The Office for Budgetary Responsibility has produced a fascinating report on the impact of migration on the public finances. The report presents the government with something of a challenge.

Chart 3.14 on page 100 tells the story. The central projection shows that we can expect the net public sector debt as a proportion of GDP to rise towards 100% by the 2060s. Increasing immigration can reduce this burden quite substantially - since migrants tend to be younger than the population as a whole, and hence are more likely to be working, they generate substantial tax revenues. Reducing immigration has a severe impact on the national debt; indeed reducing net migration to zero is projected to cause the public sector net debt to rise to around 150% of GDP by the 2060s.

It is difficult to place too much credence on figures that look so far into the future. But the overall message from the Office for Budgetary Responsibility is clear: reducing the national debt without accepting an increase in immigration is likely to be an unrealistically tough ask.

The latest unemployment statistics, for the three month period to May of this year, present some good news. The unemployment rate appears to be falling, with the total number of unemployed workers some 57000 lower than in the previous period.

This appears to sit alongside other recent encouraging signs - including the upgrade to the forecast produced by the International Monetary Fund, which now predicts 0.9% growth in the current year.

Other data suggest that we should remain cautious, however. Industrial production has been flatlining in recent months, and remains stubbornly lower than it was a year ago. The forecasting model that I report here from time to time, based on these industrial production data, was, until recently, predicting a modest recovery, but is now pointing to a renewed bounce along the bottom.

For sure, some statistics are encouraging. Overall, however, the picture remains one of fragility.

The proposal to impose a minimum per unit price on alcohol sales in England and Wales appears to have been scrapped, apparently following an adverse public opinion survey.

This is not an altogether straightforward issue, as the statistical evidence on the effects of minimum pricing paints a rather confused picture. Estimates of the elasticities of health outcomes with respect to the minimum price of alcohol vary widely. Much of the best evidence comes from Canada - and Canadian researchers have studied also the UK situation. However, all the serious studies of which I am aware report significant (albeit widely divergent) beneficial outcomes from the imposition of a minimum price.

The proposal for a minimum price was a great example of a 'nudge' policy that offered the prospect of remarkable social benefits - it is regrettable that it has fallen victim to politics.

Cristina Cattaneo, Carlo Fiorio and Giovanni Peri have conducted an important study into the impact that immigrants have on the job prospects of native workers. This is, of course, a politically sensitive topic.

The findings of their analysis may provide some observers with a surprise: they find the 'native Europeans are more likely to upgrade their occupation to one associated with higher skills and better pay when a larger number of immigrants enter their labour market'. Their detailed empirical results suggest why this might not be the general perception. In their simplest model, it takes up to four years for the beneficial impact to become apparent. In more sophisticated models, which make allowance for issues arising from the direction of causality, the effect is immediate, but becomes more pronounced over time.

It is usually, though admittedly not always, the case that free markets serve us well. The labour market is no exception.

Ernst Fehr, Holger Herz and Tom Wilkening have produced a fascinating study, based on experimental work, of how bosses do (and do not) delegate. They find that bosses tend not to delegate enough - that both their own and their subordinates' interests would be served by more delegation. By retaining authority and failing to delegate, bosses support an under-supply of effort by their subordinates which is not in the organisation's interest - and hence not ultimately in the bosses' interests either. It seems that organisations stand to gain much if they can find incentive mechanisms that reward bosses in such a way that they delegate more appropriately. Such mechanisms would need to compensate bosses for their distaste for being overruled.

Fehr, E., Herz, H., & Wilkening, T. (2013). The Lure of Authority: Motivation and Incentive Effects of Power American Economic Review, 103 (4), 1325-1359 DOI: 10.1257/aer.103.4.1325

Evidence from the Institute of Fiscal Studies and the Trades Union Congress shows the extent to which wages have fallen over the course of the recession. The TUC reports that real wages have fallen by 7.5% overall, and by more than 10% in some parts of the country. This, according to the IFS, is a sharper fall than over any other five year period in recorded history.

The fall in wages has allowed unemployment to remain at much lower levels than might have been expected given the severity of the recession. The IFS attribute this flexibility of wages in part to a continued high level of labour supply - with many workers who would, in previous recessions, have quit the labour market as 'discouraged workers' opting instead to remain in the labour market this time - and in part to the effect of union legislation.

As the economy recovers, it would not be surprising to see wage pressure increase, as workers seek to recapture some of the losses they have made over the last few years. Unless such demands can be rigourously controlled, this could lead to an escalation of wages that feeds through into price inflation, and at the same time the braking force on unemployment could wither. While we now appear to be witnessing the beginnings of recovery, this could be frustrated by stagflation if discipline is not maintained.

The latest forecasts from my neural network model are shown below. The picture has changed relatively little over the last 3 months, though it does suggest that we should be a little more optimistic about the rate of growth that will be achieved in 2014.

The taxes due to be imposed on savings deposited in banks in Cyprus represent a response to the vulnerability of the banking system in that country. They have been defended on the grounds that depositors would ultimately bear the burden of any rebalancing. True though that might be, there are some serious problems with this type of solution.

The legitimacy of any tax rests on the idea that people understand that they will be liable to pay the tax if they do certain things. If I earn income, I expect to pay income tax; if I purchase goods and services, I expect to pay value added tax, excise duties and the like. It is not usual, or fair, to introduce new taxes where the payments are made by people who can reasonably be supposed to have behaved differently had they known the tax was on the way. One might describe the tax as legalised (but not legitimate) theft.

The proposed Cypriot tax is being imposed on all deposits - including those below €100K which are supposedly protected from bank collapses. It is not, therefore, a tax primarily aimed at big Russian depositors, as has been claimed (although many of the large deposits do of course come from Russia). One might describe it as theft from the poor.

The tax sends a signal to all savers in Europe that their savings are, quite simply, not safe. One hopes that the furore that this has attracted will prompt a rethink and that small depositors will be protected. Otherwise, the authorities may well have triggered bank runs throughout southern Europe. It is not a smart move.

The Bank of England has published its latest forecasts for the UK economy. These suggest that output is set to recover in the latter part of this year, rising quickly to a growth rate of around 2 per cent by the end of 2014. The Confederation of British Industry has made a similar forecast.

The latest results of my neural network forecaster (based on growth of industrial output) paint a similar picture of eventual recovery, although the prognosis for growth is more modest. The red line below shows the forecast to the end of next year - and suggests that growth during 2014 will be around 1.5%.

Sometimes it's nice, and reassuring, to see some unsurprising results emerge from statistical exercises. Brian Jacob, Brian McCall and Kevin Stange have recently produced a paper that analyses the determinants of college choice in the US. Amongst these determinants are college expenditures (per full-time equivalent student) on amenities (what the authors term 'country club' facilities) and on instruction. Unsurprisingly, spending on amentites attracts students. But it is a less strong attractor for the ablest students. Spending on instruction, meanwhile, positively attracts only the ablest students (and actually puts other students off). This means that different colleges' spending patterns can be rationalised by looking at the types of students that they are attracting (and are looking to attract in future).

Today marks the tenth anniversary of this blog. It's been an exciting ten years for observers of the economy. But listing some of the early topics covered in the blog provides a remarkable insight into how the world has changed over this time.

-student tuition fees raised to £3000 - and Conservative party plans to scrap tuition fees

-the congestion charge introduced in London (at a daily rate of £5) and the first motorway toll road opened

-the five economic tests for UK membership of the euro assessed

Inevitably, though, in looking back over the last decade, it is the Great Recession that stands out as an economic event of magnitude. The crisis, presaged in the UK by Northern Rock and reaching a climax with the collapse of Lehmans, has lasted over 5 years and output is still well below pre-crisis levels. The 6 September 2012 policy change by the European Central Bank has been instrumental in reducing interest rate spreads across the continent, and offers some hope that we may finally enter a period of sustained recovery. Nevertheless policymakers are still walking a tightrope - they must encourage growth while still attending to the fiscal deficit and guarding against inflation. The impact of deficit reduction policies, alongside the still fragile international economic environment, will mean that recovery is a slow process. So economics is, for better or worse, likely to remain interesting well into the next ten years.

In a recent paper, Robert Gilhooly, Martin Weale and Tomasz Wieladek have shown that the application of different estimation methods lead to widely varying conclusions about how output growth has been affected by (i) demand and (ii) productivity over the recent past. While traditional measures suggest that, for the UK, demand deficiency is almost uniquely responsible for slowdown, the application of a more refined method suggests that demand and productivity effects are equally responsible.

Essentially, the method proposed by Gilhooly, Weale and Wieladek is designed to compensate for biases that result from the fact that the fortunes of different sectors of the economy are intertwined at any point in time. Traditional methods that are used in this context do not work well when the time period under consideration is short, but these authors finesse this problem by adopting Bayesian methods. They argue that superior forecasting properties of their model suggest that its results should be taken more seriously than those of exercises based on other methodologies.

An important question then remains: if as much as half of the drop in output has been due to a fall-off in productivity, how can this fall-off have happened? If the findings imply that, over the course of the recession, we have unlearned the lessons of how to produce efficiently, then it is reasonable to question how such amnesia can occur.

To some extent, the decline in real wages may have allowed firms to retain labour while tolerating a fall in productivity - a fall that in itself reflects a drop in demand for the firms' output. Labour hoarding of this kind is readily explained in a context where firms expect a rapid return to growth and anticipate future labour shortages. It is not clear that this is the case now.

Another explanation may be that high productivity sectors have declined for secular reasons - for example, as natural resources have been depleted, the output of the extractive industries has fallen. This might suggest that there is a more permanent element to the decline in productivity, and that we should not output to grow rapidly to its previous high level.

It is possible, therefore, to put a rationale on the findings of Gilhooly et al. that productivity decline has been an important driver of recession. More work is probably needed before it is safe to conclude that this explains as much of the drop in output as the authors suggest. But their research certainly serves a purpose in reminding us that there is work to be done on the supply side of the economy as well as on the demand side as we seek to climb out of recession.

Some fascinating research by Ed Lazear, Kathryn Shaw and Christopher Stanton has evaluated the importance of a good boss. They find a substantial effect - a finding that has important implications for both the debate about remuneration of senior bosses and the more general question of how marginal productivity should be measured.

The Chancellor of the Exchequer presented his Autumn Statement earlier today. At the time of the last election, the main parties offered economic policies that differed in terms of how quickly they would tackle the budget deficit. The reality is now that the deficit will be closed more slowly than either party planned. This throws into pretty sharp relief the extent to which wiggle room has vanished.

A major difficulty over the last two years has been the continued weakness of the Eurozone. This has hit growth, and consequently had an adverse effect on tax receipts.

Taxpayers know that the deficit must be paid off sometime. The trick is to phase the austerity measures in such a way that, in time, they result in a reduced burden of debt, while not choking off the growth that is essential to the repayment of that debt. Current forecasts suggest that it will be the latter half of next year before any significant growth resumes, and this makes the balancing act particularly difficult. In this context it is particularly important that fiscally neutral changes in tax and government spending should be tilted to favour growth - this means that the raising of tax allowances and the investments in infrastructure are both to be welcomed.

Meanwhile, the statement points to the spending review that is to take place in the first half of 2013. The plans for deficit reduction, and specifically for government spending, in this statement indicate that the review will need to take a draconian stance. The extent to which that turns out to be feasible in practice will depend heavily on the broader macroeconomic context. If the European economy remains fragile beyond 2013, further fiscal retrenchment at home is likely to prolong still further the return to significant levels of growth. Indeed, the extent of retrenchment that is anticipated in today's statement may prove infeasible.

The latest results from my neural network forecaster for the UK continues to suggest that economic recovery is likely to be consolidated only in the latter part of next year - and the indications are now that the rate of this recovery will be quite slow.

The fragility of the economy in the Eurozone remains a concern - regardless of conditions within the UK itself, there are still some significant downside risks.

Fiscal Studies has published a special issue on higher education finance, and has made the contents freely avaiable for download. It's a good read. I particularly like the paper by Chowdry et al. Two things in their paper strike me as particularly interesting:

(1) 'The proportion of graduates who reach the new debt write-off point of 30 years increases to 56 per cent' - in other words most graduates will never repay the full amount of their loan. Indeed, 'the average female graduate will pay back just over half of what they borrow, compared with 87 per cent for the average male graduate'. This, of course, means that many (if not most) students are indifferent about the precise level of fees that they are charged, and this in turn incentivises many universities to charge at the cap of £9000. Another implication of this is that the taxpayer ends up having to bear the burden of the unpaid debt, so that the exchequer savings of the new scheme are not as great as might have been hoped. On the assumption that growth raises graduate earnings by 1.5% per year, the exchequer savings amount to £500m per year - which represents a relatively minor reduction in the public sector deficit.

(2) The paper does not produce revised estimates of the rate of return to higher education. It does point out that the average graudate 'will in futre make repayments totalling £25830 over their lifetime - an increase of 52%' compared with the system that existed before 2012. Meanwhile, 'the average student enjoys an increase in cash support during their degree of some 12 per cent, amounting to £19580 in total'. For some students at the margin, the rate of return to higher education has presumably fallen to such an extent that the investment is no longer worthwhile.

Chowdry, H., Dearden, L., Goodman, A., & Jin, W. (2012). The Distributional Impact of the 2012-13 Higher Education Funding Reforms in England* Fiscal Studies, 33 (2), 211-236 DOI: 10.1111/j.1475-5890.2012.00159.x

The latest World Economic Outlook publication by the International Monetary Fund offers interesting evidence on fiscal multipliers. While 'fiscal multipliers were near 0.5 in advanced economies during the three decades leading up to 2009', the report finds that 'multipliers have actually been in the 0.9 to 1.7 range since the Great Recession'. Simon Wren-Lewis has recently provided a compelling analysis of what this means for the UK. While the global economic environment has done little to help, the double dip may well have been avoidable.

The 1% increase in GDP achieved in the third quarter of this year represents tremendously welcome news. Part of this increase is surely due to the effect of the Olympics, part to the subdued second quarter (with its glut of public holidays), and it is possible that part could be wiped away as more information comes in and revisions are made to the statistics. Nonetheless, it is difficult to perceive this as anything but an encouraging result. The return to growth has come a little earlier than many (myself included) expected. It does contribute towards an explanation of the encouraging employment figures that were released last week.

There remain uncertainties in the economic environment that suggest that the celebrations need to be tinged with some caution. But Mario Draghi's announcement of the European Central Bank's new stance has been helpful, and interest rate spreads in Spain, Italy and Portugal have fallen markedly - and stayed down. They are still too high for comfort, but the position is markedly more encouraging than it was just 6 weeks ago.

Paul Gregg and Steve Machin have recently examined the way in which the sensitivity of the real wage to unemployment rates has become stronger over the last decade or so. I have noted this in an earlier blog post, though I would argue that the change slightly predated the 2003 point identified by Gregg and Machin. Whether, as the economy begins to recover, real wage restraint will continue is moot. If wage pressure returns over the next twelve months or so - before the recovery is consolidated - it may well be the case that interest rate hikes will be needed sooner rather than later in order to prevent a stagflation.

Mario Draghi's announcement of the European Central Bank's new policy on bonds has had a positive effect on interest rate spreads. This is encouraging news, finally. Here are the data for the spread between German and Spanish interest rates.