Household structure, economic units, and income splitting

There is talk in the air that the New Zealand government may one day look at “income splitting” as a form of providing tax relief.

Income splitting changes the fundamental economic unit that is taxed from the individual to the household. The most likely form of income splitting we could see in New Zealand would see the gross income of the main income earner and their partner (either through marriage, civil union, or some other definition) aggregated and then split evenly between the two partners before being taxed at the individual tax level. As tax rates increase with income, this would lower the tax liability of all two-person households.

However, is this policy fair, or even sensible?

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Outsourcing jobs – whats the issue?

Yesterday we had the dual announcements of both Fisher and Paykel and ANZ moving work overseas.

The Standard has taken issue with this activity. Particularly, two posts at the Standard lamented the “exploitation” of foreign workers and stated that consumers should stand up to protect domestic jobs.

On a separate note we have seen the closure of a Dunedin knitwear company at the same time, while the D&B payment survey shows that manufacturers are taking a long time to pay their bills, taking 53.6 days on average (can only find old one 😛 ):

What do these stories have in common other than the sad fact of job losses? What do these stories tell us about the New Zealand economy?

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The curse of human capital

Consider the ‘traditional’ capitalist (envisage the Monopoly™ man). This capitalist owns the means of production, such as a factory, or piece of machinery, a building, or piece of land. The capitalist uses their means of production to extract economic profit.

Times are changing. As we move towards a service based economy, like all other developed countries, increasingly the means of production take the form of human capital. Human capital is the capital that is built up within an individual, for example through education, on the job training and everyday work. The holder of human capital is herein referred to as the ‘modern’ capitalist (envisage a slimmer, more refined Monopoly™ person, possible black, possibly Asian, possibly a woman, possibly trans-gender – we don’t discriminate).

Human capital is the foundation of professional service firms, ranging from the glamorous, such as private sector economic consulting firms, to the pedestrian, such as lawyers and accountants.
But this trend towards human capital accumulation brings us to what I term the curse of human capital. Read more

It’s more than a signal

Tyler Cowen reports that the signalling model of education is dead! Apparently new research indicates that the value of the signal accounts for no more than 28% of the cost of education. It only takes a couple of months for an employer to learn your productivity, so how can it take years of education to signal what an employer can learn in months?

Let’s not forget that education has always been about both human capital accumulation and signalling. 28% isn’t huge, but it’s significant. It certainly doesn’t kill off the signalling model, although it does suggest that it shouldn’t provide the primary motivation for getting education.

Tall tales of taxing talent

Matt’s post on equity and efficiency reminds me of a paper by Greg Mankiw and Matthew Weinzierl on optimal taxation. The idea is as follows. Suppose that we think equity means a society where everyone has the opportunity to earn income proportional to the effort that they exert. The hardest workers are those who succeed in earning the most money, while others may choose a life of leisure and earn less. Well, to establish such a utopian place we’d have to do a lot more than eliminate racism, sexism and xenophobia from the human race. Read more

Labour market shortages and mobility

Kiwiblogblog raised the issue of labour shortages in New Zealand. As well as mentioning the labour shortages in New Zealand, they also stated that similar labour shortages exist overseas. Some of these shortages (eg doctors) have existed for a long time, all around the world. However, if this is the case why isn’t the wage rising to try and take care of these shortages?

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