Reasons for the slow growth of wages

In recent years, many advanced (high-income) economies have seen a marked fall in unemployment but only very slow or even negative real wage growth. This phenomenon of slow wage growth, despite falling unemployment, is marked in countries such as the UK, Japan and the US. Reasons to explain this slow growth of wages includeLow productivity growth Hidden slack in the labour market Uncertain economic outlook A decline in union bargaining power Growth of monopsony power of employers Change in labour market with more part-time, temporary and zero hour…

Does it matter if the UK car industry closes down after Brexit?

Does it matter if the UK car industry closes down after Brexit?

In the run-up to the 2016 referendum, Brexit supporting economist Professor Minford wrote: “Over time, if we left the EU , it seems likely that we would mostly eliminate manufacturing , leaving mainly industries such as design, marketing and hi-tech. But this shouldn’t scare us.”(Source) In 2012 Mr Minford said “It’s perfectly true that if you remove protections, the sort that have been given to the car industry and to other manufacturing industries inside the protection wall, you’re going to have a change in the situation in…

Economic costs of No-deal Brexit

Economic costs of No-deal Brexit

A ‘no deal Brexit’ would involve a departure from the EU, the single market and the EU Customs union. Brexiteers have suggested the UK would adopt WTO rules for trade. This means, in the absence of any trade deal, it would lead to higher export tariffs and trade disruption from non-tariff barriers – the WTO makes no provision for common acceptance of regulations, licensing and trademarks. A study by BFNA suggests that in the event of a No Deal Brexit, by the year 2030, the UK economy could…


Subsidies vs Minimum Prices for farmers

Readers question: Are subsidies more effective than minimum prices when supporting farmers? Subsidies involve governments giving money direct to farmers. A minimum price is when the government ensures a legal price that prices cannot fall below that level. Minimum prices will increase incomes for farmers. Farming can see volatile prices because supply can vary and demand is price inelastic. This means that one season could lead to an increase in supply and falling prices. This could risk putting farmers out of business because low prices lead to low incomes. In…


Measures of Global Poverty

The World Bank publishes several measures of global poverty, which measure poverty by different levels of income. The most common is the percentage of the population who live on less than $1.90 a day. This is a measure of absolute poverty. There are also measures of relative poverty which compare income against the national average. Poverty headcount ratios The % of the population making less than a certain income at purchasing power parity (PPP). Two measures include:Poverty headcount ratio at $1.90 a day (WB)  (% of the population…


Price skimming

Price skimming is a business strategy to set a high price on entry to the market and then reduce the price over time. The logic of price skimming is to take advantage of customers who have inelastic demand and are willing to pay the high price. When these consumers have bought the good, the firm can then reduce the price to attract a wider group of consumers who are more price sensitive (elastic demand) Price skimming can enable a firm to increase its overall profits – though there is a risk…


Impact of cutting government spending

Readers Question: Discuss the impact of a decrease in government spending? If the UK government cut government spending, it would have a significant impact on both aggregate demand (AD) and the supply side of the economy – depending on which areas of public spending were cut. Firstly, government spending (G) is a component of Aggregate Demand (AD). In 2013/14 the UK government was forecast to spend a total of £722.9 billion – So (G) is a significant component of AD.  Government spending is approx. 42% of GDP. Of this government spending,…


Factors affecting economic development

Economic development implies an improvement in economic welfare through higher real incomes and other welfare indices such as improved literacy, better infrastructure, reduced poverty and better health care. Economic development requires a degree of political stability, investment and mixture of public and private initiatives to increase economic potential.The main factors affecting economic development includeLevels of infrastructure – e.g. transport and communication. In recent years, economic development in Central Africa has been improved due to increased investment in roads, railways and seaports….