Recession Recovery or He-cession She-covery?

Last Sunday there was a very good interview with Canadian economist Armine Yalnizyan on Radio New Zealand’s ‘Sunday’ Programme (with Wallace Chapman). She mentions that the neoliberal policies of the last 30 years have seen income inequality grow and the collapse of consumer spending (C) the main driver of any domestic economy. There has been an increase in the proportion of income accruing to assets which worsens inequality in many countries. China would be an economy that has relied a lot on its export sector (X) for growth but is now trying to drive domestic demand (C) to generate growth. Remember that Aggregate Demand = C+I+G+(X-M). She makes the point that corporates favour the return for shareholders rather than for example
the wages of employees.

“We have this very unusual situation here where corporations are gaining in strength for a host of reasons, similar to the type of corporate power 100 years ago, in key sectors of the economy with less ability to either tax a proportion of the profits they make or regulate their activities.”

Boosting the minimum wage is stimulatory

She also mentions an increase in the minimum wage being stimulatory with lower income groups spending a much higher proportion of their income and thereby increasing consumption. And the vast majority of this spending happens in the domestic economy – C↑. Some have talked of wage inflation by increasing the minimum wage but with the fall in trade union membership and bargaining power this has been significantly reduced. In fact we have seen wage compression.

He-cession and She-covery

However later on in the interview I was interested to her explanation of He-cession and She-covery during the interview.

Recession = “he-cession” – more men tend to become unemployed as areas that are initially impacted by the downturn are manufacturing, mining, construction etc which are likely to be male dominated.

Recovery = “she-covery”: men who lose $30 an hour jobs wince at accepting $15 an hour offers, but women grab them to make sure the bills get paid.

Tight labour market in Japan but wages stagnant.

As is mentioned in simple economic theory, when you have a good or service that becomes more scarce there is an increase in the value of that good or service. The labour market in Japan is becoming very tight in that the supply of labour is starting to decrease with the demand increasing – see graph. This should ultimately lead to higher wage demands by workers as they are becoming more and more scarce relative to the demand. Recent figures out of Japan show this situation:

* Working age population – 15-64 years in Japan – fallen by 3.8m since December 2012 = decrease in supply of labour = upward pressure on wages
* People actually working has increased by 2.2m = increase in demand for labour = upward pressure on wages
* Unemployment in Japan = 2.8% the lowest rate since 1994 = upward pressure on wages

Why has there been no increase in Japanese wages?

Japanese labour unions have not been very aggressive in wage bargaining and there was a wage increase of only 0.2% in 2016 but already in negative territory this year – see chart. Wages have remained stagnant as strong demand has resulted in an increase in supply of labour rather than the price of labour – wages.

Supply of labour increase:
* Japan now has 1 million foreign workers as compared to 680,000 in 2012
* Numbers of elderly men and women in the workforce has increased by over 2 million
* There is a rising share of part-time work

Job security at the expenses of wage increases.
It seems that market forces don’t really affect those employed in large firms. The pay in these firms has been largely unresponsive to the pressure of supply and demand as employees of life-time employment do not worry about being made redundant but don’t expect significant pay rises during the good times. However in times of inflation they do request higher pay to offset the increased cost of living.

So if general workers pay does increase there is the possibility of the general level of prices will also go up which would in turn increases the wage demands of those in large firms. However as stated by The Economist

“Japan’s workers are hugely in demand but strangely undemanding.”

Russia – economic concerns.

Part of the excellent Al Jazeera documentary series about Russia, which addresses the problems facing many Russians today. The global economic crisis, conflicts with neighbouring countries and the drop in oil prices all played their part in the demise of the Russian people. There is a very good interview with the former Central Bank Chairman Viktor Gerashchenk who held the position during Yelstin’s reign. He explains very simply how you grow your economy and that there must be money in the banks so that companies can borrow and invest. Buying US Treasury Bills was loaning money to the US and paying for their deficit. Meanwhile the infrastructure and public services declined rapidly causing a lot of anguish amongst the people. You can’t suddenly jump from a socialist system into the free market. Worth a look.

China’s wages on the increase

Useful new video from the FT showing the increase in China’s wages and how they are catching up with those in the developed world. China’s labour force as a whole, hourly wage is around 70 per cent of the level in weaker eurozone countries, according to data from Euromonitor International. Has China reached the Lewis Point where the abundance of cheap labour has dried up as workers return to the rural areas? Could be used for the A2 Developing Economies topic.

Should we have a Universal Basic Income?

I posted on this issue last year when Kim Hill (Radio NZ) interviewed Paul Mason  – author of Post Capitalism (now out in paperback). Mason makes the point that we are going to live through a long transition from capitalism – the state and the market to post capitalism which is the state, the market and the shared collaborative economy. With technology taking a lot of the jobs in traditional industries in the UK he states that further development in this sector is not the way of creating new jobs. He talks about delinking work from wages by just paying people to actually exist – rather than tax to exist.
Liam Dann (NZ Herald) wrote a piece about Amin Toufani’s presentation at SingualrityU summit in Christchurch where he talked about people in the labour force having to learn, unlearn, and learn again – unlearning should be core competency. However as there maybe many people who will struggle with this concept Toufani believes that a universal basic income (UBI) may need to be adopted – see RSA video below.

Recent events – UBI

• Switzerland held a referendum on a basic income in June this year but it was comprehensively turned down.
• Finland is going to run a U.B.I. experiment in 2018
• Y-Combinator, a Silicon Valley incubator firm, is sponsoring a similar test in Oakland USA.

Why has the UBI become such a popular talking point?

• The automation of a lot of jobs has left people very concerned about redundancy.
• The modern economy can’t be expected to provide jobs for everyone
• The UBI is easy to administer and it avoids paternalism of social-welfare programmes that tell people what they can and can’t do with the money they receive from the government.

Concerns

• Potentially drives up wages and employees will compare their wages with the UBI.
• Easier for people to take risks with their job knowing there is the UBI to fall back on.
• It takes away the incentive to work and lowers GDP
• UBI – not cheap to administer and would likely cost 13% of GDP in the US

Positives

• In the Canadian province of Manitoba where the UBI was trialled, working hours for men dropped by just 1%.
• The UBI would make it easier for people to think twice about taking unrewarding jobs which is a good consequence.
• In the developing world direct-cash grant programs are used very effectively – Columbian economist Chris Blattman.
• In New Jersey young people with UBI were more likely to stay in education

If the U.B.I. comes to be seen as a kind of insurance against a radically changing job market, rather than simply as a handout, the politics around it will change. When this happens, it’s easy to imagine a basic income going overnight from completely improbable to totally necessary. 

James Surowiecki – New Yorker – 20th June 2016

 

Hays Global Skills Index

A colleague alerted me to the Hays Global Skills Index. It is a complex, statistically-based report designed to assess the dynamics of skilled labour markets across 33 countries.

Seven indicators make up the Hays Global Skills Index

1. Education flexibility – this indicator relates to how flexible the education system is to meet the changing demands of the labour market. Low score = more likely.
2. Labour market participation – greater participation means more potential workers. Low score = larger pool of workers
3. Labour market flexibility – this relates to government regulations around employing people. Low score = less red tape
4. Talent mismatch – do the skills of the labour force match those of the jobs that are in the market place? Low score = employers find it easier to get labour with appropriate skills
5. Overall wage pressure – skills shortages are an issue if wages are growing faster than the cost of living. Low score = wages are not rising quickly.
6. Wage pressure in high-skill industries – Some industries require higher‑skilled staff and makes them more vulnerable to skills shortages. Low score = wages in high-skill industries are growing slower than wages in low-skill industries.
7. Wage pressure in high-skill occupations – a rise is wages of high-skilled occupations means that there is a shortage. Low score = wages for high-skilled occupations are rising more slowly than those in low-skill occupations.

In looking at the figure below seven indicators above are given equal weight when calculating the overall Index score for each country. Each indicator measures how much pressure different factors are exerting on the local labour market.

Higher scores mean that a country is experiencing more pressure than has historically been the case.

Lower scores mean that a country is experiencing less pressure than has historically been the case.

Skilled labour market conditions vary markedly in different parts of the world. Grouped into large overarching regions, however, it is possible to discern some headline patterns. The overall Index score increased slightly from 2015, as changes in skilled labour market conditions in Europe and the Middle East (EME) more than offset a very slight loosening in the Americas and Asia Pacific. The annual change in Index scores should not mask the overall position that suggests skilled labour markets in the Americas and EME remain tight relative to the past, while Asia Pacific remains little changed from historic trends. Source: Hays Index 

Monopsony power in the labour market and the minimum wage

In 1894 New Zealand made history by being the first developed nation to introduce a minimum wage. The Economist had an article on minimum wages and the fact that they might in fact be good for an economy. Most economists believe that a higher minimum wages = the artificial increase in labour costs and therefore lower demand for labour.

Some economists have suggested that minimum wages can increase employment and obviously pay. However if employees have monopsony power as buyers of labour and are able to influence wages they can keep the wages lower below its competitive rate – see graph below.

Two economists (David Carr & Kruegger) found out in New Jersey that when the minimum wage was raised employment in fast-food restaurants actually increased. The Economist suggests that if firms are not reducing the number of their employees with higher minimum wages they must be employing a number of strategies such as raising prices of their goods/services or saving money from reduced revenue. The IMF state that a moderate minimum wage (30-40% of the median wage – see graph) doesn’t have a significant negative effect on employment numbers and may do some good.

Monopsony in the Labour Market

A monopsony occurs in the labour market when there is a single or dominant buyer of labour. The buyer therefore is able to determine the price at which is paid for services. Unlike other examples we have looked at, in this situation we are now dealing with an imperfect rather than a perfectly competitive market. The monopsonist will hire workers where:

Marginal Cost of labour (MCL) = Marginal Revenue product of labour (MRPL)

From the perspective of the monopsonist firm facing the supply curve directly, if at any point it wants to hire more labour, it has to offer a higher wage to encourage more workers to join the market – after all, this is what the ACL curve tells it. However, the firm would then have to pay that higher wage to all its workers so the marginal cost of hiring the extra worker is not just the wage paid to that worker, but the increased wage paid to all workers as well. So the marginal cost of labour curve (MCL) can be added to the diagram.

If the monopsonist firm wants to maximise profit, it will hire labour up to the point where the marginal cost of labour is equal to the marginal revenue product of labour. Therefore it will use labour up to level of Eq which is where MCL=MRPL. In order to entice workers to supply this amount of labour, the firm need pay only the wage Wq. (Remember that ACL is the supply of labour). You can see, therefore, that a profit-maximising monopsonist will use less labour, and pay a lower wage, than a firm operating under perfect competition.

In this situation the power of the employer in the labour market is of overriding importance and the employer can set a low wage because of this buying power.

Weaning countries off coal won’t be easy.

Germany, the greenest of green countries, and probably the world’s most enthusiastic investor in renewable energy, is finding it very hard to breakaway from coal fired plants. The German government were all set to impose a levy on the coal industry but instead gave a subsidy of 1.6 billion euros to mothball eight coal-fired plants and shut them down permanently by 2023. The main cause of this change of policy was that there was significant pressure from labour unions and local governments in the coal industry. The resistance in the greenest of green countries is indicative of workers and retirees, local economies and communities still depend on coal.

So from Germany to India, strategies to increase the share of renewable energy in the power mix have relied on a coal base. Although governments worldwide are focused on cleaning up energy sources that cause significant emissions, there needs to be some regard for displaced workers from traditional energy sources like the coal industry. Coal miners skills will hardly be transferable to other occupations – structural unemployment.

Nevertheless, coal remains one of the easiest and cheapest form of energy and this is very apparent in India where usage is about 62% of energy needs. India is the second largest consumer after China and ahead of the USA. Also coal consumption is growing about 7 percent a year to power the country’s economic catch-up. As China is going through a growth period similar to Europe many years earlier, their argument will be that European countries polluted the environment by a similar amount

Climate change activists have highlighted concerns of rising temperatures by 2100, however  are rising temperatures as significant when you consider the long-term implications of much higher unemployment?

Source: New York Times – 30th August 2016

A2 Worksheets – Perfect and Imperfect Labour Market

Currently covering Labour Markets with my A2 level classes and put together an exercise which tests them on calculating MCL, MRPL etc and also showing why MCL = MRPL is the number of workers a firm should employ. There is an exercise for both Perfect and Imperfect Labour markets – see ‘Word’ document. The excel document is a model answer showing the data in a table and a graphical format. Hope it is of use.

Imperfect Competition in the Labour Market
ACL MCL of Labour

Football salaries – superstar and tournament effects.

Amongst the extensive coverage of the Olympic Games from Rio, the start of the Football season in Europe has slipped under the radar. Michael Cameron’s blog post on footballer salaries was timely and in particular his discussion around the difference between the superstar and tournament effects.

Superstar effects – this is where a player is rewarded with a higher salary than his/her team mates for generating higher revenues for their club.

Tournament effects – this is the situation where wage differences are based NOT on marginal productivity but instead upon relative differences between the individuals. Ultimately each player only needs to be a little bit better than the second best player in order to ‘win’ the tournament.

Michael Cameron looks at the salaries of Ronaldo and Messi and states that it is unlikely that either of these players would generate more than twice as much value as the others on the graph below. Therefore the difference in salaries must be generated by something other than just superstar effects; that is, tournament effects.

In contrast, the difference in average salaries in England between Premier League footballers (£1.7 million) and League Two footballers (£40,350) is likely to be a mix of superstar effects (Premier League footballers generate more value for their employers than League Two footballers) and tournament effects (there’s a limited number of places for Premier League footballers, so slightly worse players end up in lower divisions paying less). See graph below.

One last point: It’s been argued (I saw this argument first in Tim Harford’s book The Logic of Life) that the size of the ‘prize’ for a tournament will be larger the more luck is involved. That is, if the difference between the tournament ‘winner’ and the others is mostly luck, the size of the bonus for working hard to win the tournament must be high in order to sufficiently incentivise the worker to work hard. So, if you buy that the difference in the graph above is mostly a tournament effect, does that mean that the earnings difference between Ronaldo and Messi at the top, and Neymar in third, is mostly down to luck?

Source: Michael Cameron

Technology, jobs and the universal basic income

It is nothing new to consider how machines can perform the tasks done by the layout force. Experts believe that it is not blue collar or white collar jobs that are at risk but those jobs that are routine or non routine. Manual labour tasks have been constantly under pressure from technology but now more jobs that have cognitive tasks are now feeling the pinch.

Jobs said to be under threat from computerisation are:

• taxi and delivery drivers
• receptionists and security guards
• cashiers, counter and rental clerks, telemarketers and accountants

It is estimated that the development of machine learning will impact 35% of the workforce in Britain and 49% for Japan. See chart from The Economist – Computerisation of different occupations.

Job Polarisation – Middle Skills Jobs v Low-Skill and High-Skill Jobs

Economists are already worrying about “job polarisation”, where middle-skill jobs (such as those in manufacturing) are declining but both low-skill and high-skill jobs are expanding. In effect, the workforce bifurcates into two groups doing non-routine work: highly paid, skilled workers (such as architects and senior managers) on the one hand and low-paid, unskilled workers (such as cleaners and burger-flippers) on the other.  

Source: The Economist June 25th 2016

Universal Basic Income

After two centuries in which capitalism has dominated the western world, this economic system has become desperately dysfunctional: inequality is growing, climate change is accelerating and nations are beset with bad demographics, debt burdens and angry voters.

Paul Mason – Channel 4 economics correspondent and author of ‘PostCapitalism: A Guide to Our Future’ states that:

“information technology has reduced the need for work” — or, more accurately, for all humans to be workers. For automation is now replacing jobs at a startling speed

“information goods are corroding the market’s ability to form prices correctly”. For the key point about cyber-information is that it can be replicated endlessly, for free; there is no constraint on how many times we can copy and paste a Wikipedia page. “Until we had shareable information goods, the basic law of economics was that everything is scarce. Supply and demand assumes scarcity. Now certain goods are not scarce, they are abundant.”

“goods, services and organisations are appearing that no longer respond to the dictates of the market and the managerial hierarchy”. More specifically, people are collaborating in a manner that does not always make sense to traditional economists, who are used to assuming that humans act in self-interest and price things according to supply and demand.

There is concerns in many countries as to what can be done with a growing labour force with limited job prospects. There have been call for more money given towards social welfare to protect those impacted by the changes to the labour market and assist them move to new jobs. Some have favored a universal basic income instead of the welfare system that involves paying a fixed amount each year to all citizens to actually exist – rather than tax to exist. Supporters of this idea argue that:

• People who are not working, or are working part-time, are not penalised if they decide to work more, because their welfare payments do not decline as their incomes rise.
• It gives people more freedom to decide how many hours they wish to work, and might also encourage them to retrain by providing them with a small guaranteed income while they do so.
• Those who predict significant job destruction see it as a way to keep the consumer economy going and support the non-working population.
• If most jobs are automated away, an alternative mechanism for redistributing wealth will be needed.

However those against this idea argue that:

• It is regressive as spending on existing welfare schemes would reduce income for the poorest, while giving the high incomes money they do not need.
• Furthermore funding such a venture would require a much higher tax rate that at present.
• The basic income would discourage some people from retraining, or indeed working at all—why not play video games all day?—though studies of previous experiments with a basic income suggest that it encourages people to reduce their working hours slightly, rather than giving up work altogether.

Whether technology will take over jobs and ultimately humanity is dependent on the rate of change and how we live through the long transition from capitalism (the state and the market) – to post capitalism (the state, the market and the shared collaborative economy).

Human nature is not a machine to be built after a model, and set to do exactly the work prescribed for it, but a tree, which requires to grow and develop itself on all sides, according to the tendency of the inward forces which make it a living thing.  John Stuart Mill

Source: The Economist June 25th 2016

New Zealand Workforce Participation Rates 1996 – 2016

The participation rate is defined as the proportion of the working age population who are in the labour force. Individuals who are out of the labour force fall into one of a number of categories. They include those who go to school beyond the compulsory school age, retired people whether or not they are of retirement age, and people who are not willing to work in the marketplace because, for instance, they are raising a family. This suggests that participation rates will be low for the age group 15 – 24 years because of higher education, for those aged 55 – 64 because many of them will take early retirement, and for females because more women stay at home to raise children than men.

However if you look at the data from 1996 – 2016 (see table below) there have been some significant changes which were addressed by Brian Gaynor in the New Zealand Herald last Saturday (21st May 2016).

• Those aged over 65 years in employment increased dramatically from 23,800 to 139,0900
• Those aged between 15 to 24 years of age increased only from 324,200 to 347,700.

Brian Gaynor identified three major workplace changes in recent decades:

1. an ageing society as post-WWII baby boomers reach their sixties;
2. the transformation of the New Zealand economy from one based on manufacturing and manual labour, to a service and white collar based workforce; and
3. the huge increase in female workforce participation.

The transformation of the New Zealand economy from one based on manufacturing and manual labour, to a service and white collar based workforce; and the huge increase in female workforce participation.

This economic transformation has benefited older workers and females.

• 26 per cent of manufacturing workers are women
• 45 per cent of female workers represent the professional and administrative support services workforce,
• 82 per cent of healthcare and social assistance workers and
• 59 per cent of retail employees.

Since 1996 has been the increase in the female participation rate, from:

• 56.1 per cent to 63.6 per cent,
• The male participation rate has remained steady at just over 74 per cent.

As with the rest of the world, individuals in New Zealand in the 15 to 24 age group are struggling to find work because of their lack of skills and /or qualifications. Statistics below:

Unemployment % 15 to 24 age group

• New Zealand – 14.6%
• Greece – 50%
• Spain – 45.5%
• Italy – 36.7%
• Portugal – 30.7%

RBNZ – LUCI indicator

RBNZ Deputy Governor Geoff Bascand presented a speech on inflation pressures through the lens of the labour market. The key message from the speech is that weaker than expected labour market pressures have been “a factor in our assessment that it has been appropriate to keep monetary policy accommodative” RBNZ research has identified large flows from non-participation into employment, flows that are much higher than that witnessed in other countries. Around two thirds of the newly employed were non-participators in the previous quarter. Bascand stated that “one implication is that participation is potentially more sensitive to cyclical variation than previously thought. Another is that the unemployment rate is a weaker indicator of labour market slack and inflationary pressure than previously assumed.”

Therefore, the RBNZ has developed a labour utilisation composite index (LUCI) which shows how tight or loose the labour market is relative to a long-run average. It combines 17 labour market indicators,weighted so as to provide the best historical fit to the broader economic cycle. The boom in the early 2000’s saw labour market conditions tighter than usual with resulting higher wages. However the GFC put a stop to that with a lot of labour market slack. Today, with labour market conditions broadly in balance since 2014 there has been little upward pressure on wages.

Recent low consumer price inflation in New Zealand of 0.1% can be mostly explained by falls in commodity prices and the high New Zealand dollar which makes imports cheaper.  However, the growth in labour force participation rates (see graph below) have put the brakes on wage inflation and therefore has had a lower inflationary impact than expected.

Source: RBNZ

The participation rate has trended higher over the past 15 years, reaching around 69 percent in 2015. The main influences on this trend have been the ageing population, increased participation of older workers, and increased participation of women.

Participation tends to be cyclical in nature:

• Strong employment and wage growth encourage people to seek work, who otherwise would not choose to participate.
• When unemployment rises people spend longer time out of work. However some are discouraged from seeking work and no longer participate in the workforce.

A recent example of cyclical impact is Canterbury, where the strong rebuild activity encouraged additional workers to join the labour force. Participation in Canterbury rose from 67 percent at end-2011 to around 72 percent at the end of 2015, 4 percentage points above the rest of the country

Declining labour force threatens Chinese economy

China’s economic miracle is under threat from a slowing economy and a dwindling labour force. The FT investigates how the world’s most populous country has reached a critical new chapter in its history.

The abundance of cheap labour in China is coming to an end. Since the 1980’s low cost Chinese labour has supplied the developed world with cheap goods, which, to some extent, make up for stagnate wages. When China became more industrialised it grew very fast by importing foreign technology and employing capital and plentiful, cheap, unskilled labour from the rural areas. However, a point is reached when no more labour is forthcoming from the underdeveloped, or agricultural, sector and wages begin to rise.  As well as wages increasing China has also experienced labour strikes and shortages, prompting many researchers to debate whether the Lewis turning point has been reached. Below is a very good video clip from the FT on this topic.

Labour v Machines – from the developing world to Wall Street

Both The Economist and The New York Times magazine have touched on the issue of machines now taking over the jobs of humans with the developing economies being especially vulnerable. A study from by Carl Benedikt and Michael Osborne of Oxford University found that 47% of jobs in the US were at risk to technology. However the same authors found poorer countries are at a much greater risk e.g.

% of jobs at risk

• India – 69%
• China – 77%
• Ethiopia – 85%

There are two reasons for this:

1. Jobs in the developing world tend to be less-skilled
2. The vast majority of the production of goods and services have not yet embraced technology on a significant scale and therefore are open to change.

Having surplus labour is attractive to manufacturers as this will keep wages suppressed. However investment in robots can be repaid in less than two years so labour can become obsolete. But this does not mean that poorer countries will see a massive increase in technology as:

1. This is dependent on the size of companies and if investment in machines is economically viable long-term – if output is small investment in machines might not be worth it. Farms in many poor countries are often too small to benefit from capital.

2. Deregulating their labour markets i.e. making it easier to hire and fire workers and therefore attracting manufacturers.

3. Having no minimum wage or regulations on working conditions, age etc. also attracts manufacturers.

Higher income countries have more jobs that can’t be replicated by machines. These jobs involve social interaction, empathy, psychology, high skills. These include teachers, lawyers, surgeons, advertising etc.

Financial markets and Software

On Wall Street many jobs are now being replaced by software programmes that can do the job much more efficiently than humans. IT company Kensho provides Goldman Sachs and other investment companies with software that replaces the work of employees. For instance when the US Bureau of Labour Statistics releases its monthly employment report, within two minutes an automated Kensho analysis with predictions of performance of investments based on their past response to similar employment reports is sent to clients.

In the financial sector software is increasingly doing the work that has been domain of the highly educated. The vulnerability of these jobs is due to:

1. The easy availability and rapidly declining price of computing power,

2. The rise of ‘‘machine learning’’ software, like Kensho, that gathers and assimilates new information on its own.

‘We are creating a very small number of high-paying jobs in return for destroying a very large number of fairly high-paying jobs, and the net-net to society, absent some sort of policy intervention . . . is a net loss.’ New York Times Magazine – 25th February 2016

10 Economic Myths from the New Internationalist

The December 2015 edition of the New Internationalist discussed 10 Economic Myths that need to be addressed especially after the GFC. Below is the list and the NI goes through each in detail – click here to go to the NI website.

Myth 1: Austerity will lead to ‘jobs and growth – ‘
It’s wrong to sell austerity as a cure for economic woes
Myth 2: Deficit reduction is the only way out of a slump 
- Don’t rely on those who caused the crash to resolve it
Myth 3: Taxing the rich scares off investors and stalls economic performance
 – Taxation creates prosperity just as much as private enterprise
Myth 4: Economic migrants are a drain on rich world economies
 – Migration follows a demand for labour and benefits the receiving country
Myth 5: The private sector is more efficient than the public sector
 – There is no evidence of greater efficiency
Myth 6: Fossil fuels are more economically viable than renewables
 – Not if you look at the environmental costs
Myth 7: Financial regulation will destroy a profitable banking sector
 – Why should financial markets be accountable only to themselves?
Myth 8: Organized labour is regressive – 
It can be argued that the opposite is actually true.
Myth 9: Everyone has to pay their debts
 – We need debt management not reduction
Myth 10: Growth is the only way
 – why we need to find another way, fast.

Although it is repetitive in places especially when they talk of debt and austerity it does provide some valid arguments. I think that the last myth ‘Growth is the only way’ is of particular importance in that GDP growth at all costs has led to wasteful resource use, particularly by the wealthier countries, on an unparalleled scale and without a backward glance. It is often noted that the economy is a subset of the ecological system, but equally there seems to be a belief that nature can cope with anything we throw at it. However, an assessment by the Global Footprint Network indicates we are running a dangerous ecological debt. Currently the global use of resources and amounts of waste generated per year would require one and a half planet Earths to be sustainable (see graph below). The price to be paid for this overshoot is ecological crises (think forests, fisheries, freshwater and the climatic system), a price that is again paid disproportionately by the poor.

Economics Degree = Higher Salary

Michael Cameron recently blogged on this topic. Research out of the UK has revealed the most lucrative subjects to study at university in order to get the highest paying salaries.

Economics graduates fair the best with earnings in the region of £45,000 five years after university. This is closely followed by law graduates who can expect to earn £42,000 and Maths or Statistics graduates who earn on average £39,000. All of the subjects in the top ten are either business or science related – see table below.

Trade Union lobbies for LOWER wages?

Michael Cameron senior lecturer in the Department of Economics at the University of Waikato wrote an interesting piece on his excellent blog “Sex, Drugs and Economics.” The Los Angeles city council voted in May to raise the city’s minimum wage from $9 to $15 per hour. Initially trade unions fought hard for the increase in the minimum wage but they now want a change to the law that would exempt unionised firms from the new proposals – trade unions wanting lower wages? The Economist said:

Indeed, by exempting unionised businesses from the minimum wage, unions are creating more incentives for employers to favour unionised workers over the non-unionised sort. Such exemptions strengthen their power. This is useful because for all the effort unions throw at raising the minimum wage, laws for better pay have an awkward habit of undermining union clout. Britain’s minimum-wage law in 1998, for example, precipitated a decline in union membership. Once employers are obliged to pay the same minimum wage to both unionised and non-unionised labour, workers often see less reason to pay the dues to join a union.

In this case we have members of trade unions pushing up the wages of non-members but not their own wages. What are the benefits for the employer, union worker and non-union worker:
* Unionised employers will find that they labour costs will be lower than non-unionised employers
* Workers will be more likely to join the union if unionised employees are likely to be offered employment.
* Non-union employees receive the higher minimum wage.

As Michael Cameron said:
So, if there are so many winners, who loses from this proposal? While some non-union employees may be better off initially (from the higher minimum wage), available jobs for these employees are likely to reduce substantially. Why would employers employ a non-union employee for $15 per hour, when they can employ a union employee for much less? So, non-unionised workers are going to be made worse off.

Are higher wages the answer to the US economy?

There have been some concerns over the extent of the recovery of the US economy over the last year. The GDP of a country is made up of four things:
C+I+G+(X-M).

C = Private Consumption
I = Business Investment
G = Government Demand
(X-M) = Net Exports

With government spending being very liberal and effective in creating growth there is a need for the other components of GDP to do their part – Private Consumption, Business Investment and Net Exports.

Exports in the US have been disappointing equaling 14% of GDP compared to the euro zone’s 26%.

Business investment has also been subdued as lower profits mean less investment.

Private consumption hasn’t been as strong as anticipated even with the windfall gain of the significant fall in oil price and the growth of outstanding consumer credit. The biggest barrier to increasing private consumption is the level of pay to employees. Across the US median inflation-adjusted wages are not higher today than they were pre GFC.

Why are wages so low?
The Economist identified three things that have been behind the slow growth of wages in the US.

1. America’s Unemployment-Insurance
With the US government cutting back on unemployment benefits the wage expectations of workers fell. Businesses took advantage of this cheaper pool of labour and in 2014 a significant proportion of the 31 million jobs created wherein poorly paid industries.

2. The Behaviour of Firms
When the GFC hit firms found it difficult to reduce the wages of their staff but fired their least productive workers keeping the most productive happy. To compensate for the higher wages paid to the most productive firms were willing to offer new recruits only low wages.

3. Persistent Labour Market Slack
As there are worker available to fill jobs that become available firms are able to offer paltry wages. The number of part-time workers who would rather be full timers – called part-time for economic reasons (PTER) – fell much more slowly than the official unemployment rate following the GFC. The same can be said for discouraged workers i.e. the number of those wanting a job but say there is no point in looking. Research has found that a 1% fall in the PTER rate is associated with 0.4% fall in real wage growth. When the PTER is high, workers may feel unable to ask for higher wages, since what they really want is more hours.

It seems that the US economy lives and dies by what happens to consumer spending.

Globalisation of the football labour market = demise English National side?

Greg Dyke, the chairman of Football Association, has stated in the media that the English Premier League and Championship are not giving young domestic talent sufficient opportunities at the highest level of English football. He declared that the EPL was gravitating towards being “owned by foreigners, managed by foreigners and played by foreigners.”

Football has one of the most globalized markets for skilled labour and the EPL has embraced the benefits of open borders. Greg Dyke’s concern is plain to see:

There are 500 player jobs in the EPL – 20 teams x 25 players
1990’s – 345 (69%) of the 500 player jobs were filled by English players
Today – 185 (37%) of the 500 player jobs are filled by English players

This is contrast to the La Liga (Spanish League) where 61% of the players were Spanish and 59% of the Bundesliga (German League) were German. It is ironic that both the national sides of Spain and Germany have been most successful in recent times:

Spain – European Champions – 2008 and 2012. World Cup Winners 2010
Germany – World Cup Winners 2014.

Furthermore in the English second tier, the Championship, has seen English players account for less than 50% of the total minutes played during the early months of the current season as calculated by the BBC.

Solution to the English Game
Dykes has lobbied government to impose new limits on the supply of foreign players, by making it harder to get work permits. Furthermore he wants to somehow persuade teams to contract more English players in their squads of 25. In economics this is know as import substitution as Dykes is trying to encourage the development of the domestic industry by imposing protectionist policies. But as pointed out by the New York Times, England is not developing a new industry as football was invented there.

Are foreign players bad for the English game?
The money that it brings into the economy through sponsorship, television rights, shirt sales etc, is significant. Furthermore the English players that do play in the EPL are much better off that their predecessors:

2014/15 season – EPL average salary = £2.3 million
2014/15 season – Championship salary = £486,000
1992/93 season – average salary = £140,000 (adjusted for inflation)

Although fans are arguably watching a very high standard of football in the EPL it is ironic that no side from the EPL made the Quarter-Finals of the European Championship.

The Global Game
Globalisation has increased the competitive balance of international competitions like the World Cup, as players from smaller and less affluent countries, such as Ghana and Uruguay, have more opportunities at the game’s highest levels. That suggests England and other traditional powers are losing ground, in relative terms, because they now face stiffer competition.

Source: New York Times – Globalisation Under attack, on the Soccer Field.