- Branche: Economy; Printing & publishing
- Number of terms: 15233
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The price of labor. In theory, wages ought to change so that the supply and demand in the labor market are always in equilibrium. In practice, wages are often sticky, especially in a downward direction: when demand for labor falls, wages do not fall. In this situation, the fall in demand results in higher involuntary unemployment. Trade unions may use collective bargaining to keep wages above the market-clearing rate. Furthermore, many governments impose a minimum wage that employers must pay. Firms may choose to pay above the equilibrium wage to increase the productivity of workers. Such so-called efficiency wages may make workers less likely to join another firm, so cutting the employer’s hiring and training costs. They may encourage workers to do a better job. They may also attract a higher quality of worker than wages at the market-clearing rate; better workers may have a higher reservation wage (the lowest wage for which they are willing to work) than the market-clearing equilibrium. In recent years, employers have tried to reduce wage stickiness by increasing the proportion of pay that is linked to the performance of their firm. Thus if falling demand reduces the employer’s profit the pay of its employees falls automatically, so it does not have to lay off as many workers as it otherwise would. Performance-related wages can also reduce agency costs by giving hired hands a stronger incentive to do a good job.
Industry:Economy
In most countries, the majority of wealth is concentrated in a fairly small number of hands. This makes a wealth tax appealing to politicians, as it should allow substantial amounts of revenue to be raised from comparatively few people, allowing the tax burden on the majority of the population to be kept down. It also appeals because it promotes meritocracy by making it harder to be born with a silver spoon in your mouth. A wealth tax reduces the disparities in wealth rather than income that are the biggest determinant of how the scales are weighted for succeeding generations. What could be better than a tax that produces lots of money for the government and strikes most voters as being extremely fair? Alas, as critics point out, wealth taxes may cause inefficiency by discouraging wealth-creating economic activities. Moreover, the revenue collected may prove disappointing. The wealthiest people are often the most skilled at tax avoidance, not least because they can afford good tax accountants. Despite the enormous concentration of wealth in a small part of the population, on average across the OECD wealth taxes account for less than 2% of total tax revenue. A wealth tax can achieve horizontal equity and vertical equity (so that people of similar means pay the same and those with more pay more) in ways that income tax cannot. For instance, neither a poor person nor a rich person with no income would pay income tax, and only the rich person would pay the wealth tax. Wealth taxes come in two main forms. Capital transfer taxes are levied when wealth changes hands, either at death (inheritance tax) or through donation (gift tax). Annual wealth taxes are levied each year as a fraction of the taxpayer’s net worth. Some people regard capital gains tax as a wealth tax, but, strictly speaking, it is a tax on the income earned on capital, rather than a wealth tax on the capital itself.
Industry:Economy
Economics with a heart. The study of how different forms of economic activity and different methods of allocating scarce resources affect the well being of different individuals or countries. Welfare economics focuses on questions about equity as well as efficiency.
Industry:Economy
Income you do not expect, such as winning a lottery prize. Economists have long argued about whether people are likely to save such windfalls or spend them. According to the permanent income hypothesis, favored by most economists, people save the lion's share of windfall gains. But real life often contradicts this; ask any lottery winner.
Industry:Economy
A controversial concept, often used by politicians to justify imposing a tax on profit that in theory is earned unexpectedly, through circumstances beyond the control of the company concerned, and is thus deemed undeserved and ripe for the taking by the tax authorities. As the profits were neither expected nor a result of the efforts of the firm, taxing them should not harm the firm’s incentives to maximize future profits. The problem comes when greedy politicians start claiming that profits are windfalls when in fact they are deserved and expected. Then taxing them sends a signal to firms that they should not try too hard to make profits, as if they do too well they will not get to keep the profits anyway. If this became widely believed, effort would probably decline and economic growth would be slower.
Industry:Economy
The annual income from a security, expressed as a percentage of the current market price of the security. The yield on a share is its dividend divided by its price. A bond yield is also known as its interest rate: the annual coupon divided by the market price.
Industry:Economy
Broadly speaking, a period of slow or negative economic growth, usually accompanied by rising unemployment. Economists have two more precise definitions of a recession. The first, which can be hard to prove, is when an economy is growing at less than its long-term trend rate of growth and has spare capacity. The second is two consecutive quarters of falling GDP.
Industry:Economy
An exchange rate that has been adjusted to take account of any difference in the rate of inflation in the two countries whose currency is being exchanged.
Industry:Economy
Lorsque l'offre ou la demande de quelque chose est insensible aux changements dans une autre variable, comme le prix. (Voir l'élasticité).
Industry:Economy
