Does an expanding workforce result in a bigger deficit?

michaels

This months deficit figures are grim (again):

http://www.bbc.co.uk/news/business-35159560

Which got me to thinking - why with record levels of employment and allegedly reduced departmental spending is the deficit not getting better?

I suspect their are two culprits:

1) Low inflation in prices and wages meaning less fiscal drag but the pension triple lock adn zerp percent benefit uprating costing much more in real terms than if inflation were higher.

2) (The interesting one) are the new employeees actaully a net drain on the exchequer? If an unemployed UK person starts working in a low wage job it is probably tax neutral at best (little income tax paid by the low paid, job seekers allowance stops but working tax credit kicks in, childcare tax credit becomes payabel etc) If a EU citizen moves to the UK and starts working in a low paid job (several hundred thousand per annum in all jobs) then not only is there little tax paid but potentially there is a whole new set of payouts for tax credits, housing benefit etc etc.

So actually the good things - low inflation and high employment - are counter-intuitively harming the public finances.

Graham_Devon

This discussion has been had around zero hour contracts and part time jobs for some time now.

Economists have already stated that the problem (and also the productivity problem) are down to the type of jobs people are being offered.

Infact it was only a week ago when the new jobless figures came out that someone from PWC was interviewed stating this very thing. The unemployment figures look great on their own, but you have to delve further into them to explain the lack of productivity, falling wage growth and the stuff you mention above. And it all falls back to poor job offerings.

Economic theory all points to everything being great. But economic theory has to change to allow for the welfare state we have created which allows for you to get a job for a certain number of hours to tap into welfare.

Thrugelmir

Making people redundant costs money, immediate cash lump sums. The payback comes over many following months.

A lot of announced changes are yet to take effect. Such as the increased EEs NIC in the public sector.

As long as the trend on an annual basis continues downwards then everything is track. If this years figures are indeed grim. Then next years budget may be likewise.

Tromking

We`re the jobs factory of Europe, so nothing to see here.

MacMickster

The new living wage should, over the next few years, improve matters significantly. Universal Credit should also help if it is ever successfully implemented.

Boy George should not have backed off the tax credit changes that he had planned to implement, but should also realised the need to appear to be even-handed by significantly increasing taxes on the wealthy.

The biggest problem at the moment is that the economy is still on life support with a negligible interest rate and the funny (QE) money in the system. Consumer debt is increasing whilst public finances aren't improving as quickly as expected. We also appear to be heading for an exit from the EU. Despite this, we are still viewed as one of the strongest world economies at present. A reminder that we are still in difficult times.

michaels

Tromking wrote: »

We`re the jobs factory of Europe, so nothing to see here.

But with employment expanding much faster than expected shouldn't we be seeing the deficit dwindling much more rapidly than anticipated?

cells

michaels wrote: »

So actually the good things - low inflation and high employment - are counter-intuitively harming the public finances.

not counter-intuitive at all, think of a typical family which receives net payments (eg receives more in services benefits and payments than they pay in taxes) basically the majority of people.

If they happen to die, the government finances are a little better off.

It is however a little bit more complicated as if you keep going by that logic the 'UK' is better off until everyone is gone and there is only one person left. That person would be dam rich and the 'state' finances would be looking healthy. Although two men with a club could take it off him at that point so.... who knows

cells

michaels wrote: »

But with employment expanding much faster than expected shouldn't we be seeing the deficit dwindling much more rapidly than anticipated?

companies should benefit from an expanding workforce (generally means expanding population) as their sales should be higher. However the government has been cutting corp taxes which will soon be only 18% so maybe some loss there

Also the UK has a lot of oil taxes, both the black stuff and petrol/diesel so with the fall in oil prices there will be a fall in royalties duties and VAT. Some of that saving will be re-spent onto other goods and services but almost nothing is as highly taxed so the gov will lose out. Also a lot of people who are not on the bread line wont be spending any more if oil prices fall it will just add a digit to a bank account

Graham_Devon

cells wrote: »

It is however a little bit more complicated as if you keep going by that logic the 'UK' is better off until everyone is gone and there is only one person left. That person would be dam rich and the 'state' finances would be looking healthy. Although two men with a club could take it off him at that point so....who knows

Aha! Crypitc! . If he's the only person left - where are the two men with the club coming from?!

cells

Also our very low house building is holding back a huge amount of taxes and general spending.

To keep things simple if you imagine the UK adding 500,000 employed folk over the year but built 0 new homes. All that extra employment would not have a lot of added demand. They already live in a house already paid council tax and already have the place heated and furnished etc etc. If building was allowed to expand at its more 'natural' ~400,000 a year then the 500,000 additional workers could buy all those homes and fill them up with demand

In the same way that an additional baby does not add that much more demand to a household but when that kid is 25 years old it probably does add a lot of demand and production

cells

Graham_Devon wrote: »

Aha! Crypitc! . If he's the only person left - where are the two men with the club coming from?!

....Norway