The housing market has been very volatile over the past year or so. House prices crashed, but then appeared to stabilise. Since then, however, different sources have given very different opinions and predictions about future movements. According to Nationwide Building Society, house prices have increased by an average of £53 a day during September, but others suggest that they remain stable and that they may fall again in 2010.
Not only are house prices important to those buying and selling, but the state of the housing market is also crucial for the recovery of the economy. For example, the construction industry has suffered over the past year and, as of the 2nd October 2009, unemployment in this sector stood at 17.1%. As more and more workers lose their jobs, their disposable income falls and hence demand in the economy is affected. With the possibility of an election debate between the party leaders, many will be waiting to see what their strategies are to revitalise a struggling economy.
House prices rise an average of £53 a day’ Daily Record, Clinton Manning (3/10/09)
Mortgage approvals dip in August BBC News (29/9/09)
Construction contracts at slowest pace for seven months Construction News, Nick Whitten (5/5/09)
House sales ‘stalled’ in August BBC News (22/9/09)
Housing market needs ‘feel-good’ factor to recover City Wire, Nicholas Paler (26/6/09)
Double whammy for first-timers as prices stabilise and loans dry up Scotsman, Jeff Salway (3/10/09)
Head-to-head view on house prices BBC News, Kevin Peachey (27/8/09)
UK construction industry still contracting, says Cips Guardian, Kathryn Hopkins (2/10/09)
House prices see ‘slight decline’ BBC News (28/9/09)
House prices ‘back to 2008 level’ BBC News (2/10/09)
Construction unemployment rises to 17.1% HomeTown Sources (2/10/09)
House prices up – but so are insolvencies Management Today (2/10/09)
Financial shadow cast by city apartments BBC News (8/10/09)
For house price data see:
Nationwide House Prices
Halifax House Price Index from the Lloyds Banking Group
Housing Market and House Prices from the Department of Communites and Local Government
Questions
- Why are recent movements in the housing market going to be a problem for first-time buyers?
- The ‘Stamp duty holiday’ will soon come to an end. What do you think will be the impact on the demand for and supply of houses and hence equilibrium prices over the next 6 months?
- One of the reasons why house prices have stabilised is a lack of supply. How does this affect equilibrium prices?
- Why is the economy so affected by changes in house prices? Think about what happens when construction workers lose their jobs and how this affects aggregate demand. Then consider how the macroeconomy will be affected.
- When demand for houses increases, why do prices increase so rapidly? Consider elasticity.
For some time now, education has been a top priority for the government. They have been tackling standards in schools and have a target of a 50% participation rate in higher education. Most people agree that school education should be free, but opinion is divided when it comes to higher education. Is the return to the individual greater than that to society or vice versa? Is it the same for all degrees? This is one of the questions that affects funding. Should the individual pay? Or the government? Or should there be a mixture of funding?
The question of university education has become even more of an issue in the current recession, with many seeing a university education as a way of avoiding, what could be, inevitable unemployment. With this increase in demand, there is increasing pressure on the funding: it is simply not fiscally feasible to fund everyone’s university education. As such, business leaders have advised a rise in tuition fees. Students could be charged thousands more and made to face a higher interest rate on any loans. This highly contentious issue is considered in the articles below.
Charge students more, say bosses BBC News (21/9/09)
Middle class university students ‘should pay more’ Telegraph (21/9/09)
Elite universities plan to cut UK student numbers amid funding drop Telegraph (20/9/09)
Fee rise must aid poor students BBC News (27/7/09)
Loans delay for 150,000 students continues Daily Mail (19/9/09)
‘No fee degrees’ university plan BBC News (8/7/09)
‘New market’ in education (podcast) BBC Today Programme (8/7/09)
Bring back tuition fees for middle class students Scotsman (11/9/09)
CBI advises raising university fees to £5,000 a year to tackle funding crisis Guardian (21/9/09)
University ‘way out of recession’ BBC News (8/9/09)
Schools secretary Ed Balls under fire over education cuts Mirror (21/9/09)
Students should pay more – CBI (video) BBC News (21/9/09)
Questions
- Why is education described as a merit good? Explain the characteristics and why it constitutes a market failure.
- Identify any externalities involved in higher education. Do they imply that the free market would led to a level of higher education that is above or below the social optimum?
- List the costs to society of a university education. (Think about opportunity cost).
- What are the arguments for (a) only the individual funding their university education (b) the government funding university education (c) a combination of both?
- Is it a reasonable policy to increase university fees? If so, should students receive loans to cover this increase? If not, what do you think is an alternative option to help this funding crisis?
Everybody relies on post, whether it is bills, cards or packages, and everyone is annoyed when something goes missing, which has becoming an increasingly common occurrence. Over the past few weeks, a country already suffering from the economic downturn has also been suffering from a lack of post, as workers throughout the Royal Mail have been striking over pay and job cuts. Postal workers are now to vote on a national strike, although the Communication Workers Union (CWU) has said they will call it off if the Royal Mail agrees to stop all redundancies.
And it’s not just individuals who are suffering. Businesses have also been affected, as packages go missing and costs begin to rise. However, there is good news for one firm, the DX Group. DX Mail is the only independent mail operator in the UK which doesn’t rely on the Royal Mail for any part of its service. If the disputes continue, it could see a significant boost to its sales.
Consider the following articles and think about the effect this strike may have on businesses and the economy and then have a go at the questions.
Postal workers to vote on strike BBC News (17/9/09)
The DX: Keeping Business Mail moving during strike Hellmail (30/8/09)
Mail Privatisation to ‘go ahead’ BBC News (11/6/09)
Threat of strikes underlines TUC warning over spending cuts Times Online (14/9/09)
Postal strikes drive customers to Royal Mail’s rivals Guardian (18/9/09)
Postal workers strike in Swindon BBC News (16/9/09)
Royal Mail denies mail backlog BBC News (11/9/09)
Postal strike over job cutbacks The Herald (Plymouth) (5/9/09)
Managers and unions fail to sort out Royal Mail modernisation Guardian (17/9/09)
Questions
- In what ways is a postal strike likely to cost businesses?
- What other options are there for postal workers apart from strikes? Consider the advantages and disadvantages of each.
- How does a trade union affect wages and employment when an industry becomes unionised? What happens if a trade union is facing a monopsonist employer of labour?
- What is this dispute about and what do you think is the best way to resolve it for all concerned?
- Why in pay negotiations is a trade union more effective than each individual asking for higher pay?
According to labour market data released by Office for National Statistics on 16 September, unemployment has risen to a 14-year high. The Labour Force Survey figures show a rise in unemployment from 2.26 million (7.2%) in the three months to April 2009 to 2.47 million (7.9%) in the three months to July 2009. The data also show a 12,000 rise in the claimant count between July and August.
However, there are signs that the UK economy is growing again. This was underlined by evidence given to the House of Commons Treasury Select Committee on 15 September by the Governor of the Bank of England. So does this mean that businesses will take on more labour and that unemployment will fall?
The problem is that unemployment is a lagging indicator of economic activity. The reason is that many firms are reluctant to shed labour in recession and simply take up the slack as the economy recovers, without taking on extra labour. Even if they are short of labour, they may prefer to offer overtime to existing staff rather than employing new staff for fear that the upturn may be short-lived.
So what is likely to happen to unemployment over the coming months? Will it slowly fall or will it go on rising and, if so, for how long? Read the articles and then attempt the questions.
UK unemployment at 14 year high (video) BBC News (16/9/09)
UK jobless rate hits 14-year high Telegraph (17/9/09)
Unemployment crisis creates divide between private and public sector Telegraph (16/9/09)
Record one in five young people out of work (including video) Times Online (16/9/09)
Unemployment hits highest since 1995 Guardian (16/9/09)
Rising UK unemployment (charts of UK unemployment from 1984 to the present day) Guardian (16/9/09)
Unemployment at highest level since 1995 (including video) Channel 4 News (16/9/09)
Questions
- What is meant by the terms ‘leading indicators’ and ‘lagging indicators’? Give some examples of each.
- What determines the length of lag between a rise in output and (a) a rise in employment and (b) a fall in unemployment?
- Is unemployment a good measure of the excess supply of labour in the labour market? What other evidence might you need in order to assess the degree of slack in individual labour markets?
- If labour becomes more flexible in terms of the hours that people are prepared to work, will the unemployment lag increase or decrease? Explain.
- Under what circumstances does obtaining a university degree improve your job prospects?
- To what extent would reforming the benefits system, so as to reduce the poverty trap and give people a greater incentive to work, reduce unemployment (a) during a recession and (b) over the long term? What type of unemployment would be affected?
One of the biggest consequences of the recession has been a rise in unemployment. As the economy fell deeper into recession, unemployment began to soar and some believe that it could reach 3.5 million and remain high for the next decade.
But while many employees have lost their jobs or had they pay frozen, some of the biggest earners have received substantial pay rises! The bosses of the FTSE 100 companies have seen their average pay increase by 10% and have shared pay rises of more than £1 billion in the past year.
So as the economy plunged into recession and companies lost much of their value, we still saw an increase in the pay gap in the UK. The following articles look at the pay situation of some of the top bosses.
10% pay rise for the top bosses This is Money, Ryan Kisiel (14/9/09)
Guardian Executive Pay Survey 2009: Should pay be capped? Guardian (14/9/09)
What they make: The highest paid Chief Executives in Digital Media Guardian (20/3/09)
Executive pay jumps despite recession: Report Associated Press (14/9/09)
Unemployment could reach 3.5m and remain high for a decade, CIPD warns Telegraph, Martin Beckford (14/9/09
Questions
- How are wages determined in the labour market?
- Why do different people receive different wages? What should happen if two people receive different wages for doing the same job?
- What are the different (a) types (b) causes of inequality?
- Would a maximum price work if it was applied to wages?
- Discuss the advantages and disadvantages of different wages. If everyone was paid the same, would everyone be better off?