Category: Income & wealth

Handouts to support thrift?

~ Andrew Norton ~ 1 Comment

The Australian this morning runs a left-field editorial opposing the cut to the discount for paying student contributions upfront.

Completely ignoring the only compelling rationale for the discount, reducing the cost of the HELP scheme, the editorial drifts off into various social policy objectives: encouraging students to use some of their part-time earnings to reduce their debts, and encouraging the ‘responsible behaviour’ of families who assist their students by reducing their debt.

But why is increasing public debt to decrease private debt a good thing?

And if increasing public debt to decrease private debt is a good thing, why restrict it to families with university students?

No wonder we are sinking in a sea of debt when even the most economically rational newspaper resists sensible plans to reduce government spending.

——
The editorial also incorrectly states that the change will reduce revenue flows to universities. Instead, universities will get slightly more revenue directly from students and slightly less directly from government. We’ll have to wait for the forward estimates next week to see what the government thinks, but after factoring in some behaviour change I’d estimate a $70-80 million shift.

Paying for uni through effort?

~ Andrew Norton ~ 14 Comments

The review of higher education funding has been asked to look at the issue of the relative public and private contributions to tuition costs.

Some people think it is anomalous that law and business students pay more than 80% of the nominal cost of their place, while for example medical and engineering students pay a third or less.

Another perspective is to ignore cost shares and focus on the size of private benefits. Post-1996, this is roughly the perspective that has dominated. The basic idea is that students in disciplines with high incomes can afford to pay more.

Using occupational income data from the ABS Employee Earnings and Hours publication I’ve been playing with another version of the private benefits idea.

The idea here is that graduates pay for their courses in work effort, defined as the number of weeks it would take to repay their debt if they devoted their entire net weekly earnings to doing so. While some courses are much more expensive than others, the higher salaries their graduates earn mean that they can repay more quickly.

The table below shows that for most occupations the time to repay is closer to the average than the $ dollar cost relative to the average (closest number in bold). Mostly the differences are not large, though for arts professionals and medical practitioners there is major correction towards the mean on the time to repay measure (the figures are all based on average earnings for full-time males in May 2010). Continue reading “Paying for uni through effort?” →

Money as the cure for materialism?

~ Andrew Norton ~ 6 Comments

Ever since it became possible for humans to acquire more wealth than was needed for survival social critics have been warning against its corrupting effects. These days the warning even comes with some evidence, as Sacha Molitorisz notes in last weekend’s papers. During the week there was another paper, this time by U of M academic Bruce Headey and others, showing that material with materialistic goals are less happy.

Headey’s work has been particularly important because it uses longitudinal studies, in this case a German study, to see long-term effects. He’s particularly concerned with challenging the setpoint theory of happiness, that people have a ‘natural’ level of happiness linked strongly to their personality type, and that few people will move beyond their setpoint for prolonged periods of time.

The figure below, taken from the article in the second link, shows that using 5-year averages of life satisfaction and comparing it with successive 5 year periods from 1984-89 to 2004-08 that substantial minorities do undergo significant long-term changes in their self-reported well-being. Continue reading “Money as the cure for materialism?” →

Money and the emotions

~ Andrew Norton ~ 2 Comments

Most happiness research is based on questions which ask respondents about how happy they are or how satisfied they are with their lives in general. A number of papers over the years have explored the links between these overall ratings and people’s day-to-day emotional states and found that (at least in the survey period) there are only modest correlations between them.

The most recent paper, by Daniel Kahneman and Angus Deaton, using a massive 450,000 person US sample over 2008-09 (bad years economically in the US), again finds that the statistical relationship isn’t strong.

They used three measures of daily emotional well-being: positive affect (reports of happiness, enjoyment and frequent smiling), blue affect (reports of worry and sadness) and stress the day before the survey. The life satisfaction question asked respondents to rate their lives from 0, worst possible life, to 10, best possible life. None of the correlations between emotional well-being and life satisfaction were higher than .31 (0 would be no relationship, 1 would be a complete association). Continue reading “Money and the emotions” →

The financial benefits of higher education

~ Andrew Norton ~ 17 Comments

The ABS has an interesting new publication out today on the financial benefits of higher education.

ABS anlayst Hui Wei uses data from the 1981, 1986, 1991, 1996, 2001 and 2006 censuses to provide estimates of rates of return for investment in higher education. In the figure below, the rates are based on post-tax earnings of graduates compared to someone who finished their education at year 12 (say a Year 12 completer earned $800 a week and a graduate $1,200 a week – the graduate premium would be $400). The graduates are aged through the census of the stated year (eg it assumes that a 1996 graduate would at age 40 earn what a 40 year old graduate earned in 1996).

The costs are assumed to be the opportunity cost of four years out of the workforce with no earnings in that time, plus direct costs such as HECS.

Continue reading “The financial benefits of higher education” →

‘Working families’ not so stressed after all

~ Andrew Norton ~ 5 Comments

A report this morning that some people with ‘mortgage stress’ are living on rice reminded me of those days back in 2007 when Kevin 07 was constantly going on about that and the general financial pressures on ‘working families’.

While of course through bad luck and imprudence there are always some households doing it tough, some of us were always sceptical about Labor claims on financial stress (eg here and here) .

The latest HILDA statistical report on trends in financial stress over 2001-2007 confirms that these 2007 Labor claims were gross exaggerations, and that the overall trend was clearly towards less financial stress.


Continue reading “‘Working families’ not so stressed after all” →

Family finances under the ‘new familism’

~ Andrew Norton ~ 9 Comments

The IPA Review has published an article by me on what I call the ‘new familism’. The article tracks how since the 1970s the left and right have each developed their own ideologies of the family. Despite significant differences of intellectual justification and policy detail, left and right converge on significantly increased state support for people with children.

The table below from the latest HILDA statistical report highlight just how much those with dependent children improved their financial position in the 2000s.


Continue reading “Family finances under the ‘new familism’” →

Actual versus perceived income

~ Andrew Norton ~ 8 Comments

Andrew Leigh is reporting on 1999 research showing that many high income earners wrongly place themselves in lower income deciles and many low income earners place themselves in a higher income decile than is justified by their actual income (also cross-posted at Core Economics).

In the past (p.16) I have used this data to suggest that some people who agree to survey propositions that above-average income earners pay more tax – as 41% of people are in the latest Essential Research survey – may get a nasty shock when they find the taxman raiding their wallets.

While I still think this is likely to be the case, asking people to put themselves into the correct income decile is a big ask. I would expect more general questions such as average, below average, or above average would yield more accurate results. Using data from the 2005 Australian Survey of Social Attitudes and comparing it to 2006 census household family income data I found that accuracy improved but significant discrepancies remained.


(The image is not entirely clear: the three horizontal axis labels are below median <$52,000; median $52,000-$77,999, and above median <$78,000) Continue reading “Actual versus perceived income” →

Income and tax illusions

~ Andrew Norton ~ 11 Comments

The Per Capita think-tank today released a survey of attitudes on tax and spend. The number one point they extracted from the survey results was that ‘Australians want a more progressive tax system’:

95% of respondents believe that low income earners and middle income earners are taxed too much, while only 16% believe that high income earners pay too much tax. However, only 3% of those surveyed feel low and middle-income earners pay too little tax, whereas 53 per cent believe that high income earners do not pay enough.

But as Per Capita itself notes, almost nobody believes that they personally pay too much tax. One reason for this is that many higher-income earners have an erroneous view of how well off they are relative to the community as a whole. In a 2004 paper I reported survey research asking people to place themselves in income deciles. Only 2% of people thought they were in the top two deciles. Continue reading “Income and tax illusions” →

How much did people trust the bank deposit guarantee?

~ Andrew Norton ~ 7 Comments

Despite the federal government’s bank deposit guarantee, the RBA’s annual report showed that there was a run on the banks last year, requiring it to print more $50 and $100 notes.

Though demand has since eased off, the growth in currency in circulation at the end of the financial year was still about three times what would otherwise have been expected (even the usual annual 5% growth is surprisingly high, given the massive increase in use of electronic transfers).

It’s easy for voters to say in surveys that they don’t trust politicians, but here was a case when they were backing their opinions with real costs and risks to themselves. They would rather sacrifice the interest they might have earned and take the 3% or so risk of being burgled than believe either the banks or Wayne Swan.