An Alternative View On Unemployment

In my reading I’ve come across a really interesting alternative view on unemployment that I thought I’d go though on this blog. Throughout A-Level Economics, I’d always been taught that the market for labour could be drawn as a standard supply and demand graph, where the equilibrium point was the wage (unless this fell below the minimum wage in which case there was excess supply). An example of this diagram is shown below:

Economics wage determination graph
Graph Courtesy of Wikipedia

However I have now come across a significant flaw in this theory. In many situations a rise in wage can lead to an employee who many have been previously working full time reducing their hours to part time. This fundamentally contradicts the idea that the supply of labour increases as the wage rate increases. An example of where this happened has been anecdotal evidence from the NHS in the UK. In the late 2000s the Labour government introduced a significant increases in GP pay. As a result of this many GPs decided to switch from being full time to being part time (contradicting the assumptions made above). This being because the improvements in their welfare from going part time outweighed the extra welfare benefit of additional income. Theoretically then another pay rise may give them the incentive to work longer than they initially did at the start of the scenario. On a graph this could look similar to the graph below.

Economics Diagram showing three equilibrium points where supply and demand equal, similar to one found in Anthony Atkinson's Inequality.
Adapted from a similar diagram found in Anthony Atkinson’s Inequality.

This scenario interestingly leads to there being multiple equilibrium points. Might be a useful piece of evaluation in Economics A-Level when discussing pay, wages, minimum wages etc!

I’m only a first year (undergraduate) economist, so I write what I believe to be correct. Please don’t hold mistakes against me! My inspiration for this article came from Inequality by Anthony Atkinson. 

 

Michaelmas Week -1

Okay so here I am, going off to start a new chapter in my life tommorrow, starting at Oxford University.  It feels like education up to this point has been directing me to this point, from the start of studying GCSEs, all teachers seem to have talked about is University.

“You should do this to put on your personal statement”

“You should go and look round this university”

“You won’t get into X university if your grades don’t improve”

Now that I am about to start I feel utterly inadequate (although I suspect this is the normal feeling), I am about to start studying one of the most competitive courses and one of the most competitive universities in the world and all I can seem to think is how a combination of lucky events has brought me to this point, and that at some point my lucks going to run out. For those who didn’t know Oxford starts back incredibly late and has 8 week long terms (michaelmas, hilary and trinity).  What this has meant for me is that I’ve watched almost all of my friends travel off around the country to university and begin having brilliant times. Some are about to begin their third week at university…

I just don’t know what to expect, today I tried on sub fusc for the first time. (sub fusc is academic dress, revolves for me around a gown, white bow tie and mortar board.)  There are two ways that I can see the next 3 years going. I will either find that Oxford is elitist and out of touch and really not enjoy myself or I will find a progress place with interesting people from all walks of life. The requirement to wear sub fusc three times a week is starting to make me think that I might find it more of the former than the later.

To add to my current feelings, I was born and have grown up in Oxford all my life. I’ve always seen Oxford as a lovely and inclusive city, I don’t want the next 3 years to taint this. Furthermore I don’t want to become bored of the city, I’ve been to most of the clubs, cafes etc before, so where will I explore?

Well, I’ll try and keep this blog updated with how this goes, perhaps in the hope that it may provide future students in my position a bit of support!

Participation Income As A Method To Reduce Inequality

To give this post a bit of context, I’ve just finished reading Inequality by Anthony B. Atkinson, a professor based at Nuffield, Oxford. The book takes an interesting format, it begins by examining the causes of changes in inequality over the past century, noting that post war inequality has decreased significantly but that post 1980s it’s been on the rise in the developed world. Atkinson then makes a number of recommendations of ways in which we can rectify this worrying trend. I’ve listed a few of these below:

  • The every citizen of the UK, who is eligible, should receive a minimum capital endowment (inheritance) on turning 18.
  • Every citizen who participates in the economy through employment, volunteering, caring or other recognized activity is paid a participation income. This income could replace Job Seekers Allowance for those unemployed and some aspects of the State Pension for Pensioners.
  • Income tax should be adjusted so there is no longer a personal allowance and that the highest rate rises from 40% to 65%.

When the Greens included a “Basic Citizens Income” in their manifesto for 2015, I thought that they were proposing economic suicide. What is the purpose of being employed if you can be paid without working at all. Atkinson makes the case, however, for a participation income very well. Major causes of poverty currently include people not being aware of what benefits they are eligible for, and them finding the application processes for these too complicated. The participation income would require a person to contribute to our society and work (or seek work) but would remove these issues. Furthermore income tax could then be reformed to remove the personal allowance, but could still be applied progressively (through banding income) to bring in tax revenue. Atkinson suggests raising the top rate to 65%, this is something I will come to in another post.  On the whole however I felt when reading this proposal that it could do our country a great deal of benefit. A participation income will ensure everyone in our society has enough money to eat and survive, but will require them to contribute and will still provide an incentive to people to work, everyone being eligible will bring a reduction to some of the red tape that currently exists.

When it comes to a minimum capital endowment, if enacted well I think that this could be successful. By raising inheritance tax and adjusting it’s remit we could substantially increase revenue, this could be used to fund a minimum capital endowment. This would be a guaranteed payment of a sizable amount, perhaps £10,000, that would be paid to every person (presuming a citizen of Britain) at a certain time in their life, perhaps their 18th or 21st Birthday. Inheritance in itself is inherently a significant cause of inequality. By providing those who wouldn’t not otherwise receive a inheritance with one, this would allow recipients to start small businesses, pay for training (or an apprenticeship) or to save for a deposit. This will allow many lower income households to defeat poverty while placing the burden of this on those who tend to have the highest standard of living.

Atkinson makes an interesting point when justifying some of his more economically inhibitive proposals, including a higher top rate of income tax. This is that (using an analogy) a smaller cake shared more equally is surely better than a marginally larger cake shared much less equally. Why prioritize GDP growth if the benefits of such a measure are going to fall in (and stay in) the wallets of the rich? Both UK and EU policy should take heed of this.

In this post I’ve written up some of the most interesting proposals that the book contained but in order to gain a full idea of those please go and read it! You will not regret it 🙂

An open letter on grammar schools

Over the past couple of weeks I’ve become increasingly worried about the government’s actions regarding grammar schools. I fundamentally feel that the education system in the UK needs to focus more heavily on choice rather than selection. It worries me progress made at achieving a more fair society will be put back decades by reintroducing grammars, as class based schooling begins again. Below is an open letter that I’ve written to Rt Hon Justine Greening MP (through my MP Rt Hon Andrew Smith).

I thoroughly recommend the Myth of Meritocracy by James Bloodworth, this is one of the books I’ve got on the go for my spare time reading!!

 

Dear Andrew,

I am writing to you about the current government’s actions with regards to the removal of the memorandum on grammar schools. Please would you pass my concerns onto the Rt Hon Justine Greening MP, the Secretary of State for Education.  I feel that this debate is especially relevant to the constituents of Oxford East, with it recently having been categorized as in the bottom decile of constituencies in the Social Mobility Index.

I would firstly like to clarify the Secretary of State’s justification for beginning to consider the old grammar school system. It is my worry that the actions that she is taking could very well inhibit social mobility further, rather than promoting it. As I am sure she is aware, a child in one of the 163 current selective grammar schools in the UK are  4-5 times more likely to have come from an independent prep school than from a disadvantaged background. Looking at the system in Kent where approximately 1/3rd of students are educated at grammars the disparity is exemplified with 6.3% of students in receipt of the pupil premium compared to 26.9% at Kent comprehensive schools. Students are also 9 times less likely to be in the care of Kent County Council. Are these not significant reasons why selection at age 11 is fundamentally flawed?

Implementing a grammar system in a county such as Oxfordshire would grossly inflate the current inequalities that exist. Firstly because of the disparity in primary level provision, 6 state primary schools in Oxfordshire currently see 100% of students achieve the Level 4 government base mark in their KS2 SATs while other schools see 48% of students achieving this. Bright and average students at the high flying, more affluent primaries may benefit from a grammar based education, but what about the students who are already being failed by the state, who may fail the 11 plus with little support. I understand that you plan to implement a quota based system for the allocation of some disadvantaged students, does the need for you to implement such a measure not go to show how doomed your planned meritocracy will be? You aim to eradicate “selection by house price” for secondary schools by implementing grammars, but do you not feel that you may simply make living near good primary schools more desirable and therefore more costly?   Furthermore, how are you planning on overcoming the significant bias that students with parents who can afford to tutor their children will benefit from? Attempts to do this in Buckinghamshire with a new exam that was “more resistant to tutoring” have completely failed, with inequalities increasing rather than decreasing.

I know that many of the arguments surrounding the benefits of grammar schools revolve around anecdotal tales of social mobility from the previous system. However do you not agree that post war in the UK right up to the 1990s saw a huge shift in workers from blue collar to white collar jobs, this led to a significant number of people moving from “working class” backgrounds into “middle class” professions. Thus social mobility in this era changed as a result of structural changes in our economy rather than as a result of grammar schools. Many government ministers, and Theresa May herself have recently been quoted by the press claiming that “comprehensive education sacrifices children’s potential” and that “grammar schools promote social mobility”, please would you refer me to what evidence these claims are based from?

Would a more effective system of education not be one based upon choice, rather than selection? Why does the government object to a system that would allow a much greater level of autonomy to students? Where students can select institutions which are “academic” and those that are “vocational”. One of the main arguments used in favour of a grammar based system is that grammar schools separate those who “want to learn” and those who disrupt lessons. Surely one reason who students disrupt lessons is that they’re not learning what they want to learn, with choice many of these students would attend schools that would focus on vocational qualifications. For example UTC Oxfordshire, is a school which takes students from year 10 onwards and focuses on technical skills including engineering, additionally the South Oxfordshire Food and Education Alliance takes students post GCSE and trains them in warehouse (and other) skills to ready them for employment. Surely if your aim is a true meritocracy then equality of opportunity is key, with selection at age 11 this is fundamentally not possible, but by providing students choices this aim is achieved.

May I lastly point out that this is such a drastic policy change that surely it requires the mandate of the general public? In the Conservative manifesto that you were elected with in 2015 there is no mention of this policy change on grammar schools, is it surely not up to the public to decide such a significant change to education in this country?  –

Warm regards,

Graham