Equality of opportunity or equality of outcome?

We find this all rather sad really:

Britain has too many stay-at-home mothers and must do more to get them into work, the European Union has said.
British women are twice as likely as those in the rest of Europe to choose not to work in order to care for their children or elderly relations, EU figures show.
The large number of mothers who work part-time or not at all is a “social challenge” that the Government must address by providing more state-funded child care, according to a report issued by the European Council.

The sadness coming from the clear confusion here between equality of opportunity and equality of outcome.

“Despite the positive trends in relation to labour market outcomes, social challenges persist,” it says.
“The difference in the share of part-time work between women (42.6 % in 2013) and men (13.2 % in 2013) is one of the highest in the Union.
“The percentage of women who are inactive or work part-time due to personal and family responsibilities (12.5 %) was almost twice as high as the EU average (6.3 %) in 2013.”

The aim is not to insist that as many women work full time outside the home as do men. For we are not looking for equality of outcome in gender and work, as we are not in most other areas of life. We’re actually looking for equality of opportunity in how people desire to organise their lives. And these same figures that appear to be a problem show that in this respect the UK does very well.

We have an extremely flexible labour market. Some to many women actually desire to raise their own children: also to combine that with some part time work perhaps. It’s exactly this choice that the UK does offer. We’re the ones getting it right. Those who wish to work full time can indeed do so. Those who wish to work part time, whether male or female, mothers or not, also get to do so. We’ve a system which offers the maximum freedom for people to organise their lives as they wish. Which is the point and purpose of how we organise society: to maximise choice and opportunity, not to enforce equality of outcome.

What is being identified as a problem here is in fact evidence that the UK has solved this problem.

After all, it’s hardly controversial to suggest that there’s a certain gender division in desired child care arrangements in a mammalian species, is it? The aim and purpose of public policy should thus be to maximise the expression of that choice: precisely what the UK system does offer.

Ed Miliband is right: in-work poverty is the scourge of our time

Ed Miliband has given his first Commons speech since losing the election, where he’s focused on inequality and low pay in Britain. He’s almost entirely wrong on the first of those, in my view, not least because most of the problems he identifies come from perceptions of inequality, which are not driven by reality.

But on low pay, he makes an important point. In-work poverty really does appear to be the scourge of our time, and free marketeers ignore it at their peril.

By poverty, I do not mean relative poverty, although that is the definition the government uses to define the word. (A household is defined as in poverty if it earns less than 60 percent of the median wage.) I prefer the approach of the IEA’s Kristian Niemietz and the Joseph Rowntree Foundation, which calculates the cost of a basket of goods that most people would consider essential to living a decent life in modern Britain.

This approach is in the spirit of Adam Smith’s conception of poverty:

A linen shirt … is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct.

According to the JRF, single working-age people need to earn at least £17,100 before tax to live decently; a couple with two children need to earn £20,200 each (versus £13,900 in 2008), and a lone parent with one child now needs to earn more than £27,100 (versus £12,000 in 2008).

Because real wages have fallen across the board since 2008, and the cost of living has risen, an increasing number of people in full-time jobs are still in poverty. My fear is that this is not simply a product of the financial crisis and Great Recession, but a reflection of a longer-term trend.

Wages usually reflect worker productivity, so simply jacking up the minimum wage is no solution to this. Any worker who is less productive than the minimum wage costs will just not be able to find a job. In general, when minimum wages rise, so does unemployment. So there is no simple way to boost workers’ incomes by forcing wages up.

Changes like automation and offshoring work (to call centres in India, for instance) will raise global living standards overall, and should be welcomed for that reason, but they may hurt the incomes of low-skilled British workers by increasing competition for the jobs they have been doing and leaving only relatively unproductive work left to be done. Some people say low-skilled immigration does the same, but labour market liberalization seems to be a tidy solution to that problem.

The techno-pessimist view that machines may simply replace workers in some jobs, without creating new ones for them to move into, is not impossible or even particularly unlikely. Even if it is wrong, improvements in automation or competition from abroad may make low-skilled workers’ marginal productivity too low to earn a decent amount. Their productivity might just not be enough to earn as much as we would like them to.

As I see it, there are three possible ways we could reduce in-work poverty:

  1. Reduce the cost of living. Instead of trying to raise workers’ take-home pay, we could reduce the cost of things they want to buy. Housing and childcare are two of the most expensive things in most people’s budgets. Housing could be made much cheaper if the supply of housing was increased by liberalising planning. Britain has the tightest staff:child ratio requirements in Europe, and in a labour-intensive industry like childcare that has driven costs extremely high. Allowing as many children per staff member as they do in, say, Denmark would let costs fall considerably. However, both of these reforms, as well as most other supply-side deregulations, face considerable political opposition.
  2. Cut taxes on low-income earners. The government has already pledged to raise the income tax threshold to be close to the minimum wage level. But National Insurance payments kick in at a much lower level – £155 a week, or 23 hours of minimum wage work. Raising this threshold, ideally to kick in after forty hours of minimum wage work, should be a major priority. But the higher the threshold goes, the fewer of the poorest people it helps, because they are already earning less than the threshold amount.
  3. Just give money to poor people. Whether we do it through something like a Negative Income Tax, a Basic Income, or a significantly simplified and reformed tax credits system, direct cash transfers seem to be a good way of boosting the incomes of the poor without messing markets up in other ways. If they are only conditional on income, they can be designed to avoid severely perverted incentives that exist in the current welfare system. But paying for this would mean major changes to existing benefits system, which the Universal Credit reforms have shown are a minefield. There is also a danger that this kind of system would be implemented as a costly addition to existing welfare payments, rather than a revenue-neutral replacement.

In practice, some combination of the three is probably our best bet. There is no single political grouping that favours all three of these policies; indeed the false solution of massive minimum wage hikes is popular across the political spectrum.

This is worrying, but there is so much evidence against it that it will surely fail, and accepting that we have a problem may be the first step to solving it. So, in highlighting low pay as one of the central problems of the 21st Century, allow me to say something rarely heard on this blog: Ed Miliband is right.

Another sign of the looming apocalypse

That Guardian opinion columns will have only a marginal relationship to economics, maths or even reality is well known. But it is possible to find signs of the looming apocalypse even there, knowing that point.

Are you paid what you are worth? What is the relationship between the actual work you do and the remuneration you receive?

The revelation that London dog walkers are paid considerably higher (£32,356) than the national wage average (£22,044) tells us much about how employment functions today. Not only are dog walkers paid more, but they work only half the hours of the average employee.

It is clear that the relationship between jobs and pay is now governed by a new principle. The old days in which your pay was linked to the number of hours you clocked up, the skill required and the societal worth of the job are long over.

There’s never been a time when pay was determined by societal worth. Cleaning toilets is highly valuable societally: as the absence of piles of bodies killed off by effluent carried diseases shows. It’s also always been a badly paid job. Because wages are not and never have been determined by societal worth. Rather, by the number of people willing and able to do a job at what price versus the demand for people to do said job at that price. You know, this oddity we call a market.

That a Guardian opinion column might opine that jobs should pay their social worth is one thing, to claim that the world used to work that way is an error of a different and larger kind.

We are surrounded by examples of this increasing disparity between jobs and pay. For example, average wages in western countries have stagnated since the 1980s,

And there’s the maths error. For that’s not true either. Yes, as we know, wages have been falling in recent years but according to both Danny Blanchflower and the ONS real wages are still, after that fall, 30% or so higher than in the 80s (median wages). 30% over three decades isn’t great but it’s also not to be sniffed at: and it’s also not stagnation.

But we expect such errors from the innumerates who fight for social justice or whatever they’re calling it this week. At which point we come to the signs of the apocalypse:

Peter Fleming is Professor of Business and Society at City University, London.

Actually, he’s in the Business School:

Peter Fleming
Professor of Business and Society

That long march through the institutions has left us with professors at business schools believing, and presumably teaching, things that are simply manifestly untrue.

Woes, society to the dogs, apres moi la deluge etc.

It’s not a happy thought that this sort of stuff is being taught these days, rather than just scribbled in The Guardian, is it?

Spotting Worstall’s Fallacy in the wild

In a discussion of Joe Stiglitz’s new book in The Observer we see this:

Back in 2008 the top 20% of households in the country were estimated to be worth 92 times more than the bottom 20%. The latest estimate puts the gap at more than 100 times. And a further £12bn of welfare cuts are planned by the new Conservative government. The gap between rich and poor is unquestionably widening.

That conclusion may or may not be right but it’s most certainly not supported by the evidence which is given of the contention. That evidence coming from this ONS report:

Total net wealth is defined as the sum of four components: property wealth (net), physical wealth,
financial wealth (net) and private pension wealth
. It does not include business assets owned by household members, for instance if they run a business; nor does it include rights to state pensions, which people accrue during their working lives and draw on in retirement.

It’s known as Worstall’s Fallacy simply because our own Tim Worstall bangs on about it so often. We cannot measure inequality (or poverty, any number of other things) without taking into account the things we do to reduce said inequality (or poverty, or any other problem). It’s only when we look at the post-attempt to solve the problem situation that we can turn our minds to whether we should be doing more, or possibly less, to try to solve this problem.

So, note that our definition of wealth there does not include that state pension: something we do to reduce the wealth and income disparities between those who can save for a private pension and those that cannot. Note that it includes private housing equity but not the capital value of a below market rate tenancy for life (“social housing”). It does not include the capital value of health care, or education, free at the point of use, for all the citizenry. It does not include whatever capital value we might ascribe to the social insurance policies that will provide us with an income in the case of economic misfortune.

We do all of these things because they make people wealthier. Perhaps not as wealthy as other arrangements might make them, but the essential driving point is that we consider health care, education, social insurance and so on make people wealthier. Thus, in our discussion of wealth we must include them. We cannot look solely at the market distribution of purely market wealth and even attempt to decide whether more or less should be done to try to change that distribution. We must look at the post- all the redistribution we already do situation to be able to make a decision.

To switch from wealth to income to make this point. The TUC has done the calculation about income inequality. Between the top 10% and bottom 10% the market inequality is about 30:1. Maybe that’s too high, maybe that’s not high enough, your moral choice. When we take account of taxation and benefits that falls, and when we take account of government provided services, that health care and eduation and so on, it falls again. To 6:1. Again, you can say that this consumption inequality is still too much, or not enough, your moral choice. But 6:1 is very definitely different from 30:1.

And what is the relevant ratio to be looking at if we want to make a decision upon whether to do more redistribution or less? Quite, it’s obviously that 6:1 one, not the 30:1. And so it is with wealth or poverty or so many other problems. The number we need for our decision is the extent of the problem on the ground, not the extent of the problem before all of the things that we already do.

Assigning reasonable capital values to the effects of both the welfare state and government provided services brings the 10/90 wealth ratio down to anywhere between 20:1 and 5:1. We could and would defend anywhere in that range dependent upon assumptions. Is that too much? Not enough? Entirely up to your moral choices. But it’s very different from that 100:1, isn’t it, and it’s also the relevant number we need to use when thinking about what to do next.

What excellent news about British social mobility

This isn’t the way that anyone intends we should read this ONS report of course but it is also a true and valid way of reading it.

Almost a third of the UK population experienced income poverty in at least one year between 2010 and 2013, official data shows.

The figures, published by the Office for National Statistics (ONS) on Wednesday, show that approximately 19.3 million people had a disposable income of below 60% of the national median at some point during the four-year period.

Word. And the actual ONS figures:

In 2013, the UK persistent poverty rate was less than half the overall poverty rate of 15.9%. By comparison, in many other EU countries, the persistently poor make up a higher proportion of those in poverty.

Since 2008 (the first year for which comparable EU longitudinal data are available), the UK has consistently had a persistent poverty rate lower than the EU average.

Almost a third (33%) of the UK population experienced poverty in at least one year between 2010 and 2013, equivalent to approximately 19.3 million people. In contrast, across the EU as a whole, a quarter (25%) of people were in poverty at least once during that period, with a larger proportion of people in the UK experiencing poverty at least once over those 4 years than in many other EU countries.

Worth noting one point: this is relative poverty. So, it’s against median income. Further, it’s against median income in each country. So we are not, not at all, stating that people in Britain have a lower living standard than those in, say, Romania.

Note first that that persistent poverty is half the average rate. That’s pretty good, don’t we think? And note also something else. Britain has greater variability in poverty. Variability in income is also known as economic mobility (or as the phrase has become these days, social mobility). For us to have more people who slip into poverty for a time, but not have more people in poverty overall, means also that more Britons must rise up out of poverty. That is, we really do have greater social mobility.

We doubt very much that anyone else will make this point.