Measurable Economic Welfare (MEW)

Measurable Economic Welfare (MEW) is an alternative measure for living standards. It measures not only the total national output (GDP) but also includes the economic welfare of the country. This includes an assessment of the value of leisure time and the amount of unpaid work in an economy. MEW also includes the value of the environment damage caused by industrial production and consumption.

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Comparing this measure to GDP, it is an instant reaction to all of us that this measure is better than GDP as it includes economic welfare. This is because including economic welfare would mean it could better measure the standard of living in the country. GDP is unable to measure the standard of living as it does not include economic welfare, like for example, working hours and working conditions. Added to this, it also takes in to account the value of environmental damage caused by industrial production and consumption, like for example pollution, which will further make the calculation of living standards accurate.

However, there is a problem to this measurement. Putting a monetary value to economic welfare like the value of leisure time and unpaid work is hard. How do you put a value to the amount of leisure time you have in a day? Furthermore, how do you calculate this when we take into account everyone in the country? Due to this difficulty, measuring MEW could be inaccurate as the original value placed is already inaccurate.

So is MEW a good measurement? In a way, it is much better than GDP as it takes into account economic welfare, however, putting in a monetary value to the economic welfare could be hard and inaccurate.

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Government Intervention on Market Failure

Market failure is when goods and services are not allocated efficiently and could happen in a number of different ways. A few examples of market failure that I would show today would be when there is too much negative externality and demerit goods, and too little positive externalities and merit goods.


Negative Externality & Positive Externality

Negative externality is when a third-party is negativity effected from the business activities. Like for example, pollution from a factory.

Positive externality is when a third-party is positively effected from the business activities. Like for example, preventing illnesses to spread as people have taken immunization shots.

This can usually cause in either an increase or decrease in the production of the type of good or service as externalities are usually not taken into account by the cost benefit analysis.

Reference

Merit Goods & Demerit Goods

A merit good is a type of good or service that is considered good as it causes positive effects for the consumers.

A demerit good is a type of good or service that is considered bad as it causes negative effects on the consumers.

Most of the time, demerit goods causes negative externalities. The reason to this is that most people do not know that demerit goods will cause negative effects to them. Due to this, demerit goods, which are desirable, will increase in supply as demand for these types of goods increase. Prices would still stay low as negative and positive externalities are not taken into account. Like for example, cigarettes were desired by most people in the past. Prices for a pack were very cheep and people back then did not know the harmful effects, in other words negative externalities, that smoking a cigarette could cause. Thus, a failure in the market.

On the other hand, merit goods cause positive externalities. However, without the positive externalities taken in to account, merit goods are usually under supplied. Added to this, people also so not have enough information stating that merit goods, such as vaccines, would be beneficial for them. this will lead to a low demand for the said merit good and therefore would also be supplied less. Thus again, a failure in the market.


Government Intervention

So how does the Government fix this market failure?

For demerit goods, the government usually controls its demand and supply. They do this by putting taxes, quotas, and rules and regulations. An example of this could be seen in Singapore. The government has put a 69% tax rate on cigarettes and the results were that consumption of cigarettes, which is a demerit good, has decreased.

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By doing this, it also tackles another market failure, negative externalities. With demerit goods controlled, the negative externalities that is caused by the production and/or consumption of it would also be controlled. In this case, more people would be healthier as they are away from the negative effects that cigarettes can cause such as cancer.

For merit goods, governments would provide subsidies, impose laws and promote the positive externalities that could come from merit goods. An example for this is that in Singapore, certain types of vaccinations are mandatory for children. By doing this, people would be less prone on getting infected by diseases from their friends and family. this will thus cause a decrease in general on the amount of people who are sick and unhealthy.

However, some merit goods are hard to provide as externalities are now included in the costs. for demerit goods, this is a good thing as with higher prices, people are discouraged to buy the expensive good, and thus demand will fall and the demand for it will be controlled. For merit goods however, people would need to be encouraged to buy them. so the government can intervene buy providing subsides to merit goods.

China’s Labour Market

China is one of the most fastest growing economy in the world today. This is due partly because of the cheap labour they had before 2014. However, wages have been steadily increasing for the last 10 months and because of this, it has caused a big effect in China’s labour market.


Minimum Wages

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In China, the minimum wage differs in each region. The highest minimum wage given in China is in Shenzhen which is 2030 yuan. In Shanghai 2020 yuan, Beijing 1720 yuan, Tainjin 1850 yuan and Hainan 1270, which is the lowest among the 14 cities and provinces.

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When we average the total minimum wage, we could see in the graph that the minimum have increased through the years. The cause of this would be because of the diminishing supply of labour. This can cause shifts in the demand of labour and also affect the different trade unions in various ways.


Demand and Supply of Labour

  So what happened with China’s supply of labour? As we can see from the graph, the workforce is shrinking and it is also projected to continue decreasing. This is largely due to the demographic changes. In the 2nd chart, we could see that people who are not within the workforce age, people who are younger than 15 and older that 64, are expected to increase and surpass the number of people in the workforce.

As the supply of labour decrease, minimum wage increases, and companies struggle to find labour in lower costs. This therefore leads to the shift from urban areas to rural areas. Like for example, a company from Shenzhen would move their factory to Hainan where labour is cheaper.

On the other hand, collage graduates are struggling to find well paid and high skilled jobs due to the oversupply of educated workers, therefore increasing the competition. Companies now need lower skilled workers like for example, factory workers, and with more higher skilled workers, even though they are capable on doing a low skilled job, they would refuse to work for a lower skilled job.


Government Policies and Trade Union

Due to the low skilled labour supply,the government is attempting to promote vocational schools. vocational schools are school that trains the future workers basic skills of working in a certain area. The government is doing this because companies still need low skilled labour and furthermore, it will also increase the working age population too.

However, there is a dark side to the labor conditions in China. Researchers found out that low skilled factory workers could be easily exploited by employers. Most employees do not know that a trade union existed and therefore the power of some trade unions is not very significant in business activity in China. Moreover, the All-China Federation of Trade union (ACFTU), one of the largest legal trade union in the world, is not a ‘proper’ trade union. Most members do not even know they are in the union, as it is an automatic member ship after going into a company, and ACFTU is run by people who are in a government position who does not have any prior experience in labour organizing.

But things are improving slightly since then. Workers have been taking actions as they are more aware of trade unions. They are now making independent unionsĀ  and even though they do not have a legal right to strike, millions of workers still organize unofficial strikes against companies. it is slowly getting more power and this is also partly the reason on why minimum wages have increased.


References:

http://www.scmp.com/news/china/money-wealth/article/1831933/fourteen-chinese-cities-provinces-raise-minimum-wage

http://thediplomat.com/2015/02/chinas-changing-labor-conditions/

http://www.tradingeconomics.com/china/minimum-wages

http://www.travelchinaguide.com/map/china_map.htm

http://theconversation.com/chinas-growing-labour-movement-offers-hope-for-workers-globally-39921

http://www.imf.org/external/pubs/ft/fandd/2013/06/das.htm