Pay freezes and macro performance
The forum post I am setting my AS macro students this week focuses on the possible economic impact of wage cuts and pay freezes. I am hoping it will help to develop their evaluative skills and get them to apply some AD/SRAS concepts. As the UK economy continues to experience a recession, pay is under pressure. The average wage in Britain, including bonuses, fell by 0.4 per cent in the three months to March 2009 – knocking about £95 off annual salaries to £24,000. People working in the private sector are at highest risk of a wage freeze or actual wage cut and public sector workers are also at risk of pay freezes in the months ahead.
Suggested reading
Half of UK firms plan a pay freeze (Telegraph)
Pay freeze in deal to save car plants (Independent)
Osborne plans one-year public sector wage freeze (Independent)
Outlook for jobs will remain grim for several years (The Times)
Wage cuts might condemn the economy to more misery (Telegraph)
FTSE bosses get big salary rise (BBC news)
Examine some ways in which a move towards wage cuts or pay freezes might affect the macroeconomic performance of the UK economy
The forum posting is designed to encourage students to read around the subject, develop a concise written style and build evaluation skills. The Moodle system is set up so that students can only see the postings of others once they have submitted their only entry. I will post a couple of replies later on in the week.
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A Case Study in Labour Mobility - 50 Jobs in 50 Weeks
Perhaps we should expect nothing less from an unemployed Economics graduate, heavily in debt who had become desperate in search of a fulfilling job. Californian Dan Seddiqui went from being homeless and unemployed to getting 50 different jobs in 50 different US states in just 50 weeks and his story is featured in today’s Daily Telegraph
“In just 50 weeks Dan tried everything from being a lobster catcher, a jazz conductor, a TV weatherman and even a Las Vegas wedding planner.” Naturally a book is on the way!
This article is perfect as a starter teaching resource when discussing occupational and geographical mobility of labour and the natural and structural barriers that prevent others doing something similar in their search for worthwhile work.
Strictly Labour Market theory?
One of the most cumbersome terms in Economics is the Marginal Revenue Product of Labour (MRPL), which we encounter during our A2 Micro lessons. The phrase itself is one of those clumsy things that many students find hard to get clear in their minds quickly.
read more...»Marx and the labour theory of value
The latest extract from Edmund Conway’s new book “50 Economic Ideas” looks at the work of Karl Marx and in particular the validity of his labour theory of value
“At the heart of Marx’s theories was the labour theory of value. This idea, laid out in Das Kapital (1867), states that a commodity is worth the amount of time it takes for someone to make it. So, for instance, a jacket that takes twice as long as a pair of trousers to stitch and sew ought to be worth twice as much. However, he argued, those who ran companies pocketed disproportionate amounts of the profits themselves. The reason bosses get away with this, Marx argued, is that they own the means of production and so are able to exploit their workers.There are question marks over how well the labour theory of value holds up. However, the broad thrust remains undiminished: that there is a major divide between the wealth and opportunity of those who own land and capital and of those who do not.”
The rest of the article can be found here
Economics Snapshot - EU Migrants in the UK Labour Market
Migrants from EU Accession Countries
2004-08
Average age 26.5
*1/3rd have been in higher education
*90% employment rate whilst in the UK
*Hourly wage of £6.80 compared to UK average of £11.90
*12% claimed benefits or tax credits
*6.5% lived in social housing
Source: Centre for Research and Analysis of Migration at UCL
Short time working is a sign of labour market flexibility
The Times reports a sharp increase in the scale of short-time working in the UK economy as businesses respond to the challenges of the recession by offering workers reduced hours (and gross income) in return for a better chance of keeping their jobs.
“Some 123,000 workers were working “short-time” between January and March this year, up from 36,000 in the same period last year, the most recent official figures show. Men were the worst affected, with a 286 per cent rise in the number of short-time male workers.” Manufacturing and service industries are both showing a move towards fewer hours, the car industry has been at the forefront of temporary plant closures, reduced shifts and extended holidays.
The true test of a flexible labour market is during a downturn. Are workers prepared to be flexible in their pay demands? Do businesses maintain spending and a commitment to training even when finances are tight? Can the newly redundant be sufficiently occupationally and geographically mobile to find work even though the number of unfilled job vacancies has shrunk considerably?
The trade unions are lobbying for a government subsidy for short-time working to encourage firms to hold onto their workers rather than make redundancies.
Ireland in the grip of deflation
The debt ridden Irish economy is plunging into a period of price deflation according to new figures on consumer prices. The Irish economy is more exposed to the dangers of inflation than most because the private sector of the economy has a level of outstanding debt equivalent to around 175 per cent of GDP. The big risk is that a persistent downturn will bring about reductions in wages and prices and increase the real value of unpaid debts.
RIP RPI?
A headline in today’s Times
“Threat of deflation as retail price index falls to lowest-ever level”
I am confident that every AS and A2 economics student in the land will spot the obvious error in this headline! There is a world of difference between the general level of prices and the annual rate of change of prices!
Here Hugh Pym considers whether wage freezes or pay cuts will become a more frequent feature of the labour market during the recession.
Revision: Wage Cuts in a Recession
What connects professional rugby players at Gloucester RFC, staff at Swindon’s Honda car plant, employees of the successful Game retail store and thousands of people working for the Royal Mail? The answer is that all of them have been asked either to take a pay cut for the year ahead, or at the least endure a wage freeze until economic conditions improve. They are part of a growing trend.
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Mexico - a rough deal from NAFTA?
The North American Free Trade Area (NAFTA) includes Mexico, the USA and Canada, and was introduced back in 1994. Whilst the USA and Canada are highly developed countries, Mexico is officially classed as a middle-income country (GDP per head is only around a quarter of that in the USA). Comparative advantage suggests that all countries can benefit from free trade. Many Mexicans, however, believe this isn’t true and that they’ve lost out as a result of their NAFTA membership.
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