jamesz

Rational repression

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Perhaps it is apropos to start the new year’s blogging with a look back at history. A working paper reported at Vox examines Stalin’s gulags from an economic, rather than political, viewpoint. In Western capitalist economies it is the threat of losing one’s job that motivates effort in employment. If you shirk and are caught then you get fired. However, in a centrally planned economy there is no possibility of getting fired: everyone has a role to play and nobody is left out. How then is a dictator who’s done the hard yards planning out the lives of an entire country for five years to motivate his workforce? Miller and Smith suggest that Stalin used the gulags as a device to enforce discipline among workers. Read more

Matt Nolan

New Zealand articles

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If you are desparately in need of some New Zealand focused economics over January, take a look at the archive of Infometrics articles for the Dominion Post.

The next Dom Post article will appear on January 26th, hopefully the team hear will be back to writing by then.  If you would like more information on any of the articles just leave a comment and I’ll work with the author of the article to make a blog post on it.

Matt Nolan

Fuel taxes and firms: A cosy partnership

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January will be a quiet month for blogging here, but once the numbers start rolling out I’ll start writing again. One thing that I saw that interesting me was this short quote from Greg Mankiw’s blog:

“The nation’s largest business group said Tuesday it will oppose big tax increases in 2008 but might support increases targeted at improving aging U.S. roads, bridges and railways.”

Now many of our clients at Infometrics also feel the same way (many of which are transport firms). Why do you think firms’ currently support an increase in taxes on fuel but not on labour? Does this relate to the same factors that have made firms’ in NZ not care too much about an increase in the minimum wage?

Matt Nolan

September quarter current account – GDP primer

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Today’s Balance of Payments release put the current account deficit at 8.3% of GDP.  This was right on the button of market expectations, however some interesting issues cropped up which will be important for tomorrows GDP release.

The actual current account deficit was a touch worse than market expecations, enough to make the deficit as a proportion of GDP 8.4% if market expectations for tomorrows GDP result held.  By itself this would indicate that either:

  1. GDP growth was above market expectations for the quarter (0.3%), or
  2. The GDP deflator is higher than we anticipated

Both of these results would cause a headache for the Reserve Bank.  However, the story becomes a little more complicated.

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Matt Nolan

$12 minimum wage

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Following on from our post on the minimum wage yesterday, the government decided to announce an increase in the minimum wage to $12, from $11.25.

The money-quote from the stuff story has to be:

“Initially business groups were opposed to lifting the minimum wage, which was set at $7 an hour when Labour took office in 1999.

However, in recent years they became more relaxed as the labour market tightened and hiring staff became more difficult.”

This tells us that the minimum wage increases are unbinding for a lot more groups than they used to be, and as a result the effect of the policy will be minimal.

Lets try to discuss this increase in regards to yesterdays conditions for a minimum wage to ‘increase’ employment.

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Matt Nolan

Higher minimum wage – higher employment?

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Over at Not Sneaky they are discussing how a higher minimum wage may lead to higher employment when we have a firm that has market power in the labour market (hat-tip CPW). The argument is a very interesting one as economists often view a minimum wage as a way of placing a price floor, which leads to a lower level of employment and social ‘surplus’.

On the blog he uses this fine graph to explain the result. The purple line illustrates the path of wages and employment. According to that, there is a range where higher wages create greater employment in the labour market. Let me attempt to explain this.

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