 Over to you to tell us how we're going to get this good job economy Thank you. Thank you, Torsten and to the resolution foundation for having me here Thank you for for coming and all of those online who are we're listening and watching So Torsten promised more than what I'm going to deliver I'm sure you would have guessed that I Don't know how to create a good jobs economy. In fact, I feel that This is something that is is relatively unprecedented given The changes in technology and the world economy. I think it's there are not Examples we can draw on and the kind of direction that I'm going to try to push you towards Is really something that I'm drawn to Not because there is anything particularly attractive about this orientation But because of a process of elimination that is sort of, you know rule and ruling out much easier much more attractive and tried and tested Kind of strategy of the past so that that is really a kind of a process of elimination that gets me to a point to say Okay, you know, we need to have this kind of a focus that's going to have all kinds of difficult and untested implications for policy and Intent and it doesn't look like anything that that we're really doing including What's happening in the United States and I'll talk about that also So I don't want to bore you with a lot of stuff that you know This is this Here so if I hold this like this, okay that you know Britain is suffering from a Kind of a product productivity problem in the aggregate But the port of it that I'm mostly concerned about is in terms of what it means for the quality of jobs for the middle and lower middle classes If you look at the last 40 45 year period those kinds of jobs have tended to do not so well in most advanced economies Definitely in the United States, but also to some extent in the UK That's important because if you want to build middle-class societies that sort of having jobs not just for the most skill but also for the Intermediate skill people in in your economy is extremely important Dimension in the in the UK which sort of overlaps But it's not exactly one and the same in terms of this overall Inequalities of economic opportunity and jobs is the kind of very high levels of regional inequality in in in in the In the UK so that outside London and the southeast The problem of good jobs is also the problem of scarcity of good jobs in many other parts of the UK in other Cities where productivity has been has been lagging So if we're talking about a prosperity that's not going to be limited to a relatively few people if it's kind of an enhancement in Productivity that we will hope it will trickle trickle down, but in reality may not So an economy that emphasize inclusive prosperity is going to require a focus that is not just productivity but also more productivic jobs for the bulk of the labor force as well And that requires us really to address inequality In in in where it's created in in in terms of you know, what kind of jobs are are created? What kind of skills people have? And Since my emphasis is on good jobs. I should all say you know make clear that even though pay Is a very big part of it. It's not the only thing and I think sort of you know We all know that you know jobs matter a lot more than simply the income it sort of it in many ways Defines us who we are and having jobs that that not only pay well But in entail a certain amount of dignity autonomy Ability to progress and develop and so forth is is all part of of of the good jobs a story So I'm not aware of any of these indices for the UK and there's probably are some but in the United States there's a wide variety of Quantitative indicators that have been developed that that sort of do this some of them are based on Attitudinal surveys and then surveying workers and asking them what do they care for and of course always pays a big part But they care a lot about flexibility automation how they treat it on the job as well other Measures are based on sort of objective indicators of jobs and the OECD actually has a cross-country database I assume Britain is actually include is include on that That has statistical indicators of earnings labor market security and the quality of the working working environment So this this in other words I mean the notion of a of a good job could be quantified and made more precise and in fact one element of Emphasizing good jobs would be to have indicators that you can actually track And I think investing in that is obviously part of this so Now What is the good job? Industrial policy connection I think a lot of the discussion on good jobs tends to focus on a number of Dimensions where Where I think the kind of gains that we can make are sort of limited Probably the first thing that people focus on when we talk about good jobs is Focusing on the supply side of labor market is the quality of skills and training and education So, you know said people want good jobs. They need to have better skills and used in order to access better labor markets A second level might be to say well, we need to have you know regulation standards and and And the third might be to say well, let's improve the bargaining power of workers through unions or sectoral bargaining and things like that and And and a final line of argument which you hear probably a lot more in the US than I imagine It's in the UK. It's the argument that is actually is in the interest of employers To offer good jobs Because by offering better jobs you get more motivated employees that that you know quit less Frequently and therefore you reap the benefits of these, you know better jobs in actual an actual productivity on the job And therefore that's actually a profit-enhancing strategy. So if that was true, of course, you don't need to do You know any sort of have any minimum wages or labor bargaining in fact the people who argue for that Tend to be against unions because they they sort of feel that this should be all businesses God doing this on their own for therefore for the for the for Self-interested reasons and I think the reason that that these are sort of remedies that are limited is well first, I mean our number one two and three You know remedy which is always training and and education. Well, that's yes. Yes. Yes, but it's always You know, it's always a solution to the future never really a solution to the short short run And I think you know my colleague at the Kennedy School Ricardo Hausman says that you know the the the purpose of an economic strategy is to create jobs for the people you have Not for the people you wish you had and and and so that's really about you know the the fact that training Investment education skills all of that. I'm not I don't want to de-emphasize that at all because I think that's definitely a key part of this, but it can't be the entire strategy There are some evidence from work by A Stansbury and company that suggests that in fact is sort of wide regional gaps in productivity Persists even after your control for education in the UK. So even there it's clear that even, you know, that may not be the Soul the entire problem suggesting that there is something also happening on the demand side of labor markets that the the productive ecosystems that create more productive jobs aren't in Present in the rest of the country. So it's not just going to be skills in education And of course we have these other counter arguments about how you know, simply having higher minimum wages You know runs pretty clearly pretty quickly into a kind of trade-off between creating jobs versus In incumbents having relatively high wage and of course France is a clear example of a country that has run into that kind of a trade-off with very high youth unemployment rates and high wages for those who do have wages And also for the high the high road argument I think it's clear that that might be true for some employers, but it's really not an Argument that that holds its way for the entire labor market Okay, so I think that all is again, but you know, this is my process of elimination So it's saying where is this you know taking us? Well, it has to be that if you want to be able to provide good jobs for the bulk of the labor force It has to be by enhancing sort of productivity that you know You have to have more productive jobs for the workers that you do have and the likely to have in the short to medium 10 So how do you do that? And I think this is where The industrial policy connection comes in because industrial policy is about increasing productivity That is by fostering innovation and structural change towards more productive activities I'm not going to go into the long-standing debate about the efficacies of industrial policy I'm happy to talk about it but I would argue that even the economics profession is going through a kind of a Change of attitudes towards industrial policy from I would say extreme hostility to less extreme hostility right now the But and here is again the sort of the crux in order we hit another problem Which is that when we talk about sort of how we talk about industrial policy today So I've talked to you how when we talk about good jobs and labor markets How that cannot be the full story, but when we talk about industrial policy that's also our current discussion is leaving important things out because Today the discussion about industrial policy or industrial strategy certainly in the United States, but also gather in the UK really focuses on things like Manufacturing on supply chains on the green transition on attaining global competitiveness, right? and None of these actually have Good jobs at the center Even though for example in the context of the chips act in the United States That's also listed as one of the objectives But one of my points here is going to be in fact There's one point I want you to take away from my presentation is that good jobs is going to require its own Industrial policy that it cannot be tagged on as an objective on existing industrial policies whether it is You know advanced semi conductors and manufacturing is in the case of chips or it is the green transition Those are that that you cannot kill kill all the birds With with one or two stones that and right now really at least in the case of the United States And I believe that's true also in the UK We don't have a coherent policy that is targeting green jobs Good jobs directly So the reason that I think none of this is really in the US is really targeting good jobs Fundamentally is because the bulk bulk of the jobs of the future will not be in Manufacturing or in semi conductors The green transition itself is not a net job creator. It'll destroy a lot of jobs It'll create some jobs in other places But that's not really on its own unless you make green good jobs and objective in and of itself It's it doesn't address the problem Okay, so this again is you know, do you notice the process of Manufacturing losing jobs, you know, UK has been one of the sharpest The industry the industrializing countries, but that's it's really common even Germany as the industrialized in the employment terms most of the jobs actually are in in in services retail leisure and hospitality and other Areas and when you look at sort of which countries have actually in you know done well in manufacturing You know, this is for a bunch of countries how they've done in terms of manufacturing output versus manufacturing employment even countries like South Korea this work. I'm not sure it works, but Point good idea. So like take the South Korea for example is it's in at constant prices Manufacturing share and value added has continued to climb and it remains very high But look at what's what's happened to the employment share in manufacturing So even when you manage to experience output reindustrialization It's very very unlikely that you will experience employment industrialization. We see this actually happening today in the United States So if you look at You know, what's happening to as a result of chips and the IRA So this concerted efforts at rebuilding industrial activity in in the United States Whether it's semi conductors advanced manufacturing or or or or batteries or electric vehicles These are actually very very capital and skill intensive industries. So what you get is actually no after 2022 you get significant increase in investment in Manufacturing if you look closely at manufacturing output You can convince yourself that even manufacturing output in the United States has bounced back Up, but you know employment is steadily and unhappily Trending downwards. There's no effect employment that you can actually see and I'm afraid that's going to be the the the the The general picture that we on with respect to the objective of creating good jobs in manufacturing And that sort of manufacturing is where we're supposed to have those good jobs being created under chips and IRA That's simply not going to happen. Okay. So the bottom-line diagnosis of the problem is that The central problem of our the inability of our labor markets to create sufficient productive jobs Will not be addressed as a byproduct of Sort of our traditional approach to industrial policies or the approach that has been taken in the United States right now And therefore we need an industrial policy that's going to put job creation Front-on-center And that's who is going to have a certain elements is going to focus on the demand side of labor markets in addition to the supply So I'm not saying let's ignore skills and investment in training But he'll have to focus at least as much on the demand side that is creating the positions the firms That are offering productive employment opportunities is going to be focusing mostly on services And in manufacturing and higher productivity is going to be the sine qua non for being able to offer to those those jobs in addition of to you know standard Protections in labor markets and labor market institutions Okay, so if chips and IRA in the US is not a good model What might be a good model? It's actually something that very few people have heard of and it was in The first package that the Biden administration passed. It was the American recovery program And hidden there and it's hidden because it's actually tiny Hidden there was a something called a good jobs challenge But you need to sort of you know they put in the in the context that you know chip subsidies Of the order of several tens of billions of dollars and the IRA itself when you put in the tax credits Really is going to be running Latest estimates into hundreds of billions of dollars and and and so 500 billion dollars is really really You know tiny But the concept itself is what I really you know find very appealing and I think it's it's it's kind of an It's it's a very different approach of how to do this and the idea for the these This good jobs challenge together with another one that I think is also 500 million dollars Which was a regional challenge that is the idea to part to incentivize Through resources at the federal or national level to to incentivize the creation or the strengthening of local cross-sectoral partnerships With the idea of developing local economic development strategies that bring together worker training skills formation entrepreneurial assistance financial And credit assistance business plan assistance so in other words various tools of business development as well as Skills investment around the kind of a concerto strategy and the idea was that these local coalitions would then bid for this national Resources and then they have and the the and the national resources But are both an enabler for these plans to be carried up, but they're also kind of a of a of a carrot to to incentivize the creation of these cross-sectoral Solutions as well where where they did not exist now, of course because the problem is you know Because the incentive or the carrot was so so tiny I don't think it will it will do much, but I think it got the basic Problem, right? I mean the basic approach right that that many of these problems as in the UK are have a very sort of Local or regional dimension. It's not going to be sold by action at the federal or the national level Even though that might be the framing legislation or the framing approach might come from the from the top You need instruments to incentivize what has to has to be cross-sectoral Partnerships that will bring together which two silos which really operate quite independently In the United States one of which is skills training and workforce Development and the other is really business and entrepreneurship attraction and development They's literally and the only place where it works is when you have very entrepreneurial Government leaders or entrepreneurial sort of private sector leaders that essentially provide the act of coordinating this Okay, so this will I'm going to run through the rest of my slides. How long have I talked now? After it's very speedy so far I don't know how much is it, 10 minutes? Yeah, okay, that's fine. That'd be great. So how will you know sort of, you know differ from the standard ways in which we talk about industrial policy and of course This is you realize I'm saying industrial policy, but you realize I'm not talking about industry anymore, right? And that's one of the things about terminology So the traditional approach really focuses a lot on subsidies and tax incentives So chips and IRA are based on these subsidies and tax incentives and and and and the idea is That you're trying to internalize externalities and the economic rationale is clear But when you look at actually the the real kind of problems that you're trying to solve when you're dressing these good jobs problems, it's really much more complicated than simply, you know Internalizing a well calibrated or well quantified externality. There's a lot of uncertainty. There's a lot of discovery That needs to take place. So you need a much closer sort of iterative relationship between the various Stakeholders so rather than emphasizing subsidies tax incentive direct financial incentives the this approach would actually Focus on providing a portfolio or a variety of Public inputs, whether it's training business services Greenfield land regulatory forbearance technology assistance whatever Is needed in a way that's going to be precisely customized to the needs of of the users and So I think here are some examples From from from Britain. I think Where if you try to sort of see is how much of this is taking place in the US This takes place quite haphazardly in localities that have got their act together I didn't quite see Sort of obviously There might be some cities where this is being done better than others But some of the new initiatives for example to do these investment zones Are supposed to focus explicitly on these local efforts and these cross-sectoral partnerships But they do not have good jobs as a is a clear focus on sort of what is it that we're trying to do The this is I guess the agency for research and in what is it the Research and investment age agency Innovation research invention actually it is invention Somebody I think we should all right. So it's you're showing me up People are getting nervous with the audience that we're going to ask them next But that also I think is is a kind of potentially Doesn't emphasize so Governance, I think we need to think somewhat differently. So again, you know sort of economists idea of how you carry out You know industrial policy is a kind of a top-down approach where in fact you explicitly keep The firms and the recipients of public assistance at bay because if you actually interact with them You're going to be the ideas you would be gamed and and and firms would you know, you would be successfully seeking grants but in fact because these The problems you're trying to solve are complex and there's a lot of information that needs to be revealed about Where the constraints are how things are working and so forth and often The firms that are going to be employing people have much better information than the agencies that are providing the assistance And therefore you need a relationship that's not going to be top-down. It's going to be much more one of collaboration and iteration Where sort of there's a process of Goal-setting and discovering what the missing public inputs are Coordination extremely important conditionality is soft rather than hard because doing hard Conditionality is very difficult when there's a lot of uncertainty And and so you don't punish recipients on you punish recipients only when there is they're clearly acting in bad faith You know basically taking the resources and not doing anything And I think these kinds of off of practices already exist both at the Successful sort of local partnerships and in the variety of settings in the United States But also very significantly at the national level when you look at agencies like DARPA or the various, you know Copies in other parts of of the US innovation space that actually aria Is meant to copy that actually is precisely the operating mode for how this operates What's targeted would be different of course as for reasons that I've already stated so the traditional approach tends to focus on manufacturing on big firms Sort of these national champions that are sort of the most productive segments of the economy to Make sure they remain competitive on global markets Whereas I think when you think about where the jobs are going to be they're going to be mostly in services They don't going to be created mostly Firms of a smaller size than your large national champion. So SMEs is going to be a big part It will tend to be the medium productivity activities in the economy because they're not the most You know productive, but you know also not very much job-generating Firms this is where the jobs for the lease skills are likely to come from so that's where you need to target these kinds of activities tradeable services in Britain, I think are going to be Very important as a couple of very nice studies that the resolution foundation has done on Many of maybe some of the authors are here on Manchester and Birmingham, which really makes a very strong case You know basically says the manufacturing is not going to come back. That's not where this serve But these tradeable services are very important I'm not entirely convinced by these reports that we will not have to pay a lot of attention to other Sort of local services as well Which are sort of you know industries I care Retail education and the reason for that is that these are still where the bulk of the jobs are going to be created in the future And I think if you focus only on the tradeable services on Accounting and IT and and and and finance You know those are going to be there their ability to create jobs for the vast majority of the British labor force Is really limited so again you run into this problem Or are you creating jobs for the you know top 10% of the of the workforce at up to 15% and where will the You know, you know worldly the productive jobs for the rest come from so I don't think you can avoid just quantitatively This problem for addressing this now. We don't know how to address productivity issues in these kinds of sectors but we have you know some Kind of ideas that even where sort of technologies are concerned that we know that that firms tend to have a variety of of You know technological possibilities some of whom are directed at replacing workers Some of them are could be focused or targeted on on making workers actually both more productive But when it's without necessarily diminishing demand for them because they Multiply the number of tasks these workers can do so that the the the the key to creating Jobs that are both more jobs and more productive jobs in these service industries is to find technologies That are going to increase the tasks that people that that people can do and that you know happens through By essentially using new technologies that increase the possibilities of Providing these services in a way that's much more customized to different groups of customers So education sort of you know Targeting education According to the different learning leads or learning styles of different subgroups of workers You know that is is one way that that you can make education both Services both more productive without necessarily increasing lower now reducing the demand for teachers because They are why the range of tasks that they can perform that obviously in in care and in in medical services Also retail. There are some sort of business school type case studies on all of these things So these are things that already exist the problem is that we have because you know We don't take the direction of technological change as something that is actually something in part we can control We haven't spent a lot of time thinking about these issues like aria isn't thinking about this even though It's investing in innovation technologies, but doesn't necessarily You know from what I understand going to focus on how can we make Technologies serve people rather than you know let technology go in any direction that firms and innovators want and then worry about What the implications for labor markets are? Okay, so So I mean the basic no So, you know, so the basic quid pro quo that this kind of approach to industrial policy implies for for firms Is is a kind of a you know This this is putting in the in the in the terms of a kind of a social contract that firms need a variety of public services and inputs and and and and those You know go all the way from you know skilled workforce to business services The ecosystem basically that they don't necessarily Develop on their own and then governments in turn need firms to internalize these good jobs Externalities sort of what happens to communities when good jobs disappear and the consequences of the erosion of the middle class So that's ultimately the kind of quid pro quo or the social contract that the type of Industrial policy I'm describing is meant to operationalize, okay, so I just a summary of what's I think the This new type of industrial policy Requires compared to sort of standard ways of thinking about industrial policy, but let me just end here by By just summarizing the key points, which is that you know, we are really in a kind of a different World, I mean we knew in the past how to create middle-class societies that went through, you know industrialization manufacturing, you know and workers organizing getting you know a variety of rights and good labor market institutions and so forth but we're obviously left that world world behind and we haven't fully confronted the realities of the requirements of that new world and in particular that productivity dissemination of productive employment in Services is going to be the key and that is going to require policies to work on both sides of the labor market It's not simply, you know Skills and training it's also about the demand side creating good firms because ultimately good jobs can only be Offered by by good firms and this is really in the end sort of my my dilemma And I think our societal conundrum is that it leaves us with a very kind of a Difficult and unprecedented Kind of an approach that has elements of industrial policy because it is targeting You know productive structural change in the way that industrial policy traditionally has but with very different targets with very different governance arrangements with very different Priorities and but that's what I think we need to spend a lot more time thinking about it So if I've done if I've managed to get you to think that this is real problem That's worth spending a little bit of your time then I've succeeded. Thank you. Thank you, Danny