Gangmasters and monopsony power
How many gangmasters are there operating in the UK? Does the Licensing Authority really have a proper handle on the scale of workers being organised and often exploited by gangmaster businesses? I was discussing this issue of monospony in my A2 revision presentations at London and Manchester in the last week. It is I feel one of the really important aspects of market failure in a largely deregulated labour market.
The BBC reports that “a gangmaster has been stripped of his licence after investigators uncovered a “disgraceful story of forced labour” amongst migrant workers in Scotland.” The government has introduced a licensing scheme for gangmasters - partly as a consequence of the awful events that unfolded for the Chinese cocklepickers on Morecambe Bay (captured superbly in Nick Broomfield’s recent film “Ghosts”).
Has competition in postal services delivered?
Two years on from the liberalisation of the postal services industry, has this supply-side policy to make the market more contestable made any noticeable difference to the quality of service, prices and investment in delivery? A new report casts doubt on the changes to the industry since the market opened up to competition at the start of 2006 to businesses such as UK Mail. Robert Peston reports for the BBC in this video clip. His feature asks whether the universal service provision is a millstone round the neck of the Royal Mail which remains in deep financial trouble.
read more...»Jeffrey Sachs on Carbon Trading
Jeffrey Sachs features on “You ask the Questions” in today’s Independent. There are loads of interesting questions and answers - Sachs remains positive about China’s growth potential although he expects it to decelerate to around seven per cent in the years ahead. Here he is on a question about carbon trading .... good evaluation here for students preparing for a question on carbon trading versus carbon taxes versus other policy measures:
“There is a good case for putting a price on carbon emissions but it is more straightforward to do it as a tax rather than a system of tradable permits. It would be easier to tax carbon at source – coal, oil, and gas companies. Tradable permits or carbon taxes will not help develop low-emission technologies. We need to combine carbon pricing with initiatives to promote sustainable energy and farming technologies.”
Catch the remainder of his article here
Labour’s failure on inequality
Gary Duncan has a really important and useful article in The Times today on the issue of persistent and deep-rooted relative poverty in the UK - something which transcends the political posturing of recent days and weeks over the furore about the abolition of the 10% starting rate of income tax.
“The stark truth is that after a decade of Labour Government, Britain is a nation of greater income inequality, in which the plight of the very poor has worsened. True, Labour has succeeded in lifting half a million children out of poverty since 1998. Yet the Government’s figures are based on a poverty line drawn at 60 per cent of average incomes. If it is placed, instead, at 40 per cent - officially defined as “severe poverty” - the picture looks much bleaker, with the numbers of children in such dire straits no lower than in 1997.”
This is a superb article to read for those students revising for exam questions on income and wealth inequality. A BBC news article from March highlighted the widening wealth gap and here is a reminder that inequality is not solely a question of disposable income.
The rest of Gary Duncan’s article can be found here
Organic growth for Costa
It is early days yet, but the new Costa Coffee store on my local high street seems to be bedding in nicely. The passing trade has been boosted by providing free wifi access in store (I am sat here now enjoying a small latte writing this blog article) and there is a really nice open patio area behind the building for coffee-lovers to sit watching the Thames go by. The Starbucks over Windsir Bridge is fast becoming a distant memory.
Whitbread, the owners of Costa Coffee and Premier Travel Inn has announced plans today for a very large organic growth of their business - the number of Costa stores worldwide is set to double and the room capacity of their budget hotel business may grow by 50% over the next five years. How recession-proof are these businesses? Despite the increasingly congested markets for retail coffee sales (McDonald’s is making a strong pitch for some of the action) I reckon they are a decent bet providing Whitbread can keep their costs under tight control and limit price rises on the high street. With a weakening pound against the Euro, many more people are likely to holiday at home this year and next boosting the demand for good value budget hotel accommodation en route or at chosen destinations.
Aspects of labour market failure
I have been researching some video clips for a presentation on labour market failure at the Tutor2u revision workshops - here are a couple of good ones. This BBC report looks into exploitation of migrant workers by a gangmaster business which has had its licence revolked. And Hugh Pym reports on the rising level of relative poverty in the UK despite sixteen years of economic growth. Finally this clip comes a series of progammes from BBC South East on ‘Breadline Britain’.
Revision: Labour Market Failure
Markets fail when they do not reach an efficient and/or equitable outcome from society’s point of view. At AS level, you will have studied many examples of possible market failure ranging from the provision of public and merit goods through to externalities and the welfare consequences of monopoly power in markets. At A2 level, you are asked to explore some issues relating to labour market failure. This revision note flags up a few of them:
Revision note:
Revision_Labour_Market_Failure.pdf
Amazon’s new warehouse
The leading online retailer has opened a distribution centre in Swansea Bay, which will create 1,200 jobs - this BBC news video is a great clip to show to demonstrate some of the economies of scale that Amazon is able to exploit when building a warehouse of such enormous size and students can also get a feel for some of the local and regional multiplier effects from the investment and the importance attached to such inward investment for the Welsh economy. The evaluation in discussion could be broadened to include the widening range of products that Amazon is now stocking and selling together with the fact that the majority of products in the warehouse have been imported.
Revision: Stakeholders
Introducing the concept of stakeholders can add greatly to the quality of your economic evaluation in answers to essay and data response questions. This revision note looks briefly at the stakeholder concept and some of the issues where it might be relevant in AS and A2 economics questions.
Revision note
Revision_Stakeholders.pdf
The external costs of food waste
Over 4 million apples and over a million and a half bananas are thrown away in Britain every day. This video from Newsnight is excellent on the external costs of the food we throw away - estimated by some to be worth around £8 billion a year. Should we actively encourage food scavengers? What are the strategies we should be adopting to reduce the amount of food thrown away? This is a good topic to use to teach evaluation skills for AS microeconomics.
Revision: Trade Unions
Recognise these guys? I will hazard a guess that a normal sixth form economist will struggle to name more than one of the people pictured! All of them are senior figures in the trade union movement but such is the scale of the long term decline of unions that few union leaders command much in the way of public awareness beyond the confines of their own union community. This revision note looks at trade unions in the labour market and is designed for A2 students.
Revision note:
“Benign”, eh?
Today the Office of Fair Trading has filed a press release accusing 112 construction companies of price-fixing. Estimated to be hundreds of millions of pounds, this will dwarf the previous record fine of £121.5m on BA last year and the £116m penalty on supermarket milk price-fixing. Some of the biggest names such as Balfour Beatty and Carillion have been accused, and shares in the construction sector generally dipped in London today.
read more...»Unsustainable world
BBC’s Newsnight has been running an excellent series of programmes - Unsustainable World” - here is the link to the relevant web site
Tesco adds to contestability in digital downloads
News today of yet more competition in the increasingly contestable market for music and film downloads. Tesco Digital is launching a new platform-neutral service which eventually will offer 3.3m music tracks compatible with iPods and other MP3 players. At the moment, the downloable tracks are only available in windows media player format. The move heralds yet more pressure for high street retailers such as HMV who are also building an online presence. Do you think that Tesco’s move will be a success?
Revision: Income Inequality
In this revision note we recap some of the causes of income inequality in the economy and look at what has happened to income inequality / relative poverty in Great Britain in recent years. Aimed at AS and A2 students.
Revision note:
Revision_Income_Inequality.pdf
Competition or informal price fixing?
Sainsbury’s is completely awash at the moment with price check stickers on hundreds of branded grocery items from rice to sauces, from pizzas to soups. On the surface a sign that the supermarkets are competing with each other to keep down the prices of basic items at a time when household budgets are being stretched (the big marketing push at Sainsburys at the moment is the idea that you can feed a family for a fiver).
read more...»Revision: Business Pricing Strategies
This two page revision note is designed for A2 economists and considers some of the factors that can influence the pricing behaviour of businesses - notably a move away from maximising behaviour when setting prices and the impact of increased market contestability and technological change.
read more...»
Oasis Airlines - Don’t Look Back in Anger
A rash of low cost airlines have crashed out of existence in recent weeks as new carriers struggle to break into markets and cope with the added turbulence of steep rises in fuel costs and a weakening of global economic growth. The latest casulty is Oasis Hong Kong Airlines which collapsed into financial liquidation yesterday and suffered the same fate as Skybus, Aloha Airlines, ATA and Maxjet Airways.
It was always going to be tough for Oasis Airlines to compete effectively with the likes of Cathay Pacific, British Airways and Virgin Atlantic flying long haul to Asian destinations out of Gatwick who have effectively sown up the business class revenues. Industry experts claimed that the airline had too little in the way of start-up capital and that its cost base was little difference from the major established carriers. One criticism was that Oasis devoted 25% of its seating capacity to business passengers reducing the total number of seats available. Seat prices from London to Hong Kong starting at £65 were simply uneconomic and some reports estimate that the business built up operating losses in excess of 1 billion Hong Kong dollars during its short existence.
Fast economic growth in Asian emerging market countries will mean that market demand for airline travel will continue to grow strongly in the years ahead, no doubt there will be other new entrants into the market looking to establish a foothold.
Revision: Progressive and regressive taxes
A row has been brewing within the Labour Party about the decision by Gordon Brown when he was Chancellor – confirmed in the 2008 Budget – to scrap the 10 per cent ‘starting rate of income tax’ partly as a way of reducing the basic rate of income tax from 22% to 20% (from April 2008). One of the related issues to this is how the income tax system affects the final distribution of income in the UK and, in particular, the distinction between progressive and regressive taxes. This revision note is for AS and A2 students and considers amongst other ideas, the progressivity of the UK income tax system.
Revision note article
Revision_Progressive_Regressive_Taxation.pdf
Interest rates, exchange rates and annual holidays
As expected, the Monetary Policy Committee of the Bank of England has cut the base rate by 0.25% today.
read more...»Revision: Improving Evaluation Skills
This is a revised version of one of our regular resources on tips and strategies for AS and A2 economists to improve their evaluation skills and gain higher marks in their exams.
Revision Note:
Improving_Evaluation_Skills.pdf
Revision: The Shut Down Point
This revision note is for Unit 5 (A2 micro) and looks at when businesses might decide to close down production or take products out of a market in the short and the long run.
Revision note file
Revision_Shut_Down_Price.pdf
Contestable Markets - Online Music
When was the last time you went into a store or ordered a CD online? The BBC web site reports that iTunes has overtaken Walmart as the biggest retailer of music in the United States. Over 50 million people have used iTunes since its inception but the market for downloadable music is becoming more and more contestable as the major players line up for a share of the supernormal profits that are available. MySpace has entered into a joint venture with Universal, Sony BMG and Warner and will now compete with rivals such as Last FM (a free streaming service) eMusic and Napster. According to the new data (which covers the month of January) 48 percent of US teenagers didn’t buy a single CD in 2007, compared to 38 percent in 2006. Paid music downloads in the USA accounted for almost 30 percent of all music sold in January.
Music sales in the USA (for Jan 2008)
iTunes Store - 19 percent
Wal-Mart - 15 percent
Best Buy - 13 percent
Amazon - 6 percent
How important do you think ‘first mover advantage’ is in this market? As a dedicated iTunes user I haven’t even looked at competitor services for many months now.
Carbon prices head higher as emissions targets start to bite
There was some important information this week from over 10,000 power generators, steel, cement and aluminum manufacturers. The effectiveness of carbon trading in creating the right incentives for power users to cut emissions depends on there being a scarcity of carbon permits reflected in a price high enough (and sufficiently predictable in the medium term) for investment in improved fuel efficiency to be commercially viable. A couple of years ago the market price of carbon collapsed when it became clear that the EU had been overly generous in handing out free gifts of carbon permits. The criticisms were valid and the long term future of the carbon trading scheme was called into question.
But the signs for the second phase of this innovative market mechanism look more promising.
read more...»Revision: Economies of Scale and Scope
This revision note looks at economies of scale and scope - the cost advantages from exploiting increasing returns to scale
Revision_Economies_Scale_Scope.pdf
Revision: Ownership and Control
Is the new breed of shareholder activist an important voice and counter-balance to the power of entrenched management - willing to stand up to poor ethical behaviour and highlight ineffective management? Can they help to overcome the principle-agent problem? Or are they merely aggressive corporate raiders seeking short-term corporate change merely for their own personal gain? This revision note is aimed at A2 economists and covers the topic of the divorce between ownership and control.
Revision note:
Ownership_Control_Activist_Shareholders.pdf
Revision: Growth of Businesses
The growth of businesses is related to several other topics at A2 level – including:
Economies of scale and scope
Development of monopoly power in markets
Different objectives of businesses e.g. growth max rather than pure profit max
The role of profit in allocating scarce resources
Competition policy and economic welfare – market power issues
This 3 page revision note looks at why firms grow and how they grow with lots of recent examples to supplement your notes. There are no analysis diagrams in this revision note - but do think about which diagrams you might be able to use.
Revision note:
Business_Growth.pdf
A new era for air travel
Today marks a momentous triumph for competition over protectionism. Anti-competitive practices dating back to the 1944 Chicago Convention will finally be scrapped for the new Open Skies agreement between the European Union and the United States. Currently, only British Airways, Virgin Atlantic, United and American Airlines are legally allowed to offer direct flights from Heathrow Airport to the US. But after the deregulations of transatlantic air travel, the market will at last be open to competition from challengers.
read more...»UK migrant flows starting to reverse?
Migrant flows starting to reverse
There are signs that the huge inflow of migrant workers predominantly from eastern european countries which has boosted the effective UK labour supply in recent years is starting to go into reverse.
read more...»Revision: Short run production and costs
At A2 level there is a hefty chunk of analysis to do with production and short run costs – this revision note takes you through the key points. Check through your notes and make sure you understand the ideas. You can then check your understanding by using the revision multiple choice tests on the Economics VLE. I have attached a 3 page word file which revises this topic and looks at the key concepts and diagrams.
Revision document
Revising_Production_and_Costs.pdf
Revising_Production_and_Costs.doc
