Stephen Machin

The Profitability of Innovating Firms

This article seeks to evaluate the effects on corporate profitability of producing a major innovation. We examine two types of effect: innovations can have a direct but transitory effect on profitability associated with the production of a new product or the use of a new process, and innovations can have an indirect effect on how firms generate profits because they signal the transformation of a firms internal capabilities associated with the process of innovating. Positive direct effects on the order of [[sterling]]2.1 million spread over seven years are observed for a sample of 721 large, quoted U.K. firms. More fundamentally, large indirect effects are also observed, not least because innovating firms seem to be more able to benefit from spillovers and are relatively insensitive to adverse macroeconomic shocks. These indirect effects associated with the transformation of a firms internal capabilities may be as much as three times larger than the direct effects of innovation.

The economic impact of minimum wages in Europe

Opponents of minimum wages argue that they hurt jobs in Europe; supporters say that they combat exploitation and help the poor. We try to sort out myth from reality. Differing policy prescriptions reflect different views of how the labour market actually works. Contrary to popular wisdom, it is as easy to make a theoretical case against minimum wages as for them. Evidence, not theory, is what is needed now. Relative to average wages, minimum wages have not risen in Europe over the last 30 years; they caused higher unemployment only if they prevented a necessary fall in the wages of the low paid. Second, minimum wages for young workers are often a lower proportion of average earnings in Europe than in the USA. Third, we find no general evidence that minimum wages reduced employment, except perhaps for young workers. The (good or bad) effect of minimum wages has been exaggerated.

Valuing English primary schools

This paper provides the first empirical evidence for the UK on the effect of primary school performance on property prices. We find that, on average, a one percentage point increase in the neighbourhood proportion of children reaching the government-specified target grade pushes up neighbourhood property prices by 0.67%. At 2000 property prices, we calculate the social valuation of a sustained 1% improvement in primary school performance to be up to £90 per child per year. Our instrumental variable and semi-parametric approach avoids the problems of school quality endogeneity and omitted neighbourhood variables that occur in typical property value models.

Educational Inequality and the Expansion of UK Higher Education

In this paper we explore changes over time in higher education (HE) participation and attainment between people from richer and poorer family backgrounds during a time period when the UK higher education system expanded at a rapid rate. We use longitudinal data from three time periods to study temporal shifts in HE participation and attainment across parental income groups for children going to university in the 1970s, 1980s and 1990s. The key finding is a highly policy relevant one, namely that HE expansion has not been equally distributed across people from richer and poorer backgrounds. Rather, it has disproportionately benefited children from relatively rich families. Despite the fact that many more children from higher income backgrounds participated in HE before the recent expansion of the system, the expansion acted to widen participation gaps between rich and poor children. This finding is robust to different measures of education participation and inequality. It also emerges from non-parametric estimations and from a more detailed econometric model allowing for the sequential nature of education choices with potentially different income associations at different stages of the education sequence.

Changes in intergenerational mobility in Britain

© Cambridge University Press 2004 and 2009. The extent to which childrens economic or social success is shaped by the economic or social position of their parents is a contentious and hotly debated issue, both within academic circles and in a wider policy context. There is a large body of academic work, carried out predominantly by sociologists, on social mobility – where social class of individuals is related to parental social class – and a smaller body of work which considers mobility in terms of economic status (usually measured by labor market earnings of children and parents). An example of the former is the survey undertaken in the Performance and Innovation Unit (2001) paper on social mobility, while Solon (1999) offers an overview of the latter. Further, the issue of intergenerational inequalities crops up in the political arena time and time again, and one increasingly sees discussion of the issue in the political press. The experiences of the last twenty years or so probably make such issues even more relevant than ever. In the United Kingdom income inequality increased very rapidly since the late 1970s (Goodman, Johnson, and Webb 1997). Much of this has been due to changing rewards from paid work as earnings gaps between the highest- and lowest-paid workers widened out by a considerable amount (Machin 1996, 1998, 1999). One consequence of this has been a massive rise in the proportion of children growing up in poverty.

The Crime Reducing Effect of Education

In this paper, we present evidence on empirical connections between crime and education, using various data sources from Britain. A robust finding is that criminal activity is negatively associated with higher levels of education. However, it is essential to ensure that the direction of causation flows from education to crime. Therefore, we identify the effect of education on participation in criminal activity using changes in compulsory school leaving age laws over time to account for the endogeneity of education. In this causal approach, for property crimes, the negative crime-education relationship remains strong and significant. The implications of these findings are unambiguous and clear. They show that improving education can yield significant social benefits and can be a key policy tool in the drive to reduce crime.

The Effects of Minimum Wages on Wage Dispersion and Employment: Evidence from the U.K. Wages Councils

Using data on Wages Council coverage from the United Kingdom New Earnings Survey, the authors examine the impact of mandated minimum wages on wage dispersion and employment in the United Kingdom in the 1980s. They find evidence that a dramatic decline in the toughness of the regulation imposed by the Wages Councils through the 1980s—a decline, that is, in the level of the minimum wage relative to the average wage—significantly contributed to widening wage dispersion over those years. There is, however, no evidence of an increase in employment resulting from the weakening bite of the Wages Council minimum pay rates. Instead, consistent with the conclusions of several recent U.S. studies, the findings suggest that the minimum wage had either no effect or a positive effect on employment.

Corporate Growth and Profitability

This paper argues that current period corporate growth rates reflect changes in current expectations about the long run profitability of a firm. This means that growth rates are likely to vary randomly over time. Using data from 271 large, quoted U.K. firms over the period 1976-82, the authors report the existence of a positive, statistically significant and robust correlation between current period growth rates and a natural measure of changes in current expectations about long run profitability, namely changes in the stock market valuation of the firm. Nevertheless, they find that variations in corporate growth rates are difficult to predict. Copyright 1997 by Blackwell Publishing Ltd

Union Decline in Britain

This paper considers the rapid decline in unionization that has occurred in Britain since the late 1970s. The overwhelming factor underpinning falling unionization was a failure to organize new establishments set up in the last twenty years or so, thus confirming that developments since 1990 represent a continuation of the pattern revealed in earlier work for the 1980–90 period. The sharpest falls in unionization occurred in private manufacturing establishments set up after 1980. Finally, there is some evidence that it is age of workplace, rather than age of worker, that is the critical age‐based factor behind union decline.

The literacy hour

In this paper, we evaluate the effect of the literacy hour in English primary schools on pupil attainment. The National Literacy Project (NLP) was undertaken in about 400 English primary schools in 1997 and 1998. We compare the reading and overall English attainment of children in NLP schools as compared to a set of control schools at the end of primary school education (age 11). We also compare the overall English performance of these children when they have reached the end of their compulsory education (age 16). We find a larger increase in attainment in reading and English for pupils in NLP schools as compared to pupils not exposed to the literacy hour between 1996 and 1998. We also find modest, but positive effects from exposure to the literacy hour that persist to age 16, as GCSE English performance is seen to be higher for children affected by the NLP introduction. Since there are gender gaps in English performance (in favour of girls), we consider whether the literacy hour has had a differential impact by gender. We find some evidence that at age 11, boys received a greater benefit than girls. Finally, we show the policy to be cost effective. These findings are of strong significance when placed into the wider education debate about what works best in schools for improving pupil performance. The evidence reported here suggests that public policy aimed at changing the content and structure of teaching can significantly raise pupil attainment.