We're afraid that it's true, maternity leave does contribute to the gender pay gap

This might not be quite what people want to hear but it is in fact true:

Women's careers can nosedive if they take more than a year off after having a baby, experts warned yesterday. New mothers may struggle to get back into the workforce, earn less and be passed over for promotion in what has been described as a ‘motherhood penalty’. A panel of women representing the teaching, legal, medical and recruitment professions told MPs that mums who spent more than 12 months on maternity leave were ‘penalised’. Dr Sally Davies, of the Women’s Medical Federation, said: ‘Anything more than 12 months is a detriment – you will not be looked at quite in the same way, sadly, when you return.’ Amanda Fone, chief executive of F1 Recruitment, said she would discourage women and men from taking more than a year off to care for children because it was ‘so difficult’ to return to a role equivalent to the one they left. She claimed legislation had ‘got in the way’ of women being able to have honest discussions with their employers about their plans to have a family.

As we've pointed out many a time before we don't in fact have a "gender" pay gap any more. What we do have though is a motherhood pay gap. And this is made up of two rather different things. The first is simply the general societal background to the process of child rearing. Whether it should be this way or not (not that it is a surprise in a mammal species) it is true that in general women take on more of the child rearing work than men do. Thus things like careers, on average, take a bit more of a back seat for women than they do for men. Perhaps that should change: but a goodly part of the distinction between male and female average wages comes from that deep rooted fact of our society, not from any discrimination by employers.

The other cause is the actual process of having the children themselves and that associated maternity leave. Some part of the pay gap is not because of that lesser desire for the cut and thrust of business, but because of that time taken out of the workforce. Imagine, say, two years paid maternity leave: and the possible average of two children per woman who has any children at all (about right) that would be four years out of the labour force, or well over 10% of the average working life. Climbing that greasy pole is simply going to be more difficult with that disadvantage.

There isn't in fact a solution, at least not a legal or governmental one, to either of these points. whatever ones' views on this, or indeed innumerable other possible problems, it simply is just true that some conundrums just don't have solutions.

Shareholder 'say on pay' is completely irrelevant

I was on Radio Five Live the other day debating CEO pay. On my side, arguing that high CEO pay is not necessarily bad, was Chris Philp, the Tory MP for Croydon South who sits on the Treasury Select Committee. His arguments echoed those I regularly hear: shareholder capitalism is good generally, but it's bad that non-executive directors on remuneration committees set pay for executives; that these pay awards are rarely voted down; and that few shareholders actually vote. What we need to make sure shareholder capitalism is working, this popular argument runs, is to make sure that shareholders are vocal and closely scrutinising boards.

This is completely false. For the obvious, intuitive reason as to why this is false, ask yourself why all public firms, owned by shareholders, would choose to set pay by remuneration committee if that meant they'd waste millions overpaying their executives.

But wait—isn't this because shareholders don't vote enough on firm decisions and boards get away with murder? No, this explanation is also false. It's false because shareholders have two tools to make sure their money is in good firms: making the firms they have money in better or moving their money to good firms. In practice, doing the former through shareholder action is pointlessly costly, and shareholder capitalism has much better mechanisms, so shareholders overwhelmingly, and effectively, do the latter.

When firms do bad things, shareholders simply move their money out. Since board members and executives tend to be large shareholders in a firm themselves, the departure of other shareholders, driving down the share price, is a huge personal incentive to run it well.

But ignoring this, it's clear how the exit mechanism alone, combined with profit-maximising market institutions like hedge funds, will shift capital towards well-run firms and away from badly-run ones; towards firms whose remuneration committees use shareholder money well and away from those who don't without any need for a single shareholder voting once.

Centuries of capitalism tell us that the market values 'say on pay' very little, and aloof, powerful boards quite a lot. So does the academic literature.

Similarly, to those unfamiliar with the power of 'exit', the fact that shareholders allow remuneration committees to write lucrative 'golden parachutes' into executives' contracts—seemingly rewarding them for failure—is bemusing. But golden parachutes are actually good for firms that award them, as they make bosses less worried about revealing bad info about a firm to non-execs in a timely manner. Regulatory fair disclosure rules, by contrast, don't work.

If say on pay was so necessary to shareholder capitalism's success, why have firms practising it not taken over the market, and the world? That's the question Philp et al. need to answer before they pressure—or worse, force—firms into broader adoption of stockholder votes on pay.

ASI publications are now available in Farsi!

ASI publications have now been made available to readers in Iran, thanks to the Network for a Free Society and CAPTO. The publications have been translated into Farsi and published on CAPTO's website. Books available include "Public Choice- A Primer", "Foundations of a Free Society", and "The Condensed Wealth of Nations", all by our Director Dr. Eamonn Butler. The link to the books in Farsi can be found here.

Also featured on the website is a humanities based magazine "The Excellent Organisation", which this month features selected pieces from "Freedom 101" by ASI President Dr. Madsen Pirie, and "Foundations of a Free Society" by Dr. Eamonn Butler.

The magazine, "The Excellent Organisation" can be found here.

I'm afraid the doctors have this the wrong way around about the NHS

One of the joys of a market in things is that it's clear and obvious who it is who is the supplicant and who it is that is the boss. You check which way the money is flowing and you can tell easily: the person handing over the cash is the one whose wants, needs or desires are being catered to. That we don't have a market in the NHS is what causes logical failures like this:

Feckless patients who fail to take proper care of their health are to blame for a growing NHS crisis, doctors say. GPs said the public needed to take more responsibility for “managing their own health” instead of always turning to their local surgery. Rising patient demand means soaring numbers are struggling to even get through to their GP surgery to make an appointment, a recent National Audit Office report found. In total, around 6 million patients a year turn to Accident & Emergency department and walk-in centres because they have struggled to see a family doctor.

There's something Brechtian about this demand: that the doctors would like to elect a different population to cure and treat. But that's not actually the way that the treating should be going on. It might be masked, in that we pay taxes which then pay for the NHS, but it is still true that we are disposing of our cash on a service which we need, desire or want. The NHS is thus supposed to be at our disposal, not us at its.

What this means is that if we like the grape so much that our livers explode, well, treat us. Sure, tell us that our livers might explode if we do have that second bottle of port with lunch every day, but that's all you do get to do. Similarly with smoking and lung cancer, hamburgers and diabetes and so on. We are hiring you, keeping you in bedpans and nurses, with our money. We are the bosses and you, the medical professionals are, or should be, at our beck and call.

This is rather what Hayek was on about in the Road to Serfdom. That taxation as the method of payment is going to lead to that Brechtian position: that we the population should accord with the ideas of the bureaucrats rather than the proper relationship which is that the bureaucrats gain their salaries by serving us.

No, no one does want the US system of health care: but something more like the French or other European ones, where this relationship is properly pointed out would be an advance.

The NHS is there to treat us, not for us to live up to the standards of the NHS.

Five facts that undermine the junior doctors' strike

1. The maximum hours doctors can be made to work is actually decreasing. The British Medical Association is claiming that today’s strikes, in part, are about delivering safeguards to protect patients against the consequences that can arise from tired, over-worked doctors. While there is evidence that intervention into medical working hours can have mixed - and sometimes even negative - results, let's agree that no one wants a tired doctor attending to them. But maximum hours doctors are allowed to work are actually decreasing under the new contract. From the Telegraph:

The Government says the new deal would have an absolute limit of 72 hours in any week, lower than the 91 hours that the current arrangements allow. Doctors will not have to work for more than 48 hours on average due to the European Working Time Directive (ETWD), but they can opt out and work more hours - up to 56 - if they wish.

It appears EU law has limited the number of hours doctors can work per week, quite significantly. Furthermore, the BMA has already come to an agreement with the government regarding "safety issues" around "maximum working hours". The issue has been sorted.

2. This strike is over pay; not patient safety. Point one leads us nicely into point two; this strike is not about overworked doctors, and it’s not about patient safety. It is openly about pay.

Specifically, it is about how much doctors will get paid for working on the weekends. Both the BMA and government reps came to an agreement on 15 of the 16 points of contention the BMA had with the new contracts, but the discussions were ended over this last point on weekend pay.

The BMA should be honest about this. It might well be the case that junior doctors deserve higher salaries; but the money to fund that pay raise comes from the public’s purse. If the BMA wants to secure higher salaries for those in the profession, it needs to ask the taxpayer to foot the bill.

(Update, 10 February 2016: the "key sticking point" of today's strike "appears to be payments for working on Saturdays.)

3. The NHS is the only healthcare most Brits can access. The NHS in not unique in its delivery of universal healthcare. As Kristian Niemietz has noted, almost every developed country (apart from the United States) provides comprehensive healthcare services for its citizens.

What is unique about the NHS is that is provides care through one system that is both publicly funded and publicly run. There is no real market for healthcare in the UK, which keeps the cost of private healthcare sky-high.

It is simply not the case that when NHS doctors go on strike, Brits can turn to private provisions; most people have been regulated out of the market, and for them this has been made financially impossible.

4. Patient safety is at risk. Some folks out there are claiming that strikes are beneficial for patient safety because mortality rates actually decrease during strikes.

If this sounds wildly misleading, that is because it is wildly misleading.

On the one hand, studies have found that, in some cases, mortality rates do decrease during a strike; but this is only because risky operations and elective surgeries, which bump up mortality rates, are cancelled.

Putting off these kinds of operations can have very dangerous medium-term effects. Making patients wait for important surgeries is not simply an inconvenience; it can hurt their health.

On the other hand, there is evidence that health strikes can seriously increase mortality rates. Over at the Telegraph, Asa Bennett has highlighted a study from the States, where a nurse strike in New York increased morality rates at the hospital by almost 20%:

US academics Jonathan Gruber and Samuel Kleiner recently looked at what happened when nurses went on strike in New York in what they billed as the "first analytical evidence on the effects of health care strikes on patients". The professors, from MIT and Cornell University respectively, discovered in their paper – "Do Strikes Kill? Evidence from New York State" – that the rate of in-hospital mortality rose by 19.4 per cent among the 38,228 patients admitted during a strike, and the rate of patient readmissions increased by 6.5 per cent.

Only the aftermath will reveal how today’s strike has impacted on mortality rates; but one is certainly within their right to ask if the potential for increased death tolls at hospitals is ever worth the risk.

5. The British Medical Association is not a neutral body; it is a pressure group. The BMA is not an impartial medical association; it is a union for doctors, and their job is to negotiate the best deal for their members that they can get.

But the BMA isn’t negotiating. Despite coming to agreement on 15/16 issues with the government, they have still decided to hold the public to ransom over one issue, jeopardizing the quality and quantity of services the only healthcare provider in the country can perform.

When a country operates under a healthcare monopoly, its citizens are fundamentally at the mercy of the provider. That provider has an ethical responsibility to show up to work every day and look after its patients; if they don’t, no one else will

...

One final point: British patients are becoming increasingly aware that the NHS isn't all it's cracked up to be; some are starting to look look fondly across the channel to Europe, where patients are getting better treatment and experiencing better outcomes.

What is often neglected from these discussions is how doctors are treated by the NHS. Indeed, there is good reason to believe it is both patients and doctors who are getting the short end of the stick. Jeremy Hunt's new contract doesn't solve this issue, but neither do the BMA's demands. If the BMA is truly intent on bettering the working environment for doctors, it should look to reforming a system that only allows them to negotiate with one provider: a highly bureaucratic, government body.

Maybe Lin Homer is just pensioned out?

We find ourselves rather amused by this retirement of Lin Homer from HMRC. Because, while this is to a large extent just idle speculation from ourselves, there is still a nub of truth under the idea that it's as a result of the tax treatment of pensions. And it's going to people who have done well in the public service who are going to get so hard hit by those tax changes. We could, of course, just say "Aw, diddums" and go off for a celebratory pint but it's still true that this interaction of public sector pensions and the restrictions on tax relief, the taxation of amounts over the pension cap, which are going to hit those public services hardest.

So, the basic news is that Dame Lin is off:

The country's top tax collector who has faced intense criticism from MPs, is quitting her post in April, the Government has announced. Dame Lin Homer, the chief executive of HM Revenue and Customs, was due to give evidence to MPs on Commons Public Accounts Committee on tax evasion on Wednesday afternoon this week. HMRC sources said Dame Lin had told Sir Jeremy Heywood, the Cabinet secretary, last summer of her intention to leave her job at the end of the tax year.

That explains the when of the DBE at least. However, consider this career path:

She qualified as a lawyer in 1980 whilst at Reading Borough Council. In 1982, she joined Hertfordshire County Council where she stayed for 15 years, rising to director of corporate services. She then left to join Suffolk County Council as chief executive in 1998. After four years at Suffolk, Homer went on to be the chief executive of Birmingham City Council in 2002[1] and joined the civil service in 2005.

There's a 36 year public sector pension pot there. And we've now got the new rules about pension pots that exceed £1 million in capital value. And those rules now bite on final salary schemes as well as defined contribution schemes. And once you've got up into the rarified atmosphere of the upper echelons of the civil service a £1 million pot is easy peasy to achieve. Which means that rather a number of those up there are in the same situation as this doctor:

With just two years to go until her minimum retirement age (55), having had the benefit of the generous salary-linked NHS scheme, Gillian has broken through the £1.25m maximum lifetime pension allowance. Anyone whose pension is valued at beyond that sum (which falls to £1m next April) faces penal tax.

When the penal taxation on the accrual of greater pension benefits is taken into account then the marginal tax rate starts to approach insane levels of 70 and above percent. At which point our old friend the Laffer Curve comes into play again and people become subject to the substitution effect. Why spend the Golden Age shuffling paper if I'm not in fact increasing my lifetime income by very much by doing so? So, they don't.

As we say, this is speculation on our part about Homer herself. But it is a real change in the incentives faced by such people. And there's a certain joy to all of this as well: the people who have been calling loudest for these reductions in the gentle tax treatment of pensions are those over on the left. Those who also tend to believe in the idea that senior civil servants are very important people indeed who should be well paid. Rather than what we think they are, our hirelings there simply to handle society's scut work.

These tax changes will fall hardest upon those civil servants. Simply because they cannot opt out of greater pension accrual, unlike everyone in the private sector. Any one of us, when our pot limit is reached, can reach agreement with our employers to not add any more to our pensions: instead, just give us the cash. Not something possible for those locked into government and union approved contracts. Aw, diddums.

And perhaps this should be a lesson for those who scream loudly about tax reform: it's a complicated system, just as is the economy, and fiddling with one bit of it is highly likely to have unexpected effects elsewhere. You know, stop the fat cat FTSE directors amassing vast pension pots and you find senior civil servants all bailing out at 55.

Tube strikes: Driving London insane

They say that lightning doesn't strike twice, but unfortunately tube drivers never seem to stop. It is expected that there will be three more tube strikes in the coming five weeks (on 27 January, 15 and 17 February), for a number of predictably dubious reasons, with the main ruckus surrounding driver’s pay and the Night Tube. The tube driver’s union, Aslef, is up in arms about the fact the government has refused to sit down with them since November to discuss the pay of their drivers -and it’s no wonder they don’t want to. This same debate has been dragging on for what seems like forever, back and forth between London Underground and some very uncompromising Union leaders.

The Night Tube was originally planned to open back in September 2015, but unfortunately it was pushed back as no agreement could be reached. The latest round of proposed strikes come after the government has already offered a 4-year pay plan for existing drivers (a compromise up from their original 3-year offer) and an agreement to hire new part-time drivers to manage the Night Tube service, in order to avoid ‘overworking’ current employees.

It all sounds rather frustrating, but the real argument behind why these strikes are so misguided comes when we break down the figures. The introductory salary for a newly-qualified tube driver is an incredible £49,673 a year, with the average driver working on average only 36 hours a week. They also enjoy other perks such as 43 days annual leave, and drivers can expect to earn as much as £60,000 after five years service. Those figures are ones that the average person yearns for. Compared to other public sector jobs, tube drivers also have a pretty nice income. The average starting salary of a teacher is only £22,023 and a fire fighter earns £21,583, despite the fact that they work 20 hours more a week and get 15 fewer days annual leave a year.

At this point, many people have lost a lot of sympathy for the tube drivers, but it gets worse. The Union leaders have repeatedly rejected London Underground’s various pay package offers, including a 2% pay rise, followed by guaranteed pay rises for the next three years, and there was even talk of a bonus scheme of up to £2000 for drivers offering to work night shifts on the new service. But when this was still met with of cries of concern about ‘forcing drivers to work anti-social hours’ (because 36 hours a week is already so strenuous), London Underground changed their strategy.

They have instead proposed to open applications to external candidates to work part-time on the night shifts. Steve Griffiths, the chief operating officer for London Underground, has said that the new part-time drivers will be “on permanent, part-time contracts with the same rates of pay and the same benefits as existing drivers.”. Sounds like a win-win situation for everyone, right? Drivers won’t be forced to work night times, and the night tube can go ahead, generating 200 new jobs and potentially contributing£6.4 billion directly to the London economy within the next 15 years.

But no, Aslef are still unhappy with this agreement, which Boris Johnson has called a “no-brainer”. Boris also said that since applications have opened for 200 new part-time drivers, more than 6,400 applications have been received- showing there’s clearly plenty of people willing to work for the current pay, and making the Union’s demands look even more unreasonable.

Striking is obviously not the answer here, and is a sign of an overly-powerful union in an industry where competition is impossible to achieve. The balance between protecting worker’s rights and the public interest is a delicate one, and in the case of the tube strikes it is becoming an increasingly important issue to resolve. Drivers already earn over double what other public workers do, for nearly 20 fewer hours work a week. It seems foolish that although Aslef’s demands continue to be met, each day of striking is expected to cost other workers and private enterprise £300 million in lost productivity, and delaying the opening of the Night Tube continues to withhold economic growth in London. It’s about time the union leaders piped down on the whole issue- if drivers are unsatisfied with their jobs, there are 6 and a half thousand others who would happily take over. Open up the labour market for tube drivers and the issues surrounding pay will quickly subside.

New paper: Sound Money: an Austrian proposal for free banking, NGDP targets, and OMO reforms

Our new paper on nominal GDP targeting is out now. Below is part of the press release we sent to the media; for the full press release, click here. To read the whole paper, click here. The Bank of England should abolish the Monetary Policy Committee, use Quantitative Easing instead of interest rates to conduct normal monetary policy, and switch from an inflation target to targeting the total amount of nominal spending in the economy, also known as nominal GDP, argues a new paper from the Adam Smith Institute released today.

The Bank should prefer a rules-based system like this to the discretionary system it currently uses but, the paper argues, it should ultimately look toward ending monetary intervention altogether. The UK’s monetary regime should eventually aim towards the ‘free banking’ systems that brought financial stability to 18th and 19th century Scotland and elsewhere.

The paper, Sound Money: an Austrian proposal for free banking, NGDP targets, and OMO reforms, is a comprehensive critique of the flaws in the way the Bank of England currently does monetary policy and offers a superior means of achieving their goals of macroeconomic stability.

Quantitative easing should be extended to the market generally rather than being an interaction with a few preferred dealers, so as to minimise distortions caused by buying from select financial institutions, it says. It should be made open-ended, with the purpose of stabilising the growth path of nominal GDP—the total amount of spending in the economy—letting the market determine how much of that nominal GDP is real output and how much is inflation.

Author of the report, Prof Anthony J Evans, concludes that, after a century of failure, it may even be time to strip central banks of their powers over monetary policy entirely entirely, and let private banks issue their own notes.

The paper takes inspiration from the free banking systems of the 19th century, especially those in Switzerland and Scotland, but also from the monetary economics of Nobel Prizewinners Milton Friedman and Friedrich Hayek, who both argued that central bank discretion tends to push the economy away from rather than towards stabilisation.

Friedman showed how the central bank’s unwillingness to accommodate massive spikes in money demand in the late 1920s and early 1930s led to the US Great Depression—and how industrial production rocketed at the fastest pace in history when Franklin Delano Roosevelt raised the money supply to meet market demand by going off gold in 1933. This has played out again in the recent financial crisis, where a free banking system would have seen less fanning of the pre-crisis flames and more water afterwards—tighter policy in the run up and easier policy during and following the crash.

Well, they do actually have a point here on taxing public pensions

It actually is a fair point that is being made here:

The highest paid public sector workers are demanding pay rises worth tens of thousands pounds to compensate them for new pension taxes, the Telegraph understands. A group of 12 trade unions representing hundreds of thousands of workers including doctors, police officers, head teachers and civil servants have held private talks with David Gauke, Financial Secretary to the Treasury, demanding loopholes that would spare them the tax. Staff most likely to be seeking this extra cash will already have pensions worth in excess of £1m - and their calls for "compensation" have been condemned as "displaying breathtaking gall".

It's not gall at all. Pensions are simply deferred pay. If their pay, that they've already earned, is now being reduced then they've every right to scream blue bloody murder.

However, let's do this properly shall we? Let's now seriously, when comparing public and private pay, include the full value of those pensions in our calculations of that public pay. For when we do so we find that the public sector gets paid very much better than the private sector. Which is, of course, why those unions scream blue bloody murder when we point this out, the effects of those pensions.

But, sauces for ganders being sauces for geese we here are entirely happy with this original complaint here. Yep, your pensions are indeed part of your pay. And we're going to count them as such on proper actuarial grounds from now on.

Meaning, roughly speaking if our back of the fag packet calculations are correct, future cuts of perhaps 30% in public pay to bring it into line with that in the private sector.

Can't say fairer than that, can we?

That tricky point about competition in the NHS

One of the more ridiculous pieces of wibble in the public discussion these days is the idea that competition inside the NHS is a bad idea. The likes of Polly keep on about how cooperation, rather than that competition, is the right way to go. To which there are two responses: the first being that competition is actually how you decide who you are going to cooperate with. We might think that Pepsi competes with Coke, but neither are competing with Tesco: they are competing to decide who cooperates with Tesco. The second is that cooperation is indeed good: it's just that in groups of more than perhaps 3,000 or 4,000 people (derived, not entirely accurately, from Elinor Ostrom) we find that it's not really possible to have central control of peoples' cooperation. We need to use the market to organise that cooperation. All of which brings us to this lovely experiment:

NHS hospitals in England are rarely closed in constituencies where the governing party has a slender majority. This means that for near random reasons, those areas have more competition in healthcare – which has allowed the authors to assess its impact on management quality and clinical performance.

The answer? More competition improves the health care service.

We know the same from other sources as well. NHS England is, as Polly would put it, more accursed with competition than NHS Wales or NHS Scotland. NHS England has been, by all the usual measures (whether financial, patient satisfaction, health outcomes) getting better faster than NHS Wales or NHS Scotland. And that's what we would predict too: for we do't in fact say that competition is necessarily a better way of running something. We do however shout very loudly that it's a good way of making something better over time. Competition incentivises productivity improvement that is.

So, every time we go out to test this we find that competition makes the NHS better. The case for not having more competition in the NHS is therefore what?