearly 15% higher following the recession in the early 1990s and nearly 13% higher following the recession in the early 1980s. This has given rise to a so-called 'productivity puzzle' in the UK.The aim of this article is to try to shed light on this puzzle. In a competitive economy, one would expect individuals' wages to reflect their marginal productivities, thus one might anticipate changes in productivity to be correlated with changes in wages at some micro level. We thank participants in the CEP/IFS workshops and the 2013 Royal Economic Society special session on the productivity puzzle for helpful comments and discussion, Rowena Crawford for allowing us to use the data on wealth shocks that she constructed for respondents in the English Longitudinal Study of Ageing and for providing useful comments and advice, and Jonathan Cribb for producing the counterfactual employment rates for men and women as a result of the increase in the state pension age for women. The article is based partly on data accessed through the Secure Data Service and uses data sets which may not exactly reproduce aggregate

This paper investigates the financial implications of the higher education funding regime to be introduced in English universities in September 2012. The analysis is based on simulated lifetime earnings profiles among graduates, linked to imputed information on parental incomes and institution and course choices. We find that, on average, total gross tuition fees will increase by over £15,000 as a result of the reforms; nevertheless, students will be significantly better off while they study due to the increased generosity of student support. The average graduate will be roughly £8,850 worse off over their lifetime, while universities will, on average, be better off as they are more than able to make up for the loss of substantial amounts of direct public funding through higher fees. The taxpayer is set to lose 33p of every £1 loaned to students (up from 25p under the current system) because of the generosity of the loan repayment terms, although the new regime is still expected to save the taxpayer around £2,500 per graduate overall. The reforms involve a substantial shift in the incidence of the cost of higher education away from the public sector and towards the private sector. In terms of the likely implications for social mobility, our work confirms that the new funding regime is actually more progressive than its predecessor: the poorest 29 per cent of graduates will be better off under the new system, while other graduates will be worse off. Moreover, the richest 15 per cent of graduates will pay back more than they borrow, while others will be subsidised. If prospective students from poorer backgrounds are aware of these facts, then, in theory, the new funding system should not dissuade them from applying to university – and thus it would increase, rather than reduce, social mobility in the long run. However, this will require a lack of debt aversion amongst students from the poorest backgrounds, and the ability for the government and universities to provide students with clear information about the likely costs of going to university.

Foreword David Hall Acting Chairman, Sutton TrustFunding for universities changed significantly in 2012. Students are now expected to repay a much greater proportion of the costs of their higher education upon graduation, as government has switched most of the teaching grant into tuition fees.Until now, attention has focused on the implications for university applications and acceptances. On that score, it is good that after the initial dip that accompanies any significant increase in fees, student numbers have held up and the gap in applications between advantaged and disadvantaged young people has continued to narrow. It remains a concern that maturesecond chance -applications have not yet recovered and that the gender gap is widening, particularly among those from the most disadvantaged neighbourhoods.The Sutton Trust also continues, through its successful summer schools, to improve access to our best universities, where there remains a sevenfold gap in applications between advantaged and disadvantaged neighbourhoods.But the new system is not just about the level of tuition fees and its impact on applications. It has brought with it significant changes to the loans used by most young people to cover the cost of going to university. With higher fees, students graduate with average debts in excess of £40,000, nearly twice what they owed previously. It is true that repayments now start at a higher level of income than before. But it is also the case that the loans now have a real rate of interest, one that is charged from the first year at university. This important new report by Claire Crawford and Wenchao Jin from the Institute for Fiscal Studies explores the full impact of these changing debts for the first time.Their findings bring mixed news for the graduates from the new fees regime. In their 20s and 30s, graduates will on average pay less than under the old system. Those who earn the least during their lifetime will probably have most of their debts eventually written off. But whereas graduates might previously have hoped to pay off all their debts by their late 30s, most will now continue to be paying back their student loan until their early 50s.For many professionals, such as teachers, this will mean having to find £1,700-£2,500 a year more to service loans at a time when their children are still at school, and family and mortgage costs are at their most pressing. Yet, even with this extra charge on middle earners, there is an increasing likelihood that the government will end up failing to recoup most of its loans. Although not covered by this report, this suggests that not only are today's students facing bigger debts, but also the new system is not producing the savings expected by ministers.The Sutton Trust's view is that the government should look again at the balance between fees, loans and government grants to universities. In particular, the government should consider reintroducing means testing for fee loans, in the same way that maintenance loans are means tested, reducing levels of debt for ...

The proportion of UK people with university degrees tripled between 1993 and 2015. However, over the same period the time trend in the college wage premium has been extraordinarily flat. We show that these patterns cannot be explained by composition changes. Instead, we present a model in which firms choose between centralized and decentralized organizational forms and demonstrate that it can explain the main patterns. We also show the model has implications that differentiate it from both the exogenous skill-biased technological change model and the endogenous invention model, and that UK data fit with those implications. The result is a consistent picture of the transformation of the UK labour market in the last two decades.