The UK is set to abolish its compulsory retirement age of 65 in October 2011. The CBI frets that this will reduce opportunities for younger workers -- job blocking, which is kind of like "bed blocking" in hospitals, I suppose -- but most media commentators seem to be in favour.
Many of these commentators are citing the "lump of labour" fallacy, an oldie but goodie in the economist's armoury. The fallacy is that there is a fixed amount of employment in the economy, with the result that if one person has a job, someone else is deprived of the chance of employment. The reason this is deemed fallacious is that employed people spend their earnings, which in turn creates employment for others.
As the great Baltimore economist Stringer Bell might put it, "true dat". But it's not the whole story. Sure, it's true in a macro sense, but there's quite a lot of devil in the details. A 70-year old finance director at a major corporation might well be spending his money like water, but the jobs he's creating are mainly in the restaurants he frequents or at the Mercedes factory. Meantime the 55-year old chief accountant is spinning his wheels and so are all the people in the chain behind him, till at the very lowest level the firm decides there's no need to hire a new entrant in the finance department this year -- and the potential new entrant then finds himself serving the finance director his after-work cocktail instead.
But hey, the new entrant has a job of sorts, so lump of labour is still a fallacy and none of this really matters, right? I'm not so sure. Experience tells me that there won't be many binmen or coal miners blocking jobs by hanging around after the age of 65. But there'll be lots of public servants and accountants and economists and suchlike. It's the skilled professions where the jobs will get blocked. At a time when it's already very difficult for young graduates to make a start on their careers, is this really what we want?
One of the few objections that I've seen to the end of compulsory retirement came from someone who saw it as yet another move by the baby boomers (My Generation, baby) to rewrite the rules of society in their own favour, regardless of the consequences for anyone else. Me and Stringer Bell are as one on this: "mos' def".
Friday, 30 July 2010
Monday, 26 July 2010
The perils of cheap money
Banks in the UK paying a nice round return (0%) on most of their accounts; National Savings cutting its rates and taking its inflation-beating certificates off the market. What's the beleaguered saver to do?
Well, he/she can always turn to the investment pages of the weekend newspapers, because they're up to their old tricks again. Yes, the folks who cheerfully touted the attractions of Icelandic banks even as they careered over the precipice are at it again. The location of the favoured institutions has changed: ICICI is still there from pre-crisis days, but now it's been joined by Bank of Baroda. I know abolutely nothing about either of these fine institutions, but that's precisely my point. You tart your money about for the highest rate, and as long as you don't put more than £50,000 into any one institution you've never heard of, you've nothing to worried about, because the Government (or rather the taxpayer) will be there to bail you out if it all goes T.U.
These money pages really are the apotheosis of the moral hazard that Mervyn King used to fret about until someone told him to pipe down. It's highly irresponsible of the "upmarket" newspapers to encourage this kind of behaviour.....
....but not as irresponsible as this. On another page of this past weekend's Sunday Times, an array of professional investors were asked for their best current money-making wheezes. One that the paper really liked -- because it highlighted it at the top of the article -- was a suggestion to buy distressed real estate in the US or maybe in Spain, and finance the purchase with a Yen-denominated mortgage!
Look, I'm a former investment banker. I understand this trade; I can see that it has an awful lot of moving parts. Maybe I'm underestimating the readers of the Sunday papers, but I'm wondering how many of them will see the risks inherent in something like this. This is the sort of trade that professionals may be able to recommend to sophisticated investors as a bit of "juice" in a diversified portfolio. It shouldn't just be dangled in front of regular savers who are mostly looking for alternatives to bank deposits.
I suppose there will be no harm done, because no individual could put a transaction of this sort together without taking professional advice. Still, as with touting the Bank of Baroda and its ilk, you wonder just what the editors of these money sections are trying to achieve. The longer we stay in today's cheap money regime, the likelier it is that people will be tempted into something much riskier than they realise; and it won't be the Sunday papers that have to bail them out.
Well, he/she can always turn to the investment pages of the weekend newspapers, because they're up to their old tricks again. Yes, the folks who cheerfully touted the attractions of Icelandic banks even as they careered over the precipice are at it again. The location of the favoured institutions has changed: ICICI is still there from pre-crisis days, but now it's been joined by Bank of Baroda. I know abolutely nothing about either of these fine institutions, but that's precisely my point. You tart your money about for the highest rate, and as long as you don't put more than £50,000 into any one institution you've never heard of, you've nothing to worried about, because the Government (or rather the taxpayer) will be there to bail you out if it all goes T.U.
These money pages really are the apotheosis of the moral hazard that Mervyn King used to fret about until someone told him to pipe down. It's highly irresponsible of the "upmarket" newspapers to encourage this kind of behaviour.....
....but not as irresponsible as this. On another page of this past weekend's Sunday Times, an array of professional investors were asked for their best current money-making wheezes. One that the paper really liked -- because it highlighted it at the top of the article -- was a suggestion to buy distressed real estate in the US or maybe in Spain, and finance the purchase with a Yen-denominated mortgage!
Look, I'm a former investment banker. I understand this trade; I can see that it has an awful lot of moving parts. Maybe I'm underestimating the readers of the Sunday papers, but I'm wondering how many of them will see the risks inherent in something like this. This is the sort of trade that professionals may be able to recommend to sophisticated investors as a bit of "juice" in a diversified portfolio. It shouldn't just be dangled in front of regular savers who are mostly looking for alternatives to bank deposits.
I suppose there will be no harm done, because no individual could put a transaction of this sort together without taking professional advice. Still, as with touting the Bank of Baroda and its ilk, you wonder just what the editors of these money sections are trying to achieve. The longer we stay in today's cheap money regime, the likelier it is that people will be tempted into something much riskier than they realise; and it won't be the Sunday papers that have to bail them out.
If it wasn't for bad news, wouldn't have no news at all
Amazing first sentence from an article by the Times economics correspondent, Grainne Gilmore, today:
Gloom over the economy will deepen today with evidence stacking up that the recovery is losing momentum.
Well, I suppose that's one way of looking at it. I mean, in the last two weeks we've seen reports of an unexpectedly strong rise in employment; huge gains in car production and car sales; a strong rise in retail sales in June; and a 1.1% rise in GDP in the second quarter, almost twice the gain that markets had expected.
But enough of the boring hard facts! Ms Gilmore is basing her gloom on an couple of sentiment surveys, including one by the British Retail Consortium, arguably the UK's leading peddler of junk statistics.
The economy will face plenty of headwinds once we get into 2011, but for the moment things are about as good as they're likely to get. It would be nice if the press would focus on what's actually happening, rather than trying to talk the economy back into recession.
Gloom over the economy will deepen today with evidence stacking up that the recovery is losing momentum.
Well, I suppose that's one way of looking at it. I mean, in the last two weeks we've seen reports of an unexpectedly strong rise in employment; huge gains in car production and car sales; a strong rise in retail sales in June; and a 1.1% rise in GDP in the second quarter, almost twice the gain that markets had expected.
But enough of the boring hard facts! Ms Gilmore is basing her gloom on an couple of sentiment surveys, including one by the British Retail Consortium, arguably the UK's leading peddler of junk statistics.
The economy will face plenty of headwinds once we get into 2011, but for the moment things are about as good as they're likely to get. It would be nice if the press would focus on what's actually happening, rather than trying to talk the economy back into recession.
Sunday, 25 July 2010
Digby's big idea
I see where Lord Digby Jones (former head of the CBI, in case you've forgotten, as I trust you have) is calling for British universities to cut back on the academic stuff and offer more in the way of vocational courses.
What a great and original idea! Of course, if enough universities sign up, we might have to think of a new name for them. We could call them, oh I don't know, "polytechnics" or something like that.
What a great and original idea! Of course, if enough universities sign up, we might have to think of a new name for them. We could call them, oh I don't know, "polytechnics" or something like that.
Thursday, 22 July 2010
Black out
Dear old Conrad "Baron of Crossharbour" Black has been released from a US penitentiary on bail. His convictions for fraud are being reassessed in light of a change in US law that came into effect after his trial. Although his conviction for obstructing justice stands, it's possible that his sentence will be reduced to time served, meaning that he never has to go back to the Club Fed in Florida where he's spent a bit more than two years.
His trial back in 2007 was a lot less interesting than I'd expected, but the next little while should be fun, at least for the lawyers. Lots of people are after Conrad: see this, for example, from the Toronto Globe and Mail:
The Internal Revenue Service is after him for $70-million in unpaid taxes and penalties, the Securities and Exchange Commission has a lawsuit against him and there are dozens of actions in Canada and United States.
At the same time, though, Conrad's after a lot of people, probably starting with his "unofficial" biographer, Tom Bower. Bower has declared himself "amazed" at Black's release, but is unlikely to be equally taken aback when a libel comes zinging his way. That's assuming, of course, that Black can afford a lawyer, as it's not clear how much of his previous fortune he has been able to squirrel away (either from the authorities or from his notoriously extravagant wife, Barbara Amiel). Even if Black finds the wherewithal to sue all of his enemies (a pretty long list), any money he succeeds in shaking out of them is likely to touch down in his accounts for no longer than it takes for those litigating against him (an equally long list) to get their hands on it.
Then there's the question of where he's going to live. He gave up his Canadian citizenship in order to accept a British peerage, so he has no automatic right to return to Canada, which may anyway refuse him entry as a convicted felon. His UK passport has expired. And although his wife has continued to live in the couple's Palm Beach mansion, it's not clear that the Blacks actually own it anymore.
What with the loomimg tsunami of BP-related litigation and now the return of the Conrad Black soap opera, the US legal community must be in hog heaven right now. That's something we can all be happy about.
His trial back in 2007 was a lot less interesting than I'd expected, but the next little while should be fun, at least for the lawyers. Lots of people are after Conrad: see this, for example, from the Toronto Globe and Mail:
The Internal Revenue Service is after him for $70-million in unpaid taxes and penalties, the Securities and Exchange Commission has a lawsuit against him and there are dozens of actions in Canada and United States.
At the same time, though, Conrad's after a lot of people, probably starting with his "unofficial" biographer, Tom Bower. Bower has declared himself "amazed" at Black's release, but is unlikely to be equally taken aback when a libel comes zinging his way. That's assuming, of course, that Black can afford a lawyer, as it's not clear how much of his previous fortune he has been able to squirrel away (either from the authorities or from his notoriously extravagant wife, Barbara Amiel). Even if Black finds the wherewithal to sue all of his enemies (a pretty long list), any money he succeeds in shaking out of them is likely to touch down in his accounts for no longer than it takes for those litigating against him (an equally long list) to get their hands on it.
Then there's the question of where he's going to live. He gave up his Canadian citizenship in order to accept a British peerage, so he has no automatic right to return to Canada, which may anyway refuse him entry as a convicted felon. His UK passport has expired. And although his wife has continued to live in the couple's Palm Beach mansion, it's not clear that the Blacks actually own it anymore.
What with the loomimg tsunami of BP-related litigation and now the return of the Conrad Black soap opera, the US legal community must be in hog heaven right now. That's something we can all be happy about.
Wednesday, 14 July 2010
Nice work if you can get it
David Cameron is on the case of a South London primary school head teacher, Mark Elms, who reportedly took home more than £231,000 in pay last year. The PM says the public will be shocked by this, and argues that it proves the need for a salary cap in the public sector.
Let's first of all admit that numbers are a bit exaggerated. A large chunk of what Mr Elms banked in 2009 represented back pay from the previous year. Still, it looks as though last year he took home a basic salary of £83,000, a further £50,000 for work on a programme to raise standards in inner city schools, and £10,000 in overtime. So that's £143,000 in "true" 2009 earnings -- not an investment banker's deal, perhaps, but a big multiple of the average UK wage.
I'm not one of those who want public servants to be among the lowest paid in society, but I think Mr Elms's package is wrong on a number of levels:
* His basic wage of £83,000 is pretty lumpy, and teachers are always telling us how hard they have to work, yet Mr Elms in effect felt able to take on what looks like another full-time job on the inner city programme. (If it wasn't a full-time job, it earned him what most people would love to earn for their full-time jobs). How did he find the time? The school board says he worked evenings and weekends. Poor diddums.
* In the private sector, if you are good at your job, you're expected to pass on your expertise to your colleagues as a matter of course. You don't get paid a whole extra salary for doing it -- you may well get fired if you don't.
* And despite having two full-time jobs, Mr Elms was paid a further £10,000 in overtime! Where did that time come from? More importantly, nobody in a management position in the private sector, earning a base salary of £83,000, gets paid overtime. You just don't.
I'm a big believer that "the labourer is worthy of his hire", and there seems little doubt that Mr Elms is a fine head teacher. But the way he's compensated suggests that public sector HR departments have no idea of how compensation practices in the private sector actually work. Time for them to find out, I'd say.
Let's first of all admit that numbers are a bit exaggerated. A large chunk of what Mr Elms banked in 2009 represented back pay from the previous year. Still, it looks as though last year he took home a basic salary of £83,000, a further £50,000 for work on a programme to raise standards in inner city schools, and £10,000 in overtime. So that's £143,000 in "true" 2009 earnings -- not an investment banker's deal, perhaps, but a big multiple of the average UK wage.
I'm not one of those who want public servants to be among the lowest paid in society, but I think Mr Elms's package is wrong on a number of levels:
* His basic wage of £83,000 is pretty lumpy, and teachers are always telling us how hard they have to work, yet Mr Elms in effect felt able to take on what looks like another full-time job on the inner city programme. (If it wasn't a full-time job, it earned him what most people would love to earn for their full-time jobs). How did he find the time? The school board says he worked evenings and weekends. Poor diddums.
* In the private sector, if you are good at your job, you're expected to pass on your expertise to your colleagues as a matter of course. You don't get paid a whole extra salary for doing it -- you may well get fired if you don't.
* And despite having two full-time jobs, Mr Elms was paid a further £10,000 in overtime! Where did that time come from? More importantly, nobody in a management position in the private sector, earning a base salary of £83,000, gets paid overtime. You just don't.
I'm a big believer that "the labourer is worthy of his hire", and there seems little doubt that Mr Elms is a fine head teacher. But the way he's compensated suggests that public sector HR departments have no idea of how compensation practices in the private sector actually work. Time for them to find out, I'd say.
Searching for the cloud
The UK employment report for May, released this morning, was so much better than expected that it took BBC News more than an hour to find anything negative to gripe about -- though of course, now that they've found something, they've put it at the head of their coverage of the story in every subsequent news bulletin.
Unemployment fell; the jobless claimant count fell; the unemployment rate fell; employment rose; vacancies rose. Ah, but wait: of the 160,000 increase in employment over the survey period, 148,000 represented part-time jobs. So the job market isn't really that strong, is it?
It all depends on how you look at it. In one sense it's a bit surprising that any new jobs are being created at this relatively early stage in the recovery. Remember all the predictions before the recession, that the number of unemployed would rocket up to 3 million and more? It never happened, presumably because employers chose to hold onto workers rather than risk losing them and then having to hire them back at greater expense when recovery arrived. You'd think that the flipside of that would be virtually no job creation now that growth prospects have improved, so the fact that so many jobs have been added in the last three months is surely positive.
How about the preponderance of part-time jobs? The BBC and others are suggesting that most of the part-timers would prefer to work full time and are having to accept shorter hours because of the weak economy. We know this isn't true, because the ONS survey specifically identifies people in that position. While the number of part time jobs rose 148,000 from March to May, the number of people saying they were only working part-time because there was no full-time work available rose by only 21,000. Of the 7.8 million part time workers (a record number), only 1.07 million report that they would rather be working full time.
Overall, these numbers suggest that recent heightened fears of the dreaded "double dip" recession are overblown. The economy still has some forward momentum, and the likelihood that the looming VAT hike will pull some big-ticket consumption into late 2010 from next year should keep growth in positive territory at least until year-end. Next year, with the VAT hike and the start of actual spending cuts (most of what's been announced so far is the cancellation of spending plans, not actual cuts, but that's going to change), the risk of a double dip will be much greater. Could somebody please tell the BBC?
Unemployment fell; the jobless claimant count fell; the unemployment rate fell; employment rose; vacancies rose. Ah, but wait: of the 160,000 increase in employment over the survey period, 148,000 represented part-time jobs. So the job market isn't really that strong, is it?
It all depends on how you look at it. In one sense it's a bit surprising that any new jobs are being created at this relatively early stage in the recovery. Remember all the predictions before the recession, that the number of unemployed would rocket up to 3 million and more? It never happened, presumably because employers chose to hold onto workers rather than risk losing them and then having to hire them back at greater expense when recovery arrived. You'd think that the flipside of that would be virtually no job creation now that growth prospects have improved, so the fact that so many jobs have been added in the last three months is surely positive.
How about the preponderance of part-time jobs? The BBC and others are suggesting that most of the part-timers would prefer to work full time and are having to accept shorter hours because of the weak economy. We know this isn't true, because the ONS survey specifically identifies people in that position. While the number of part time jobs rose 148,000 from March to May, the number of people saying they were only working part-time because there was no full-time work available rose by only 21,000. Of the 7.8 million part time workers (a record number), only 1.07 million report that they would rather be working full time.
Overall, these numbers suggest that recent heightened fears of the dreaded "double dip" recession are overblown. The economy still has some forward momentum, and the likelihood that the looming VAT hike will pull some big-ticket consumption into late 2010 from next year should keep growth in positive territory at least until year-end. Next year, with the VAT hike and the start of actual spending cuts (most of what's been announced so far is the cancellation of spending plans, not actual cuts, but that's going to change), the risk of a double dip will be much greater. Could somebody please tell the BBC?
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