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The Productivity Effects of Selective Employment Tax

Published online by Cambridge University Press:  26 March 2020

J.D. Whitley  and
G.D.N. Worswick
J.D. Whitley
Affiliation:
National Institute of Economic and Social Research
G.D.N. Worswick
Affiliation:
National Institute of Economic and Social Research
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Extract

Our original note on the effects of the imposition of Selective Employment Tax (SET) was published as a background to the judgement expressed in the same number of the National Institute Economic Review that the reduction and removal of the tax would not have significant adverse effects upon productivity in distribution. Professor Reddaway's subsequent Reply gives general support to this judgement, which we are pleased to have. The difference between him and ourselves is solely concerned with the effects of the original imposition and subsequent increase of SET, which, we had argued, were smaller than appeared to be implied by the Reddaway Report.

Type
Articles
Information
National Institute Economic Review , Volume 58 , November 1971 , pp. 72 - 75
Copyright
Copyright © 1971 National Institute of Economic and Social Research

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References

Note (1) page 72 National Institute Economic Review, no. 56, May 1971, pages 36-40.

Note (2) page 72 National Institute Economic Review, no. 57, August 1971, pages 62-68.

Note (3) page 72 For an account of the construction of the indices of output per head in manufacturing, see the article published in the October 1968 issues of the Employment and Productivity Gazette and Economic Trends.

Note (1) page 74 Professor Reddaway has asked us to state that he con siders as of major importance the statement in the Reply that: ‘Our Inquiry did not reveal any retention of unnecessary labour in retailing prior to the 1966 ‘shakeout’.’ Naturally, we accept Professor Reddaway's statement concerning the existence of this evidence, and the importance which he attaches to it; but, as it has not been published, we have been unable to comment upon it.

Note (2) page 74 This objection does not apply to all of the eight equations included in the Reply. Equations (4) and (8) are different from the others in that productivity itself is the dependent variable and made a function of a time trend and a measure of the tightness of the labour market. The cumulative gain in manufacturing shown by these equations for 1968 is a trifle greater than in retailing, and for 1970 a little more than half hat of retailing.

Note (1) page 75 This freedom of retailing from the ‘two-way effect’ is not obtained wholly without cost. When there is a rise in demand for goods at retail there will be a temporary shortfall of actual employment in retailing below desired employment, and this in turn will mean that there will be a temporary shortfall of ‘true’ retailing output below recorded output. Both the estimation of the relation between changes in employment and changes in output and the estimation of abnormal gains in productivity in retailing will refer to recorded data, and, as we have seen, recorded data can depart from time to time from measuring true output. But presumably in making an estimate of abnormal productivity gains we should ultimately be interested in true output.