Short video on oil prices - cause and effect, Dec 2015

Youth unemployment and apprenticeships - a ready-made solution?

‘Pitiful’ figures cast doubt over apprenticeship target

Julia Belgutay

18th December 2015 at 00:15

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Poor take-up of traineeships could scupper plans to help millions, claims MP 

The government’s ambitious plans to expand the apprenticeship programme could be thwarted by the “pitiful” take-up of traineeships, the shadow FE and skills minister has warned.

Traineeships were introduced in 2013 to equip young people with the skills required to progress into an apprenticeship or employment. However, recent statistics from the Department for Business, Innovation and Skills (BIS) suggest that the government has found it difficult to grow the programme. The number of traineeship starts in 2014-15 was 19,400, compared with 499,900 apprenticeship starts in the same period.

And new figures reveal that the number of traineeship vacancies advertised on the official apprenticeships website has dropped by 9 per cent, from 2,300 between August and October 2014 to 2,100 in the same period 12 months on. In contrast, the number of traineeship applicants actually rose in 2015-2016.

Last week, the government announced new measures to allow more providers to offer traineeships, which it claimed had made an “excellent start”.

Previously, only providers rated good or outstanding by Ofsted were eligible, but that restriction will be removed in August 2016. A new campaign to promote traineeships and apprenticeships were also unveiled. But Labour’s shadow skills minister Gordon Marsden told TES that a lack of awareness about traineeships was a major factor behind the low number of learners on the scheme.

“They were not well understood so take-up has been rather pitiful,” he said. “I am not surprised at the figures because how they introduced it was completely cock-eyed.

“They were originally set up to allow young people to step up to high-quality apprenticeships, but the government introduced them and gave them no marketing. There seems to be a blurring of clarity over what it is the scheme actually does.”

Stewart Segal, the chief executive of the Association of Employment and Learning Providers, said that it was vital to expand the traineeship scheme to help prepare young people for apprenticeship-level training.

“Quite a lot of young people are still coming out of school without the work-related skills to take on an apprenticeship. An apprenticeship is a job and quite a lot of those young people need the experience first,” he added.

The concerns have been raised after the government published its apprenticeship strategy last week, with plans for a statutory target for the public sector to deliver “its fair share of apprenticeships”.

English Apprenticeships: our 2020 vision also sets out the government’s wider plans for reaching its target of 3 million apprenticeships by 2020, which includes the introduction of the apprenticeship levy.

Mr Segal said “greater effort” was needed to promote apprenticeships. “In the last couple of years we have increased the age of participation and therefore we need to make sure young people know they have an opportunity to go into an apprenticeship and that they now get better careers advice,” he said.

Figures published by BIS earlier this month show that the number of apprenticeship vacancies has increased significantly in the first quarter of 2015-16, compared with the same period in the previous year. However, the number of applicants for apprenticeship posts has not risen at the same rate – meaning that there are now significantly fewer applicants per vacancy than last year.

A City and Guilds spokeswoman said that initial funding and levy investment were “a good start” in increasing apprenticeships, but added: “The main worry is that the desire to hit targets and count all things as apprenticeships could overtake the need to maintain the quality of what an effective apprenticeship means.”

A spokesman for BIS said that not all traineeships were advertised on the official apprenticeships website, and insisted that they were “at the heart of the government’s drive to tackle youth unemployment”.

“Hundreds of major employers, such as Jaguar Land Rover, Virgin Media and the BBC, are already delivering traineeships, as well as smaller employers locally,” he added.

What a rich weekend for reading material

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The Sunday newsletter from Project Syndicate. View this message in a web browser. SUNDAY, DECEMBER 6, 2015 This week at Project Syndicate, Mohamed El-Erian examines the policy disparity between the Fed and the ECB, Nouriel Roubini hopes that the threats facing Europe lead to greater solidarity, Carl Bildt argues that the roots of the Middle East's current conflicts lie in the collapse of the Ottoman Empire, and more. Join the discussion. The Great Policy Divergence Mohamed El-Erian worries about the international repercussions as the Fed and the ECB move in opposite directions. Europe's Barbarians Inside the Gate Nouriel Roubini argues that the main threat confronting the EU is its dearth of unity. Preserving the Ottoman Mosaic Carl Bildt warns against attempting to impose new borders in the Middle East. From the MIT Press   Greening the Global Economy By Robert Pollin "In clear and readable prose, Robert Pollin details how, contrary to the insidious claims of Big Oil, burning fossil fuels at current rates is bad for the economy, bad for the environment, and bad for the poor. Greening the Global Economy powerfully demonstrates that investing in efficiency and renewable energy generates a far better standard of living than the current alternative – abject and massive dependency on fossil fuel." – Jerry Brown, Governor of California China's Twin Challenges Adair Turner is losing confidence that the country's leaders will manage the debt dilemma they face. Managing a World of Great Powers Javier Solana says that rivalry among the US, Russia, and China need not block collaboration on major challenges. The Right Price for Preserving Our Climate Christine Lagarde shows why "smart" taxes to cover the full cost of fossil fuels is essential to curbing their use. From Good Intentions to Deep Decarbonization Jeffrey Sachs worries that the Paris climate talks will embrace short-term solutions that negate long-term goals. The Syrian Knot Joschka Fischer believes that peace is possible, but not with Bashar al-Assad or ISIS still on the scene. The Politics of Islamophobia Ian Buruma finds striking parallels in the political use of fear by Islamic State and Western politicians. Blinded By ISIS Shlomo Ben-Ami argues that the Islamic State is a symptom of a deeper problem that a ground invasion cannot fix. Project Syndicate publishes and provides, on a not-for-profit basis, original commentary by the world's leading thinkers to nearly 500 media outlets in over 150 countries. This newsletter is a service of project-syndicate.org. © Project Syndicate, all rights reserved. Unsubscribe from this list

Y13 extension material - negative interest rates

We will have to look at negative interest rates in more detail in our next section on deflation; you have already identified they exist - 5 years ago they were like sasquatch (bigfoot), i.e. rumoured, discussed and extraordinary, but not under consideration in the mainstream. Now there is widespread discussion about them, they exist in several countries (in Switzerland out as far as 10 years!), countries such as Italy (140% debt-to-GDP ratio) can borrow at negative rates, and they are now considered as a potential tool in many other countries, including the UK. Read more below:

Matt Rognlie on negative interest rates by Tyler Cowen on November 30, 2015

What Lower Bound? Monetary Policy with Negative Interest Rates (Job Market Paper)


Abstract: Policymakers and academics have long maintained that nominal interest rates face a zero lower bound (ZLB), which can only be breached through major institutional changes like the elimination or taxation of paper currency. Recently, several central banks have set interest rates as low as -0.75% without any such changes, suggesting that, in practice, money demand remains finite even at negative nominal rates.


I study optimal monetary policy in this new environment, exploring the central tradeoff: negative rates help stabilize aggregate demand, but at the cost of an inefficient subsidy to paper currency. Near 0%, the first side of this tradeoff dominates, and negative rates are generically optimal whenever output averages below its efficient level.


In a benchmark scenario, breaking the ZLB with negative rates is sufficient to undo most welfare losses relative to the first best. More generally, the gains from negative rates depend inversely on the level and elasticity of currency demand. Credible commitment by the central bank is essential to implementing optimal policy, which backloads the most negative rates.


My results imply that the option to set negative nominal rates lowers the optimal long-run inflation target, and that abolishing paper currency is only optimal when currency demand is highly elastic. The paper is here, and it contains many new analytical points. As you would expect from Matt, it is also extremely well-written.


Here Eric Lonergan criticizes Swiss negative interest rates. On the blog of Miles Kimball, you will find many arguments for negative nominal interest rates, and also the abolition of currency, another topic covered by Matt in his paper.

A visualisation of Japan's debt problem

More supply-side (and fiscal!)

HS2 to arrive early - in Crewe?

Jonny Clark     30^th November 2015

Now, there are not many things that those of us who live near Crewe can crow about at the moment (although the mighty Crewe Alex did manage to get themselves off the bottom of League One at the weekend). However, today's announcement that the first part of the HS2 rail link that will be completed six years early (yes, six!) will join the UK's second largest city, Birmingham, to..... Crewe.


On my journey around the country delivering CPD I often tell people that I live near Crewe and the usual response is 'oh yes, I've been through there on the train'. The town has a long and proud heritage associated with trains (the aforementioned football club is nicknamed 'The Railwaymen') but it may seem a little odd that the first part of the building blocks that will unlock the 'Northern Powerhouse' will come to this little place in South Cheshire.

The answer lies not in what Crewe itself has to offer but its position with regards to facilitating the further expansion of the rail link. 


 The town is positive to the development, with little objection to the obvious disruption that will be caused to the beautiful countryside that surrounds the place. There is that tradition that I mentioned, with a new University Technology College opening soon that will specialise in engineering alongside the external economies of scale that arrives from decades of railway experience and rolling stock production. Geographically it then allows a 'hub' to take trains on to Manchester and Liverpool - key players in the Northern Powerhouse setup that George Osborne has so often discussed.


Click here for a link to the BBC website for a little more insight and analysis, as well as an artist's impression of the new station at Crewe. Imagine the size of the WH Smith!

Apprenticeships and the new levy

Bit of supply-side material for you. Below is a solid analysis, from an educator's perspective, of the pros and cons of the planned growth in apprenticeships, funded by a levy on a very small number of large companies. This is a critical area for growth strategies, overcoming unemployment, and all things Human Capital. Excellent "however" [i.e. evaluation] material:

Is the employer levy a big deal? Definitely maybe

matt hamnett

20th November 2015 at 00:00

The apprenticeship landscape is changing, but the ramifications aren’t yet clear

In less than 18 months a new apprenticeship levy will be imposed on large employers, changing the landscape of further education and apprenticeships beyond recognition. Definitely? Maybe.

When thinking about how big a deal the levy might be, it’s worth asking: why now? Levies aren’t a new idea. We had them in most sectors for the two decades up to the early 1980s. A couple still exist, in the construction and engineering sectors. In the 2003 skills strategy White Paper, the Labour government promised to support the development of new sector-based levies on a voluntary basis. Lord Leitch offered equivocal support for the same in his 2006 review, and the government followed suit in its 2007 White Paper (I know, I wrote it). The brilliantly Yes Minister talk of the time was of “post voluntarism” if employers didn’t get their act together and invest in skills.

So, have ministers finally tired of employers’ failure to recognise the way that skills drive productivity, which drives profitability and growth? Maybe. Or is the government just skint and in desperate need of new ways to fund tertiary education? Definitely. Are levies a proven policy measure, guaranteed to change behaviour? At best, maybe.

The evidence is pretty patchy. There hasn’t been a serious evaluation of the old industry training board regime. Evidence from overseas (France, Quebec, Malaysia and Australia have all operated levy regimes at some point) suggests a series of flaws, issues and risks.

What could go wrong?

Clunky and expensive administration can take resource away from training and undermine employer engagement. The Skills Funding Agency (SFA) is currently developing a digital voucher exchange to support the new apprenticeship levy, with employers that want to spend more able to buy additional vouchers at a discounted rate. What could go wrong? I’m fractionally too young to remember the individual learning accounts fiasco. Let’s hope that the survivors still in the Department for Business, Innovation and Skills and the SFA shout loud and often about the fractures, failures and frauds that killed an otherwise perfectly sensible attempt to put purchasing power in the hands of the customer.

Even where employers do engage in training rather than bearing the levy as a tax, there is little evidence of productivity improvements flowing from levy regimes. The risk is that we will see further growth in content-light apprenticeships that help the government to hit its target of creating 3 million starts but miss the point: better skilled young people, better able to realise their potential, improving business productivity and performance.

The other big flaw in previous levy regimes is that small firms tend to lose out because the levy unfairly hits their finances, and because they find it hardest to engage with whatever arrangements are put in place for them to access levy-funded training. On this point, the government has definitely got it right. Only “large” employers will be required to pay the levy, and they may be permitted to spend it in their supply chain – a great idea salvaged from the wreckage of the “employer ownership of skills” pilots.

What’s going to happen?

So what’s going to happen in 2017? For large employers faced with the prospect of a new tax, there are some big questions and opportunities on the horizon. We should assume that finance directors across the nation will soon be asking their HR colleagues a simple question: “How do we get our money back?” From that starting point stems either a serious discussion about how the business will invest in emerging talent, or one about what can be badged to ensure funding is reclaimed.

Some will ultimately choose to do nothing and bear the levy as another annoying tax. Some will do enough to spend their levy one way or the other. Others will be receptive to the intended behavioural nudge and get serious about training. Other policy measures – including a serious assault on bureaucracy, clearer and simpler marketing than we’ve ever seen, and (my favourite) human capital reporting requirements for large employers – will be required to cement the last option as the course taken by the majority.

Employers will also have unprecedented (if still limited) choice over who they work with to deliver their apprenticeship programme. Unprecedented because funding will, finally, follow the employer. Limited because only registered providers will be able to play. Again, different employers will make different decisions. Some will rethink their choice of provider now they’re really free to do so. Others will demand that their commercial learning and development suppliers enter the apprenticeship space. This could have profound implications for providers.

And what of providers? Grant funding ripped out of our grant letters; the dynamics of the sales process inverted; the opportunity to increase apprenticeship volumes without having to worry about whether government will fund in-year growth; employers compelled to engage with apprenticeships whether they like it or not; and the threat of new and commercial providers encroaching into our traditional backyard.

Threat? Definitely. Opportunity? Maybe. We set up Hart Learning and Development as a discrete business, at arms-length from North Hertfordshire College, to help us stave off the threat and seize the opportunity of the levy era. For me, then, is the levy a big deal? Definitely. Will it change everything? Maybe.

Matt Hamnett is principal of North Hertfordshire College and chief executive of the Hart Learning Group

Some thoughts about the global "soft patch"

Michael Spence  Michael Spence, a Nobel laureate in economics, is Professor of Economics at NYU’s Stern School of Business, Distinguished Visiting Fellow at the Council on Foreign Relations, Senior Fellow at the Hoover Institution at Stanford University, Academic Board Chairman of the Asia Global Institute in Hong … read more

NOV 23, 2015     A Hard Look at a Soft Global Economy

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MILAN – The global economy is settling into a slow-growth rut, steered there by policymakers’ inability or unwillingness to address major impediments at a global level. Indeed, even the current anemic pace of growth is probably unsustainable. The question is whether an honest assessment of the impediments to economic performance worldwide will spur policymakers into action.

Since 2008, real (inflation-adjusted) cumulative growth in the developed economies has amounted to a mere 5-6%. While China’s GDP has risen by about 70%, making it the largest contributor to global growth, this was aided substantially by debt-fueled investment. And, indeed, as that stimulus wanes, the impact of inadequate advanced-country demand on Chinese growth is becoming increasingly apparent.

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Growth is being undermined from all sides. Leverage is increasing, with some $57 trillion having piled up worldwide since the global financial crisis began. And that leverage – much of it the result of monetary expansion in most of the world’s advanced economies – is not even serving the goal of boosting long-term aggregate demand. After all, accommodative monetary policies can, at best, merely buy time for more durable sources of demand to emerge.

Moreover, a protracted period of low interest rates has pushed up asset prices, causing them to diverge from underlying economic performance. But while interest rates are likely to remain low, their impact on asset prices probably will not persist. As a result, returns on assets are likely to decline compared to the recent past; with prices already widely believed to be in bubble territory, a downward correction seems likely. Whatever positive impact wealth effects have had on consumption and deleveraging cannot be expected to continue.

The world also faces a serious investment problem, which the low cost of capital has done virtually nothing to overcome. Public-sector investment is now below the level needed to sustain robust growth, owing to its insufficient contribution to aggregate demand and productivity gains.

The most likely explanation for this public investment shortfall is fiscal constraints. And, indeed, debt and unfunded non-debt liabilities increasingly weigh down public-sector balance sheets and pension funds, eroding the foundations of resilient, sustainable growth.

But if the best way to reduce sovereign over-indebtedness is to achieve higher nominal GDP growth (the combination of real growth and inflation), cutting investment – a key ingredient in a pro-growth-strategy – is not a sound approach. Instead, budget rules should segregate public investment, thereby facilitating a differential response in fiscal consolidation.

Increased public-sector investment could help to spur private-sector investment, which is also severely depressed. In the United States, investment barely exceeds pre-crisis levels, even though GDP has risen by 10%. And the US is not alone.

Clearly, deficient aggregate demand has played a role by reducing the incentive to expand capacity. In some economies, structural rigidities adversely affect investment incentives and returns. Similarly, regulatory opacity – and, more broadly, uncertainty about the direction of economic policy – has discouraged investment. And certain types of shareholder activism have bred short-termism on the part of firms.

There is also an intermediation problem. Large pools of savings in sovereign wealth funds, pension funds, and insurance companies could be used, for example, to meet emerging economies’ huge financing needs for infrastructure and urbanization. But the channels for such investment – which could go a long way toward boosting global growth – are clogged.

Meanwhile, technological and market forces have contributed to job polarization, with the middle-income bracket gradually deteriorating. Automation, for example, seems to have spurred an unexpectedly rapid decline in routine white- and blue-collar jobs. This has resulted in stagnating median incomes and rising income inequality, both of which constrain the private-consumption component of aggregate demand.

Even the one factor that has effectively increased disposable incomes and augmented demand – sharply declining commodity prices, particularly for fossil fuels – is ultimately problematic. Indeed, for commodity-exporting countries, the fall in prices is generating fiscal and economic headwinds of varying intensity.

Inflation – or the lack of it – presents further challenges. Price growth is well below targets and declining in many countries. If this turns to full-blown deflation, accompanied by uncontrolled rising real interest rates, the risk to growth would be serious. Even very low inflation hampers countries’ ability to address over-indebtedness. And there is little sign of inflationary pressure, even in the US, which is near “full” employment. Given such large demand shortfalls and output gaps, it should surprise no one that even exceptionally generous monetary conditions have proved insufficient to bolster inflation.

With few options for fighting deflation, countries have resorted to competitive devaluations. But this is not an effective strategy for capturing a larger share of tradable global demand if everyone is doing it. And targeting exchange-rate competitiveness doesn’t address the aggregate demand problem.

If the global economy remains on its current trajectory, a period of intense volatility could destabilize a number of emerging economies, while undermining development efforts worldwide. That’s why policymakers must act now.

For starters, governments must recognize that central banks, however well they have served their economies, cannot go it alone. Complementary reforms are needed to maintain and improve the transmission channels of monetary policy and avoid adverse side effects. In several countries – such as France, Italy, and Spain – reforms designed to increase structural flexibility are also crucial.

Furthermore, impediments to higher and more efficient public- and private-sector investment must be removed. And governments must implement measures to redistribute income, improve the provision of basic services, and equip the labor force to take advantage of ongoing shifts in the economic structure.

Generating the political will to get even some of this done will be no easy feat. But an honest look at the sorry state – and unpromising trajectory – of the global economy will, one hopes, help policymakers do what’s needed.

Read more at https://www.project-syndicate.org/commentary/examine-reasons-for-slow-global-growth-by-michael-spence-2015-11#pEJeWssUuW7Jl0Pt.99

A breakthrough moment in monetary policy?

Not one to exaggerate (?), I put this snippet before you now, to provide forensic evidence of the topic I talked about today - negative interest rates. Apparently a small Swiss bank, Alternative Bank Schweis (on the German side, I'm guessing) will be charging depositors 0.125% to hold money in a current account; anyone with CHF100,00 will be charged 0.75%. Apparently the bank funds "ethical projects", so maybe it is relying on the "ethics" (and wealth) of its customers... On the one hand, this is a non-story, who cares (apart from depositors?); however, in a few months it could become mainstream - i.e. negative interest rates could start to be the norm.

Why do I think this is worth mentioning? Well, after 6 years of 0.5% interest rates, and listening to Willem Buiter at the Royal Academy last year telling us that central banks are the "last man standing", then watching the Chancellor get creamed when he suggested cutting a mere £12 billion from a £130 billion welfare budget... I have the distinct feeling that not many options are left.

On the basis that you have exams to take, and grades to achieve, I don't recommend you explore this in detail, but anyone who faces an interview at university for a place, or just wants to be one step ahead, this is a very interesting development. It is not isolated, it is part of a creeping advance of weird monetary policy - "normal" because it just extends the idea of cutting rates, but also "weird" because the implications are really profound.

You'll have to catch me on a quiet day if you want me to explain this; otherwise just read some of the material that is decidedly non-mainstream to get a better understanding of what is coming in this supposedly "strong recovery" we are experiencing.