When you look at the linked articles below, I’m sure many of you will be thinking that this is an odd choice for an economics blog! However, part of the economic relevance of ‘cyber-crime fighters’ relates to the relative skills of workers and the gap that exists between the most and least skilled workers in the UK.
Crime has always existed, but as technology has developed the types of crime committed have grown along with the complexity of them. For certain crimes, a very skilled individual is needed. With this emergence of technologically advanced crimes, those fighting crimes have also had to improve their skills and techniques. Thus crime-fighters have become more technologically advanced as well.
The problem is that the number of skilled workers able to deal with things like cyber crime has not kept pace with the demand for them and thus we have a skills gap. Usage of the Internet has continued to grow, creating more and more opportunities for cyber crime. However, the UK supply of IT and cyber-security professionals has not been able to keep pace. Therefore, we have a shortage of skilled labour in this area.
More investment into research and education is occurring, with the aim of addressing this shortage, but it is expected to take many years before supply catches up to demand. In particular, more investment is needed in the sciences and technology subjects at school to create the supply at university level. The NAO said that:
‘The current pipeline of graduates and practitioners are unable to meet demand.’
A second area of relevance to economics is the cost of cyber crime. The NAO estimated that the cost is somewhere between £18bn and £27bn per annum. However, on the other side, is there a case that crime actually benefits the macroeconomy by requiring government investment. As cyber crime has grown, so has the demand for cyber-crime fighters and this has created more jobs. With more jobs comes increased spending and the benefits of the multiplier. The following articles consider cyber crime and the impact it is having.
National Audit Office warns UK needs more skilled cyber crime fighters BBC News (12/2/13)
IT staff shortages raise cyber crime risk Sky News (12/2/13)
UK planning ‘Cyber Reserve’ defence force BBC News (3/12/12)
Britain vulnerable from cyber attacks for at least 20 years The Telegraph, Tom Whitehead (12/2/13)
Britain targeted by 120,000 every DAY with cost to country thought to total £27billion Mail Online, Jack Doyle (12/2/13)
Questions
- Illustrate the demand for and supply of labour curves in the market for cyber crime fighters. How is the equilibrium wage determined?
- If there is increased investment in education, how would this affect the shape and position of the MRP curve and what impact would this have on your diagram?
- If there is a shortage of cyber crime fighters, what does that suggest about the position of the two curves? Illustrate this situation and explain why it is a problem.
- Which factors would be considered by NAO in estimating the costs of cyber crime?
- Explain why crime can pay.
- How does the macroeconomy benefit from increased crime? Illustrate this on a diagram.
- Does your answer to question 5 above suggest anything about the effectiveness of using GDP as a measure of welfare?
- How is the multiplier effect relevant?
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?
Youth unemployment has been one of the main headlines for some months, with data showing a record number of young people out of work.
As part of the government’s £1bn Youth Contract that aims to help young people back into work and help those unable to find employment, Nick Clegg has announced wage subsidies to firms hiring 18-24 year olds will be paid earlier.
Some of the costs of unemployment are obvious. For the individual who is unemployed, it means a lack of income and hence inability to buy goods and services. This then has wider implications for the economy. If people are unable to purchase goods and services, this contributes to a lower level of aggregate demand, which in times of recession, is hardly ideal.
Unemployment also means an inefficient use of resources, meaning the economy is operating below full capacity. Fewer people in work also implies lower tax revenues for the government, at the same time as higher unemployment benefit payments, contributing towards a growing budget deficit. This point is of particular concern, when it is young workers claiming benefits, as it could mean a life of dependency.
There are also some longer-term consequences, in particular for those who have been out of work for some time. They lose their skills, making it harder to find a job and this can pose costs to employers and further costs to the government through re-training. As such, government initiatives to tackle youth unemployment have never been more important.
The wage subsidies that were announced back in November will now be paid when young people have been out of work for six months, instead of nine. This initiative aims to help reduce youth unemployment in areas where it is at its worst. Twenty local authorities have been identified as priorities for the government and will benefit from this scheme. As Nick Clegg said to CBI summit:
“Three months can make all the difference. When you feel like your banging your head against a brick wall, when you live in an area where opportunities are already few and far between, another 12 weeks of rejection letters, of being cut off, of sitting at home waiting, worrying, that can seriously knock the stuffing out of you, making it extremely difficult to pick yourself up …
So jobcentres will be able to make use of the subsidy before people are referred to the Work Programme, capitalising on their links with local employers, and they’ll also intensify support, so more training, more regular coaching, spending more time with young people to knock a CV into shape or prep ahead of an interview.”
There are critics of the scheme, who argue that it is too little, too late and that it will simply displace older workers, thereby creating worse unemployment for another group. Until the economy begins to grow and confidence returns to the markets, unemployment is likely to remain a frequent headline. The following articles consider the wage subsidy and the state of unemployment in the UK.
Wage subsidy could mean more jobs Independent Online, Business Report, Pierre Heistein (14/6/12)
Wage subsidies scheme moved forward The Press Association (27/6/12)
Wage subsidy plan for young workers brought forward BBC News (27/6/12)
Wage subsidies scheme moved forward Independent, Alan Jones (27/6/12)
Nick Clegg announces extra help for jobless in 20 troublespots Guardian, Juliette Jowit (27/6/12)
Young people’s prospects have ‘nose-dived’ says report BBC News, Judith Burns (25/6/12)
Economic gap between young and old significantly worse since 2008 – study Guardian, James Ball and Helene Mulholland (25/6/12)
Questions
- Why is unemployment such a big concern for the UK economy? What is so important about youth unemployment?
- Which factors have contributed towards such high youth unemployment?
- How will the wage subsidy encourage firms to take on more young people? Think about how a rational firm behaves when choosing between 2 workers.
- Why does the wage subsidy cause concern for organisations supporting the employment of older workers?
- To what extent do you agree with the Guardian article that says that young people have borne the brunt of the recession and subsequent government cuts?
- What other things have been undertaken in a bid to reduce unemployment and stimulate the economy?
- Think about the costs of unemployment. Categorise them into costs to (a) the individual, (b) friends and family, (c) the government and (d) the economy.
Executive pay has been a contentious issue in recent years, with bankers’ bonuses stealing many headlines. Shareholders have been voicing their opinions on bonuses paid to top executives and the management teams at the banks in question are unlikely to be too pleased with the turn of events.
Nearly one third of shareholders from Credit Suisse opposed the bonuses that were set out to be paid to their executives; more than 50% of shareholders from Citigroup rejected the plan to pay their Chief Executive £9.2m for 2011 and, at the end of April, almost a third of shareholders at Barclays refused to support the bank’s pay awards. Barclay’s Chief Executive was to be paid £17.7m, but this revolt is just another indication of how the tide is turning against having to pay big bonuses to retain the best staff.
Bonuses are essentially there to reward good performance. For example, if a company or bank achieves higher than expected profits, you may support a bonus for the key individuals who achieved this. However, in the case of Barclays, the £17.7m package for the Chief Executive was to be paid, despite him saying that his bank’s performance in 2011 was ‘unacceptable’. I wonder what bonus might have been suggested had the performance been ‘acceptable’?
Revolts over big bonuses are not a new thing for 2012. Over the past few years, more and more resentment has been growing for the huge pay increases received by top managers. Many big companies around the world have seen shareholder revolts and this could mean the tide is beginning to turn on big bonuses. The following articles consider this contentious issue.
Credit Suisse and Barclays investors revolt over pay Reuters, Matt Scuffham and Katharina Bart (27/4/12)
Aviva rocked by shareholder rebellion over pay Guardian, Jill Treanor and Julia Kollewe (3/5/12)
Tide turns on bank bonuses as revolt hits UK Scotsman, Bill Jamieson and Tom Peterkin (28/4/12)
Barclays AGM: ‘We can’t pay zero bonuses, the consequences would be dire’ Telegraph, Harry Wilson (27/4/12)
Barclays shareholders have spoken. The overpaid must listen Guardian, Chuka Umunna (27/4/12)
Barclays suffers executive pay backlash Financial Times, Patrick Jenkins (27/4/12)
Aviva to review pay policy amid investor concerns Wall Street Journal, Jessica Hodgson and Vladimir Guevarra (30/4/12)
UBS faces shareholder opposition over executive pay New York Times, Julia Werdigier (3/5/12)
Low returns stir Europe-wide revolt on bankers’ pay Reuters, Steve Slater and Sinead Cruise (25/4/12)
Barclays targeted over bonuses Telegraph, Louise Peacock (9/4/12)
UBS gets stinging rebuke from shareholders on pay Reuters, Katharina Bart (3/5/12)
Vince Cable urges investors to keep up the pressure on executive pay Guardian, Jill Treanor (4/5/12)
Questions
- To what extent do you think high bonuses are the most important variable to a company in retaining the best staff?
- In The Telegraph article by Harry Wilson, Barclays’ Chairman is quoted as saying: ‘We can’t pay zero bonuses, the consequences would be dire’. What would be the consequences if Barclays did pay zero bonuses?
- What would be the consequence if all UK firms paid zero bonuses?
- How would smaller bonuses affect shareholder dividends?
- The Guardian article by Chuka Umunna says that ‘excessive pay and rewards for failure are bad for shareholders, the economy and society.’ Why is this?
- Should those receiving big bonuses be forced to give them up, if their company has under-performed?
- What are the main arguments for and against paying out big bonuses?
One problem for motorists at the moment is the cost of petrol, where prices have reached over 1.37p on average, as we considered in the blog It’s fuelling anger. However, another problem could soon materialise and that is no petrol. Back in 2000, there was massive disruption to the public with a fuel blockade and a similar thing could occur, following the ‘yes’ vote by fuel tank drivers in favour of strike action.
Over the past few years, strikes have occurred across a variety of industries and if this one did happen with no contingency plan in place, disruption would be significant to both private individuals and companies. Drivers from Unite (the trade union) supply over 90% of fuel to UK garages and so any strike could lead to the closure of up to 7,900 stations.
However, the government has begun to consider the worst case scenario, if talks do not work with plans to begin training army drivers. There are concerns that without these plans in place, disruption across the country may occur with supermarkets, garages and airports all facing fuel shortages. Those who have a job that relies on travel, or even those who simply use their cars or buses to get to work will also feel the effects. Other problems within the emergency services could also emerge, but the government has assured the public that their fuel would be prioritised. The following articles consider this issue.
Fuel strike drivers vote yes in row over conditions BBC News (26/3/12)
Plan for fuel strike, says Downing Street Financial Times, George Parker (27/3/12)
Talks urged to avert fuel tanker strike Independent, Andrew Woodcock and David Mercer (27/3/12)
Ed Miliband: Fuel strike must be avoided at all costs Telegraph, James Hall (27/3/12)
All striking tanker drivers want is responsible minimum standards Guardian, Len McCluskey (27/3/12)
Questions
- If a trade union bargains for higher wages, what is the likely effect on employment and unemployment?
- How might strike action by tankers affect businesses?
- Are there likely to be any adverse long term effects if strike action does occur over Easter?
- How could strike action affect a firm’s costs of production? Think in particular about those who rely on travel as part of the business.
- What other options are there to trade unions, besides striking? Assess the effectiveness of each of the options.
- If a shortage of petrol emerged, what would you expect to happen to its market price?
