THE general election due in Britain on May 6th is not the one David Cameron was chosen to fight. The opposition Conservatives made him their leader in 2005 after a barnstorming speech delivered without notes to their annual conference. His pitch: that he could persuade the electorate to trust him with public services and offer tax cuts too, by “sharing the proceeds of growth”. It was a formula worthy of an earlier young, centrist, opposition politician: Tony Blair, who in 1997 led Labour to victory after 18 years of Conservative rule.
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Companies ranging from Australian miners BHP Billiton and Rio Tinto to smaller firms like South Africa’s Lonmin PLC are benefiting from the stronger greenback because they receive dollars for the gold, copper and iron ore they dig up, but pay for labor and many other costs using local currencies. When the dollar rallies, revenue generated by metals sales stretch further in covering expenses.
The dollar’s rise is reverberating across the global economy, dividing the corporate world into winners and losers along geographic lines and reshaping the next phase of commodities prices. The greenback rose against virtually all currencies in 2014 and is off to a roaring start this year, as some central banks around the world, reaching for new ways to boost sluggish economic growth, take steps to devalue their currencies.
It is no secret that Americans work more than Europeans – 30% more according to recent studies. Many economists point to higher taxes in Europe as a major cause. This column suggests that divorce rates also play a role, particularly for women’s labour supply.
Our research starts by trying to uncover the determinants of cross-country differences in work hours through analysing the hours worked by different demographic subgroups (Chakraborty et al. 2012). We find that women are typically the largest contributors to the aggregate differences. European women work less than American women, irrespective of whether we look at single or married women, or women with and without children.
Cross-country variation in tax systems is one of the most popular proposed explanations for the observed discrepancy in work hours between the US and Europe. The basic intuition here is straightforward – higher labour income taxes reduce the incentives to work. However, for the 18 countries in our sample, we find that, while there is indeed a negative correlation between various measures of taxation and hours worked by men, the corresponding correlation for women is close to 0. Figure 1 below plots the correlation between male and female labour supply and the “average effective tax rate”, a measure that combines the average labour income tax and consumption tax in each country into a single tax rate.
Figure 1. Tax rates and labour supply by gender
At the same time, Figure 2 shows that we get the opposite result when looking at the relationship between divorce rates and work hours – we find a strong positive correlation between divorce rates and hours worked by women, whereas male hours and divorce rates are completely unrelated.
Figure 2. Divorce rate and labour supply by gender
While Figure 2 shows that female labour supply is correlated with divorce rates in a statistical sense, it does not answer the key question: Why would the likelihood of divorce affect the decision of females to work?
We believe this is because marriage provides an implicit social insurance since the spouses are able to share their income. However, if divorce rates are higher in a society, women have a higher incentive to obtain work experience in case they find themselves alone in the future. The reason the incentive is higher is because in our data, women happen to be the second earner in the household more often than men. European women anticipate not getting divorced as often and hence find less reason to insure themselves by working as much as American women.
A classroom revolution
The Conservatives’ plans to change Britain’s deeply flawed education system may be the most interesting idea in this election
Get a life
BERTRAND RUSSELL, the English philosopher, was not a fan of work. In his 1932 essay, “In Praise of Idleness”, he reckoned that if society were better managed the average person would only need to work four hours a day. Such a small working day would “entitle a man to the necessities and elementary comforts of life.” The rest of the day could be devoted to the pursuit of science, painting and writing.
Russell thought that technological advancement could free people from toil. John Maynard Keynes mooted a similar idea in a 1930 essay, “Economic possibilities for our grandchildren”, in which he reckoned people might need work no more than 15 hours per week by 2030. But over 80 years after these speculations people seem to be working harder than ever. The Financial Times reports today that Workaholics Anonymous groups are taking off. Over the summer Bank of America faced intense criticism after a Stakhanovite intern died.
But data from the OECD, a club of rich countries, tell a more positive story. For the countries for which data are available the vast majority of people work fewer hours than they did in 1990:
And it seems that more productive—and, consequently, better-paid—workers put in less time at the office. The graph below shows the relationship between productivity (GDP per hour worked) and annual working hours:
The Greeks are some of the most hardworking in the OECD, putting in over 2,000 hours a year on average. Germans, on the other hand, are comparative slackers, working about 1,400 hours each year. But German productivity is about 70% higher.
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Multinationals will face rising labour costs
In 2015 the chief executives of big multinationals will worry a lot about pay: not their own, but that of their toiling staff. Rising labour costs will squeeze profit margins, which are at peak levels. Bosses will have to decide whether to resist or accommodate this pressure. Plenty, in the end, will raise their workers’ pay.
At first glance this may seem far-fetched. Since the 1990s Western firms have managed to restrain wages at home and boost efficiency. The share of value added by American non-financial firms that is spent on pay is 58%, its lowest since records began in 1929. Production has also been shifted overseas. American multinationals now have a third of their staff abroad. Per dollar of sales they are paid 40% less than their American colleagues. European firms are even more international.
Source: The Economist
Ten years ago, developing economies were catching up with developed ones remarkably quickly. It was an aberration
Sep 13th 2014 | From the print edition
NOWHERE are the consequences of different rates of growth clearer than on a trip up the Pearl River Delta in southern China. At the river’s mouth sits Hong Kong, a city in which average living standards exceed those in most rich European countries. Travel farther north and you pass the container ports of Shenzhen, behind which new skyscrapers tower over a sprawling melange of housing and factories. Since its establishment as a special economic zone in 1980, Shenzhen’s economy has grown at a frenetic pace, and incomes there are now just over half of those in Hong Kong, which is similar to what you would see in southern and central Europe.
Farther north and west sits Guangzhou, capital of Guangdong province, with its newly constructed motorways and tower blocks among the rice paddies. Average incomes in Guangdong are just a quarter of those in Hong Kong, equivalent to Algeria or Costa Rica. Finally, toward the western edge of the watershed, the tributaries reach across Guangxi into Yunnan—provinces where the people have yet to get into the flow of China’s voyage of development. Incomes there are but a tenth of those in Hong Kong, on a par with those in Angola or the Republic of the Congo.
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