The earnings gap between men and women is well-documented and depending on how we measure it, we get different figures. One of the most common measures is mean earnings per hour. The latest estimates suggest that women are paid around 20% less than men, though other data does give lower figures. Though actions have been taken to reduce the inequality between men and women, it still persists in many areas and this has led to plans for new league tables from Nicky Morgan.
The inequality gap has certainly come down. Back in 1970, the wage differential was around 37 per cent, so progress has been made, although the wage gap in the UK has stabilised somewhat. The gender wage gap is at least in part explained by occupations, as women have tended to be prevalent in some of the more poorly paid occupations. However, significant earnings differentials still exist within occupations. We see fewer women in the more senior positions; women tend to take career breaks and hence this can cause more investment into training and promoting men. Furthermore, we often simply see some form of prejudice or discrimination whereby women are just paid less than men, despite the Equal Pay Act.
As a means of combatting this inequality, Nicky Morgan, the Women and Equalities Minister, has announced plans that will require private companies and voluntary organisations employing more than 250 workers to reveal their pay gap. They will have to produce this information online and this will a means to bring down the inequality that exists between men and women in the same occupations. The first League Table of this pay gap will be published in April 2018 so companies will have to begin compiling the information from April 2017. This has received criticism from some, as it is not starting soon enough, but it is seen as a step in the right direction.
Carolyn Fairbairn, CBI Director-General warned that these League Tables shouldn’t be used to name and shame firms, as many factors might explain wage differentials. She noted:
“Where reporting can be useful is as a prompt for companies to ask the right questions about how they can eradicate the gender pay gap … The government should consult closely with business to ensure that this new legislation helps close the gender pay gap, rather than ending up as a box-ticking exercise.”
Clearly there are some close links between the gender pay gap and concerns about poverty and minimum wages and although the League Tables perhaps should not be used to name and shame, one might think it is inevitable that this is how they will be viewed. The following articles consider Nicky Morgan’s inequality plans.
Reports
Gender Pay Gap European Commission
Annual Survey of Hours and Earnings, 2015 Provisional Results Office for National Statistics (November 2015)
Pay gap reporting Equal Pay Portal2016
Articles
Gender pay gap reporting for big firms to start in 2018 Guardian, Rowena Mason (12/02/16)
Gender pay gap to be revealed by employers to tackle inequality Financial Times, Sarah O’Connor (12/02/16)
Firms forced to reveal gender pay gap BBC News (12/02/16)
Gender pay gap League Tables to ‘name and shame’ companies Telegraph, Steven Swinford (12/02/16)
UK companies must reveal gender pay gap under new plans Independent, Oliver Wright (12/02/16)
Companies told to publish gender pay gap Sky News (12/102/16)
Gender pay gap: Business groups mixed on Nicky Morgan’s new name-and-shame plans International Business Times, Bauke Schram (12/02/16)
Now every firm with more than 250 staff must put gender pay gap data online in move to encourage companies to reward staff equally Mail Online, Jack Doyle and Rosie Taylor (12/02/16)
Questions
- Use a labour market diagram to explain how gender pay gaps can emerge based on different marginal products.
- How can gender pay gaps emerge because of women taking career breaks and being less geographically mobile?
- Use information on the ONS website to compare pay differentials across occupations. Are the biggest and smallest differentials where you would expect?
- There are numerous reasons why men have traditionally been paid more than women. Which reasons could be said to be irrational and which are rational?
- If employers were forced to give genuinely equal pay for equal work, how would this affect the employment of women and men? What would determine the magnitude of these effects?
- Do you think this naming and shaming will be effective in reducing the gender pay gap amongst the largest companies? Can you suggest any other policy options?
- If the Equal Pay Act is in place, why can companies still pay women less?
There has been a link between Sainsbury’s and Argos, with Sainsbury’s offering Argos concessions in some stores. But now, we’re looking at a much more significant link, with Sainsbury’s offering £1.3 billion for control of Home Retail Group’s Argos.
Many have questioned the sense of this offer, wondering what Sainsbury’s will gain from purchasing Argos, but Sainsbury’s has indicated it will boost sales, give itself access to a more advanced delivery network and Argos customers. Argos has worked hard to update its image, moving towards a more technology based catalogue and promising same day delivery in a bid to compete with companies, such as Amazon.
Online delivery is a costly business, with suggestions that retailers make losses on each delivery and hence pay customers to shop online. This move by Sainsbury’s may therefore be an investment in expanding its online delivery services and using the infrastructure that Argos already has. This will therefore help Sainsbury’s to invest in this sought after customer service, without having to invest millions into providing the infrastructure in the first place. This move may give Sainsbury’s a first mover advantage in the grocery sector, which may force other competitors to follow suit.
We could write for hours on the ins and outs of this potential deal and undoubtedly commentators will argue both for and against it. The following articles consider the good and bad sides and the future of grocery retailers in the UK.
Why does Sainsbury’s want to buy Argos? BBC News, Katie Hope (01/02/16)
Sainsbury’s agrees terms to buy Home Retail Group in £1.3bn deal The Guardian, Sean Farrell and Sarah Butler (02/02/16)
Sainsbury’s bets on Argos takeover for digital age Reuters, James Davey and Kate Holton (02/02/16)
Sainsbury’s returns with £1.3bn offer for Argos The Telegraph, Jon Yeomans and Ashley Armstrong (02/02/16)
Sainsbury’s could shut up to 200 Argos stores Sky News (12/01/16)
Sainsbury’s strikes deal to buy Home Retail Group Financial Times, Mark Vandevelde, Arash Massoudi and Josh Noble (02/02/16)
Questions
- What are the benefits to Sainsbury’s of taking over Argos?
- Why have many critics been surprised by this take-over?
- What is meant by a first mover advantage?
- Do you think that grocery retailers should diversify further or focus on their core business?
- Commentators suggest that delivery costs more to retailers than the price charged to consumers. Can you illustrate this using cost and revenue curves?
- Online delivery infrastructure is a big fixed cost for a firm. How will this change the shape of a firm’s cost curves and what impact will this have on profits following changes in market output?
- Do you think this take over will cause any concerns by competition authorities?
Pork – a favourite food of many Brits, whether it’s as a key ingredient of a roast dinner or a full English Breakfast! But, British pig farmers may be in for a tricky ride and we might be seeing foreign pork on our plates in the months to come. This is because of the falling price of pork, which may be driving local farmers out of the market.
As we know, market prices are determined by the interaction of demand and supply and as market conditions change, this will affect the price at which pork sells at. This in turn will have an impact on the incomes of farmers and hence on farmers’ ability to survive in the market. According to forecasts from Defra, specialist pig farms are expected to see a fall in income by 46%, from £49,400 to £26,500 in 2016. A key driver of this, is the decline in the price of pork, which have fallen by an average of £10 per pig. This loss in income has led to pig farmers facing the largest declines of any type of farm, even beating the declines of dairy farmers, which have been well-documented.
If we think about the forces of demand and supply and how these have led to such declines in prices, we can turn to a few key things. Following the troubles in Russia and the Ukraine and Western sanctions being imposed on Russia, a retaliation of sorts was Russia banning European food imports. This therefore reduced demand for British pork. Adding to this decline in demand, there were further factors pushing down demand, following suggestions about the adverse impact that bacon and ham have on health. If pig farmers in the UK continue with the number of pigs they have and bearing in mind they would have invested in their pig farms before such bans and warnings were issued, then we see supply being maintained, demand falling and prices being pushed downwards.
Zoe Davies, Chief Executive of the National Pig Association said:
“This year is going to be horrendous for the British pig industry … Trading has been tough for at least 18 months now and we are starting to see people leave. We’re already seeing people calling in saying they’ve decided to give up. All we can hope is that more people leave European pig farms before ours do.”
We can also look to other factors that have been driving pig farmers out of business, including a strong pound, the glut of supply in Europe and productivity in the UK. Lily Hiscock, a commentator in this market said:
“It is estimated that the average pig producer is now in a loss-making position after 18 months of positive margins … The key factors behind the fall in markets are the exchange rate, UK productivity and retail demand … Indeed, pigmeat seems to be losing out to cheaper poultry meat in consumers’ shopping baskets … The recent fall in prices may stimulate additional demand, and a strengthening economy could help, but at present these are hopes rather than expectations.”
The future of British pig farms is hanging in the balance. If the economy grows, then demand may rise, offsetting the fall in demand being driven by other factors. We will also see how the exit of pig farmers affects prices, as each pig farmer drops out of the market, supply is being cut and prices rise. Though this is not good news for the farmers who go out of business, it may be an example of survival of the fittest. The following articles consider the market for pork.
Podcast
UK pork market, Poppers, Scrap Metal BBC Radio 4, You and Yours (28/01/16)
Articles
Drop in global pork prices to bottom out – at 10-year lows agrimoney.com (29/01/16)
UK pork crisis looms as pig farmers expect income to half in 2016 Independent, Zlata Rodionova (5/02/16)
British pig farmers et for horrendous year as pork prices fall Western Morning News (17/01/16)
Questions
- What are they demand-side and supply-side factors which have pushed down the price of pork?
- Illustrate these effects using a demand and supply diagram.
- Into which market structure, would you place the pork industry?
- Using a diagram showing costs and revenues, explain why pig farmers in the UK are being forced out of the market.
- How has the strength of the pound affected pork prices in the UK?
The Bank of England’s Money and Credit release on 1 Feb provides us with data up to the end of 2015 on lending by banks and building societies to the rest of the UK private sector. In this post we update our blog of 17 December 2015 – is Minsky right yet again? – to analyse the latest data on lending. The headline numbers show that the flow of lending (net of repayments) by banks and building societies to UK households in 2015 was £40.8 billion up from £29.9 billion in 2014 taking their amount of outstanding lending to households to £1.26 trillion. Was American economist Minsky (1919-1996) right to have argued that cycles in credit are inevitable?
Chart 1 shows the stocks of debt acquired by both households and private non-financial corporations from MFIs (Monetary Financial Institutions), i.e. deposit-taking institutions. The scale of debt accumulation in the late 1980s and again from the mid 1990s up to the financial crisis of the late 2000s is stark. At the start of 1980 the UK household sector had debts to MFIs of around £53 billion. By the start of 2009 this had hit £1.29 trillion. To put these figures into context this corresponds to an increase in indebtedness to MFIs from 25 per cent of GDP to 86 per cent of GDP.
The chart also shows the increase in indebtedness of private non-financial corporations which are effectively every day businesses. They saw their debts to MFIs rise from around £25 billion to over £500 billion which is equivalent to an increase from 12 per cent of GDP to 33 per cent of GDP. (Click here to download a PowerPoint of Chart 1.)
The path of debt at the start of the 2010s is consistent with a story of consolidation. Although the term is readily used in the context of the public sector and measures to reduce public-sector deficits the term is also relevant for the private sector. Financially-distressed households, private non-financial corporations and MFIs took steps to repair their balance sheets following the financial crisis. Indeed the term is synonymous with the idea of a balance sheet recession which some economists argue describe the late 2000s. The result was that the demand for and supply of additional credit waned. Debt accumulation largely ceased and, as we can see from Chart 1, debt numbers fell.
More recently the indebtedness to MFIs of households has started to edge up again, though, as yet, not for private non-financial corporations. From the end of the first quarter of 2013 to the end of 2015 household indebtedness to MFIs has increased by 7 per cent to £1.26 trillion.
Chart 2 focuses on flows rather than stocks. (Click here to download a PowerPoint of Chart 2.) It allows us to see the accumulation of new credit (i.e. less repayments of debt). What is even more apparent from this chart is the evidence of cycles in credit. The growth in new credit during the 2000s is stark as is the subsequent squeeze on credit that followed. Across 2006 net flows of credit from MFIs to households reached £106 billion while the peak for PNFCs was across 2007 when they reached £71 billion. Subsequently, net credit numbers crashed with negative numbers for PNFCs indicating net repayments to MFIs.
The size of the credit flows emanating from MFIs and the magnitude of the resulting credit cycles is even more stark when presented as percentages of GDP. The annual flow of credit to households in the late 1980s reached 9.4 per cent of GDP while that to PNFCs peaked at the end of the decade at 5.2 per cent of GDP. Meanwhile, across 2006 net credit to households reached 7.5 per cent of GDP while the peak of lending to PNFCs was in the 12-month period to the end of 2007 Q1 equivalent to 4.8 per cent of GDP. In 2015, credit from MFIs to households reached 2.2 per cent of GDP while that to PNFCs was a mere 0.2 per cent of GDP.
Of course, the key question now is the path of credit. Clearly flows of credit to households are again on the rise. In part, this is driven by the rebound in the UK housing market. But, significantly there has been a significant rise in flows of consumer credit, i.e. unsecured debt.
Chart 3 shows the flows of consumer credit to individuals (excluding student loans involving the Student Loans Company) from MFIs and other credit providers. Again, we see the marked evidence of cycles. Across 2015 these net consumer credit flows amounted to £14.5 billion, the highest annual figure since 2005. (Click here to download a PowerPoint of the chart.)
To put the current rise in consumer credit into context, the net flow of consumer credit to individuals as percentage of GDP across 2015 as a whole amounts to about 0.8 per cent of GDP. This is the highest figure since the second half of 2006. While it might be a little early to say that credit numbers are a cause for concern, they do need to be seen in the context of a still relatively highly indebted household sector. Policymakers will be keeping a keen eye on credit patterns and assessing whether we have again acquired a real appetite for credit.
Articles
Households put another £4.4 billion on credit cards and personal loans in December as debt rises at fastest pace in a decade ThisisMoney.co.uk, Rachel Rickard Straus (1/2/16)
One in four ‘living for the day’ as 700,000 more expected to default on debt Independent, Simon Read (2/1/16)
Surprise mortgage jump confounds expectations Independent, Russell Lynch (1/2/16)
U.K. consumer credit slows; mortgage approvals up MarketWatch, Jon Sindreu (1/2/16)
Family debt continues to rise – report BBC News (13/1/16)
Data
Bankstats (Monetary and Financial Statistics) – Latest Tables Bank of England
Statistical Interactive Database Bank of England
Questions
- How can the financial system affect the economy’s business cycle?
- What does it mean if households or firms are financially distressed? What responses might they take to this distress and what might the economic consequences be?
- How would you measure the net worth (or wealth) of an individual or a firm? What factors might affect their net worth?
- How might uncertainty affect spending and saving by households and businesses?
- What does it mean if bank lending is pro-cyclical?
- Why might lending be pro-cyclical?
- Are there measures that policymakers can take to reduce the likelihood that flows of credit become too excessive?
- What do you understand by a consolidation by the private sector? Discuss the possible macroeconomic effects of such a consolidation.
- What is meant by a balance sheet recession?
- How might the effect of attempts by a large number of individuals to improve their financial well-being differ from those when only a small numbers of individuals do so?
In the blog the service sector continues to drive the UK business cycle written in October 2014 we observed how UK growth was being driven by the service sector while other industrial sectors struggled. The contrasting performance across UK industry appears now to be even more marked. The latest GDP numbers from the Office for National Statistics contained in Gross Domestic Product: Preliminary Estimate, Quarter 4 (Oct to Dec) 2015 show the economy’s output expanded by 0.5 per cent in the fourth quarter. Yet the construction sector is in recession following contractions of 1.9 per cent (Q3) and 0.1 per cent (Q4). Here we update our earlier blog to evidence the UK’s growth paradox.
Preliminary estimates suggest that the UK economy expanded by 0.5 per cent in the final quarter of 2015 following on from growth of of 0.4 per cent in the third quarter. 2015 as a whole saw output grow by 2.2 per cent, down from 2.9 per cent in 2014 and a little below the average over the past 60 years of around 2.6 per cent.
Chart 1 shows quarterly economic growth since 1980s (Click here for a PowerPoint of the chart). It illustrates nicely the inherent volatility of economies – one of the threshold concepts in economics.The average quarterly rate of growth since 1980 has been 0.5 per cent so on the face of it, a quarterly growth number of 0.5 per cent might seem to paint a picture of sustainable growth. Yet, the industrial make up of growth is far from balanced.
Consider now Chart 2 (Click here for a PowerPoint of the chart). It allows us to analyse more recent events by tracking how industrial output has evolved since 2006. It suggests an unbalanced recovery following the financial crisis. In 2015 Q4 the economy’s total output was 6.6 per cent higher than in 2008 Q1 with service-sector output 11.6 per cent higher. However, a very different picture emerges for the other principal industrial types.
The economy’s total output surpassed its 2008 Q1 peak in 2013 Q2, but output across the production industries in 2015 Q4 remains 9.4 per cent lower than in 2008 Q1 (and 6.4 per cent lower specifically within manufacturing) and 4.2 per cent lower in the construction sector. However, output in the agricultural sector has rebounded and is now 8.4 per cent higher than in 2008 Q1.
The growth data continue to show the British economy struggling to rebalance its industrial composition. With output in construction in 2015 Q4 2 per cent lower than it was in Q2 and manufacturing output 0.4 per cent lower, UK growth remains stubbornly dependent on the service sector.
Data
Preliminary Estimate of GDP – Time Series Dataset Quarter 4 (Oct to Dec) 2015 Office for National StatisticsGross Domestic Product: Preliminary Estimate, Quarter 4 (Oct to Dec) 2015 Office for National Statistics
Economy tracker: GDP BBC News
Articles
UK economic growth slows in 2015: what the economists are saying Guardian, Katie Allen (28/1/16)
UK economy grows 0.5% in fourth quarter BBC News, (28/1/16)
Bumpy times ahead’ for UK even as fourth quarter growth accelerates Telegraph, Szu Ping Chan (28/1/16)
UK economic growth rises to 0.5% in fourth quarter The Scotsman, Roger Baird (28/1/16)
GDP growth picks up to 0.5% but only the services sector comes to the party Independent, Ben Chu (29/1/16)
Questions
- What is the difference between nominal and real GDP? Which of these helps to track changes in economic output?
- Looking at Chart 1 above, summarise the key patterns in real GDP since the 1980s.
- What is a recession?
- What are some of the problems with the traditional definition of a recession?
- Can a recession occur if nominal GDP is actually rising? Explain your answer.
- What factors lead to economic growth being so variable?
- What factors might explain the very different patterns seen since the late 2000s in the volume of output of the four main industrial sectors?
- What different interpretations could there be of a ‘rebalancing’ of the UK economy?
- What other data might we look at to analyse whether the UK economy is ‘rebalancing’?.
- Do the different rates of growth across the industrial sectors of the UK matter?
- Produce a short briefing paper exploring the prospects for economic growth in the UK over the next 12 to 18 months.
- What is the difference between GVA and GDP?
- Explain the arguments for and against using GDP as a measure of a country’s economic well-being.
The earnings gap between men and women is well-documented and depending on how we measure it, we get different figures. One of the most common measures is mean earnings per hour. The latest estimates suggest that women are paid around 20% less than men, though other data does give lower figures. Though actions have been taken to reduce the inequality between men and women, it still persists in many areas and this has led to plans for new league tables from Nicky Morgan.