TVHE – Page 306 – The Visible Hand in Economics

Something’s missing …

February 11, 2009/10 Comments/in New Zealand Economics /by Matt Nolan

Just saw this cartoon by Mike Moreu on the outsourcing of call centre staff (ht Nigel Pinkerton):

Job security isn’t the only difference – the other is wages. The artist forgets to mention that they have job security because they are paid significantly less than a New Zealander would accept. Implicitly this tells me that NZer’s could have had job security – if they had accepted lower wages …

There are two further things that I take from this.

New Zealander’s are now getting a service more cheaply – as the cost is lower,
The workers overseas are made better off – as they now have jobs at a wage they are willing to work at.

Unless we value the NZ call centre workers significantly more than we value Telecom consumers and people in Manila we can’t possibly complain about this situation. However, NZer’s are complaining. To me this implies that we value people in Manila significantly less than we value people in New Zealand – a view that appears very similar to straight out racism in my mind …

A sure way to increase uncertainty

February 11, 2009/9 Comments/in US economics /by Matt Nolan

Is it me, or did Treasury Secretary Tim Geithner make matters worse with his announcement about the TARP today.

Given how long people have been waiting for a “solution” from government, statements like:

We are exploring a range of different structures for this program, and will seek input from market participants and the public as we design it

Seem a bit soft. Surely the market thought that the US government had already done this!

In fact, the market did think this – which is why the DOW collapsed. You increase uncertainty, you reduce the value of capital – it’s as simple as that:

Source (The Austrian Economists)

Job summit: For the Inquiring Mind blog

February 11, 2009/9 Comments/in New Zealand Economics /by Matt Nolan

Adam Smith (the NZ blogger, not the 18^th Century Scottish Economist) has asked for comments surrounding the “job summit”. Given that this is a blog on New Zealand economics I would feel guilty about not sending some comments his way 🙂

There is a bullet point summary of the post at the bottom.

Labour skills and sticky wages: Is the problem worse now?

February 10, 2009/2 Comments/in Economic theory, Macroeconomics /by Matt Nolan

The mass unemployment in the 1930’s has sometimes been put down to “stick wages”. Fundamentally, the value of labour fell but the price didn’t – leading firms to cut back on employment at a faster rate than would have been socially optimal.

Since then, wage stickiness appears to have eased to some degree: Unions are less powerful than they were, and employees have a greater level of understanding about why firms may have to cut nominal wages – leading to less of a psychological impact (Note: These statements are just conjecture – if you don’t agree with them feel free to state in the comments, we could really do another post on it 🙂 ).

However, does that mean that the underlying issue of labour market adjustment has abated? The short answer is no.

Another sign that our labour market is surprising?

February 10, 2009/3 Comments/in New Zealand Economics /by Matt Nolan

So the unemployment rate was on the low side of expectations. However, as I and others have said – hours worked collapsed, so surely this is the first sign of worse to come.

However, lets think about this a little more. Falling hours worked only really matter (in a welfare maximising sense) if people want to work more hours. Fundamentally, we need to see underemployment ticking up. But is that the case?