ECN105 Contemporary Economic Issues

Teaching Team
Module Organiser Teaching Assistant
Guglielmo Volpe Mahmoud Shahin
Room: GC4.23 Room: GC3.25
Email: [email protected] Email: [email protected]
Office Hours Office Hours
• Tuesday 4pm – 5pm • To be announced in class
• Thursday 10am – 11am
About the module
Aims and Learning objectives

This module provides you with an opportunity to explore contemporary economic

issues, debates and policy. The module builds on the insights provided by the first
semester modules to develop an ability to:
• identify and apply the appropriate economic approaches to explain real world
economic issues;
• engage in both written and oral form with the critical analysis of current
economic issues;
• understand, interpret and write journalistic discussions of economic issues;
• contribute to the policy debate concerning the contemporary issues.
Module Structure

• Lecture (1 hour long)

• Provides some theoretical background for economic analysis
• Introduces the weekly contemporary topic

• Class (2 hour long)

• Opportunity to discuss in greater detail the topic covered in previous lecture
• Work in groups on given projects
Indicative topics
• Income distribution
• Minimum wage policy
• Gender Pay Gap
• Universal Basic Income
• Productivity: the 4-day working week
• Nationalisation vs Privatisation
• Competition and Regulation: should Amazon be allowed to invest in Deliveroo?
• Externalities
• Economics of global warming
• Sugar Tax
• Technology
• The economics of Cryptocurrencies
• The economics of Robots
• Creative destruction and sustainability
• Trade
• Winners and Losers from trade barriers
Reading list – No single textbook available for this module

https://www.core-econ.org/
Reading list
We will make use of
• Journal articles
• Reports
• Articles for specialist publications
Assessment
• Group videoclip
• Produce 3 minutes video on given project
• Deadline: end of week 7
• Weight: 15%
• Group Presentation/Debate
• Presentation or debate on current issue
• Presentations distributed throughout semester
• Weight: 10%
• Individual Economic Brief
• 1500 words
• Due by end of week 11
• Weight: 15%
• Final Exam
• Weight: 60%
The Hockey Stick
The Hockey Stick
Rapid, sustained growth in average living standards since 1700.
How did this happen?
 The Technological Revolution

Technology = A process that uses inputs to produce an output

• By reducing the amount of work-time it takes to produce the things

we need, technological changes allowed significant increases in living
standards.

• Remarkable scientific and technological advances occurred more or

less at the same time as the upward kink in the hockey stick in Britain
in the middle of the 18th century
Capitalism
 Capitalism
• Institutions are the laws and social customs governing the
production and distribution of goods and services

• Capitalism is an economic system where the main institutions

are private property, markets, and firms
 Key Concepts
Private property = ownership rights over possessions
• an important type of private property is capital goods = the
non-labour inputs used in production.
• Does not include some essentials, e.g. air, knowledge

Markets = a way for people to exchange products and services

for their mutual benefit. Unlike other types of exchange, markets
• are reciprocated transfers
• voluntary
• usually there is competition
 Key Concepts
Firms = business organization that uses inputs to produce
outputs, and sets prices to at least cover production costs
• Inputs and outputs are private property
• Firms use markets to sell outputs
• The aim is usually to make profit

• A striking characteristic of firms, distinguishing them from

families and governments, is how quickly they can be born,
expand, contract and die.
 The Capitalist Revolution
Capitalism led to growth in living standards because of:

• Impact on technology: firms competing in markets had strong

incentives to adopt and develop new technologies
• Specialization: the growth of firms and the expansion of
markets linking the entire world allowed historically
unprecedented specialization in tasks and production
• Together with the technological revolution, this increased
worker productivity
 The gains from specialization
Specialization increases productivity of labour because we
become better at producing things when we each focus on a
limited range of activities
• learning by doing
• taking advantage of natural differences in skill and talent
• economies of scale

• People can only specialize if they have a way to acquire the

other goods they need. In a capitalist society, this is done via
markets
 Comparative advantage
  Production if 100% of time is spent on one good

Greta 1250 apples or 50 tonnes of wheat

Carlos 1000 apples or 20 tonnes of wheat

• Greta has absolute advantage in production of both crops

• Greta has a comparative advantage in wheat
• Carlos has a comparative advantage in apples = he is least
disadvantaged in production of apples.
 Comparative advantage

• All producers can benefit by specializing and trading goods,

even when this means that one producer specializes in a good
that another could produce at lower cost

• Markets contribute to increasing the productivity of labour by

allowing people to specialize
 Did capitalism cause the hockey-stick growth?
Natural experiment: the division of Germany at the end of World War II
into two separate economic systems, capitalist in the west and centrally
planned in the east.
 Divergence in growth
Not all capitalist economies are
equally successful
• Economic conditions: firms,
private property, or markets may
fail
• Political conditions: capitalist
institutions are regulated by the
government
• The government also provides

essential goods and services

(infrastructure, education)
Consequences of growth
 How unequal is the world?

2014
How unequal is the world?
 How unequal is the world?

2014

In Singapore, the richest country on the furthest right, the average incomes of the richest
and poorest 10% are $67,436 and $3,652 respectively.
In Liberia, the furthest left, the corresponding incomes are $994 and $17.
 UK Income Distribution 1980 - 2014

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80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Decile 1 Income Decile 2 Income Decile 3 Income Decile 4 Income Decile 5 Income
Decile 6 Income Decile 7 Income Decile 8 Income Decile 9 Income Decile 10 Income
 Within and between country inequality

• 1,000 years ago, the world was “flat”. Today, there are large differences
both within and across countries

• While both types of inequality seemed to have increased, differences

in average income between countries are much larger today than they
were in the past

• We can link growing between-country inequality to the hockey-stick

diagram
 Inequality and growth
• For a very long time, living standards did not grow in any
sustained way
• When sustained growth occurred it began at different
times in different places
• The countries that took off economically a century or more
ago—UK, Japan, Italy—are now rich
• The countries that took off only recently, or not at all, are in
the flatlands
 Environmental consequences

Increased production and population growth affects the environment

• Global impacts – climate change
• Local impacts – pollution in cities, deforestation
• Technology may provide the solution?
 Environmental consequences
These effects are results of both
• The expansion of the economy (illustrated by the growth in total
output)
• The way the economy is organized (what kinds of things are valued
and conserved, for example).

• The permanent technological revolution may also be part of the

solution, by making it possible to use less resources to produce
more output.
Trends in inequality
 Income inequality within countries
Market income: Income from wages, businesses, and investments
Disposable income: Market income minus taxes and transfers

• Wealth is much more unequally

distributed than market income,
which is more unequally distributed
than disposable income
• More equality in disposable income
can be due to the tax and transfer
system
 Trends in inequality across countries
• There are cross-country differences in the level of inequality, but also
common trends e.g. a fall in inequality over 1920-1980
• Countries differed greatly in what happened after 1980 though
 Global inequality
Blue line = Gini coefficient for the entire world
Red line = if everyone in the country earns the average income

• Since 1980, between-country

inequality fell rapidly, but within-
country inequality increased

• The net result is that global

inequality has started to decline
 Within-country inequality
Increasing inequality within most countries is associated with the changing
distribution of jobs

‘Missing middle’ - Low-paying and high-paying jobs are increasing in number

while middle-income jobs are becoming scarcer.
Types of inequality
 Categorical inequality
• Categorical inequality (group inequality): Economic differences among
people who are treated as different categories

Usually based on ‘accidents of birth’:

• Country of citizenship - Passports and
borders limit access to certain
economic opportunities
• Gender or ethnic group

Example: income disparities between men and women with the same level of education
 Inherited inequality
• Intergenerational inequality: The extent to which differences in parental
generations are passed on to the next generation
• Intergenerational transmission
process takes many forms:
• Inheriting parents’ wealth
• Inheriting parents’ genetic makeup
• Parental influence on growth

• Intergenerational elasticity: the percentage difference in the second

generation's status associated with a 1% difference in the adult generation's
status. (High elasticity = low intergenerational mobility)
 Relation to cross-sectional inequality
• Inequality in earnings tends to be positively correlated with
intergenerational inequality

Possible reasons:
• Societies with strong culture of
fairness tend to have policies that
reduce cross-sectional inequality and
promote intergenerational mobility.

• Effects of good/bad shocks (‘luck’) are passed on to the next

generation, contributing to cross-sectional inequality.
Evaluating inequality
 How much inequality is ‘too much’?
Inequality becomes a problem if there is ‘too much’ of it.

Example: In the US, actual wealth

inequality is much higher than what
people estimate it to be, which is
also higher than their ideal wealth
distribution
People’s ideal wealth distribution
depends on income, but these
differences are small in comparison
 When is inequality unfair?
• Opinions about whether
inequality is ‘unfair’ depends
largely on individual beliefs
about how distributions came
about

• Many people think categorical

inequality is ‘unfair’ and
should be addressed, but not
inequality based on hard work
or taking risks
Readings
Econ CORE – Unit 1
Econ CORE – Unit 19 (19.1 to 19.4)