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Does it make sense for a business to pay its staff as little as possible, in order to cut costs and be more competitive, or to raise wages in order to stimulate greater motivation, and gain employee loyalty, thus cutting costs on recruitment and training? In part one of The Price on Inequality on Tuesday, Robert Peston was looking at the widening gap between the highest income earners and the rest of us, arguing that while income and wealth inequality was seen as 'almost a good thing in the 1980's', it is now being seen as one of the greatest economic problems facing us. An article in The New Yorker, 'The Return of Fair Wages', examines a similar theme, looking at a decision by an American company to substantially raise the wages of their lowest-paid employees. Since 2000, 'real' wages in the US have hardly changed, while many US employers are making decent profits and the incomes of the top 1% have risen by nearly 60%. Mark Bertolini, CEO of Aetna (a medical insurance company) has announced that the company’s lowest-paid workers will get a substantial raise—from twelve to sixteen dollars an hour, in some cases—as well as improved medical coverage as part of their package. This article offers some interesting comment on why it may be worth paying employees a little more than the Marginal Revenue Product of their Labour.read more...»
The weekend newsletter from the Institute of Economic Affairs has this 2-minute video about the regressive impact if indirect taxation on those with the lowest incomes. The message comes very much from the free-market perspective of the IEA, which may or may not be to your taste, but serves as a very good stimulus to discussion and analysis. The data that supports their argument for a reduction in indirect tax can be found in a report titled Aggressively Regressive.
Habitual Radio 4 listeners will already have heard the trailers for a programme coming up on Tuesday morning at 9am called The Price of Inequality. In two 30-minute programmes, Robert Preston will be investigating the cause of the growing gap between the rich and the rest of us in the UK, and assessing whether it matters - this sounds like essential listening for A2 students, and will be available on i-player after it has been broadcast.
The World Economic Forum at Davos tends to stimulate and showcase lots of fascinating material, and has a focus on global issues which is of particular interest for teaching about developing economies - all very useful for Edexcel Unit 4. I strongly recommend having a look at a new BBC collection called A Richer World which is a rich source of data and strong material for application of the theory we are teaching in the Growth and Development section of the syllabus.
If you don't get around to using anything else from there, I strongly recommend a great 3.45 minute video of Hans Rosling and Evan Davis analysing changing global inequality with the aid of seven snowballs.
Inequality is on the rise. Not so much between countries as within them. There is some worrying indications, reported this week, that the gap between Britain’s best performing and worse performing regions remains thoroughly entrenched.read more...»
This issue is emerging as one of the big, if not the biggest, economics story of our times. The world is vastly richer than in even the recent past, with many poor countries making good progress in catching up with the richer ones.
Yet within almost all economies, income and wealth gaps are widening. Last year Oxfam were talking about a double decker bus, representing the world’s richest people, who own half the wealth. This year wealth is concentrated in even fewer hands.read more...»
The economic news this week has been dominated by the announcement of a very low rate of inflation. Information from the ONS shows a few more interesting nuggets of data that economics students might like to know.
A reminder, also, that when we start talking quantiles, deciles and indexes, we are now only a few short months away from the arrival of new specifications for the A level and teachers need to start thinking about how they will integrate further quantitative methods into their lessons. If you wish to know more, stock up on a few resources and think about how the A level will change please join us on our latest teacher CPD event in London on the 12th of February looking at how to Master Quantitative Methods (book online from here).read more...»
Here's one of those stories that help illustrate the point about de-merit goods really well. The Children's Food Campaign are calling for a specific tax on sugary drinks to help combat obesity in children. Key points:
- Sugary drinks is the example of a de-merit good
- Tax is the proposed strategy for reducing consumption
- Costs of obesity given here (in terms of number of illnesses that could be reduced)
- Article gives a counter argument from British Soft Drinks Association using evidence from France
Click here to read the article from The Grocer website
Two reports published in the last 48 hours provide some really useful background for teaching about policies to address the issues of poverty and inequality in developed economies. The Report of the All-Party Parliamentary Inquiry into Hunger in the United Kingdom was published yesterday, and concluded that because of falling real incomes, delays in paying benefits which people are legitimately entitled to, and sharp rises in fuel bills, many families are "one unexpected bill away from financial crisis".read more...»
Julie Walters is the latest actor to claim that opportunities for young actors in the UK are unequal in today's Daily Mirror. There seems to have been a slew of similar claims in recent months from the likes of Ian Mckellen, Judie Dench, Stephen Morrisey and Stephen McGann.
How would economists illustrate this issue?
If you are an A2 Economics student (and depending on which awarding body you sit), you may well have covered Marginal Revenue Product, drawn the 'walking stick' MRP curve and applied such a theory to inequality of opportunity for females or people from a minority ethnic background in the UK. Could the same be applied to acting?read more...»
Every so often I read an article and start to tot up the number of economic concepts being covered in just a few words. This occurred to me again this morning when reading this BBC news article on train fare rises. Train fares are pegged to July's inflation rate and, as inflation is quite low at the moment, this means that the average rise of 2.2% is also relatively low (although regular train users may still feel aggrieved).
Have a read yourself and see how many concepts crop up or give them same exercise to your A2 students. My thoughts are below:read more...»
If you're looking at government intervention to correct market failure then you may find this 5 minute resource of value. Using statistics compiled from Professor Tony Travers of the LSE, highlighted in this article, it asks students to predict which local government budget areas will see the largest cuts by 2018.read more...»
The poor countries should catch up with the richer ones, in theory, at least. And between 1988 and 2008, global inequality, as measured by the distribution of income between rich and poor countries, has narrowed, according to the World Bank. But within each country, there has been widening inequality in many poor places.read more...»
Reports out over the last couple of days suggest that government spending on free nursery places for 3 year olds since 1998 has not produced any valuable educational or economic outcome. The policy was introduced as part of a series of reforms introduced by Tony Blair when he came to power in 1997. The Blair Government saw it as a method of reducing the differentials between educational attainment of poorer and wealthier sections of society and promoting a speedier return to work for some mothers.
Researchers studying the impact of the policy during the 2002 to 2007 time period, where spending on the policy amounted to more than £7bn found that the education received at age 3 had some impact on attainment at age 5 but any improvements were lost by age 11. The research suggested that the policy had only a minor impact on enabling more women to return to work earlier. Also, there is evidence that 5 out of 6 users of the free place would have gone to a paid-for equivalent at age 3 anyway.
So, does this offer us a good example of government failure in economic and social policy?read more...»
One optimistic observation in economics is that poor countries should be able to catch up with the richer ones, since it’s easier to grow from a low level of GDP to a higher one. This observation was made by Nobel-winner Robert Solow in 1956, and is based on the idea that low income countries are poor because their workers have access to less capital. This capital shortage (i.e. insufficient infrastructure) implies that the return on investment should be high, so capital should flow from rich countries to poor ones, leading the two worlds to converge on similar levels of productivity and income.
Furthermore, in this theory, growth in rich countries is driven by new technology which, once developed, could be adopted by poorer economies too. Indeed, the poor could potentially learn from the mistakes made by the rich, and leapfrog directly to more productive ways of doing things.
And so it seemed. From the late 1990s to 2008, poor countries were catching up fast. But that catch up seems to have slowed down (see chart above).read more...»
I love a story that really can resonate with students and get them 'irked'. It struck me yesterday that reading about a recent Bristol University research paper that claims that school admission policies lead to greater inequality might strike a chord with some young people.
The study suggests that the common policy in the UK of prioritizing admission places in primary and secondary schools based upon how close a student lives to that school continues a cycle of inequality. The argument is that, wealthier people are more able to afford to move to areas with higher performing schools and so are more inclined to do so. People without that facility have less choice in where to send their children and may have to stick with local schools despite their relative poor performance. So the cycle continues ..... poorer people receive a poorer quality education and are therefore less equipped to get the necessary qualifications to earn higher wages.read more...»
Economics examiners like you to be able to differentiate between two types of poverty. We come out with statements like “of course you don’t get absolute poverty in Britain”. But I’ve just been reminded that it’s not so long ago that some people in the UK lived a very threadbare existence. Even today there are pockets of shocking deprivation.
When the issue of poverty crops up in the UK, we tend to be referring to relative poverty. But might there be good reasons to stop using that term?read more...»
Here are a couple of current UK problems. Firstly, although the economy is recovering strongly, tax receipts aren’t. Secondly, flaws in the way the welfare system operates may be creating disincentives in the labour market. Could a radical proposal: streamlining the whole welfare system by paying everyone a ‘citizen’s income’ help?read more...»
At the end of last term all our year 12's were set the task of writing a short article about a different developing country. They were tasked with covering:
- Key information- e.g. GDP, HDI, Gini coefficient, indicators of level of poverty/development
- What factors are limiting growth & development in this country
- How is the government and other stakeholders trying to promote growth & development in this country
- How successful have they been so far?
I have collated all these articles together into an e-book which teachers and students studying development economics should find very useful to make use of as part of the course.read more...»
Each year the Human Development Report published by the United Nations gives a special focus on a particular issue related to development. In 2014 that issue is vulnerability.
To quote from the opening of the report:
"Real progress on human development, then, is not only a matter of enlarging people’s critical choices and their ability to be educated, be healthy, have a reasonable standard of living and feel safe. It is also a matter of how secure these achievements are and whether conditions are sufficient for sustained human development. An account of progress in human development is incomplete without exploring and assessing vulnerability."read more...»
The UK Financial Conduct Authority has announced direct interventions in the market for payday loans - the high cost short term loans market which has expanded rapidly in recent years led by businesses such as Wonga. The decision is the result of a detailed assessment of the industry which had flagged up a number of market failures.read more...»
The financial crisis has undoubtedly created a demand in popular culture for works which portray capitalism in a bad light, such as the recent best seller by Thomas Piketty. Piketty’s writing has gathered increasing attention from economists, and his arguments do not really bear scrutiny.
The focus of Piketty’s work is the long-run evolution of the ratio of capital to income. He claims that this is now high by historical standards, and will rise even further as the 21st century unfolds. Wealth will become more concentrated and inequality will rise inexorably even more.
The message that capitalism inevitably leads to greater inequality is one that many people want to hear. Unfortunately for them, it is wrong. Piketty assembles an impressively large amount of empirical evidence. This shows clearly that from around 1910 to 1970, inequality actually declined sharply across the West.read more...»
Now that England have made their rationally-predicted (but irrationally-disappointing) exit from the World Cup, who else are we to support? As economists, we need a rational basis on which to make that choice, from a rapidly declining set of options. Help is at hand, in the form of a new index supplied by an economist at Yale University. In a paper published last week in the New York Times, Dean Karlan suggests that we should root for the outcome that will produce the largest aggregate increase in happiness.read more...»
The varied nature of Economics means there are so many (sometimes it can seem too many) themes to explore. And priorities change. Sometimes the main issue is production (making more stuff – and how the value of that is measured). Sometimes it’s exchange (looking at how markets work). Yet distribution (often overlooked, especially when economies are booming) seems the hottest topic at the moment. Inequality tops the bestseller lists.
Here are a few tips and links for using the topic as an intro to A2 economics, great for macro, with scope for analysis and evaluation of UK government policy and approaches to development economics.read more...»
Drawing on data from the 2013 Human Development Report, here are the 24 countries in the 2014 World Cup ranked according to the Human Development Scoresread more...»
The first title in the list of six available to RES entrants is a challenging one!
Promoting growth and fighting poverty should be the priority in the developing world, not reducing greenhouse gases.” Do you agree?read more...»
If you are like me, teaching unemployment starts with explanation of its causes and then moves on to its impact (before discussing possible solutions). I've always found the 'impact' aspect relatively straight-forward; it would seem students find the concept of loss of output and its consequences fairly logical. Discussing the long-term effects can be more difficult as young adults in full-time education may not be wholly empathetic towards the outcomes of job loss.
An interesting report came out from the Nuffield Trust recently (a copy is available from this link) about the increase in the prescription of antidepressants. The increase from 15 million items prescribed in 1995 to 40 million items in 2012 is quite large but the report shows that the biggest jump has come during the economic downturn since 2008. The report hypothesizes on a number of causes of this increase but does suggest a link between unemployment and the increase in prescription of antidepressants. Perhaps it isn't a quantum leap to illustrate that there is a relationship between unemployment and depression but evidence of this nature may be valuable when making a point about the impact of unemployment (and its cost to society as a whole) in the class or as part of an exam answer.
If you’ve looked at labour markets, you’ll understand the basic theory: workers seek to supply more labour as wage rates rise, and the returns to work mount up. However, at some point, the marginal utility of extra leisure exceeds the marginal utility of extra income.
In other words, rich people start working less, because they can afford to. And for most of human history rich people had the most leisure, but that might be changing.read more...»
This short World Bank info-video looks at what $1 buys in China. In China, over 98 million people live on less than 6.3 yuan ($1) per day.read more...»
There has been huge interest in the new book by Thomas Piketty entitled "Capital in the 21st Century". This blog entry will link to some reviews, news articles and short videos on Piketty's ideas and policy prescriptions. In "Capital," French economist Thomas Piketty explores how wealth and the income derived from it magnifies the problems of inequality. At the heart of it is a simple equation R > G - the rate of return on capital is higher than the rate of economic growth. Naturally there is a fierce debate about the data and his methodology!
Recent news articles:
Are we living in the second gilded age? (Linda Yueh, BBC)
Review of "Capitalism in the Twenty First Century"(The Independent)read more...»
A BBC news report on the widening gulf in income and wealth inequality in the United States (and New York in particular). Income inequality is now as high as it was during the worst period of the 1920s. The richest Americans now hold one fifth of all of the country's income - and the top 10% actually hold half of it.read more...»
This Channel 4 news report looks at va growing protest movement among food industry workers campaigning against zero hours contracts and persistent low pay. Zero-hours contracts do not guarantee a minimum number of hours of employment. It has been estimated that 583,000 people, around 2% of the UK workforce, were employed on zero-hours contracts between October and December 2013. The actual figure is likely to be substantially higher than that.read more...»
Metropolitan liberals love to be able to criticise Western society. Recently, their lives have been brightened by the extensive discussion on the rise in inequality since the 1970s, especially in the Anglo-Saxon economies. There is a danger that this essentially anti-capitalist narrative will come to dominate the media, paving the way for increased regulation and the sorts of failed statist interventions in the economy which were a consistent theme in British political economy for nearly four decades after the Second World War.read more...»
CEP Director, John Van Reenen, explains the reasons why inequality in the UK has been rising. For more films covering aspects of economic policy we recommend you take a look at the Facebook page - Click here! https://www.facebook.com/EconFilmsread more...»
Income and wealth inequality in the UK are higher than most people think they are and higher than they think they should be. These are among the messages of a new online infographics film:read more...»
The Gini coefficient is a commonly-used measure of income inequality that condenses the entire income distribution for a country into a single number between 0 and 1: the higher the number, the greater the degree of income inequality.read more...»
The new annual report from the Asian Development Bank outlines what developing Asia needs to promote inclusive growth in the years ahead. Governments in the region should tackle widening inequality that is keeping millions poor, by using fiscal policy to help close income and wealth gaps and promote more inclusive growth, says the theme chapter of Asian Development Outlook 2014. The importance of equity in shaping future growth and development continues to gain momentum across the world and not just in the fast-growing Asian region.read more...»
Removing the barriers to labour market participation that women face in many parts of the world will lead to substantial productivity gains, according to research by Marc Teignier, to be presented at the Royal Economic Society’s 2014 conference.read more...»
There seems little that is stopping the surge in London house prices at the moment but do you think the rapid acceleration of prices is good for either London or the wider UK economy?read more...»
I thought it worthwhile sharing my resources which I have been collecting for students (and teachers alike). I have been promoting them on Twitter (@Economics_KSF) through scoop.it but for those of you not on there, the link for the scoop.it boards are here:read more...»
Concern about inequalities of income and wealth is now a fashionable topic. It featured strongly in the gathering of the world’s top brass at Davos earlier this year. Much of the popular coverage of the topic gives the impression that not only is inequality at record highs, but that it is confined to the wicked Anglo-Saxon economies.
A recent paper published by authors linked to the George Soros-funded Institute for New Economic Thinking shows very decisively that neither of these points is true.read more...»
Inequality is an issue that remains firmly in the spotlight of the news media and also of policy makers in different countries.read more...»
Inequality might be falling between nations as a global middle class is emerging, but inequality is on the rise within nations. Quite why this is happening is a matter of debate, but the International Monetary Fund (IMF) has joined in the discussion asking if rising inequality is an obstacle to economic growth and development.read more...»
Economics coverage of Africa can be a bit bleak (though perhaps it shouldn't be, with incomes rising rapidly in parts of Africa). There are often bad news stories, particularly in terms of human development indicators. News of economic progress often centres on the exploitation of primary commodities, with all the risks and issues that presents.
If you hope Africa will experience development, you’re likely to want to see sustained and robust economic growth. That, in turn, will require industrialization.read more...»
You all know about exploding rates of urbanisation and the growth of mega cities. There’s much to celebrate in this trend, and economists are keen to advise countries how to urbanise successfully.
After all, for most subsistence farmers, life can be so grim that even life in a slum or shanty town can be a marked improvement. I’ve reluctantly admitted this fact to myself, and come to see slums as a stepping stone on the process of development.
A new study, reported in the Economist, suggests I might be wrong, and that we shouldn’t be ready to tolerate slums, and should be more determined to see their eradication – they might even be a barrier to development.read more...»
Natural resource economics are applied in this new World Bank blog to the Eurasian region - plenty of overlap with your studies on the issue in the context of sub Saharan Africa and other parts of the world. Click here for the blog article.
Click here for a blog article on the natural resource curse from Graham Watson (2012)
Our streamed revision presentation on the topic is belowread more...»
If you attended the recent tutor2u revision conferences for up-coming micro-economic exams (look out for the macro workshops and combined micro and macro to come in March) you will have seen how fuel-pricing was used as an example of market failure, government intervention strategies and government failure.
Fortunately, the energy market is a gift that keeps giving to us in the economics world (every cloud has a silver lining) as a report out today (see this link for the BBC version of the story) indicates that Parliament is about to intervene to try and stop the energy companies charging more to customers who pay by cash rather than by direct debit (£114 per year, according to the report).read more...»
As the comedian Mark Steel once said, “anybody who says we’re all middle class now obviously hasn’t been to Wigan” (I can make that joke because my dad’s from there). One huge global cause for celebration is that the scourge of absolute poverty is in retreat. Instead we hear much more about rising inequality within nations, which is progress, of a sort. In amongst these discussions is talk of a rising new middle class (see above – link here). What might this mean?read more...»
Notes from a talk given by Ricardo Fuentes-Nieva (Head of Research at Oxfam) at the Marshall Society Economics Conference in Cambridge in January 2014read more...»
Notes taken from the Marshall Society Economics Conference - this panel session focused on growth and development issues in South Korea and sub Saharan Africaread more...»