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Posts Tagged ‘Wages’

Tight labour market in Japan but wages stagnant.

May 11, 2017 Leave a comment

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:

Japan labour market* 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.

Japan - wage growth
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.”

Categories: Labour Market, Unemployment Tags: ,

Hays Global Skills Index

November 3, 2016 Leave a comment

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.

hays-global-skills

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 

A2 Worksheets – Perfect and Imperfect Labour Market

August 24, 2016 Leave a comment

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

Categories: Labour Market, Teaching visuals Tags:

Technology, jobs and the universal basic income

July 14, 2016 Leave a comment

Tech and JobsIt 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

Wages and performance in the English Premier League

May 7, 2016 Leave a comment

With Leicester City being crowned as EPL champions it was only time before someone in the media produced data showing the correlation between a club’s wage bill and their final position in the EPL. What is so extraordinary about Leicester’s feat what that it wasn’t a one off victory in the FA Cup or something similar but a competition that involved 38 games in the season. With Leicester just surviving relegation last year the odds on them winning the EPL were 5,000 to 1. What is so unique about their feat is that since the 1995-96 season the champion side has spent 225% more on player salaries as the median team. Arsenal, Chelsea, Manchester Utd and Liverpool have paid the highest wages to its squad of players and finished in the top four positions in the EPL 80% of the time. The total cost of Leicester’s regular team (£25m, or $36m) this season was less than a quarter of what Manchester United spent on new players last summer. Furthermore, if you look at Leicester City’s wage bill this year it is 75% of the league median which makes them, after Newcastle Utd in 2001-02, to break into the top four with a below-median wage bill.

Temporary Situation

However, Leicester’s success means that affluent clubs will spend even more money on sports science, video analysis and get the best people to work in these departments. No doubt that this will move the transfer market towards ‘perfect competition’ as information will flow more easily and clubs will not be able to benefit like Leicester in picking up players whose value has been underpriced. Therefore an advantage by one club will lead to only a temporary advantage until other clubs catch up. Consequently things will return to normal as talent will be distributed to those who can pay the most.

Click here to go to The Economist website to access their interactive image.

EPL Wages and Position

Categories: Sport Tags: ,

Union Membership and Inequality

May 1, 2015 Leave a comment

From the blog azizonomics – Union Members and Inequality. Below is a very significant graphic

Union Membership Top 10%
Union membership and minimum wages are usually thought to reduce inequality by helping the distribution of wages. However although stronger unions and an increase in the minimum wage has the potential to reduce inequality, the fact that wages go above the market-clearing level could mean unemployment increases leading to higher inequality.

Strong unions can persuade political parties to engage in more redistributive policies. By getting workers to vote for parties that promise these policies there is a greater chance of them being implemented.

Categories: Inequality Tags:

Are higher wages the answer to the US economy?

April 26, 2015 Leave a comment

Fair PayThere 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.

Big Firms = Greater Inequality?

April 21, 2015 Leave a comment

inequality2The Economist in their Free Exchange column had an interesting piece on the size of firms and the growing disparity in wages.  In America the best-paid 1% of workers earned 191% more in real (ie, inflation-adjusted) terms in 2011 than they did in 1980, whereas the wages of the middle fifth fell by 5%.

Economists have long recognised that economies of scale allow workers at bigger firms to be more productive than those at smaller ones. That, in turn, allows the bigger firms to pay higher wages. This should not, in theory, cause a rise in inequality. If the chief executive and cleaner at a larger firm are both paid 10% more than their counterparts at a small firm, the ratio between their wages—and thus the overall level of inequality—should remain the same.

However two reasons are given for why this has not happened:
1. Larger firms find it easier to to automate tasks than smaller ones and if there is resistance from unskilled workers over the wage rate then mechanisation is always another option.
2. Because of the potential promotional prospects in a big firm workers are more willing to accept lower wages.

But if governments wish to reverse the inequality big firms foment, reforms to the labour market are unlikely to do the trick. Instead, they will have to spur competition by reducing barriers to entry for smaller firms, most notably by improving their access to credit. That should reduce income inequality and boost economic growth at the same time.

Source: The Economist

Categories: Inequality Tags:

Why does rising employment not lead to higher wages?

March 9, 2015 Leave a comment

Unemployment figures in the US, Japan and the UK have reached levels that are below pre-crisis lows. In the US economy recent figures show that since 2010 10 million American workers have found employment – unemployment has fallen by 40%. Similarly in Japan the number of unemployed has fallen from 3.6 million to 2.3 million and in the UK the unemployed figures have been cut by 50% with 800,000 unemployed. The question that needs to be answered here is why has wage growth been stagnant when the demand for labour has increased? See graph below for USA.

Wage growth US

 

 

 

 

 

 

 

 

 

 

 

 

 

The rationale behind this is that these economies have experienced an increase in uncertain forms of employment:
* part-time work has risen
* there is an increase of the underemployed where more hours could be worked
* looser contracts have helped create flexible workforces
* in general workers bargaining power has dropped

As a result of little wage growth there has been some political backlash:
* Obama has urged congress to increase the minimum wage form $7.25 – $10.10
* Both the main parties in the UK plan to clarify when insecure ‘zero hours’ contracts are abusive
* In Japan Shinzo Abe (PM) recently announced that temporary workers should expect the same deals as their full-time permanent colleagues.

As these steps lift pay and firms’ costs, inflation should follow.

Source: Economist March 2015

Categories: Labour Market, Unemployment Tags:

US unemployment levels and wage growth

October 7, 2014 Leave a comment

Justin Wolfers wrote a very good article in the New York Times on the so called relationship between wage growth and the level of unemployment. Recent unemployment data from the USA has shown that it has fallen faster that what was anticipated – figures have fallen 1% in the past three years to 5.9%. However what is unusual about this is that the economics textbooks say that lower unemployment leads to faster wage growth and this has not been evident – see graph below. Wages tend to increase when:

1. Workers feel they have job security
2. When there is lower unemployment companies feel they need to pay better wages to attract the best workers

Ultimately when there is wage growth these extra cost pressures feed through into higher inflation something that has not been prevalent in the US economy. The key variable in this situation is how much spare capacity is in the labour market. When unemployment gets near to its natural rate this puts pressure on prices. Any central bank would be very cautious to further stimulate growth when unemployment is close to the natural rate of unemployment – NRU. The issue is that the Federal Reserve are not entirely convinced that they know what the NRU is – their current estimate is 5.5%. How can we explain that the lack of wage pressure is evident when the economy is about to run out of spare capacity? There are a couple of explanations:

1. The unemployment rate is giving us a false signal, and there are millions more workers waiting to return to the labour market than suggested by the official statistics. That is, the jobless will return when the jobs return.

2. The natural rate is really much lower than most economists estimate. After all, at the end of the Clinton administration, unemployment was below 4 percent, while inflation remained low and stable.

Business will only feel it necessary to increase prices if wage growth is greater than inflation and the rate of productivity growth. With the Fed Reserve targeting inflation of 2% and productivity growth at approximately 1-2% the economy is out of spare capacity when wage growth is between 3-4%. This suggest that there is currently spare capacity.

Wage v Unemployment USA

Categories: Labour Market, Unemployment Tags:

Wages still going up in Financial Sector

March 14, 2014 Leave a comment

A telling graph below showing how the wages of different sectors have been affected by GFC. As you would expect the car industry and the manufacturing sector saw a decrease in wages but those in the financial sector have benefited from a rise in their pay.

US Falling Wages

Categories: Labour Market Tags:

US needs to create good middle-class jobs

November 25, 2013 Leave a comment

Fast food strikeIn early August this year fast-food workers across the US staged a walkout in protest about their levels of pay – they were demanding an increase from $7.25 (Federal Minimum Wage) to $15 an hour. Under the current minimum wage a worker’s income is $15,000 per annum which is below poverty level pay. Although the minimum wage has increased it is still below its peak in 1968 when it was worth approximately $10.70 an hour in today’s dollars. As well as the low pay, workers in the fast food industry get few benefits and also prospects for full-time work are limited. Add to that a weak job market and ultimately bargaining position, the prospects for these workers look bleak. Although this low pay has been prevalent for many years why is it that is has become such a political issue?

Why are older workers in fast-food and retail jobs?

Historically these part-time jobs have been filled by students or parents looking for work to supplement the family income. However with the downturn in the US economy and increasing unemployment, many in the labour force have had no choice but to try and pick-up any available work. This includes major income earners for families and today low-wage workers provide up to 46% of their family’s income. This is in contrast to forty years ago where there was no expectation that fast-food or retail jobs would provide the living wage as they were not the jobs that the main breadwinner in the household was employed in. In the 1980s profitable companies like Ford, General Motors and other manufacturing industries were big employers in the US economy. Workers were well paid and also had the benefit of pension plans and medical cover. However globalisation and the drive for lower costs have seen a number of US firms looking to locate overseas in countries such as Mexico and China.
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The above is a brief extract from an article published in this month’s econoMAX – click below to subscribe to econoMAX the online magazine of Tutor2u. Each month there are 8 articles of around 600 words on current economic issues.

econoMAX

Categories: Inequality, Labour Market Tags: ,

Immigration and Wages – a useful diagram

May 24, 2013 Leave a comment

I found this graph in New Zealand Association of Economists publication entitled “Asymmetric Information”. It shows the effects of immigration policy and considers the broader effects of immigration – not just the simple fact that immigration increases the size of the labour force and therefore puts downward pressure on wages. It suggests that immigration shifts the aggregate demand curve to the right and this can increase inflationary pressure which ultimately raises wages. There is also the chance that this could lead to an outward migration of domestic workers as their jobs are taken by those coming into the country. Below is an extract from the article:

The model shows the flow of immigrants in the centre of the diagram, and the well-recognised downward impact on domestic wages through increased supply. The extent to which increased supply of immigrants can impact domestic wages depends on the occupational attainment of immigrants, and the extent to which immigrants are substitutes for domestic labour.

The left-hand side of the diagram shows the added effect of immigration, with an upward effect on domestic wages through increased demand for goods and services and new job creation. This effect can explain why wage decreases may not result after an influx of immigrants. In addition, a feedback loop is shown on the right-hand side, which shows that if downward pressure on wages is created, outward migration of immigrant or domestic workforce would have an increasing feedback effect on wages. The out-migration part of the diagram is pertinent to New Zealand due to its geographic and institutional proximity to Australia.

Immigration Wages

Categories: Labour Market Tags: ,

Why is New Zealand’s labour market still weak?

February 22, 2013 Leave a comment

NZ Unemp  empJust covering the labour market with my A2 class and New Zealand at present gives some good examples of labour market imperfections. You would think with the commencement of the major rebuild in Christchurch would have positive effects on the New Zealand labour market. Economists had forecast unemployment to drop below 6% at the end of 2012 however the December quarter had the rate at 6.9%. The Westpac Economic Overview came up with some reasons as to why employers have been reluctant to take on more labour.

1. Employers are increasing the hours that labour is working rather than taking more on. After the GFC a lot of employers kept labour but reduced their working hours so when the economy starts to grow there is a tendency for them to increase the working hours rather than employing new staff.

2. There has a lack of geographical mobility as workers have been reluctant to move away from areas of New Zealand that have weak growth to those that require more labour – eg. Canterbury. Since late 2010 job vacancies in Christchurch have increased dramatically and employers have found it increasingly difficult to find labour = wages have risen faster in Canterbury than most of New Zealand. The RBNZ reported that this two-speed labour market is suffering from the lowest matching efficiency – the speed with which job vacancies and additions to the labour force translate into jobs. This implies higher wages and higher unemployment than normal.

3. The high NZ$ make imported capital cheaper and there has been an increase in a firms’ intentions to invest in plant and equipment (form overseas) but a reluctance to spend money on new buildings or labour.

Minutes of work required to buy a beer.

October 4, 2012 Leave a comment

The Economist came out with another interesting chart – the required number of minutes you need to work in order to buy 500ml of beer. Some figures:

US workers need to work 5 minutes
Germans – 7 minutes
Czech Republic – 7 minutes
Australia – 12 minutes
UK – 14 minutes
Mexico – 15 minutes
Philippines – 38 minutes
India – 54 minutes
World average – 20 minutes

Growing adult populations and rising living standards mean that beer consumption in emerging markets is booming. Drinkers there drank two-thirds of the world’s beer in 2011. By 2016, it will be 72%.

Categories: Labour Market Tags:

Top 1% to blame for the financial crisis?

June 3, 2012 Leave a comment

Former IMF Chief Economist and the person who saw the financial crisis coming, Raghuram Rajan, has argued that inequality caused the crisis and the US government helped in the process. Since the days of the Reagan Administration wages of the working class American have been falling behind. Reagan, as with Thatcher in the UK, introduced pro market reforms in the 1980’s but recent presidents have addressed the problem of stagnant wages by making access to mortgage finance a lot easier.

In 2007 – 23.5% of all American income went to the top 1% of earners – the highest percentage since 1929. Research has shown that the behaviour of the richest 20% has affected the spending of the bottom 80% – the more the rich spend the more the lower incomes want to keep up with them. It is commonly know as ‘trickle-down consumption’.

Less equitable distribution of wealth can boost demand for government borrowing to provide for the lower income. In the last decade this borrowing would have occurred with financial globalisation that allowed many governments to rack up debt cheaply. It seems that the ease of credit drives inequality.

McWages – minutes to earn a Big Mac

April 30, 2012 Leave a comment

You will have heard to the Big Mac index which was developed by The Economist magazine. It shows the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries. Reading the WSJ, Orley C. Ashenfelter of Princeton University has come up with McWages which shows the number of minutes a McDonald’s employee needs to work in each country to buy a Big Mac. Ashenfelter states that McDonald’s workers in most countries perform similar tasks to produce an homogeneous product – the Big Mac. So by calculating the amount of time an employee needs to work to afford a Big Mac you can show how wages differ across countries. Poorer countries tend to have McDonald’s employees working longer than their counterparts in the developed world. In China you would have to work 85 minutes as compared to 27 minutes in the US. Workers in India and China saw improvements between 2000 and 2007. While the real wage — or Big Macs per hour worked — was virtually unchanged in developed countries during the period, China’s and India’s real wages grew 9% and 8% per year, respectively.

Ashenfelter also notes a worrying effect of the financial crisis. Between 2007 and 2011, the growth of real wages slowed in China, while Indian workers actually lost ground — going from 168 minutes in 2007 to about 195 in 2011. The U.S. and Western Europe lost ground during the period as well.

Germany’s economy races ahead but what about the “mini-jobs”?

March 19, 2012 1 comment

The Week magazine produced a very informative article on the German Labour market which focused on the creation of mini-jobs and their impact on the German economy. The German economy is racing ahead of the pack in the eurozone area and when you look at its fundamentals you wonder if it is going lap its counterparts. With unemployment in the eurozone reaching an all-time high of 10.7% the level in Germany is at its lowest for for 20 years at 6.7%. The German success is due in part to the weakness of the euro which has fallen 15% against the US$ since 2008. The weaker euro makes all European exports cheaper and Germany has been very well placed to take advantage of this. – in 2011 it recorded a trade surplus of €158bn. However Germany wouldn’t be in this position if it hadn’t been for some major reforms in its economy 10 years previous. As the other EU countries relaxed labour laws Germany used the global boom to tighten its regulations.

German Reform
By early 2000, and 10 years after reunification, Germany was seen as the sick man of Europe. Unemployment had reached 10.5% by 2003 and then Chancellor Gerhard Schroder asked Peter Hartz (Head of HR at Volkswagen) to look at the labour market. He concluded that German work practices were outdated when a single earner could support households with 9 to 5 jobs at the same time there were generous unemployment benefits. In its place he proposed “mini-jobs” and 2007 10 million Germans had a mini-job with 7 million relying on them as their only source of income.

What are the benefits?
The main idea was to create as much flexibility as possible. The main characteristics are as follows:

1. Mini-jobs pay up €400 a month
2. Employers must assist another €100 to the state for social security benefits.
3. As long as the €400 limits not breached, workers pay no tax
4. They can do as many mini-jobs as they like.
5. The jobs are designed to be picked up and dropped at short notice.

This flexibility meant that during the major recession of 2009 Germany did not experience mass lay-offs. In fact the government implemented a programme which allowed employers to cut the hours of employees and the government would subsidise the remainder of the employees pay.

Criticisms
Although a very competitive low-wage economy was built it has widen the divide between the income levels in the labour market. In fact after the US and South Korea, Germany has one of the most unequal labour markets in the developed world. As there is no set minimum wage for “mini-jobs” a person can earn €4 a hour to under €1 per hour. With around 50% of the labour force in “mini-jobs” there is a free market in which wages have been falling. Between 2000-2010 average salaries rose, but low incomes – those below €960 a month – fell by 10%. Almost 1.5 million people with “mini-jobs” now rely on the state for benefits, including 358,000 who work full time but can’t live off their pay. See video clip below from Deutsche Welle.

Video clip – Trade Unions with Rowan Atkinson

February 23, 2012 Leave a comment

Just been teaching wages at A2 level which includes the impact of trade unions. This reminded me of a great sketch by the ‘Not the Nine O’Clock News’ team including Rowan Atkinson as the union representative. Although there are only photos in the clip the dialogue is very good.

Data backs up OWS claims

October 24, 2011 Leave a comment

Here is a great graphic from the Economic Policy Institute in the US. The Occupy Wall Street protesters claims are backed up when you look at the graph below. Data is inflation-adjusted.

1979-2007:
Bottom 90% of households saw a 5% increase in income
Top 1% of households saw a 224% increase in income
Top 0.1% of households saw a 390% increse in income

The major increases happened during the Clinton Administration especially with the repeal of the Glass Stegal Act in 1997 – 0.1% and 1% incomes increased dramatically after this period. The drop in the % increase was no doubt due to the Dot Com collapse but picked up considerably with an aggressive expansionary policy from the US Fed after 9/11.

Do we have anything like this in NZ?

NZIER economist Shamubeel Eaqub stated that the wage income gap between high and low income has been broadly stable over the past decade and there is nothing in the figures to suggest massive increases in inequality or inequity.

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