Category Archives: economy

Context is everything: edensor technology college and politics

This is a really sorry affair, especially because some people have been really quite wrong-headed about how they go about things, and others just don’t know what they are talking about. This is a local story: the teachers of Edensor technology college in Stoke were due to go to Marbella for a training (long) weekend, but it was cancelled after the local paper got hold of it, and the story went national. Here are reports from the BBC, the Times, the Guardian, and the Sun. The issues I’ll address here are the costs/benefits, and the political nature of the turnaround.

First, the costs and benefits. At first glance a four-day trip to Marbella looks outrageous: why not do it in the school or in a nearer hotel. One argument is, because Spain is cheap, it’s more cost effective to do this in Spain than Manchester. But why go away at all? The main argument here is that being ‘away’ means people can concentrate on the training, and not be shooting off home as the sessions finish. I’d argue that, if those in charge believe that being ‘away’ is worth the £18k (perhaps doing it at the school would mean the training would need to be run twice or more), then they should do it. And if Spain is cost effective, then do that too.

However, it’s the context that matters. In Stoke, unlike elsewhere, teachers earn more than the average because wages there are very low, so they are seen as already rich. As well as this, they are seen as having long holidays etc. etc. This is because many people in Stoke are in industrial or neo-industrial (think call centres) work where it’s only the law that ensures people get the minimum wage and their holidays. I’m sure some will be employed with less than the minimum. Now there’s a recession on, and people fear they won’t be taking holidays it looks like they are having treats at taxpayers expense.

In the wider context, however, this is as nothing. Senior educationalists go on similar trips – I heard about a recent visit to Canada – as do councillors and council officers, medical professionals and so on. In this case, the cost seemed low. When you consider that the education sector – and that’s taxpayers money – spends millions of pounds on consultancy, this is a non-story. The sector hires consultants (often senior ex-teachers and so on) at rates of £1000 per day (and more) to do the work that would in the past have been done by employees. And, if this was all in a middle-class area of London, where everyone gets sent abroad for work, and many people have done consultancy work, no-one would bat an eyelid.

Second, there’s the political angle. Interestingly, the story came in the week that the Conservatives (at their conference) pledged to give schools “the freedom to innovate and with control over budgets, curriculum and discipline” (see here). Now this means allowing them to spend their money on trips away if they see fit. The intervention of Stoke’s Mayor, saying the headteacher made a mistake, shouldn’t have mattered. The headteacher was entitled to make his decision with the backing of the governing body. If the parents don’t like it, then they can change the governing body. That’s the point of local control.

But there’s more to it than that. In Stoke, we’ve got issues with regard to the Mayor and schools. The Mayor is seen as part of the plan to close loads of schools (costing lots of money and annoying many parents). There’s also a referendum in two weeks to decide if the mayoral position will still exist past 2009. The Mayor and the councillors need to be seen to be on the side of taxpayers and parents, and because the sentiment of the local people/media was against the trip, the trip was cancelled (losing all the money too).

So the question is, why did the headteacher back down so easily? It’s an odd one. The Mayor, Mark Meredith said “they have now got the worst of both worlds because they will have to pay for the cost of the trip but will have to hold the conference at the school.” This to me sounds like a case of two wrongs trying to make a right. Everyone knows that this leaves them in a bigger mess than if the trip had gone ahead, and then bollocked the head when they got back. Would they have sacked him?

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Work brings freedom?

Our government’s obsession with workfare in order to prove that it’s not soft on the undeserving poor continues unabated. This time it’s an ’empowerment white paper’ from DCLG (here), which somehow makes paid employment into the most enjoyable and empowering thing one can ever do. Even call centres?

‘The Empowerment White Paper, to be published in the Summer, will set out how the untapped talent of communities can be unleashed to ensure everyone has a greater say in improvements to public services, local accountability and opportunities for enterprise’

Of the three elements of empowerment mentioned here, two are about improving democracy, and one is about entrepreneurship. However, in the ‘Unlocking talent’ discussion paper, five pages are devoted to reducing worklessness, while about one and a half cover the public services and accountability. I’m not quite sure why getting a job empowers you to be involved in participatory democracy, especially as it reduces the time you have for ‘getting involved’. Of course, getting a job does empower you by reducing your reliance on the state, and empowers you as a consumer, but I didn’t think that was the point.

Anyway, now for the bad social science. Part of their ‘evidence shows that those in employment are happier, healthier and less likely to be involved in crime’ (DCLG 2008, p.4). The truth, of course, is far more complicated.

Firstly, this short and authoritative statement is based on a number of papers (Strategy Unit 2002, Meghir and Machin 2000 and one other) that don’t really support it.

The paper (M&M) on crime showed that ‘falls in the wages of low-wage workers lead to increases in crime’, suggesting we should increase the minimum wage!

Early on, the Strategy unit paper reminds us that correlations don’t tell us the direction of causation. Given that an employer is looking for people who are fun, or at least nice to work with (I always did this), miserable people are less likely to get jobs. I can’t think of many jobs where being pessimistic is an asset.

And we should always be on the look out for spurious correlations, and in this research they are legion. The data this paper uses, suggests that workers have greater life-satifaction than non-workers. But of course, in an unequal world the workers have more money than the non-workers, they socialise more with their colleagues (’cause if you’re unemployed while all your mates are working, you’ve no-one to go out with), and they aren’t bored stuck at home with no money.

In order to research this properly, we should do either a randomised controlled trial, but my ethics committee would turn this down, or some kind of matched survey.  In the latter, instead of comparing a sample of workers with non-workers, the research would compare like-with-like. Each unemployed person would have as much money, activity and lifestyle (and so on) as the comparator employed person. Let’s see if the middle-class, middle-aged retiree on a £50k pension aged 50, is happier or less happy than his/her equivalent who still has to work to sustain the lifestyle. Or let’s compare the young minimum wage cleaner (less than £12k), with someone who get’s £12k from a trust fund. This might give a result that is consistent with the fact that almost no-one who wins the lottery carries on working full-time (NS 2005). In fact, lottery winners are happier as they ‘do what they like’ and enjoy an ‘easier life’.

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Big savings in insurance?

A few weeks ago I received a bit of junk mail from RIAS that’s led me to the most amusing use of statistics I’ve ever seen.

I wouldn’t normally read this kind of mail, especially as I’m neither over 50, nor in the market for some new insurance, but the letter began along the lines of ‘I know that getting letters like this is annoying’. I threw it away, thinking ‘damn right’, but then got it back out of the bin in disbelief that they’d start like this… the pitch worked.

Anyway, to the numbers. When an insurance company says ‘You could save up to £182’ or whatever, it’s worth examining the small print, because the important word here is ‘could’. In their favour, this is of course a one-way bet: if you ring up and they give you a higher quote, you’ll stick with what you’ve got. When the Halifax say in a current ad, ‘you could save £99’, this is the average savings of a ‘random sample of 715 customers… by switching’. Obviously this doesn’t include those who don’t switch who might be saving a hundred quid by staying put. But at least it’s an average saving, that makes sense to the general public.

For others, it’s a different figure altogether, and one that made me choke on my cornflakes. Hastings and RIAS give figures that ‘10% of customers achieved’ were ‘achieved in 10% of quotes’. This means 90% of people (i.e. most of them) didn’t get this saving, and we don’t even know if these figures only include people who switched. Yes, they do say ‘look, this what you could get up to’, but as a headline figure it makes you think that’s your approximate gain. We’ve no idea of the distribution: maybe 10% save £150 and the other 90% save nothing.
I guess this is what those recruitment ads do when they say ‘earnings up to £70k’ when in reality very few get anywhere near that. Maybe I’ll start to measure things like this. I could offer to do ‘up to 2 hours of housework each weekday’, knowing I’ll do next to nothing except a couple of hours every fortnight.

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House prices

As promised, this is a second comment on supply, demand and prices. The one before was on fish and this is on housing. As you’d expect, houses are more price sensitive than fish: people are concerned about the price in a way they aren’t when they are in the supermarket. However, that doesn’t mean that supply, demand and prices are entirely based on ‘market fundamentals’ as the mortgage lenders and estate agents would have it.

According to them, prices have kept rising and now won’t fall because of ‘a structural housing supply shortage and pent-up demand from a large number of first-time buyers’ (BBC). Often this is combined with explanation such as an increase, or predicted increases, in the number of households, planning law, and low unemployment.

This just doesn’t stack up. First, these factors have been known about for years, and the market should have priced them in a long time ago. Why didn’t speculators drive up prices to current levels at the beginning of the boom, because we knew then what we know now? Second, the evidence shows some big exceptions. In Stoke-on-Trent, prices have been rising faster than many places, admittedly from a low base, despite high unemployment, a decreasing population, one of the biggest void rates (empty homes) in the country, and new houses being built everywhere. Which brings us to the third point, which is that people aren’t buying their first home or a bigger home because they are homeless or badly housed (i.e. need), but that they want to buy, but can choose not to. Almost all  of us would like to live in a bigger/nicer house, in a better area, but the question is ‘how much do people want to?’

If, therefore, someone living in a not-so-nice house is thinking about moving to a nicer house, they have to feel comfortable spending that money. If they don’t feel comfortable with this they can stay where they are; it’s a nice-enough house. It’s not like food or washing powder, where they have to buy more to replace the stuff used. Instead of ‘market fundamentals’, this demand then comes from ‘sentiment’, based on optimism and fear of risk, both for homebuyers and lenders, and themselves based on interest rates, money supply, inflation, house price movements, the weather and so on. This is how prices can rise, even where the population decreases, wages have fallen, and houses are empty. It’s a bubble.

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Fish

This is the first of two posts on the topic of supply, demand and consumer behaviour (the next one on housing). Today, on Woman’s Hour, while driving through town, I heard a great article about fish.

The essence of it was the fact that cod and some other popular fish have massively increased in price (overfishing, more people wanting more fish). The question was asked why don’t people move to buying cheaper alternatives. ‘I only eat cod, Idon’t like anything else, I don’t like the look of it’ was one quote. Now the funny thing is that the reason why working class Brits ended up eating a lot of fish was because it was a cheap meal, compared to other sources of protein.

The best bit was when some old dear said, I don’t like pollock, I only eat cod, and an Oldham fishmonger presented a plate of pollock and a plate of cod and asked the lady to taste them. She liked one, said what a nice bit of cod it was, and then the fishmonger said it was pollock.

So although prices, supply, and demand are related, what makes up demand is complicated. In this case, some ‘tradition’ coming from post-war food policy makes people used to cod. What’s interesting is that it seems people are less price sensitive in this case than they used to be. We’ve got used to being able to buy what we want for food, due to our relative affluence. This, of course, isn’t the case for housing… my next topic.

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