Demand and supply determine prices, but when it comes to factors of production, such as labour, their ‘price’ is largely influenced by their productivity. This helps to explain why doctors are paid more than cleaners and Premiership footballers more than amateurs. But, can it really explain a £50 million transfer price for Fernando Torres, as he moves from Liverpool to Chelsea? Undoubtedly he’s a good footballer, but are his skills worth the price paid? The same question can be asked about David Luiz – a price of £25 million; Andy Carroll – a price of £36 million and a bargain price for Luis Suarez – a mere £23 million! How can teams, such as Chelsea afford to spend so much money, despite making a loss of £70.9 million in the year to June 2010? How much would they have lost had they not won the Premier league and the FA cup?
With the country facing the possibility of returning to recession and the trouble that Portsmouth FC found itself in last season, UEFA’s ‘financial fair play’ rules seemed like a good idea. But, they appear to have been thrown out the window. £200 million was spent on a handful of footballers, as libraries across the UK are shut down due to a lack of funds. The Premier League in the UK generated a higher income than any other, equal to £2.3 billion. However, 14 of our clubs made substantial losses. The amount owed to banks or the owners backing these clubs came in at a mere £3 billion. As the big clubs in the UK push up the prices, more and more ‘small’ clubs are being competed out of the market.
Torres makes record move from Liverpool to ChelseaBBC Sport(31/1/11)
Chelsea and Liverpool drive astonishing £134 million manic Monday Telegraph, Jason Burt (1/2/11)
Champions Chelsea report £70.9 million loss BBC News (31/1/11)
Chelsea announces 70.9 million pound annual loss despite winning Premier League and FA Cup The Canadian Press, Stuart Condie (1/2/11)
Financial restraint goes out of the window when the big clubs struggle Guardian, David Conn (1/2/11)
Questions
- How are the prices of footballers determined? Use a diagram to illustrate your answer.
- What factors explain why Premier League footballers are paid so much more than those in the Conference?
- What type of market structure is the UK football league?
- As prices are bid upwards, is there an argument that smaller clubs are being competed out of the transfer market? What type of market structure is football becoming?
- How is that Chelsea can make £70 million loss but still have the finance to spend £50 million on new players?
- What policies could be used to ensure lower prices are paid for footballers? Would they be effective and are they needed?
If you are lucky enough to have piles of money earning interest in a bank account, one thing you don’t want to be doing is facing the dreaded tax bill on the interest earned. It is for this reason that many wealthy people put their savings into bank accounts in Switzerland and other countries with strict secrecy laws. Countries, such as Liechtenstein, Switzerland, Andorra, Liberia and the Principality of Monaco have previously had laws in place to prevent the effective exchange of information. This had meant that you could keep your money in an account there and the UK authorities would be unable to obtain any information for their tax records.
However, as part of an ongoing OECD initiative against harmful tax practices, more and more countries have been opening up to the exchange of information. In recent developments, Switzerland and the UK have signed an agreement, which will see them begin to negotiate on improving information exchange. In particular, the UK will be looking at the possibility of the Swiss authorities imposing a tax on any interest earned in their accounts by UK residents. This tax would be on behalf of HM Revenue and Customs. One concern, however, with this attempted crack down on tax evasion is that ‘innocent’ taxpayers could be the ones to suffer.
The following articles consider this recent development. It is also a good idea to look at the following link, which takes you to the OECD to view some recent agreements between the UK and other countries with regard to tax policy and the exchange of information. (The OECD)
Articles
UK in talks over taxing Britons’ Swiss bank accounts BBC News (26/10/10)
Doubts on plans to tackle tax evasion Telegraph, Myra Butterworth (21/10/10)
HMRC letters target taxpayers with Swiss bank accounts BBC News (25/10/10)
Spending Review: Can the taxman fix the system? BBC News, Kevin Peachey (22/10/10)
Britain, Switzerland agree to begin tax talks AFP (26/10/10)
Treasury to get £1 billion windfall in Swiss deal over secret bank accounts Guardian, Phillip Inman (26/10/10)
Swiss to help UK tax secret accounts Reuters (25/10/10)
Reports
The OECD’s Project on Hamful Tax Practices, 2006 Update on Progress in Member Countries The OECD, Centre for Tax Policy and Administration 2006
A Progress Report on the Jurisdictions surveyed by the OECD global forum in implementing the internationally agreed tax standard The OECD, Centre for Tax Policy and Administration (19/10/10)
Questions
- Is there a difference between tax avoidance and tax evasion?
- If there is crack down on tax evasion, what might be the impact on higher earners? How could this potential policy change adversely affect the performance of the UK economy?
- If tax evasion is reduced, what are the likely positive effects on everyday households?
- Is clamping down on tax evasion cost effective?
- What might be the impact on people’s willingness to work, especially of those on higher wages, if there is no longer a ‘haven’ where they can save their money?
- How could tax reform help the UK reduce its budget deficit?
It was the 12th May 2010 and George Osborne’s first day as the UK’s new Chancellor of the Exchequer. His arrival at HM Treasury coincided with the latest ONS labour market release. Just in case you were rather distracted by political events, we take the opportunity here to trawl through some of the latest labour market numbers, focusing, in particular, on those that may pose real challenges for George Osborne and the new coalition government.
From the ONS release we observe that in the three months to March the total number of economically active individuals in the UK was 31.340 million. Of these, 28.829 million were employed while 2.510 million were unemployed (but actively seeking work). The number of people employed fell by 76,000 over the quarter (and by 341,000 over the year) while the number unemployed rose by 53,000 (279,000 over the year).
Now we consider the rate of unemployment. The unemployment rate expresses the total number unemployed as a percentage of those economically active. Over the first quarter of 2010 the unemployment rate rose to 8.0%, a rise of 0.2 percentage points on the previous quarter and a rise of 0.9 percentage points from a year earlier. It is the highest quarterly unemployment rate since the 8.1% recorded in Q3 1996.
Next, consider unemployment and gender. Of those unemployed in the first quarter of the year, 61.6% were male and 38.4% were female. The increase in the male unemployment rate during the economic slowdown has been especially marked. The male unemployment rate in Q1 2010 rose to 9.2%, up from 7.9% a year ago and 5.6% two years ago. The female unemployment rate has increased to 6.7% in Q1 2010 from 6.1% in Q1 2009 and 4.8% in Q1 2008. Therefore, over the past two years the male unemployment rate has risen by 3.6 percentage points while the female rate has increased by 2.1 percentage points.
Another troubling issue is unemployment amongst the young. The unemployment rate amongst those aged 18-24 is considerably higher than the overall rate. In the three months to March the unemployment rate for this age group was 17.9% compared with the overall rate of 8%. But, more than this, the current rate of unemployment amongst those aged 18-24 is actually higher than during the early 1990s when it peaked at 17.8% in Q1 1993. The male unemployment rate amongst this age group is especially high having risen to 20.7% in the first quarter of the year, up 2 percentage points on the year and up from 14.2% in Q1 2008. The female rate amongst this age group is 14.6%, up 1.3 percentage points on the year and up from 9.8% in Q1 2008.
Another issue that emerges out of the statistics is the rise in long-term unemployment. The number of people unemployed for more than one year rose to 757,000 in the first quarter, up from 509,000 a year ago and 397,000 two years ago. Perhaps, it is easier to see the magnitude of this problem when we note that 30.2% of those unemployed have been unemployed for at least one year – this is up from 24.5% in Q1 2008. Amongst females, 25% of those unemployed have been without work for at least one year, but amongst males this rises to 33.4%. In other words, one-quarter of unemployed females and one-third of unemployed males are now regarded as being long-term unemployed.
As troubling as these numbers are, the issue of long-term unemployment is one that, over the past two decades, has never really gone away. On average since 1992, 29.4% of those unemployed have been without work for at least one year (34.2% amongst men and 21.6% amongst women).
And now to our final observation: the historically high number of economically inactive individuals of working age. In the first quarter of 2010, 8.166 million of those of working age were economically inactive, up by 86,000 over the year. As a proportion of the working population, this equates to 21.5%, which is not in itself a record high – during 1983 it reached 23.2% – but it is, nonetheless, up from 20.7% a year ago. The inactivity rate amongst those of working age is highest amongst females at 25.9% (up from 25.7% a year ago) compared with 17.4% amongst men (up from 16.1% a year ago).
One factor that helps to explain the overall rise in inactivity is the 43,000 increase in the number of students who have become economically inactive over the past year. But, we also note upward pressures on inactivity over the past year from the increase of 37,000 in the number of people who are ‘long-term sick’ and from the 13,000 increase in the number who feel ‘discouraged’ from seeking work. These pressures highlight some of the many costs that arise from unemployment and potentially raise some tricky policy challenges for the new government.
Articles
UK unemployment rises in first quarter Investment Week, Hannah Smith (12/5/10)
UK unemployment climbs to a 16-year high Irish Independent, Svenja O’Donnell Brian Groom (13/5/10)
UK unemployment increases to 2.51 million BBC News (12/5/10)
Unemployment: what the experts say Guardian (12/5/10)
UK unemployment hits highest since 1994 The Times, Robert Lindsay (12/5/10)
Jobs recovery still fragile, ‘dire’ data shows Financial Times, Brian Groom (12/5/10)
Scottish unemployment rises by 10,000 in three months BBC News (12/5/10)
Unemployment rises to highest level since 1994, ONS says inthenews.co.uk, Sarah Garrod (12/5/10)
Data
Latest on employment and unemployment Office for National Statistics (12/5/10)
Labour Market Statistics, May 2010 Office for National Statistics (12/5/10)
Labour market statistics page Office for National Statistics
For macroeconomic data for EU countries and other OECD countries, such as the USA, Canada, Japan, Australia and Korea, see:
AMECO online European Commission
Questions
- What is meant by somebody being economically active? Do they have to be in a job to be economically active?
- Using the figures in the commentary, calculate the number of economically active people in Q1 2009 and so the change up to Q1 2010.
- If the number of people unemployed rises does this mean the rate of unemployment rises? Explain your answer.
- What factors might explain the persistent problem of long-term unemployment? What policy prescriptions would you offer the new coalition government in attempting to tackle this problem?
- Looking back through the commentary, pick out some of the notable gender differences. What factors might help to explain these?
- Are there any factors identified in the commentary that may be affecting the economy’s potential output?
In the midst of the election campaign we can well imagine that economic data are analysed in minute detail by politicians looking to make political capital. Of particular interest are likely to be the labour market numbers. So here we ‘digest’ a few of the latest numbers from the latest ONS labour market release.
The ONS reports that in the three months to February 2010 the number unemployed in the UK rose above the 2½ million mark to stand at 2.502 million. Of these, 61.2% were male and 38.8% female. The rise of 43,000 on the previous three months (i.e. the three months to November) took unemployment to its highest level since the three months to December 1994.
While unemployment rose, employment fell by 90,000 over the same period to 28.824 million. Of those in employment, 53.2% were male and 46.8% female. Employment levels are now at their lowest since the three months to December 2005. The latest unemployment and employment numbers mean that the number of economically active individuals in the three months to February stood at 31.326 million (53.9% male and 46.1% female), down by 47,000 on the previous three months. Therefore the unemployment rate, which is expressed as a percentage of those economically active, has now edged up to 8% (9.1% amongst males and 6.7% amongst females); it was 6.8% a year ago (7.6% amongst males and 5.9% amongst females) and 5.2% two years ago (5.6% amongst males and 4.8% amongst females).
If we look at the number who have been unemployed for at least one year we see a rather worrying trend with a rise of 89,000 over the past three months to some 726,000. This compares with 486,000 in the same period a year ago and 390,000 two years ago. Another potentially problematic trend is the rise in inactivity rates. The proportion of individuals of working age who are now inactive, so neither employed or actively seeking work, rose to 21.5% in the three months to February (17.5% amongst men and 25.8% amongst females), up from 20.7% in the same period last year (16.2% amongst men and 25.7% amongst females).
Finally, part-time employment fell by 30,000 in the three months to February to 7.671 million. However, it rose by 6000 amongst men to 1.880 million. We now observe that 12.2% of men in employment are employed part-time compared with 43.0% of females in employment. Further, of all part-time workers 24.5% – that’s effectively one-quarter – are male, double the share back in 1984 when these numbers were first recorded.
Articles
UK Unemployment hits 2.5 million mark The Wall Street Journal, Nicholas Winning and Ilona Billington (21/4/10)
UK unemployment at 16-year high Financial Times, Brian Groom (21/4/10)
UK unemployment increases to 2.5 million BBC News (21/4/10) )
Unemployment breaks through 2.5 million Guardian, Graeme Wearden (21/4/10)
UK unemployment surges to 15-year high The Times, Grainne Gilmore (21/4/10)
Data
Latest on employment and unemployment Office for National Statistics (21/4/10)
Labour Market Statistics, April 2010 Office for National Statistics (21/4/10)
Labour market statistics page Office for National Statistics
For macroeconomic data for EU countries and other OECD countries, such as the USA, Canada, Japan, Australia and Korea, see:
AMECO online European Commission
Questions
- The current rate of unemployment is 8%. During the downturn of the early 1990s it peaked at 10.7%. What might explain this difference? Do you think the current rate may have now peaked?
- What might explain the rise in inactivity rates? Does this rise have any implications for potential output?
- Does the rise in the number of those unemployed for over a year have implications for our potential output?
- Go back through the commentary: are there any notable gender differences in the figures? What factors might help to explain these?
- In 1984 part-time employment stood at 4.985 million while currently the figure is 7.671 million. Is it possible to explain this growth in part-time employment in the UK?
It is often said of statistics that you can make of them whatever you want to. Well, this appears especially true of the latest labour market figures from the Office for National Statistics. Firstly, the good news: unemployment fell. But, secondly, the not so good news: the number of economically inactive individuals rose to an all-time high. So what are we supposed to make of the latest figures? And, are there any other little gems to be uncovered in the latest set of labour market numbers?
At its most simple, an economically active individual is somebody 16 or over who is either in employment or is unemployed but actively seeking work. In the three months to January 2010, the total number of economically active individuals in the UK stood at 31.309 million, of which 28.860 million were employed and 2.449 million were unemployed. The number unemployed in the previous three months had been at 2.482 million. When expressed as a percentage of those economically active, the unemployment rate has fallen from 7.9% in the previous three months to 7.8% in the three months to January.
The total number of economically inactive individuals of working age, i.e. those aged 16 to 59 (women) or 64 (men), stood at 8.157 million in the three months to January, which, as well being an historic high, was a rise from 8.009 million in the previous three months. This converts into an inactivity rate amongst those of working age of some 21.5%, the highest since the three months to October 2004. A key point though is that inactivity rates do tend to rise either during periods of rising unemployment and/or following prolonged periods of relatively high unemployment. For instance, following the early 1990s downturn the rate of inactivity peaked at 22.1% in the three months to January 1995. In comparison, following the boom of the late 1980s the rate, the inactivity rate began the 1990s at only 19.3% – a record low. A large contributing factor to the rise in inactivity in the three months to January has been the rise in the number of students not in the labour market to 2.13 million, an increase of some 98,000 over the three months. Again, parallels can be drawn with the early 1990s because this is the highest number of students not in the labour market since comparable figures began in 1993.
In part, it appears that inactivity levels reflect perceptions amongst individuals of the probability of finding employment. So, while unemployment has fallen by 33,000 over the latest three months we do have to keep in mind that inactivity has increased by 149,000. Therefore, this may be a case of a ‘jobless’ decrease in unemployment!
Some commentators, however, are more optimistic about the current trend in unemployment, pointing to the fact that unemployment levels have not hit the levels predicted, despite the economy contracting by 5% in 2009. They point to the flexible labour market. Of course, time will tell if this is truly a ‘benefit’ of a more flexible labour market. But, what is clear is that one manifestation of a changing structure to the UK labour market is the growth in part-time work. In the three months to January, 26.69% of those employed were employed part-time: this was another record high which seems to have been largely lost in the mass of statistics.
Articles
Unemployment falls as ‘economic inactive hits record’ Telegraph, Harry Wallop (17/3/10)
Unemployment plunge boost economy hopes thisismoney, Ed Monk (17/3/10)
UK unemployment records further fall BBC News (17/3/10) )
Gordon Brown given unexpected boost by fall in unemployment Guardian, Kathryn Hopkins and Julia Kollewe (17/3/10)
Not lagging, but not leading either BBC News blogs: Stephanomics, Stephanie Flanders (17/3/10)
Data
Latest on employment and unemployment Office for National Statistics (17/3/10)
Labour market statistics, March 2010 Office for National Statistics (17/3/10)
Labour Market Statistics page Office for National Statistics
For macroeconomic data for EU countries and other OECD countries, such as the USA, Canada, Japan, Australia and Korea, see:
AMECO online European Commission
Questions
- What factors do you think could affect labour market inactivity rates?
- How might inactivity rates affect an economy’s potential output?
- What factors do you think will have contributed to the growth in part-time employment in the UK?
- The UK economy came out of recession in the last quarter of 2009. Does this mean that unemployment will continue to fall from now on?