24 Fraser of Allander Institute
Table 12: Single cohort analysis for 2015/16: long-run effects of a change in labour productivity.
(In percentage changes from base year values.)
Long-run
GDP (and GDP per capita) 0.17
Consumer price index (CPI) -0.10
Unemployment rate (pp difference) -0.02
Total employment 0.01
Nominal gross wage -0.07
Real gross wage 0.02
Households consumption 0.03
Investment 0.16
Capital stock 0.16
Export RUK 0.16
Export ROW 0.17
GDP in present value terms (£billion) 3.4
GDP in present value terms per graduate (£thousands) 59
Long-run at t = 40. GDP present value up to t = 85.
Source: Fraser of Allander Institute
As a result of the increase in human capital, the long run sees the Consumer Price Index below its base level,
exports increased due to competitiveness effects, and GDP is also above its base. In the labour market,
employment levels are above base year values over the long run and unemployment has falls. The real wage
also rises marginally.
Chart 9 shows the evolution of GDP and employment, as percentage changes measured against their base-year
levels. GDP reaches an equilibrium level around time-period 15 with an increase of 0.17%, which is sustained
until time-period 40. Employment changes see an initial fall but turn positive (and remain positive thereafter).
Once the graduation cohort leaves the labour force in period 41, there remains a 'legacy effect', including
a further stimulus to employment. In that period, labour productivity returns to its base-year value but the
physical capital stock is higher than its original level. This generates a further increase in employment, the size
of which is reduced over time as disinvestment gradually brings the capital stock back to its original absolute
level and sectoral configuration. Such legacy effects have not been identified in previous impact assessments.
The employment impacts across all simulation periods are captured in present value (PV) terms14. The increase
in FTE employment generated by the system-wide impacts of the single college graduation cohort amounts to
2,178 FTE jobs in present value terms as compared to the base year.
14 The present values are calculated using a 3.5% real discount rate as recommended in the HM Treasury (2013) Green Book.