What's stopping the low paid get up the ladder?

Howard reed nails it. 

http://classonline.org.uk/docs/2013_Policy_Paper_-_Richard_Murphy__Howard_Reed_(Social_State_-_Idleness.pdf

Around table 3 

The current tax and benefit system produces very high marginal tax rates for low earners who are in receipt of Working Tax Credit (WTC), Housing Benefit (HB) and/or Council Tax Benefit (CTB). Table 3 presents some calculations of marginal rates for people on low incomes in receipt of one or more of these benefits. Anyone on Working Tax Credit with a family gross income of above £6,420 faces a marginal deduction rate (MDR) of 41 pence on each pound of earned income. For people above the national insurance primary threshold (currently £149 per week) and the income tax personal allowance (currently £9,440 per year) this rises to 73%. For people also on in receipt of CTB and HB in addition to WTC, the total marginal deduction rate rises to a staggering 96% - i.e. these people keep only 4 pence of each additional pound they earn. Even for low earners not claiming WTC (for example, most childless people on low earnings) the marginal deduction rate for people on HB and CTB and above the Income Tax personal allowance is 90%

 

Teaching links

A hostile report on evidence-based policy by Jamie Whyte from IEA gives a nice example of adjustment along many margins:

Seeking to improve the diets of its pupils, a school in Northamptonshire
banished vending machines in 2006. William
Guntrip, an enterprising thirteen-year-old pupil of the school,
spotted the profit opportunity this created. He started buying
large quantities of sweets and soft drinks and resold them in the
playground, making a profit of £50 a day.  (School bans boy’s snack empire’, Metro, 4 July 2006). 

Whelan on the Euro crisis

Karl Whelan is brilliant as ever. 

http://www.ucd.ie/t4cms/WP13_09.pdf

Unfortunately, the introduction of new monetary arrangements did not turn out to be sufficient to eliminate the consequences of the economic differences across the participating member states. Indeed, the concern about asymmetric shocks that was widely discussed in the pre‐EMU academic debates failed to anticipate two huge asymmetric shocks that would hit the euro area: The near‐ harmonisation of sovereign and private borrowing rates during the early years of the euro and the subsequent reversal of this pattern. The asymmetric shocks that critics predicted would afflict the euro have occurred in a deadlier form than most people anticipated. 

Various teaching links: what is value?

Once again Tim Taylor has a great post here.

The word value is overused in business schools.  Companies create value, economies add value, GDP measures value added.  Fortunately, Economics is clear about it via the Water-Diamonds paradox.

The paradox is a nice one. Water is cheap, diamond expensive.  But water is vital to life, diamonds are frippery.  So which has more value?

In Economics, we are almost always talking about "value in exchange".   Water has very little value in exchange since its so cheap and so can be exchanged for little.  That's because value in exchange, or price, is determined by the relative balance of supply and demand.  The price that balance yields tells you the value that the consumers and supplier place on the marginal unit of water. With plenty of water about that marginal value is very low.

But what about water being essential to life?  Isn't the "value" very high?  No.  The price is very low because that tells you the value in exchange of the marginal unit of water.  At the same time water can have a very high "value" in the sense of  "value in use".  But that value is fuzzy since counting the value (what are the units?) is hard to do.

So when an Economist says "diamonds are more valuable than water" she/he means value in exchange. 


Perhaps a final compelling example: what is the value in use of this below?  And its value in exchange?