No tax cuts for you? Net personal average tax rate of single American, British, Australian and New Zealander on average earnings, no children, since 2000

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Source: OECD StatExtract.

Over-qualification rates in jobs in the USA, UK and Canada

In the UK, foreign-born are much more likely to be over qualified than native born highly educated not in education with less difference between men and women. More men than women are overqualified for their jobs in the UK. Over qualification is less of a problem in the UK than in the USA and Canada.

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Source: OECD (2015) Indicators of Immigrant Integration 2015: Settling In.

In the USA and Canada, there are few differences between native and foreign born men in over-qualification rates. Foreign-born women tend to be more over-qualified than native born women in the USA  and more so in Canada. Many more workers are overqualified for their jobs in the USA and Canada as compared to the UK.

There are large differences in the percentage of people with tertiary degrees and the education premium between these three countries that are outside the scope of this blog post. These trends may explain differences in the degree of educational mismatch.

It goes without saying that the concept of over-qualification and over-education based mismatch in the labour market is ambiguous, if not misleading and a false construct.

To begin with, under human capital theories of labour market and job matching, what appears to be over-schooling substitutes for other components of human capital, such as training, experience and innate ability. Not surprisingly,  over-schooling is more prominent among younger workers because they substitute schooling for on-the-job training. A younger worker of greater ability may start in a job below his ability level  because he or she  expects a higher probability to be promoted because of greater natural abilities. Sicherman and Galor (1990) found that:

overeducated workers are more likely to move to a higher-level occupation than workers with the required level of schooling

Investment in education is a form of signalling. Workers invest so much education that they appear to be overqualified  in the eyes of officious bureaucrats. The reason for this apparent overinvestment  is signalling superior quality as a candidate. Signalling seems to be an efficient way of sorting and sifting among candidates of different ability. The fact that signalling survives in market competition suggests that alternative measure ways of measuring candidate quality  that a more reliable net of costs are yet to be discovered.

Highly educated workers, like any other worker, must search for suitable job matches. Not surprisingly, the first 5 to 10 years in the workforce are spent in half a dozen jobs as people seek out the most suitable match in terms of occupation, industry and employer. Some of these job seekers who are highly educated will take less suitable jobs while they search on-the-job for better matches. Nothing is free or instantly available in life including a good job match.

A more obvious reason for over qualification is some people like attending university and other forms of education for the sheer pleasure of it.

Anyone who encounters the words over-qualified and over-educated should immediately recall concepts such as the pretence to knowledge, the fatal conceit, and bureaucratic busybodies. As Edwin Leuven and Hessel Oosterbeek said recently:

The over-education/mismatch literature has for too long led a separate life of modern labour economics and the economics of education.

We conclude that the conceptional measurement of over-education has not been resolved, omitted variable bias and measurement error are too serious to be ignored, and that substantive economic questions have not been rigorously addressed.

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The benefits and costs of the @NZSuperFund since its inception

The New Zealand Superannuation Fund, the sovereign wealth fund part funding New Zealand’s old-age pension from 2029/2030 onwards, has been a bit of a wild ride. Sometimes the earnings of the Fund were well below and sometimes earning well above the long-term bond rate.

image_thumb[3]

Source: New Zealand Superannuation Fund Annual Report 2014.

Since its inception, the Fund earned an average annual return of 9.78%, which was 5.06% above the long-term bond rate, and 1.03% above its reference portfolio.

No information was given in the annual report of the New Zealand Superannuation Fund on the marginal dead weight cost of the taxes raised to fund the New Zealand Superannuation Fund to see whether there is any net benefit to taxpayers from its establishment and continued operation.

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The New Zealand Government has contributed $14.88 billion to the fund from prior its inception in 2001 to the suspension of contributions in 2009 by the incoming National Party Government.

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Source: New Zealand Treasury.

Over the nine years in which contributions were made, the company tax rate of 28% could have easily been up to 10 percentage points lower.

The New Zealand Treasury estimates that a one percentage point cut in the company tax costs about $220 million in forgone revenue if there are no other changes to the tax system. These are static estimates that do not include any feedback from  greater investment and higher growth.

The New Zealand Superannuation Fund must beat the market every single year to make up for the deadweight cost of its funding, a premium for the investment risk added to the Crown’s portfolio and the cost to New Zealand’s growth rate of higher than otherwise taxes on income, entrepreneurship and investment.

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Source: Abolish the Corporate Income Tax – The New York Times.

Incidence of long-term unemployment in the PIGS since 1983

The boom that preceded the bust in the Greek economy did nothing for the rate of long-term unemployment among Greeks. Long-term unemployment had been pretty stable prior to the economic boom after joining the euro currency union.

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Source: OECD StatExtract.

Nothing much happened to long-term unemployment in Italy or Portugal in recent decades. Spanish long-term unemployment fell in line with the economic boom in Spain over the 1980s and 1990s up until the global financial crisis.

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% of unemployment lasting longer than 12 months in Scandinavia since 1976

As I recall, most unemployed have been unemployed longer than 12 months in Sweden have to go on a labour market program. When they returned to unemployment after the program, the clock starts again. They are deemed to be freshly unemployed rather than adding to the previous spell with an interlude on a make work program. This makes Swedish long-term unemployment data rather unintelligible.

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Source: OECD StatExtract.

Finland was recovering from its worst depression since the 1930s and the early 1990s when its data on long-term unemployment started to be continuous. This makes Finnish unemployment data rather difficult to interpret. Norway’s data for the long-term unemployed goes up and down a bit too much to be trustworthy without a background policy narrative.

% of unemployment that is more than 12 months, USA, UK, Germany and France

As the British labour market and long-term unemployment was starting to get something like that in the USA, the USA started to have unemployment it was more like the European labour markets in terms of the number of long-term unemployed. Nothing much happened in Germany and France.

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Source: OECD StatExtract.

The man-cession illustrated

Japan’s population is set to fall 32% by 2060

The minimum wage and escaping poverty across the OECD area

German unemployment incidence by duration since 1983

German long term unemployment has been pretty stable albeit with an up-and-down after German unification. There is also a fall in long-term unemployment after some labour market reforms around 2005.

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Source: OECD StatExtract.

How @equitablegrowth showed inequality helps growth when arguing inequality harms growth

The Washington Centre for Equitable Growth recently tweeted that inequality harms growth in the USA as compared to Sweden, France, Germany and the UK. It was relying on some dodgy OECD research.

The Washington Centre for Equitable Growth did not check their inequality ratios they tweeted against trends in economic growth and economic policy since 1970, which I have reproduced in figure 1. Germany is not included in figure 1 because German data on growth is thrown askew by German unification.

Figure 1: Real GDP per British, French and Swede aged 15-64,  2014 US$ (converted to 2014 price level with updated 2011 PPPs), 1.9 per cent detrended, 1970-2013

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Source: Computed from OECD Stat Extract and The Conference Board. 2015. The Conference Board Total Economy Database™, May 2015, http://www.conference-board.org/data/economydatabase/

Figure 1 shows that France has been in a long-term decline since the late 1970s despite the blessings of a more equal society than the USA as championed by the Washington Centre for Equitable Growth. In figure 1, a flat line is growth in real GDP per working age person, PPP, at the same rate as the USA for the 20th century, which was 1.9% per year. A falling line in figure 1 indicates growth of less than 1.9% while a rising line indicates growth in real GDP per working age person, PPP, in excess of 1.9%. In figure 1, France hardly ever grew at the trend rate of growth for the USA of 1.9% per year and was frequently well below that rate.

Sweden tells a slightly different story in figure 1 because of regime change in the early 1990s when Sweden adopted more liberal economic policies where taxes and government spending were reduced:

The rapid growth of the state in the late 1960s and 1970s led to a large decline in Sweden’s relative economic performance. In 1975, Sweden was the 4th richest industrialised country in terms of GDP per head. By 1993, it had fallen to 14th.

That regime change reversed a long economic decline since 1970 under the egalitarian policies of the Swedish Social Democratic Party. Under the Swedish Social Democratic Party, Sweden was almost always growing at less than the trend rate of growth of the USA, which was 1.9%. That position reversed only when there was a turn away from big government and high taxes.

Figure 1 tells a similar story for the British economy: a long economic decline in the 1970s when Britain was the sick man of Europe. Under Thatchernomics, Europe had a long economic boom for 20 years or more – see figure 1.

In the 1970s, under the high taxes of the Heath, Callaghan and Wilson administrations, as figure 1 shows, Britain was the sick man of Europe. With the election of the Thatcher Government, Britain soon grew at better than the US trend growth rate for nearly 20 years through few exceptions.

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