The living wage again: Considering policy choices and trade-offs

I see a new living wage has been released (Via Kiwiblog).  We have posted about this recently, briefly noting some areas that need to be considered when thinking about this concept.

To help think about policy choices more broadly, Richard Meadows asked a few economists about making the minimum wage equivalent to the living wage (not what the living wage proponents are suggesting – but it is something people keep suggesting) and removing Working For Families.  The results of his conversations were here.

It was a good article, although I would note that I didn’t intend to come out quite as harshly against a tax-free threshold as I did – conceptually I see issues, but I want to leave my mind open until there is modelling work done to articulate the impacts and any potential trade-offs.  I did enjoy seeing the conclusions:

Crampton says he simply can’t say whether it’s better to take money from childless people – both rich and poor – and hand it over to low to middle income parents.  Economists can talk about the trade-offs involved and the likely effects of the policy, but moving beyond that becomes a value judgement, he says.

Hazledine is prepared to take a stand. ”I have long believed that excessive population growth is one of the major contributors to the problems of the modern world,” he says. ”So I am opposed to any pro-natalist ‘buying babies’ policies in any country, including our own.”

Nolan has read literature saying we should have higher birth rates – and other material saying just the opposite. ”Ultimately, this is an open question, and one that I don’t think is particularly useful for policy.” Instead, he says the best way to think about it is to consider people’s needs – and the trade-offs from the policies which are trying to address them.

I’ve asked Richard if I could put up the notes I scrapped together when discussing his piece – and he said that is cool.  As a result, my views and some of the questions that were asked, can be found below the flap.

This was written as a word document, and I have just pasted it across.  It hasn’t been edited into a blog form, hope people can still make use of it.  Would be happy to discuss the ideas in the comments, I’m a touch busy so it may take me a while to reply though :)

Note:  Eric does his write up here!

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Salvation army “state of the nation” report

Via the Herald I spotted this State of the Nation report by the Salvation Army (Note:  The core report can be found here).  It is nicely put together, taking a whole series of publicly available data and making it fit for public consumption!  Also I appreciate their focus on shining attention on issues that get underplayed in public – let us be honest, house prices and interest rates get more play in the media than they really deserve, while some issues around poverty and discrimination receive less play.  I don’t blame the media for this, it is just the way of things, but having analysts publicly trying to talk about these other issues (as the Sallies is) is choice.  I tried to make this point when discussing the report on the panel.

Of course, you know me.  I find the “scoreboard format” a bit naff – making these things into strict “targets” can be a bit misleading.  Furthermore, the report embodies a set of value judgments – and these just may not be the moral judgments of the public.

Here are the notes I quickly tied together when I found I would have to speak on the report.  The notes have very little to do with anything I said – as they involved discussing and critiquing the report, when the interview ended up being a defence of the focus of the report.

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New Zealand’s sexiest economist 2014: Voting

After an exhaustive nominations round the final 20 New Zealand economists have been selected.  To quote from someone who nominated for this round of “New Zealand’s Sexiest Economist” (NZSE).

At first I thought this was ridiculous.  But thinking about the work New Zealand economists do, I think there are a lot of ‘sexy economists’ ~ Anonymous

I’ll be honest, I’m impressed with the list of economists we ended up with from nominations.  Looking through the list of people who got into the final twenty, and those who missed out, I see a series of names of people who’s work I enjoy.  Sure there are a lot of other economists I’d love to see represented but opportunity cost right!

The poll

Here is the poll.  The top 20 were selected via the quantity of nominations they received.  We had 51 economists nominated, which was pretty exciting!  A lot of the nominations were from other economists, and people were incredibly supportive of the quality of each others work when nominating.  Compared to the partisan ego fights we all publicly see on US and UK economics blogs, this shows that the economics community in New Zealand is incredibly warm and excited by good work.

To help you make an informed decision, below the poll is a profile section.  I am sure that after reading the profile section you will want to vote for all twenty of the candidates, and so below that I’ve included a gallery because … why not!

Who is New Zealand's sexiest economist?

  • Marie Marconnet (27%, 273 Votes)
  • Özer Karagedikli (16%, 158 Votes)
  • Geoff Cooper (15%, 150 Votes)
  • Zoe Wallis (12%, 125 Votes)
  • Jane Turner (4%, 43 Votes)
  • Vladimir Petkov (4%, 38 Votes)
  • Chris Green (3%, 30 Votes)
  • Kevin Fox (2%, 25 Votes)
  • Paul Conway (2%, 23 Votes)
  • Steve Stillman (2%, 19 Votes)
  • Andrew Coleman (2%, 19 Votes)
  • Sharon Zollner (2%, 18 Votes)
  • Jean-Pierre de Raad (2%, 17 Votes)
  • Adolf Stroombergen (2%, 16 Votes)
  • John Gibson (1%, 13 Votes)
  • Gareth Kiernan (1%, 9 Votes)
  • Darren Gibbs (1%, 8 Votes)
  • Dominick Stephens (1%, 7 Votes)
  • Jacques Poot (1%, 6 Votes)
  • Nick Tuffley (0%, 6 Votes)

Total Voters: 1,003

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The poll will run until midnight on Saturday March the 1st.

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More questioning of the efficacy of Kiwisaver

On stuff I noticed the following comments by Michael Littlewood.

“Simply citing that there are 2.2 million members and $19 billion in the scheme doesn’t actually tell you anything,” the paper’s author, Michael Littlewood said.

“It just tells you that KiwiSaver’s popular – and why wouldn’t it be, with the incentives that it has.”

Littlewood said with the limited data available, there was no way of knowing whether New Zealanders would have saved just as much without KiwiSaver.

This is true.  Back in 2008 we mentioned research by John Gibson and Trinh Le calling into question claims that Kiwisaver had “increased national savings” – in fact suggesting that the make-up of Kiwisaver had reduced national savings.

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Trade-offs are more complicated than Okun’s leaky bucket

A popular story in macroeconomics and broad public economics is that of Okun’s leaky bucket (Okun 1975).  This essentially states that we can think of redistributing income like using a leaky bucket to move water – where the loss of income associated with the loss of efficiency is the water that falls out of the bucket on the trip.  This gives us our basic “equity-efficiency trade-off“.

Both the Spirit Level and a lot of the “new economics of income inequality” (namely the work on rent seeking) is trying to turn this on it’s head by saying that, not only does the efficiency vs equity/inequality trade-off not exist, but it is often the other way around.  When a mechanism is given, which can in turn be tested, I am fine with this (eg I am not discussing the types of studies Offsetting touches on here).

However, when it comes to directly determining policy about redistribution this use of the leaky bucket has stretched the metaphor too far.  Policy has more dimensions than a couple of synthetic aggregreates (GDP and inequality measures) which get confused for the much broader terms ‘efficiency’ and ‘equity’. Read more