While the Western world has struggled with economic growth for the past 6 years, emerging economies such as China, Brazil and India have recorded some very high rates of growth. Throughout 2012, there were signs that these economies were not going to be the saviour of the global economy that we all thought. But, as we enter 2013, is it these economies that still hold the hope of the West for more positive figures and better economic times?
The article below from BBC News, in particular, considers the year ahead for the Asian economies and what it might mean for the Western world. Although these countries are by no means safeguarded against the impending approach of the US economy to their fiscal cliff or the ongoing eurozone crisis, they have seemed to be more insulated than the rest of the world. A crucial question to consider is whether this will continue. Furthermore, are the growth levels and policies of a country such as China sustainable? Can it continue to record such high growth rates in the face of the global economic situation?
The Japanese economy has been in serious trouble for a couple of decades, but measures to boost growth for this economy are expected. If these do occur, then western economies may feel some of their positive effects. At present, there is a degree of optimism as we enter the New Year, but how long this will last is anybody’s guess. The following articles consider the year ahead.
Asian economies face regional and global challenges BBC News (1/1/13)
Asia faces hard road ahead China Daily, Haruhiko Kuroda and Changyong Rhee (31/12/12)
Asia to continue rise despite US fiscal cliff Economic Times, Sugata Ghosh (1/1/13)
‘3.6% growth’ for global economy next year China Daily, Alvin Foo (28/12/12)
Asian economies surge ahead despite global slowdown Coast Week, Ding Qilin and Hu Junxin (4/1/13)
Global grind The Economist, Robin Bew (21/11/12)
Questions
- Why have the Asian economies been more insulated to the global economic conditions over the past few years, in comparison with the Western world?
- What challenges will the global economy be facing over the coming year?
- What challenges are the Asian economies facing? How different are they from the challenges you identified in question 3?
- Why is the rate of exchange an important factor for an economy such as Japan?
- What does a low exchange rate for the yen mean for European countries? Is it likely to be seen as a good or bad thing? What about for South Korea? Use a diagram to help you answer this question.
- Why is the economic situation in countries such as China and India so important for the rest of the global economy? Use a diagram to illustrate this.
Unemployment is a term that economists and non-economists are familiar with, even if the non-economists perhaps have a less stringent definition of what we term unemployment. Typically, we say you are unemployed if you are of working age and available for work at the current wage rate, but are not in work. Another important and related concept is that of underemployment, which according to the ONS, is a growing problem in the economy.
Latest figures released by the ONS show that just over 10% of all workers in the UK would like to work more hours each week. This is essentially what underemployment is and it typically affects part-time workers who want to move closer to a full-time job, but are unable to find the necessary hours from their employer. As the economic situation in the UK worsened after the financial crisis, unemployment increased rapidly. Some people went from working full-time to part-time and others simply lost their job. As the economy started to stabilize, people began returning to work, but many found that part-time employment was the only option, despite wanting to work many more hours at the going wage rate. As the ONS said:
During this period [the economic downturn] many workers moved from full-time to part-time roles and many of those returning to work after a period of unemployment could only find part-time jobs … Of the extra one million underemployed workers in 2012 compared with 2008, three-quarters were in part-time posts.
The increase in underemployment has levelled off and though the recession has been a key contributing factor to the higher levels of underemployment, it’s important to note that it can be caused by a few things, as outlined by the ONS.
• employers only being able to offer a few hours of work each week
• workers, such as bar staff, being in jobs where they are only required for a few hours a day
• personal circumstances changing so that someone now wants to work more hours than before
• people settling for a part-time job as second-best when they would much rather have a full-time one
Although many people are happy with their part-time jobs and hence would not see themselves as underemployed, for those who are underemployed, the fact that they cannot find sufficient hours seems to indicate an inefficiency within the economy, especially if long-term unemployment or underemployment emerges. This problem is particularly relevant amongst the young and those in low-skilled jobs. However, it is also an increasing problem amongst the self-employed.
The implications of underemployment are far-reaching. Naturally it adversely affects an individual’s financial situation, which at the current time with rising household bills can have devastating consequences. There are also wider effects such as the economic implications in terms of economic growth and inefficiency, as well as a potential increased strain on the tax and benefits system. Given these far-reaching consequences, it is an issue that everyone should be concerned about. The following articles consider the growth of underemployment in the UK economy.
Underemployed workers jump by 1m since financial crisis Telegraph, Rebecca Clancy (28/11/12)
Underemployment affects 10.5% of UK workforce (including video) BBC News (28/11/12)
Economic crash leaves an extra 1million workers under-employed and wanting more hours Mail Online (28/11/12)
UK is underemployed: should we be surprised? BBC News, Stephanomics, Stephanie Flanders (28/11/12)
Unemployment affects 1 in 10 workers, ONS says Guardian, Mark King (28/11/12)
One in 10 workers no underemployed Financial Times, Brian Groom (28/11/12)
Underemployment rises to affect one in ten workers Channel 4 News (28/11/12)
Questions
- What is the difference between unemployment and underemployment? Is one worse than the other?
- Why did underemployment initially begin to rise after the financial crisis and what factors helped to slow the increase?
- How can underemployment be measured? Is it likely to be accurate?
- Part-time work has risen in recent decades, as part of a more flexible labour market. Do you think this is a good thing or does it add to the problem of underemployment?
- What are the economic implications of underemployment? You should think about the effects on an individual, their family, society and the wider economy.
- How can someone who is self-employed be classed as underemployed?
- What action, if any, can be taken by the government to tackle the rising problem of underemployment?
The environment has been a growing part of government policy for many years. With the Kyoto Protocol and Europe’s carbon trading system, effort has been made to reduce carbon emissions. Part of UK policy to meet its emission’s target requires substantial investment in infrastructure to provide efficient energy.
Details of the government’s Energy Bill sets out plans that will potentially increase average household energy bills by about £100 per annum, although estimates of this vary from about £90 to £170. This money will be used to finance much needed investment in infrastructure that will allow the UK to meet its carbon emissions target. With this extra cost on bills, energy companies will increase bring in something like £7.6bn. The benefit of this higher cost is that investment today will lead to lower energy bills tomorrow. Essentially, we’re looking at a short-term cost for a long-term gain.
The Energy Bill also delayed setting a carbon emission target until 2016. Crucially, this will come after the next election. Environmentalists have naturally criticised this omission. John Sauven of Greenpeace said:
’By failing to agree to any carbon target for the power sector until after the next election, David Cameron has allowed a militant tendency within his own ranks to derail the Energy Bill … It’s a blatant assault on the greening of the UK economy that leaves consumers vulnerable to rising gas prices, and sends billions of pounds of clean-tech investment to our economic rivals.’
One further problem that this lack of a target creates is uncertainty. The energy sector requires significant investment and in order to be encouraged to invest, firms need assurances. Without knowing the target and hence facing a degree of uncertainty, firms may be less likely to invest in building new power plants. And this investment is crucial. The Government has committed to replacing most coal-fired power stations across Britain with low carbon technology at a cost of hundreds of billions of pounds. However, the Chancellor has said “he would not allow saving the planet to come at the cost of ‘putting our country out of business.’”
When this Energy Bill is published, it is claimed that £110bn of spending on different aspects of the National Grid will occur. The suggestion is that this will generate a further 250,000 jobs by 2030 and will be a big step in the right direction towards creating an economy that is more reliant on clean energy.
The following articles consider the wide range of issues surrounding the Energy Bill.
’It’s reasonable to hike energy bills to build wind farms’ says Tim Yeo The Telegraph, Rowena Mason (23/11/12)
Energy Bill to increase prices to fund cleaner fuel BBC News (23/11/12)
Energy deal means bills will rise to pay for green power The Guardian, Juliette Jowit and Fiona Harvey (23/11/12)
Energy Bill Q&A BBC News (23/11/12)
Energy bills to rise by £170 a year to fund wind farms Independent, Andrew Woodcock and Emily Beament (23/11/12)
Energy deal – but no target to cut Britain’s carbon emissions Independent, Nigel Morris (22/11/12)
Davey defends contentious energy agreement Financial Times, Jim Pickard, Pilita Clark and Hannah Kuchler (23/11/12)
Energy bill lacks emissions target Channel 4 News (23/11/12)
Questions
- Why does the environment require so much government intervention? Think about the different ways in which the environment as a market fails.
- If household bills rise, is there likely to be an income and substitution effect between consumption of ‘energy’ and other goods? Which direction will each effect move in and which do you think would be the largest?
- Why is uncertainty such a deterrent for investment? Why does a lack of a carbon emissions target represent uncertainty?
- The higher cost of bills today may enable future bills to fall. Why is this? For a household, explain why discount factors could be important here.
- Why do some argue that the extra cost to households set out by the government are likely to under-estimate the actual increase households will face?
- Is the Chancellor right to say that he will not put our country out of business to save the planet?
Increases in the cost of living over the past few years have put many families under financial pressure. One of the main factors that has been hurting households is the price of petrol and diesel. Road fuel duty was due to be increased last August, but the Chancellor delayed it in June. However, a planned 3p rise in duty by the Coalition, which has faced rebellion from numerous MPs may now be delayed further, following a hint from the Treasury.
The government has said that it will do everything it can to support struggling families with the cost of living and this has led many to conclude that in the Autumn Statement, the Chancellor will delay the planned 3p rise. Labour was defeated in its efforts to force a delay of the proposed 3p duty rise, as Tory bankbenchers were given this hint that the Treasury would decide to delay the increase anyway. The Economic Secretary to the Treasury said that fuel duty is part of the government’s strategy to help cut the cost of living. He commented that fuel duty was 20% lower in real terms compared to March 2000, when it was at its peak.
If we had continued with the policies of the previous government, quite simply prices would be higher, fuel would be 10p more expensive per litre. I know some will call for a further freeze in fuel duty today. I can assure them this government understands the financial pressures hard-working families are facing. Subject to the constraints of the public finances, this government is determined to help families with the cost of living.
A key economic question to consider is why is fuel one of the products that is frequently taxed? When a tax is imposed on a product, its price will rise and as the law of demand tells us, this will cause people to purchase less of it. But, what is so special about petrol? Why do people continue to purchase petrol even when its price rises? The following articles consider the concerns surrounding the 3p fuel duty rise.
Treasury to defer planned increase in fuel duty The Guardian, Nicholas Watt (13/11/12)
Asda chief Andy Clarke urges scrapping fuel duty rise BBC News (15/11/12)
Fuel Duty: Labour to force vote to delay 3p rise The Guardian, Helene Mulholland (12/11/12)
Fuel duty delay called for by Which? BBC News (11/11/12)
Fuel Duty: Government may still axe increase Sky News (13/11/12)
Chancellor heads off fuel duty rebellion Financial Times, George Parker (12/11/12)
Osborne pressed to shelve fuel duty rise Financial Times, George Parker (8/11/12)
Planned 3p petrol increase could be abandonedThe Telegraph, Christopher Hope (11/11/12)
Questions
- Why is petrol a good that is taxed so heavily?
- Illustrate the impact of a tax on petrol using a demand and supply diagram. Explain what happens to the equilibrium price and quantity.
- Which factors will make the change in price and quantity relatively larger or smaller? Think about how elasticity is relevant here.
- What other factors have contributed towards the increased cost of living over the past few years?
- Which factors in particular would make a January rise in fuel duty especially painful for many families?
- What are the arguments both for and against delaying the 3p rise in duty?
- According to the Economic Secretary to the Treasury, fuel duty is 20% lower in real terms. What does this actually mean?
The problem of obesity and healthy eating is a growing problem in many countries and governments have long been looking into designing policy to tackle this issue.
Some have gone for healthy eating campaigns and policies to encourage pregnant women to eat better, but one government took it a step further and introduced a Fat Tax. In October 2011, the Danish government introduced a tax on foods that are high in saturated fat in a bid to reduce consumption of these goods. However, this policy is now to be abolished.
The Fat Tax introduced by the government imposed a surcharge on foods that contained more than 2.3% saturated fat. Numerous products were affected, including meats, dairy and as expected – processed foods. The policy was criticised by scientists who said that saturated fat was the wrong target and perhaps they were proved right, but the government’s u-turn, which will now see the tax being abolished. The tax had gradually increased food prices throughout the country and authorities said that it had even put Danish jobs at risk.
With food prices much higher in Denmark with the tax, consumers switched from buying domestically produced goods to crossing the border into Germany and purchasing their cheaper food. This undoubtedly had an adverse effect on the Danish economy, as it represented a cut in consumer expenditure. Perhaps it also helps to explain Germany’s strong economy – it was feeding 2 nations! The Danish tax ministry said:
‘The fat tax and the extension of the chocolate tax — the so-called sugar tax — has been criticised for increasing prices for consumers, increasing companies’ administrative costs and putting Danish jobs at risk … At the same time it is believed that the fat tax has, to a lesser extent, contributed to Danes travelling across the border to make purchases … Against this background, the government and the (far-left) Red Green Party have agreed to abolish the fat tax and cancel the planned sugar tax’
Once the tax is abolished, other policies will need implementing to tackle the problem of obesity and encourage healthy eating, as it continues to be a big problem in this and many other countries. The following articles consider this problem.
Denmark to scrap world’s first fat tax Associated Press (10/11/12)
Denmark to abolish tax on high-fat foods BBC News (10/11/12)
Fat tax repealed The Copenhagen Post (10/11/12)
Businesses call fat tax a failure on all fronts The Copenhagen Post, Ray Weaver (10/11/12)
Questions
- Illustrate the effect of a tax being imposed on a diagram. What happens to equilibrium price and quantity?
- According to Danish authorities, consumers didn’t change their consumption habits with the tax. What does this suggest about the PED of these products?
- How does the amount of tax revenue generated vary with the price elasticity of demand and supply?
- What other policies could be implemented to encourage healthy eating?
- Why did this fat tax lead to higher food prices?
- Explain the way in which such a tax could adversely affect the Danish economy. Does this justify its removal?
