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Local Government Association calls for change in rules on allowing term-time holidays

Friday, October 24, 2014
by Jonny Clark

The Local Government Association (which represents local councils in the UK) have joined the debate about term time holidays for pupils this week.  They argue that current rules banning term time holidays or imposing fines on those families who take such breaks do not recognise the complexities of modern families and also prevent poorer families from affording vacations that are invariably dearer during the holiday period.

It struck me whilst reading one of the reports that the suggested policy is to allow head teachers that most quantifiable of options, 'common sense', to make decisions on a case-by-case basis would be the sort of argument that would make me scream if a student wrote it in an assessment answer.  Economics students, unlike Local Government officials, need to take a much more analytic approach to this question!

So lets throw some economics into this question.  We know that education is deemed to be a 'merit' good.  Without some degree of free access to education it will be under-consumed.  The right sort of education leads to an empowered and more effective workforce promoting economic growth.  Unleashing the talents of our society, no matter their familial income group improves equality and efficiency.  Operating within certain regulatory boundaries in terms of attendance guarantees a more effective delivery of the curriculum and for economies of scale to be more apparent to schools.

But why not allow some greater degree of flexibility with attendance?  The biggest argument appears to be drawn from the fact that holidays are cheaper during term time.  People could afford more holidays or better holidays if they were allowed to go at any time.  You could make a strong argument that the availability of holidays also impacts on effectiveness in the workplace.

An economist, however, would ask the question about why prices (which are the greatest signal of demand and supply) are cheaper during term time.  Some of the price reflects supply - ultimately holiday places are limited in their availability and, no matter what school regulation exists, more people will wish to take vacations during the summer months because of the weather.  The price has to reflect that supply restriction.  Some of the price, however, also reflects the demand factor - school children are on vacation so demand is greater.  If term time holidays became more common then their price would increase as well.

What about the equality argument?  There is an argument that the current policy isn't effective here.  Schools (and councils) can impose fines on non-attendees.  There is evidence that parents are weighing up the cost of this fine compared to the saving made by taking their child out of school and making a savvy judgement.  Perhaps the current fine isn't large enough!  Perhaps the fine levels were not decided by economists!

Of course, I would expect my students to suggest alternative policies if they didn't like the one on offer.  Could allowable non-attendance be means-tested so that poorer families were allowed more time off school?  Could the school year move away from the term-time/holiday model and be open 52 weeks a year with school pupils allowed 'leave' at any time other than exams?  

What's the best alternative policy that your students can suggest?

Free nursery places for 3 year olds appears to have no impact - an example of Government Failure?

Wednesday, October 22, 2014
by Jonny Clark

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?

Nicky King, of Radley College in Oxfordshire, uses the iCause acronym to remember how to analyse government failure. The letters stand for:

I – inadequate information

C – financial cost/opportunity cost

A – administrative errors

U – unintended consequences

S – self interest

E – (lack of) expertise

How does the free nursery place issue stack up to this analysis? You could argue that the policy implementation may well have been based upon inadequate information – perhaps from academic research that actually couldn’t prove the impact of the policy until it was actually in place. The policy sounds like it should work but was it something that a popular (in terms of votes) government would do to please the electorate (S – self interest). The unintended consequence is the fact that the vast majority of users of the free places would have paid for educating their 3 year old anyway increasing the burden on the government revenues. Of course, there is a significant opportunity cost here – the policy remains in place at a time when the government are cutting back on lots of other public services.

Nicky’s ‘What Went Wrong?’ activity is available as part of the Wow Economics CPD event and resource pack, with details available here.

Click on this link to see an article from the Telegraph about the free nursery place policy.

Public sector pay and pensions are why the deficit stays high

by Paul Ormerod

Why can’t the UK government get its deficit down? This question has been exercising commentators recently, in the light of the latest assessment from the Office for Budget Responsibility (OBR) that George Osborn will once again miss his target for the deficit in the 2014/15 financial year. Of course, the size of the deficit has fallen, from the £157 billion which Labour bequeathed in 2009/10 to £108 billion in 2013/14. But it does just not fall as much as either the OBR consistently predicts it will or the Chancellor would like it to. This limits the ability of the government to deliver tax cuts in advance of the election next year.

A common, and plausible, reason is that there has been a shift in how the economy operates. Output has recovered strongly, but earnings have not. The bargaining power of employers is stronger, many members of the workforce have a more flexible attitude to how much they work, so take home pay rises remain below inflation. As a result, the amount of tax flowing into the government’s coffers is not as much as would be expected on the basis of evidence from previous economic recoveries.

But the fundamental reason is that remuneration in the public sector remains too high. The recent strikes by Unite and other unions show that many people on the conventional Left seem to believe that the purpose of public expenditure is to boost the private consumption of those employed in the sector. The continued existence of annual increments in much of the public sector has no counterpart in the private sector. In the latter, pay increases have to be earned. In the former, for many workers they are automatic.

An argument which is used to justify the gap between pay in the public and private sectors is that the level of qualifications of public sector workers is on average higher. This is entirely spurious. What counts is not what goes into the production process of an organisation, but what comes out at the end. Countries in the former Soviet bloc, especially the East European satellites, had high levels of educational attainment. But the quality of much of what they produced was very low. The Trabant, for example, was a very popular car made in the old East Germany. But once trade with the West was opened, its value fell to essentially zero.

Gordon Brown started off well as Chancellor. He kept us out of the Euro and kept a grip on public spending. But he began to have delusions in the early 2000s that he had solved the problems of boom and bust and could do anything. Brown started to stuff money into the pockets of Labour’s core vote in the public sector. The result was that a structural deficit emerged in the UK’s public finances before the crisis of 2008 struck. Any Chancellor who is serious both about fairness and about eliminating the deficit needs to cut make serious reductions in public sector pay and pension entitlements.

Paul Ormerod is an economist at Volterra Partners, a visiting professor at the UCL Centre for the Study of Decision Making Uncertainty, and author of Why Most Things Fail: Evolution, Extinction and Economics.

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