What can a new lawnmower tell us about labour markets?

Cross posted from Substack.

A few years ago Gulnara and I made a video on unemployment. Although this was a particularly unpopular video, it was actually one of our favourites – and we keep thinking about ways we want to expand the story of our friend JM.

In this video we give examples of how JM, a lawn mower man, could end up unemployed. A key example we gave was the creation of autonomous lawnmowers. We were then shocked when we walked into a store to see the following:

So what does the existence of automated lawnmowers tell us about JM, and how does it help us think about labour markets?

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Cost of job loss: Wage scarring

Cross posted from Substack.

Previously we’ve talked about the cost of job loss in terms of revealed consumption responses – i.e. how do individuals cut their spending following job loss. This is a useful concept, and there is going to be more to say on this in the next year.

But a more basic point people may ask with respect to the cost of job loss – how much lower is someone’s lifetime income if they end up getting shoved out of their job!

Let’s chat about that while investigating some initial work my colleagues and I have undertaken at e61. For those who know things already, or don’t want to read, here is the picture you are after:

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Was the New Zealand 2023/24 Budget inflationary?

Yesterday the New Zealand Budget was released and described as “surprisingly frilly” for a no-frills Budget. As a result, is it inflationary?

My answer is “no idea” – I just wanted to use the same title as the Australian Budget post. You yell inflation at me and I say “monetary policy offset through higher interest rates” – and the monetary and fiscal authorities can argue about that. New Zealand based economists can describe that for us.

Instead I’m going to have a think about a couple of the policies: game subsidies and the higher top tax rate.

I also see that they are ramming from the Tax Principles Act. I’ll save thoughts on that for its own post later on.

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How much does benefit abatement influence labour supply?

A common refrain when talking about unemployment benefits is the Iron Triangle of Welfare.

If we are only going to spend a fixed amount on welfare payments, then there is a trade-off between the size of the payment and the incentive to work – where the incentive to work is captured by how much of their new found labour earnings they get to keep. It is even a common point that I make when I’m off lecturing on the topic.

But what if I told you that empirical evidence suggests unemployment benefit recipients who are working don’t appear very responsive to what are essentially huge (50 percentage point) increases in their tax rate?

Well that is indeed what I find here, as discussed by the AFR here.

What does this mean? A number of things so lets have a chat.

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Was the Aussie 2023/24 Budget inflationary?

Last night was the Australian 2023/24 Budget. Like all Budgets it existed and was filled with politics – but I was surprised to find my twitter filled this morning with people calling it highly inflationary, and others saying it would reduce inflation.

The arguments appear to be:

  • Government spending more, inflation!
  • Government surplus and energy subsidies, disinflation!

I’m a bit slow, so I wanted to think things through a bit step-by-step to figure out where people were coming from.

If you’re keen to come on that journey, then let’s go!

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Should we offer higher benefits to those over 55?

In the last blog post I noted that there were rumors of a higher benefit rate for those over 55. Since then we’ve been thrown into an information vacuum in Australia, as noted here by David Plunket.

After some detailed discussion in the e61 offices my boss (Gianni La Cava) snuck off and pulled together a micronote indicating why this policy might not be the right way to go – namely, the average person on the benefit over the age of 55 is much less likely to be in financial stress than a young Australian who is reliant on the benefit. The note isn’t saying that a higher rate isn’t beneficial – it is saying that we should be consistent when applying these arguments to younger Australians! Update: ABC coverage here.

I suggest you go read the note. As I like to pretend to add value I’m going to take a wee bit of a step back to try to contextualise why we are chatting about the payment in this post 😉

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