Economics help blog – Page 192

Wages Declining as a Share of National Income

18 November 201710 December 2012 by Tejvan Pettinger

The ILO recently produced their growth and wages report for 2012/13. This suggested that across the developing world, labour markets are being characterised by falling real wages and a decline in labour’s share of national income. In particular:

Real wage growth has been flat – even negative in the past few years.
There is an increasing gap between productivity growth and wage growth. Wages are not rising along with productivity.
Wages are becoming a smaller share of national income.
In 16 developed economies, labour took a 75% share of national income in the mid-1970s, but this has dropped to 65% in 2007. It rose in 2008 and 2009 – but only because national income itself shrank in those years – before resuming its downward course. (Wages in developed world shrink at Guardian)

Real Wage Growth

real-wage-growth-world

It is common to refer to the low wages of China, but wages in China have roughly tripled in the past decade – meaning China has one of best wage growth rates in the world.

However, if we look at just developed economies, we see even lower wage growth.

Real Wage Growth – developed economies

real-wage-growth-developed-economies

The global credit crisis has also resulted in increased inequality. Wage income is declining as a share of overall national output. Improvements in labour productivity are not being matched by real wage growth. This graph below shows the increased divergence between wage growth and productivity.

How Valuable is the Oxbridge Interview Process?

18 November 20178 December 2012 by Tejvan Pettinger

radcliffe camera

It’s the time of the year, where here in Oxford we see an influx of nervous Oxford interview applicants. It brings back ever-distant memories of when I had an interview for PPE back in the mid 1990s. It was quite exciting and at the same time nerve racking. My own interview was quite mixed. Politics and economics seemed fairly reasonable. Philosophy was impossible. But, my inability to understand philosophic logic didn’t stop me from being admitted. In a way the interview was actually a pretty good guide to how I did at Oxford. Scrapping a pass in philosophy in the first year. But, after being able to concentrate on economics and politics in second and third year, I did quite well.

Apart from going a complete blank in my philosophy interview, I don’t have too many memories of the interview process. I tend to now look back on it with rose tinted glasses. I think coming to Oxford was quite exciting compared to going to school in Bradford. (no offence to my Yorkshire roots, but as a city, Oxford is just a little more beautiful)

Triple Dip Recession in UK Likely

18 November 20178 December 2012 by Tejvan Pettinger

Unfortunately, despite the post-Olympic bounce in GDP, other aspects of the UK economy look pretty grim. In manufacturing and industrial output, there has been no real recovery. In manufacturing it is not so much a triple dip recession – more a prolonged double dip. Manufacturing output is 2.1 per cent lower in October 2012 compared with October 2011;

uk-industrial-production

Source: ONS

Looking at data since 2007, we see a similar pattern to GDP.

annual-manufacturing-industrial

UK Budget Deficit Forecast Dec 2012

22 January 20206 December 2012 by Tejvan Pettinger

Source: OBR Dec.2012 Public sector net debt as % of GDP is forecast to start falling in 2016-17. The OBR forecast a decline in public sector net borrowing to 5.1% of GDP in 2012/13. Before increasing to 6.1% of GDP in 2013/14 Part of the decline in the budget deficit 2012/13 can be attributed to …

Causes of US Budget Deficit

20 January 20186 December 2012 by Tejvan Pettinger

This graph illustrates some of the different causes of the US budget deficit.

causes-us-budget-deficit

Source: CBO estimates 2012 | via Krugman

This shows how the deficit has been affected by certain issues.

Cyclical factors

Cyclical spending and lost tax revenues due to recession.
Expansionary fiscal policy (economic recovery measures)
Financial intervention to bailout banks and financial institutes.

Structural Factors

Bush tax cuts
Cost of wars (unexpected spending)

The particular graph doesn’t show other factors affecting the budget deficit, such as growth in health care spending, the cost of social security and factors related to an ageing population. But, it is interesting to see $0.9 trillion of the 2009 deficit (roughly 75%) was caused by cyclical factors.

Who Benefits from Quantitative Easing?

22 January 20206 December 2012 by Tejvan Pettinger

Quantitative easing is a process where a Central Bank creates money electronically. It uses this new money to purchase assets and bonds (mostly government bonds) from commercial banks and financial institutions. For more see: Quantitative easing explained Quantitative Easing has helped many holders of government bonds who have benefited from selling bonds to the Central …

Improvements in Eurozone Competitiveness

18 November 20175 December 2012 by Tejvan Pettinger

In the lead up to the Euro debt crisis, there was a marked divergence in competitiveness within the Eurozone. In fact, some economists suggested that the currency imbalances were the root cause of the Eurozone fiscal crisis. (VOX article)

However, recent evidence suggests some restoration of competitiveness within the Eurozone.

We can examine competitiveness in a couple of ways. To see the divergence in competitiveness, we can look at unit labour costs. Relative to Germany, unit costs tended to rise much faster in southern Europe. The graph below shows the divergence of southern European economies compared to Germany. Remember in the Eurozone, this decline in competitiveness could not be offset by devaluation.

Decline in competitiveness in Eurozone

europe's competitiveness crisis — Source: lessons in Europe

Competitiveness and Current Account deficits

This decline in competitiveness was reflected in substantial current account deficits in the south, and current account surpluses in the north.

By 2008/09, countries such as Portugal, Greece, Ireland and Spain had achieved record current account deficits.

To What Extent is Eurozone Competitiveness being Restored?

Unit Labour Costs 2009-2014

This research from the OECD suggests a significant restoration of competitiveness. Note, it includes forecasts for 2013 and 2014. This change in relative competitiveness would explain, at least, part of the fall in current account deficits in southern Europe.

How Did Portugal Reduce Current Account Deficit?

22 January 20205 December 2012 by Tejvan Pettinger

Readers Question: Can you tell what Portugal has done to reduce the Current Account GDP deficit so steeply?

portugal-current-account-deficit

The reduction in the Portuguese deficit is quite striking. In researching the answer to this question, I came up with a different post – The Portuguese Economic crisis

From what I can gather, essentially, the rapid reduction in the current account is due to a sharp fall in consumer spending on imports, combined with some growth in exports – helped by improvements in unit labour costs. However, bear in mind, I may have missed out a few other reasons due to lack of data.

Likely Reasons for Reduction in Current account deficit

1. Fall in consumer spending on imports.

portugal-germany

Portuguese economic growth compared to Germany

As mentioned in The Portuguese Economic crisis Portugal has seen the biggest fall in real GDP (apart from Greece) in the Eurozone. Portuguese consumers have seen a rapid fall in disposable income due to a combination of tax rises and public spending cuts. With lower income, Portugal is simply buying less imports – this improves the current account.