Posts Tagged ‘finland’

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We have all heard the gripe; most of us have uttered it too. The author of this article certainly has. Why this obsession today with kids having to go to university. It seems you need a degree for anything. Some graduates are leaving university and taking on apprenticeships. It is absurd, of course it is. Yet, maybe it is not as absurd as we have been led to believe. New research suggests that graduates are good for us.

There has been a change in common sense. There was a time when having a good education was prima facia a good idea. But now, the queues outside the Job Centre made up of graduates, or the number of graduates working for minimum wage suggests that degrees are not what they used to be. We tell our kids to go to university. They run up massive debts. And they enter the job market with skills that are no more relevant than a handful of CSEs (That’s assuming you are old enough to remember what a CSE is). Is it an example of madness Britain, a country that has fallen in love with debt, or alternatively is it that the government (and to be fair, the last government was just as guilty – maybe even more so) has found a new wheeze to keep the unemployment data down; to keep young people off the jobs market for as long as possible by getting them to go to university?

It is just that the second of those arguments does rather fly in the face of economic theory. If it really is the case that degrees are meaningless these days, then UK plc, and indeed its government courting popularity, would encourage more potential graduates to get jobs instead because this would stimulate demand, which in turn would create more demand and the need for more jobs.

Now the National Institute of Economic and Social Research has produced a report on behalf of the Department for Business Innovation and Skills which suggests graduates are good for UK plc.

Looking across much of the developed world, the report found a strong correlation between rising productivity and the increase in number of graduates.

Between 1994 and 2005 UK labour productivity per hour rose by 34 per cent. Over the same period the share of the work force with a university degree rose from 12 to 18.9 per cent. The report suggests that at least one third of this growth can be attributed to the growing number of workers with degrees. However, even in 2005 the share of the workforce holding a university degree in the UK was below that of Finland, the US, Japan and Canada. The report said: “If the Higher Education sector in the UK were to expand towards the size of the US, this could be expected to raise the level of productivity in the UK by 15-30 per cent in the long-run.”

The report also found that graduates, on average, are paid 70-180 per cent more than workers without formal educational qualifications. It said: “Within the UK, the wage premium for graduates is higher than average, at about 160 per cent relative to workers without formal educational qualifications. Wage differentials should be closely correlated with productivity differentials, since firms face a hard budget constraint and relative wages are determined to a large extent by employer demand.”

If you want to read the report in full, see: Graduates and economic growth across countries

Here are three observations.

Some university degrees are better than others.  It may be true to say that some graduates benefit enormously from their qualification. But that does not mean all do.

The report referred to here was looking at data up to 2005. A lot has happened since then. But it is important that we take a long-term view. Right now, graduate unemployment is too high. But that does not mean it will always be that way. Let’s not make a judgement about the worth of education from the very narrow perspective of a country recovering from its longest ever economic downturn.

Technology is making the future even harder to predict than normal. Who knows what skills will be in demand in a decade’s time? Maybe in an environment of such rapid change, a good education is a good basis upon which individuals can build.

© Investment & Business News 2013

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“Software (Google and Amazon), hardware and design (Apple), social networking (Facebook and Twitter), biotech, pharmaceuticals, robotics, nanotechnology, entertainment and retail (Wal-Mart)” – these are the bedrocks of modern capitalism. And without high rewards for the innovators – the people who broke the mould and gave us great new innovations – the rest of us would still be living in the Stone Age, or at least we would be poorer than we are, or so says Daron Acemoglu from MIT.

The US could become a lot more equal and a fairer place, but the rest of us, with our more liberal views would be the losers. Is that right? Can the more cuddly and idealist parts of this world only survive thanks to the more cut-throat and harsher realities of the US system?

“The United States does not have the type of welfare state that many European countries, including Denmark, Finland, Norway and Sweden, have developed, and despite recent health-care reforms, many Americans do not enjoy the type of high-quality health care that their counterparts in these other countries do. They also receive much shorter vacations and more limited maternity leave, and do not have access to a variety of other public services that are more broadly provided in many continental European countries.

Perhaps more importantly, poverty and inequality are much higher in the United States and have been increasing over the last three decades, while they have been broadly stable in Denmark, Finland, Norway and Sweden,” or so says Daron Acemoglu from MIT; James A Robinson from Harvard, and Thierry Verdier from the Paris School of Economics in a paper published last year. See: Can’t We All Be More Like Scandinavians? Asymmetric Growth and Institutions in an Interdependent World 

But, continues the paper: “American society that makes possible the more cuddly Scandinavian societies based on a comprehensive social safety net, the welfare state and more limited inequality. The basic idea we propose is simple and is developed in the context of a canonical model of endogenous technological change at the world level.

The main building block of our model is technological interdependence across countries: technological innovations, particularly by the most technologically advanced countries, contribute to the world technology frontier, and other countries can build on the world technology frontier. We combine this with the idea that technological innovations require incentives for workers and entrepreneurs.”

Okay, so that is what the paper says. To put it more succinctly, the US does appear to be more innovative than, say, Scandinavia, with more patents per head for example. So maybe we should all be grateful that the US system is so ruthless.

But here is an alternative, point of view. In his book ‘Sex, Science and Profits’, Terence Kealey quoted Robert Stephenson who said: “The locomotive is not the invention of one man but of a nation of engineers,” and the industrialist A J Mundella, who said: “Every invention we have made and patented (and some have created almost a revolution in the trade) has been the invention of overlookers, or ordinary working men, or skilled mechanics, in every instance.” In short, it was not the case that that the great innovations have been down to highly remunerated entrepreneurs; rather they have often been down to ordinary folks on the payroll, who received little more than a pat on the back for their troubles.

There is one other downside to a system in which there is a massive gap between, say, the top 5 per cent and everyone else. Because doctors often fall into the top 5 per cent in terms of ability and certain exam results, it means that society as a whole struggles to be able to pay for its doctors. If doctors earned less, the NHS would be easier to fund. But if they did, maybe there would be fewer doctors to go around.

Maybe the authors of this report have causation the wrong way round. Sure the US may be more innovative than Scandinavia and less equal, but does that mean one caused the other.

Maybe the US is innovative because it has different attitudes to failure, and its system gives greater scope for experimenting.

For every entrepreneur who makes it big, there are many who fail abjectly, and maybe they fail because they were just unlucky. The difference between those who make it and those who don’t may be as much down to luck as pure ability or hard work.

In any case, there is lots of research to show that money is not the main driver of either entrepreneurs or indeed inventors.

And yet there is something irrational about us all. Why is that more people enter the lottery when the prizes are bigger, even though the chances of winning are not affected? Do you really care if you win £5 million or £30 million on the lottery? Would it really make much difference to your happiness? Yet more of us take part when the prize money is for the bigger amount.

It may be irrational; it may unfair; it may not really add up, and it may not apply to us all of us, but the thing that drives many entrepreneurs to take massive risks, and work through the night, night after night is the promise of great riches. Maybe Messrs Acemoglu, Robinson and Verdier have a point.

© Investment & Business News 2013

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In 2008 UK average labour costs per hour, measured in euros were 20.9. In 2012 they were 21.6 euros. That’s a rise of just 3.3 per cent.

Or let’s use sterling rather than euros as the measure. In 2008 unit labour costs per hour were £16.70.In 2012 they were £17.50, which is a growth rate of 5.2 per cent. Contrast that with Germany where unit labour costs are up 9.1 per cent. They are much higher too: 30.4 euros in 2012.

In France, unit labour costs have risen 9.5 per cent to 34.2 euros. Of course, Germany has roughly half the unemployment rate of France.

The highest unit labour costs are in Sweden: 39 euros, while Denmark, Luxemburg, Finland, Belgium, the Netherlands, and Austria all have unit labour costs over 30 euros an hour.

Of the 27 counties in the EU, 15 have lower unit labour costs than the UK. They are slightly lower in Cyprus, a lot lower in Greece (14.9 euros), much higher in Ireland (29 euros), lower by the tiniest of margins in Spain, and significantly higher in Italy (27.4 euros).

In terms of growth between 2008 and 2012, only Ireland, Greece, Latvia, Lithuania, Hungary, Poland and Portugal saw a lower growth rate.

Unit labour costs contracted in Lithuania, Hungary, Poland and –most notably – in Greece, where they have fallen 11.2 per cent.

From an economic point of view, falling unit costs are good in the sense that they provide a country with improved competitiveness. But they are bad in the sense that they are a function of productivity, and wages. That Greek wages are falling so fast may be an indication that the country is gradually becoming more competitive but the resulting depression is really rather nasty.

As for the UK, falling unit labour costs is a sign of poor productivity. But why is UK productivity so low? When you factor in networked readiness it is harder to explain. See: IT readiness: does Finland lead the world for economic potential, is the UK in seventh spot?

What the UK needs is investment. Maybe Vince Cable’s plan for a business bank is the right one. More likely it does not go anyway near far enough.

©2013 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here

The political entanglements in the euro area are escalating. Last week a triumvirate of finance ministers from Germany, Holland and Finland put a rather large spoke in the wheel. You may know that during the summer it was agreed that Spain’s banks could be bailed out directly by the IMF, EU Commission and the ECB via the organisation called the European Stability Mechanism (ESM).  But last week the three finance ministers issued a statement saying: “The ESM can take direct responsibility for problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities.”  So what was that: “legacy issues”? What does that mean? Were they referring to bank bail-outs that occurred some time ago, such as Ireland’s? If this is the case, their statement seems pretty reasonable. Alternatively, were they referring to the bail-out of Spain’s banks? Many interpreted it that way, leading to claims that Spain had been betrayed.

Meanwhile, Helmut Kohl – who as you may recall was German Chancellor during German reunification, and an out and out supporters of the euro – made a speech in which he said of Angela Merkel: “She is destroying my Europe.” He called for giving Greece more time to make its reforms.

Then there was Vaclav Klaus, President of the Czech Republic. When his country joined the EU, its leaders signed a treaty agreeing to also join the euro at some point in the future. But the treaty imposed no time frame. So when did Mr Klaus think this will happen?

“Perhaps in the year 2074 we can join the European Monetary Union,” he said last week.

So that wasn’t very nice about the euro, was it?

In the UK, calls for a referendum on staying in the EU are growing, and the talk is that David Cameron will pledge to hold such a referendum if he wins the next election.

That’s the snag. Either the euro falls apart, which – according to many – will be a disaster for the world economy, or we see closer political union, which will probably leave the UK’s membership of the EU in tatters.

But there is a third way. The euro could survive, without political union.

Also see the following related articles:

Is there hope for the euro? Catalonia’s rift with Spain
Spain’s woes are not down to debt
Catalonia’s strife; currency’s knife
Political shenanigans in Europe
The fix to the euro crisis

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here