Thomas Sowell Dismantles Feminism and Racialism

Key facts about the gender pay gap–Pew Centre research

Who in Europe speaks English


Is welfare dependence optimal for whom – part 5: higher abatement rates and labour supply

Paradoxically, the main way of using financial incentives to increase net labour supply of beneficiaries and move more off the benefit is to toughen the benefit abatement regime.

This increase in the abatement rates on welfare benefits for earned income moves more off the benefit and moves more into full-time employment but still with an ambiguous effect on part-time employment. Some may prefer the benefit over their current part-time job.

The notion that tinkering with financial incentives will not have large effects on labour supply and benefit numbers is not new. Increase in the generosity of welfare benefits with increase the number of applicants.

Tinkering with the details of abatement rates and thresholds has ambiguous labour supply effects because exits from welfare are still offset by new entry onto welfare. The netting the labour supply changes of these diverse groups often leads to welfare reform leading to positive but small change in labour supply. Quantitatively, an old finding is the remarkable lack of effects of financial incentives on welfare participation (Moffitt 1992, 2002).

Under a move up to a 100 per cent benefit abatement rate as shown in Figure 1; arrow 1 in Figure 1 shows that some who were working part-time will now find not working at all to be the more attractive option. The new 100 per cent benefit abatement rate reduces their take-home pay but they enjoy more leisure time.

Figure 1: the labour supply effects of an increase to a 100 per cent benefit abatement rate

hundred percent abatement rates diagram

Arrow 2 in Figure 1 shows that some part-time workers increase their working hours because working a little more mitigates the reduction in their take-home pay and allow some leisure time.

Arrow 3 in Figure 1 shows that some part-timers return to full-time working hours because of the revised leisure-labour trade off that now makes a somewhat higher take-home pay worthwhile despite reduced leisure time.

Whether net labour supply increases or falls after a rise in the benefit abatement rate to 100 per cent depends on the relative numbers of workers at different points on the budget constraint that are working full-time, not working, and working part-time and the magnitudes of their responses.

Some will stay as they are working either full-time, not working or working part-time. Others supply more labour. Working more hours may increase their take-home pay depending on how productivity they are.

Some part-timers will move to full-time in low paid jobs with take-home pay because of the loss of benefit income, they will enjoy less leisure time and there can be additional costs such as child care.

More productive workers in better paid jobs will take home more in pay by moving to full-time but will enjoy less leisure time. Some workers that were previously working part-time stop working and rely in welfare benefits.

If reduced welfare dependence is the objective, high abatement rates and low abatement thresholds are the path to follow. With a move to 100 per cent abatement of benefits, some leave the welfare system but no one joins it because of the higher abatement rate.

Less generous abatement will see some who claim the benefit while working part-time move to a lower take-home pay. Some will be on a higher take-home pay working full-time. The net labour supply effect is ambiguous because some leave work altogether while others work more hours.

The net labour supply depends on the relative numbers at different points on the budget constraint working full-time, not working, or working part-time and the magnitudes of their respective individual labour supply responses. Some people will stay as they are working full-time, not working or working part-time.

No one who previously did not work is worse off under the benefit abatement rate increase to 100 per cent because they are unaffected by abatement. Some who were working part-time and previously claiming the benefit take-home less but enjoy more leisure as shown by arrow 2 in Figure 1. The remaining part-time workers now take-home more pay but enjoy less leisure because they are working more hours and even full-time as shown by arrow 3 in Figure 1.

The blogs so far








Some economics of zero hours contracts – part 4: team production as a constraint on working time flexibility

To continue with my theme in my previous three blogs that zero hours contracts aren’t supposed to exist, a leading explanation for the hesitancy of employers to agree to part-time hours is team production (Hutchens and Grace-Martin 2004, 2006; Hutchens 2010).

Employers may want their employees to work a minimum number of working hours because of rigid production technologies and/or team production. Production technologies vary in the rigidity they impose on the hours worked by employees.

The co-ordination of working times is paramount to effective team production. Once the work time schedule is fixed for team, the worker faces a choice between working at the fixed schedule or working in another team or job.

Two common examples of teams are an assembly line and a football team. Both require a minimum number of workers with rigid starting and finishing times. The absence of a team member could reduce team productivity or safety or even stop production entirely.

When the cost of absence is higher such as for team production, there are more efforts to reduce absences. When a single employee absence is costly to employers, employers take steps to ensure that a minimum number of workers plus a reserve are present. There will be increased spending on monitoring, more cross-training, mutual monitoring by employees and the use of peer pressure. Multiple production lines reduce the risks of absence because spare staff can be hired to fill in across different teams.

Other workers can produce independently of their co-workers. One example is a member of a typing pool. The contribution of each typist depends on their efforts alone. The increment they add to production does not vary with the presence or absence of others, nor is the productivity of others affected by their output. If there is little teamwork, the absence of a worker does not affect other workers.

The Department of Labour (2009) found that about 60 per cent of New Zealand full-time employees did not have flexible hours.

A leading reason for employers hiring part-time workers is to solve scheduling problems that arise when hours of operation and peak periods of daily or weekly production do not easily divide into standard shift lengths.

For example, within the day and within the week variation in customer demand explains the heavy use of part-timers in restaurants, retails stores and many services outlets. Not surprisingly, zero hours contracts arise in industries such as the food services sector where there is already a long history of part-time work.

Different production technologies require their own levels of coordination and supervision. This complicates the use of part-timers. Scheduling problems can arise of workers arrive at different times.

A mix of full and part-time employees could increase supervision costs. There can be repetitions of instructions and different capabilities to perform the same tasks.

Two part-timers could be productive if job is repetitive and does not require much co-ordination. Again, and not surprisingly, zero hours contracts occur in industries where the jobs appear to be relatively simple and the worker can pretty much work out what to do after a little bit of training with little supervision.

A managerial employee is less likely to be allowed to be part-time because they will be absent when employees need direction (Hutchens and Grace-Martin 2004, 2006. Managerial employees have scale effects. Higher level management decisions percolate through the rest of the organisation. The interaction of talent and scale ensures that the impact of any loss of efficiency from having part-time managers compound geometrically into the efforts and productivity of those they lead. Sharing a managerial job has costs because information must be exchanged and a common agenda agreed.

The economics of team production suggests that zero hours contracts will occur in teams with peaks and ebbs in customer demand, where workers are pretty much interchangeable alone can take over with little or no instructional briefing, and the level of task dependency between workers is small.

When extra workers on zero hours contracts are brought on to deal with the spike in demand, they take over the servicing of this demand. There is little need for them to interact with existing workers. For example, in a restaurant situation, they could deal with the extra tables filled by the spike in demand. In a McDonald’s restaurant, for example, they could just take over that the till that was otherwise not in use and serve the extra queues of customers.

To summarise, unless we have a good idea about why firms are moving to zero hours contracts, which we don’t, and why employees sign these contracts rather than work for other employers who offer more regular hours of work, meddling in these still novel arrangements is pretty risky.

New Zealand national labour force projections – the invasion of the 65+ worker

Figure 1: National labour force projections by age group, 2006-2041


Source: Statistics New Zealand, cyclical migration scenario

Not that many years time, about 2035, there will be almost as many workers as there are young workers – those between 15 and 24. About 400,000 workers in each age bracket.

Not that long ago all, in the early 1990s, there were about 25,000 workers in New Zealand were over 65 – they could fit in a football stadium. Soon, they will equal the population of the national capital: Wellington.

Workers aged 65+ moved from accounting for 1.5 per cent of workers in 1991 to 5 per cent in 2011 and 9 per cent in 2021!

Child poverty monitor report finds that housing unaffordability is the cause of rising child poverty in NZ


Did which of the Great Enrichment and OSHA make the workplace safer?


Original source of graph: Viscusi, W. Kip, John M. Vernon, and Joseph E. Harrington, Jr. Economics of Regulation and Antitrust. 2nd ed. Lexington, MA: D.C. Heath and Company, 1992, page 714.

HT: Art Diamond

Lindsay Mitchell – Labour’s Carmel Sepuloni: be careful what you ask for

The Truly Disadvantaged

Lindsay Mitchell has a nice blog today on the views of the new Labour Party spokesman on social development – the New Zealand ministerial portfolio covering social security and social welfare

Carmen Sepuloni disagrees with National Party’s policy of requiring solo mothers to look for work. She believed there should be support for sole parents to return to work, but not a strict compulsion:

It is a case by case basis. I don’t think it should be so stringent because it’s not necessarily to the benefit of their children.

The American sociologist James Julius Wilson in The Truly Disadvantaged (1987) and When Work Disappears (1996) wrote about how more children are growing-up without a working father living in the home and thereby gleaning the awareness that work is a central expectation of adult life:

. . . where jobs are scarce, where people rarely, if ever, have the opportunity to help their friends and neighbors find jobs. . . many people eventually lose their feeling of connectedness to work in the formal economy; they no longer expect work to be a regular, and regulating, force in their lives.

In the case of young people, they may grow up in an environment that lacks the idea of work as a central experience of adult life — they have little or no labor force attachment.

Carmel Sepuloni appears to believe that work is not a central expectation of adult life. Hard work used to be a core value of the Labour Party.

The toughest week of door knocking for the Labour Party in the 2011 general elections was after the Party promised that the in-work family tax credit should also be paid to welfare beneficiaries.

Voters in strong Labour Party areas were repulsed by the idea. These working-class Labour voters thought that the in-work family tax credit was for those that worked because they had earnt it through working on a regular basis. The party vote of the Labour Party in the 2011 New Zealand general election fell to its lowest level since its foundation in 1919 which was the year where it first contested an election.

When Sepuloni was on the Backbenchers TV show prior to the recent NZ general election, she was asked by the host whether she would support a $40 per hour minimum wage if that would mean equality. She did not hesitate to say yes.

Sepuloni does not seem to have noticed that wages must have something to do with the value of what you produce and the ability of your employer to sell it at a price that covers costs. 

Front Cover

The economic literatures (Heckman 2011; Fryer 201o) and sociological literatures (Wilson 1978, 1987, 2009, 2011), particularly in the U.S. is suggesting that skill disparities resulting from a lower quality education and less access to good parenting, peer and neighbourhood environments produce most of the income gaps of racial and ethnic minorities rather than factors such as labour market discrimination.

Front Cover

Grounds for optimism about the effectiveness of welfare reform in overcoming barriers to employment lie in the success of the 1996 federal welfare reforms in the USA.

The subsequent declines in welfare participation rates and gains in employment were largest among the single mothers previously thought to be most disadvantaged: young (ages 18-29), mothers with children aged under seven, high school drop-outs, and black and Hispanic mothers. These low-skilled single mothers who were thought to face the greatest barriers to employment. Blank (2002) found that:

At the same time as major changes in program structure occurred during the 1990s, there were also stunning changes in behavior. Strong adjectives are appropriate to describe these behavioral changes.

Nobody of any political persuasion-predicted or would have believed possible the magnitude
of change that occurred in the behavior of low-income single-parent families over this decade.

People have repeatedly shown great ability to adapt and find jobs when the rewards of working increase and eligibility for welfare benefits tighten.

via Lindsay Mitchell: Carmel Sepuloni: be careful what you ask for.

Richard Posner (1986) opines on comparable worth and commercial reality


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