Are benefits a subsidy to workers or employers? Yes

There’s an interesting claim out there that benefits are just a subsidy to low wage employers. They can get away with paying low wages because we taxpayers then top that up. Alternatively, we might think of benefits as being subsidies to those people who, for whatever reason, have incomes lower than we think they ought to be. There’s an answer to which of these is true, that answer being: yes.

Jeremy Warner is one this subject here:

Much the same process is evident today in the growth of Britain’s low-wage, low-productivity economy. There is little incentive for employers to improve their productivity, and therefore their wage levels, when labour is subsidised to the degree it now is from general taxation.

By the by, the tax credit system – enormously expanded and enhanced under Gordon Brown – has created a kind of client state of those partially or entirely dependent on the government for their way of life. It has locked in votes as well as disrupted the normal market process by which the general standard of living is raised.

We would make a slightly different point. Whether benefits subsidises the employer or the employee depends upon which benefit. More specifically, a benefit that is paid because of low income, regardless of whether someone is in or out of work, is a subsidy to the recipient. And it’s also an anti-subsidy to the potential employer. It raises the reservation wage (the amount that must be offered to get someone to come into work). However, a benefit that is paid conditional upon being in work will end up as being a subsidy to that employer: for it lowers again that reservation wage.

Here in the UK we really only have one major work conditional benefit, working tax credits. Those really are a subsidy to low wage employers. The impact of the rest of the benefit system is to raise wages.

The interesting out come of this is that if you want wages for the low paid to rise then you should almost certainly be arguing for the abolition of working tax credits. Not that this would increase the incomes of the poor but it would stop that subsidy of low wage employers.

America’s only socialist opposes Americans trading with socialists

Bernie Sanders running for President was always going to provide some amusement. But we didn’t think it was going to come quite so soon after America’s only declared socialist in Congress made his announcement.

Sanders is against eh idea that America should sign the trade deals that Obama is urging that America does. And as Tyler Cowen has pointed out the country most likely to benefit from said trade deals is the at least nominally (and very poor, there’s a connection there) socialist country of Vietnam. It’s thus possible to note that:

Note his position the the US needs to “fundamentally change our trade policies, so that corporations don’t shut down in this country and move to China or Vietnam or other low-wage countries.”

Yes, the socialist candidate for US president is talking about keeping American jobs from migrating to the “socialist” countries of China and Vietnam.

Politics: it’s a rum manner of trying to run the world, isn’t it?

We would also like to note that this blog post was created on International Workers Day, May 1.

Comparing apples to apples: NHS still ranks below average

Most healthcare reporting is deeply biased. From blogs to papers to policy, most people have strong preferences for different kinds of healthcare systems that they believe to be ‘the best’, often based on what they view the role of the state to be. Obviously some beliefs are grounded in more facts and stats than others, but given how complicated healthcare systems are, it’s possible to come up with all different kinds of conclusions that appear, at least on the surface, like they’re grounded in fact.

Compare, for example, The Commonwealth Fund 2014 report to the 2014 European Health Consumer Index: two studies that compare international healthcare systems. Both published within one year of each other, The Commonwealth Fund ranked the NHS the best healthcare system out of 11 countries, while the EHCI threw it down the list, ranking it 14th after all your obvious competitors, including The Netherlands, Switzerland, Germany, but also after your less obvious contenders, like Portugal.

Both reports appear to be thoroughly researched and have lots of numbers to back them up. So who do you believe? Well, if you favour single-payer health systems, you’re probably going favour the Commonwealth Fund’s report, which inherently favours centralised systems. (For example: out-of-pocket costs and insurer rejection of full cost reimbursement were considered a black mark against a healthcare system, regardless of access to treatment.) If you rank results higher than the principles around who delivers healthcare or who makes a profit, you’re probably going to favour the EHCI’s report, that gives more weight to things like waiting lists.

I personally give more credit to the EHCI report because my primary concern when it comes to healthcare systems is patient outcomes. That’s my bias.

Which is why the OECD’s healthcare efficiency reports are so important. The OECD’s stance is that “there is no “one-size-fits-all” approach to reforming health care systems. Policymakers should aim for coherence in policy settings by adopting best practices from the many different health care systems that exist in the OECD and tailor them to suit actual circumstances.” So while the OECD does make some comparisons of countries across the board, it also intentionally group countries together based on different kinds of healthcare systems in order to compare like with like.

Specifically, they break countries down into six groups to compare the efficiencies of similar healthcare institutions to each other, in an attempt to identify where the most improvement can be made within specific systems:

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The UK falls into Group 6, which is characterised as:

Mostly public insurance. Health care is mainly provided by a heavily regulated public system, with strict gate-keeping, little decentralisation and a tight spending limit imposed via the budget process

Seven countries fall into this category: Hungary, Ireland, Italy, New Zealand, Norway, Poland, and the UK. The OECD uses nifty radar charts (click on links) to illustrate how each country compares to both the OECD average as well as Group 6’s average in different areas including efficiency and quality, amenable mortality, prices, resources, consumption, financing and policy. The final chart ranks each country’s to measure its comparative efficiency. The results:

High DEA Score: Norway, Italy
Above Average: Poland
Average: New Zealand
Below Average: UK
Low: Hungary, Ireland

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The OECD’s analysis: “The quantity and quality of health care services (in the UK) remain lower than the OECD average while compensation levels are higher. Reinforcing competitive pressures on providers could help mitigate price pressures, e.g. by increasing user choice further and reforming compensation systems.”

On Tuesday I noted that the UK is one of the OECD countries that could do the most to improve its efficiency in public healthcare spending . But breaking that down even further, the UK doesn’t come close to topping the charts in its own group.

Perhaps the UK should be looking to make improvements to resemble Norway, which tops the ranks for public health services. Or maybe it should be looking towards other categories that focus on social insurance systems. Either way, it’s time for the UK to start looking beyond the NHS.

UK poverty is rising we’re told: they’re wrong

We’re told today that poverty is rising in the UK. Apparently the baby eaters have decided to push into destitution yet ever more of the inhabitants of this sceptered isle. On the grounds, presumably, that they just hate poor people. This is not in fact true and this report doesn’t show anything like that happening either:

Poverty in the UK is increasing after two years of heavy welfare cuts have helped to push hundreds of thousands of people below the breadline, according to an independent study of the coalition government’s record.

Although middle-earners saw incomes rise marginally after 2013, policies including the bedroom tax and below-inflation benefits rises have reduced incomes for the poorest, pitching an estimated 760,000 into poverty since the last official figures were produced, according to the New Policy Institute (NPI) thinktank.

The report itself can be found here. The reason the statement is incorrect is because they haven’t looked at poverty at all. There is, by any historical or global standard of measurement, no poverty in the UK today. There is, of course, inequality, and this is what they are measuring. That number of people are, by their calculations, now getting under 60% of median income. That is, they are looking at relative poverty, not poverty.

Which is, of course, why inequality was renamed relative poverty (and the relative almost always immediately dropped) so that the terminally aggrieved would have something to complain about still. After all, how can you go on shouting about the horrors that capitalism afflicts on the poor when capitalism has abolished poverty?

Change the definition and carry on shouting, obviously.

Why we vote

It’s difficult to understand why people vote, let alone why they vote the way they vote.

No individual can reasonably expect her vote to determine or even influence the outcome of an election. In America, the chance of a one-vote victory margin that would determine the 2008 presidential election was about 1 in 10 million in some swing states, and 1 in a billion in places like California or Texas.

As Sam Dumitriu notes, this might still make voting worthwhile if you’re an altruist and you expect one candidate to make the world better than the other by more than a few billion dollars. But most people don’t think like this, and that has led some people to assume that voting is “expressive” – people do it to signal their allegiance to a particular tribe or team, not because they think the party they are voting for is best for themselves or the country.

Truthfully telling people you have voted certainly does seem to be a reason for voting, although the study the Freakonomics guys cite is from Switzerland, where I’ve heard they’re much more concerned with neighbourliness and civic duty than, thankfully, we are in England.

But does expressive voting determine how we vote? If it tells us anything it must mean that people are supporting parties or policies that, on some level, they believe to be counterproductive. Certainly if many (or any) people who are planning to vote Labour secretly believe that the Tories are actually best for the country, this would be a mark in favour of the expressive view of things.

In The Myth of the Rational Voter, Bryan Caplan argues that this is unlikely – people rarely feel good about voting for policies or parties that they think are bad. Group loyalty may well be a factor in determining how people decide what’s good to vote for, but surely it rarely trumps what people think is good.

In fact, barely half of each party’s voters during the current UK election say they’re proud to vote for their party. That obviously includes ‘expressive’ voters and people who like their party because they think it’s the best one on its non-identidy merits.

Another problem with this view is that it also assumes that people realise that their votes don’t matter, but when polled people vastly overestimate the power of a single vote – the median American estimates that “there is a 1 in 1000 chance that their vote could change the outcome of a Presidential election” – the reality is between one in 10 million and one in a billion, remember. Yougov finds that “the less likely you are to think your vote will actually matter, the more likely you are to vote.” (I’m guessing this is because you’re more highly educated.)

That supports the idea that people vote for reasons of civic duty primarily, and for some people because they think their vote will affect the outcome of the election. For many people, no doubt, it’s both.

All of this may help us to understand why people vote the way they vote: is it mostly self-interestedly, as many public choice economist believe, or altruistically, as most political scientists believe? I will try to answer that in my next post.