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.
Revision - Labour Market Failure (presentation)
Here is a revised streamed presentation on market failure in the labour market
read more...»Deep Very Deep
Here is a great example of occupational mobility and transferable skills in the labour market. With the UK construction industry shedding thousands of jobs among highly skilled workers, another industry is booming and trying to encourage newly redundant workers to retrain for a trade as a deep-sea diver. The Underwater Centre in Fort William has a world-class reputation for providing professional diving courses and demand for divers has been booming as the oil and gas industry looks to step up production in response to rising prices.
“According to the International Marine Contractors Association (IMCA) who represent over 350 offshore marine and underwater engineering companies worldwide, over 40 more floating drilling rigs will be commissioned over the next two years, creating a demand for 5000 more support roles, of which commercial divers and ROV operators make up a proportion.”
The work is arduous and risky but the rewards are good providing that people are able to work their way through the training programme.
This story helps to apply lots of economic concepts linked to the labour market
Opportunity cost of paying for a diving qualification
Occupational mobility of workers when they are made redundant
The elasticity of supply of labour to highly skilled jobs such as deep-sea divers
Outward shift in market demand for labour and the effect on wages
The derived demand for labour
Here is a BBC report on this story
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
Unemployment - In Charts
The labour market provides a rich stream of information about what is happening in the real economy. It is often said that the number of people of work is a lagging indicator of the economic cycle - is that true this time around? Unemployment is still falling on both of the main published measures. And the number of people in work has never been higher. Thus far the signs from the labour market do not suggest an economy teetering on the brink of a slowdown or, worse still, a full-blown recession. My new ‘labour market in charts’ provides a set of fourteen up to the minute charts and is streamed here. The presentation can also be downloaded from the Tutor2u web site, it might be a useful resource if you are teaching aspects of unemployment at AS and A2 level.
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