Per capita incomes fall during Labour’s 3rd term
There is plenty of coverage today of new data from Oxford Economics that shows how per capita incomes have declined during the third term of the Labour Government.
UK GDP per capita in 2009 prices (£ sterling)
1997 £18,860
2001 £21,235
2005 £23,000
2009 (estimate) £22,700
2010 (forecast) £22,775
Losing overtime to cut capacity
Here is another example of how firms are cutting capacity during the recession without making their staff redundant. The TUC report that, although four million workers do still work extra paid hours, over half a million people have lost the opportunity to work overtime in the last year. The average amount of weekly overtime last year worked out at almost £3,000 a year per employee, a total of £10 billion. However this is down by £1 billion on last year, representing a loss of income of hundreds of pounds per month for those employees for whom it is no longer available. Workers aged 20-24 have experienced the sharpest fall in overtime: in 2008, 20.1% of young people earned overtime pay, compared with 15.9 per cent this year.
Workers in manufacturing, transport and communication, industries that traditionally offered overtime, were hit by a sharp fall in extra hours over the past year. In this video report from the BBC looks at one company in Bristol which was faced with the need to cut costs and offered staff the option of either cutting overtime for all of them, or making some of them redundant. They agreed to take the first option, but are having to cut their discretionary spending, and so their living standards, as a result.
Law and Morality in Economic Life
It is easier to destroy a society than it is to build it. And tipping points that cause people en mass to lose faith and confidence in institutions are more likely than we might assume. This was one of the themes from an outstanding lecture given at the Royal Institution yesterday by Sir Partha Dasgupta as this year’s Royal Economic Society annual public lecture. Drawing on a lifetime of experiences and research, Sir Partha enthralled his audience with a brilliantly structured talk on the growing importance of social norms in helping us to understand more clearly the gulf in economic wealth and life chances between different parts of the world.
read more...»Flexible taxation
A report in Monday’s Times examines the way in which local councils are trying to avoid increases in council tax bills over the next year.
Focusing on London councils, it is expected that on average council tax bills will be frozen, with a number of councils actually reducing local tax bills for residents. This is due in part to low inflation, but also to the local elections in London which will take place next May acting as an incentive for councillors to reduce the burden on their electors.
read more...»Global food prices and the terms of trade
Agflation refers to a sustained increase in the general price of foodstuffs and in recent years we have become accustomed to seeing the prices of many basic staple products rising. The era of cheap food looks to be over for now on the back of significant demand-side factors, not least rising population levels, higher per capita incomes and speculative demand for foods as prices have become more volatile. Supply-side factors are also important in explaining strong inflation in food prices. Both sides of the market are discussed by Ambrose Evans-Pritchard in his column in the Telegraph today “Food will never be so cheap again” - plenty of applied microeconomics here in addition to the huge number of macroeconomic issues that the trend rise in food prices has caused. One of the big changes in a switch in the terms of trade away from food importers towards food exporters. But do higher food prices necessarily cause agricultural supply to expand?
Broadband and economic development
Access to and the speed and reliability of broadband infrastructure is one of the key institutional factors that impact on economic development. The lack of an affordable and cost-effective broadband network can be a huge barrier to economic growth especially in an age where companies in many rich countries are looking to outsource their back office and call centre services to countries where operating costs are lowest. The 2009 UNCTAD Information Economy Report provides a wealth of background information on the global digital divide.
According to the latest report, businesses and consumers are 200 times more likely to have access to broadband in developed countries than in the poorest Least Developed Countries (LDCs). And the monthly cost of broadband access varies to an incredible degree - from over $1,300 a month in Burkina Faso, the Central African Republic to less than $13 in Egypt.
read more...»Rwanda invests in connecting the young
A deeply encouraging and inspiring report from Rory Cellan Jones on the One Laptop per Child policy being rolled out in Rwanda - a policy that aims to equip 100,000 students with access to the internet. Are there more important priorities than building an IT infrastructure such as meeting people’s basic needs and wants? Or can technology transform the economy just fifteen years after the genocide?
Human Development Index for 2009
The Economist chose the release of new data on the Human Development Index as the subject of its chart of the day - available here together with a short commentary. It would make an excellent chart to use as part of a teaching handout.
“Mozambique has improved the most, scoring almost 50% higher in the 2007 index than it did in 1990. Many other African countries have also seen increases in their quality of life”
More here from the United Nations Development Programme
Paul Romer on Growth and Cities
BBC Radio’s Global Business this week sees Peter Day in conversation with Professor Paul Romer from Stanford University, Paul Romer is an expert in the causes of long run run growth and his current focus is on the economics of new cities in developed and developing countries. It is a programme well worth listening to, Romer is tremendously optimistic about the opportunities created by faster economic growth - especially growth built around innovation and appropriate rules systems.
read more...»Sugar prices and production and investment incentives
World sugar prices are close to a 30 year high with values on the Chicago mercantile exchange hovering just under $30c per pound. For countries whose sugar exports account for a large proportion of their export earnings, the steep increase in world prices has brought about an improvement in their terms of trade and - because demand for many foodstuffs is price inelastic, a favourable change in their balance of trade. A good example of this is the African country of Mozambique, a nation almost destroyed by a long running civil war that eventually ended in the early 1990s but which has also been hit in recent years by severes drought hit many central and southern parts of the country, including previously flood-stricken areas. And where half of the population must survive on less than $1 a day.
read more...»Escaping from the Poverty Trap
There is a timely article on the existence of the poverty trap here in the Financial Times. The article draws on some of the recent research by the Centre for Social Justice which has looked at the disincentives facing people who want to earn extra income either by leaving the unemployment register or by taking a second job or working some extra hours. There are hundreds of thousands of people whose ‘effective marginal tax rate’ is well in excess of sixty per cent.
As this article in the Times makes clear “Marginal tax rates actually refer to the extra tax you pay in proportion to every extra pound you earn as your income rises.:
And for others, the net gains from earning higher gross incomes are even smaller.
The poverty trap comes about because for every £10 of higher incomes many lower-income families
1: A loss of income from tax and national insurance
2: The withdrawal of means-tested social security (welfare) benefits
Add in the financial costs of child care, traveling to and from work and the deterrent to finding a job or accepting some extra hours can be tough to overcome.
Disincentives matter hugely in the labour market and benefit reforms are likely to figure prominently in the manifesto of the Conservative Party at the next general election. It seems at the moment that they are taking a lead in developing a more radical approach to labour market reform. The Centre for Social Justice appears to be influential in reshaping their strategies to get people off benefits and into work.
Income inequality in the USA
The Economist carries a short feature on the scale of income inequality in the USA and finds that a quarter of America’s total income is earned by the top 1% of the population.
“The concentration of income earned by this top percentile now stands at its highest since 1928. Two-thirds of the country’s total gains in the five years to 2007 accrued to the top 1%, whereas the bottom 90th percentile saw only 12% of the extra income.”
We have been looking at income inequality as part of our study on measuring the standard of living. Wikipedia carries up to date information on measures such as the Gini coefficient for countries where the relevant data is available.
Argentina’s Last Tango saved by UNESCO?
In the midst of all the heavy economic and financial news, I would like to propose something on a lighter note – as UNESCO have just declared the Tango part of the world’s Intangible Cultural Heritage of Humanity in an attempt to preserve it and a list of other national legacies under threat from global change. Also under consideration for inclusion in the list is Belgium’s Procession of the Holy Blood in Bruges while China has nominated several of its artistic traditions, including the Tibetan opera. Such heritages, say UNESCO, “transmit from “generation to generation” and give “communities and groups a feeling of identity”.
read more...»One family in six in the UK has no one in work
There are now over 3 million households in the UK where no one of working age is in any form of work - the relentless rise of the ‘workless household’ is highlighted by new figures from the Office for National Statistics who have found that the number of working-age people in workless households jumped by 500,000 to 4.8 million in the year to June. 17% of households with people of working age have no one participating in the formal labour market. 2 million children belong to them and the risks of persistent and deep poverty are greatest for these groups. Little wonder that benefit dependency is rife for such families - the paradox is that those on the lowest incomes or whose main source of income are transfer payments, often face the highest effective marginal tax rates. Crucially the depth of non-employment is highest among lone-parent families - the workless household rate was highest for lone parent households, at 40.4 per cent,
Here is a regional snapshot of the problem - with the North East, Inner London and Northern Ireland suffering from the highest rates of economic inactivity among families with one or more people of working age
UK slips to 73rd on the Happy Planet Index
Economists at the New Economics Foundation have published their latest Happy Planet rankings. The Global Happy Plant Index incorporates three separate indicators: ecological footprint, life-satisfaction and life expectancy - three factors that combine to produce an efficiency measure: well-being delivered per unit of environmental impact.
read more...»World food price inflation
Thursday’s Daily Chart at economist.com shows a wide variation in the rate of food price inflation around the world, from increases of 15% in Russia to a fall of 1.3% in China. Bearing in mind the weight that is attached to food purchases in countries with a lower disposable income, where a higher proportion of income is spent on food than in the developed economies, this is worth looking at to assess how the local economies of the countries will be affected. Also worth looking at the BBC’s World Service Food Price Index from June 1st, which tells a similar story and looks at a basket of five staple foods in seven major cities around the globe.
Life in the Middle - income distribution in the UK
The TUC has published a report ‘Life in the Middle - The Untold Story of Britain’s Average Earners’ surveying ‘Middle Britain’ in particular, and income distribution across the population as a whole. They define Middle Britain as the fifth of the population (quintile) which earns within 10% of the median income of about £20,000 per year for households in the UK in 2006/7, the last year when full figures are available. The results make very interesting reading, and give some good up-to-date figures on income distribution for use in A2 microeconomics papers.
Revision: Green National Product
National income accounts have not, until recently, made any adjustment for the environmental impact of economic growth. Critics argue that because of this omission, the statistics misrepresent improvements in social welfare. For example, no allowance is made for environmental depletion or money spent on correcting environmental damage that is actually recorded as an addition to GDP. GDP only records marketed transactions - at present, there is no market for many important environmental resources and it is also difficult to place monetary values on them. Green accounting is starting to make progress in a number of countries.
One measure is the Index of Sustainable Economic Welfare (ISEW) developed by economists at the New Economics Foundation. The ISEW adjusts official data on real national output and makes an allowance for defensive spending (i.e. that incurred in cleaning up for pollution and other forms of environmental damage, together with money spent commuting to work). Not surprisingly, the net growth of ISEW is well below that of the official data for national income, output and spending.
Revision: GDP and GNP
Sometimes exam questions provide data on a country’s gross national income rather than their gross domestic product. This revision note provides a brief explanation of the difference between the two.
read more...»Images from a planned economy
This link might be useful for colleagues wanting to add to their image library when teaching economic systems. Most of these images seem to hark back to the days of state planned output, rigid price controls, long queues and a distinct lack of choice! I love the image of a shelf of soviet astronauts - light years before Buzz came along!
Moscow coffee had better be good!
Over £5 for a standard cup of coffee would stagger most of us but it has become the norm for expats living in Moscow - officially the world’s most expensive city and a fact already well known to the thousands of Manchester United and Chelsea fans who travelled to the Champion’s League final last May.
read more...»Meeting basic needs and wants
According to a fresh report from the Joseph Rowntree Foundation “According to members of the public, a single person in Britain today needs to earn at least £13,400 a year before tax to afford a basic but acceptable standard of living. The minimum income is above the official “poverty line” of 60% median income, for nearly all household groups. This shows that almost everybody classified as being in poverty has income too low to pay for a standard of living regarded as “adequate” by all members of the public who took part in this research.”
This research will be terrific to use in the classroom when teaching about living standards, positive and normative statements, and disagreements between people about what constitutes a modest but adequate income required to meet our daily needs and wants. Crucially it tries to identify how we should define a minimum income standard.
“A minimum standard of living in Britain today includes, but is more than just, food, clothes and shelter. It is about having what you need in order to have the opportunities and choices necessary to participate in society. The minimum seeks to exclude items that may be regarded as ‘aspirational’ – it is about fulfilling needs and not wants.”
The full copy of the research is available here in pdf format
My Primark Answer, and More Questions
I’ve just finished reading Tom’s excellent The Primark Question over on the Business Studies blog and it has inspired me to write an entry on the so-called “sweatshop economics”.
read more...»Well that camel ain’t gonna fit there…
Over the last few weeks it seems like I’ve been discussing nothing but competition policy so I’ve decided to omit the two new stories about the OFT challenging tobacco companies and supermarkets, and cover something else a little more miscellaneous: the annual bitch about the UK’s super-rich.
More to life than GDP?
Happiness economics is a topic very much in vogue at the moment, and this year’s edition of Social Trends has clearly paid homage to that fact by including a measure of subjective well-being: Satisfaction with standard of living and financial prospects [Table 5.5]. The data made no attempt to debunk the Easterlin paradox: while household income has increased by over 60% and household wealth has more than doubled, satisfaction with standard of living has remained constant at around 85%.
read more...»Measuring the Black Economy
Moonlighting, ghosting,working for cash in hand, undeclared business profits, fraudulently claiming welfare assistance, failing to register a business for VAT purposes and organised crime. All of these ‘economic axtivities’ are said to operate in the shadow or informal economy and no one including the authorities have much of a handle on just how large is the size of the black economy.
read more...»Deflation in Goods
I have an admission to make. A few weeks ago I inadvertently dropped my digital camera and my Blackberry into a toilet during a rest-stop at Portsmouth FC’s training facility! The camera is now useless but the Blackberry survived intact and working fine!
Having decided to replace the camera I find on Amazon.co.uk that the same make is available for twenty per cent less than at the same time last year and perhaps a good example of the heavy rate of annual price deflation in the prices of household goods in the UK. In part this helps to explain why the official measures of inflation captured by the CPI and RPI remain relatively low despite sharply rising food, fuel and utility bills. But critics of the RPI and CPI calculation retort that few households replace their household goods every year – so price reductions have little direct impact on their annual cost of living. The Times covered this trend in an article in yesterday’s paper.
“According to Pricewaterhouse-Coopers (PwC), the accountants, the prices of everything from a kettle to a camera have tumbled by nearly 50 per cent since the early 1970s…..The biggest price-cuts have come in the past decade, as retailers have taken advantage of improvements in technology, the manufacture of products overseas and, most recently, the depreciation of the dollar against the pound.”
How long can this price deflation last? The pound is falling against the Euro and marking time against the US dollar, there is plenty of evidence of surging cost and price inflation in China and other emerging market countries.
Malthus in The Moral Maze
I’ve long been waiting for a chance to plug one of the best radio shows on this blog, and now is the perfect opportunity. Yesterday aired one of the most economic topics on The Moral Maze yet: the allocation of most necessary resource: food. Philosophy took a back seat on this issue as the panel threw words like Malthus and de-regulated markets around like they had PhDs in Economics. Impressive.
Do have a listen, and don’t let the religion tag scare you.
Bhutan and Gross National Happiness
Is there a trade off between wealth and well-being? I missed this Newsnight report from Mark Easton which appeared on BBC2 last month - but came across it whilst revising my work schemes for our new courses next year. This is a terrific eight minute video on life in the absolute monarchy of Bhutan - a country without traffic lights and which has banned plastic bags and adverts for Pepsi and Coca Cola. The video clip is excellent perhaps as an introduction to discussion on living standards or even the basic economic problem.
Tim Harford’s essay on happiness which was published a couple of years ago is still well worth a read.
Costs and Benefits of ICT
We live in an information age and a knowledge economy - but what price do we pay for instantaneous communication?
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