Economics help blog – Page 197

Employment Rates – Population ratio

18 November 20172 November 2012 by Tejvan Pettinger

A look at some varying employment rates across OECD countries.

employment-rates-working-population

Source: OECD short term Labour Market stats

Employment rates are determined by the number of people of working age, who have a job.

The employment rate excludes:

People who are unemployed. – actively seeking work and willing to take work
People who are students
People who take early retirement.
People on disability or sickness benefits.
Parents staying at home to look after their kids.

Implications of Employment Rates

A fall in the employment rate to less than 70% is an indicator that the economy is working well below full capacity.
The government will be losing out on employment tax revenue
The government will be paying more on welfare benefits to support those out of employment.

Austerity will Increase UK’s debt burden

18 November 20171 November 2012 by Tejvan Pettinger

According to the National Institute for Economic and Social Research (Niesr), fiscal consolidation in the UK is likely to increase the UK’s debt burden. Or to put it in layman’s terms there will be ‘pain, but no gain’ They model the impact of fiscal consolidation in both ‘normal’ times (scenario 1) and in the current …

Independent Currency and Economic Performance

18 November 201731 October 2012 by Tejvan Pettinger

Why have countries in the Eurozone faced greater difficulties in promoting economic recovery?

How does a country with its own currency find greater flexibility in overcoming a recession?

1. Impact of Currency and Bond Yields

eu-bond-yields-7-countries

A striking feature of recent years is that countries in the Eurozone have been significantly more susceptible to rising bond yields. By comparison, the UK and US who have their own currency, have seen falling bond yields, despite high budget deficits.

Firstly, if you have your own currency, your Central Bank has the ability to print money and buy government bonds if necessary. Therefore bond markets know that a country like the UK is unlikely to have a liquidity crisis. I.e. if not enough people buy bonds on one occasion, the Central Bank can step in and buy the necessary bonds. This creates certainty and removes fears over a temporary liquidity crisis. (it doesn’t solve a solvency issue but, apart from Greece, most Eurozone economies are not insolvent)

However, countries in the Eurozone don’t have this luxury. There is no Central Bank willing to step in and buy bonds (at least not without very protected wrangles and uncertainty)

The impact of changing the inflation target

10 March 202030 October 2012 by Tejvan Pettinger

Readers Question: The task of MPC is to stabilise inflation at 2%. Current inflation is around 5% and the Bank of England has to tighten the Monetary policy to control the inflation. If the Government revises the inflation target and set it to 5%, then what would be the effect on the economy and what …

Data on extent of austerity in UK

9 December 202129 October 2012 by Tejvan Pettinger

Following on from previous posts – How much has government spending been cut – | How was budget deficit cut by 25%?.

It will be useful to republish some data from Mainly Macro – on a post UK austerity and some facts

UK Cyclically adjusted primary deficit

	2010	2011	2012	2013
IMF 2	-6.1	-3.9	-2.8	-1.5
OECD [3]	-5.8	-4.1	-3.0	-1.9

The cyclically adjusted deficit strips away the part of the deficit related to the economic cycle. The actual budget deficit is much higher – because in a recession, borrowing increases as tax revenues fall and welfare payments increase.

A primary deficit takes away interest payments.

The cyclically adjusted primary deficit could also be viewed as the ‘underlying structural deficit’

The sharp fall in the cyclically adjusted primary deficit from 6% of GDP to 1.5% GDP in 2013, shows a contractionary fiscal policy – the combination of spending cuts / freezes and tax increases.

Econ Growth and Unemployment Stats – Countries with Own Currency

18 November 201727 October 2012 by Tejvan Pettinger

Readers Question I was wondering if you have any graphs plotting UK GDP and Unemployment against other economies which have monetary independence and their own currency. I often see graphs comparing the US with the UK. Are there any which include Sweden, Norway, Switzerland and other countries?

econ-growth-table-aus-nor-swe-swit-uk-us

click to enlarge

Economic growth rates for selected countries.

Australia has weathered the global recession well. Helped by strength of its commodity export market.
Sweden experienced one of the deepest recession (-5.0% in 2009), but also one of the quickest recoveries with very strong growth since 2010.
The Eurozone went back into recession in 2012, and the growth forecasts for 2013 may prove over-optimistic.

The Economics of Doping in Cycling

18 November 201726 October 2012 by Tejvan Pettinger

Apart from economics my big interest is in cycling. This weekend, I’m doing the UK national hill climb championships, a short race up a steep hill in Ramsbottom (the Rake). First prize is a nice cloth cotton cap and a pat on the back. It is unlikely there will be any dope tests (though there are sometimes dope tests at national championships) because they are really expensive and the race is so low key, there isn’t the sponsorship money to pay for them.

doping

However, across the pond, professional races, such as the Tour de France, are a little more well known than amateur UK races I compete in.

I’ve been following the Tour, ever since I’ve been interested in cycling in the early 1990s. I’m sure there was a time when I looked upon cycling with rosy spectacles and admired only the heroic efforts of riders battling through the mountains with nothing more than bread and water. But, alas the doping culture of professional cycling was so deeply embedded that revelations about EPO and other wonder products slowly seeped through – no matter how much you didn’t want to hear it.

Expected and Actual Recovery in the UK 2012

22 January 202025 October 2012 by Tejvan Pettinger

There is hope that the UK may officially be leaving the current recession (for the second time). However, this recovery needs to be put into perspective in to what kind of recovery should we have been expecting?

Interesting research by Moritz Schularick, Alan Taylor, 24 October 2012 on this post- “What should we have expected in terms of economic recovery?

Expected and actual recovery UK economy

They look at the nature of the recession and examine what kind of recovery might have been expected. Also, they compare the UK recovery to the US. A few notes:

Both economies experienced a deep financial crisis. With excess credit overhang, you would expect a longer recession than say 1981 or 1991 when the recessions were caused by monetary and or fiscal tightening.
However, even allowing for the nature of the balance sheet recession, we should have expected to see a much quicker and stronger recovery from the UK.
The pink lines show the area of expected economic recovery, the blue line shows actual Real GDP growth.
The US has slightly exceeded expectations – true US unemployment is still high, but given the nature of the recession, they are perhaps doing reasonably well.
The UK by contrast has completely underperformed. In particular, the economic growth rate since 2009 is very disappointing.
My only criticism of the research is that they set the bar fairly low. Previous financial recessions involved significant mistakes in fiscal and monetary policy. Mistakes we have tended to repeat.