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The Productivity Effects of Selective Employment Tax

Published online by Cambridge University Press:  26 March 2020

W. B. Reddaway
W. B. Reddaway*
Affiliation:
University of Cambridge
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Extract

This article contains a number of comments on the one which appeared under the same title in the May 1971 issue of the National Institute Economic Review, which was prepared by J. D. Whitley and G. D. N. Worswick. It will be obvious to readers that some of the comments made in that article and in this reply are of the detailed kind which might with advantage have been cleared up by correspondence before publication. In fact, such an exchange of papers between the National Institute and the Department of Applied Economics was begun last year. However, the halving of SET announced in the budget obliged the National Institute to take a view on its probable effect, and they felt that this entailed explaining to their readers why they had not been wholly convinced by the analysis of the Reddaway Report. This left no time for any further attempts to reconcile, where possible, the differentpoints of view.

Type
Articles
Information
National Institute Economic Review , Volume 57 , August 1971 , pp. 62 - 68
Copyright
Copyright © 1971 National Institute of Economic and Social Research

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Footnotes

The author, W. B. Reddaway of the University of Cambridge, wishes to express his appreciation of the very great help given by W. A. H. Godley and C. H. Fletcher.

References

Note (1) page 62 The Report is extremely explicit about the importance which it attached to these additional computations. Thus on page 95 it is explained that, prior to circulation of the draft version of the Report for comments, ‘we tried a variety of methods … all led to much the same result’. It then explains that the commentators' suggestions led to the use of further formulations, designed to explore whether the answer would be much affected by abandoning the assumption of a uniform productivity trend up to 1965, and/or regarding the ‘new factors’ as first affecting movements between 1964 and 1965. (when the ending of RPM was already affecting some trades). This discussion, on pages 96 and 97, ends by presenting the estimated productivity gain as reflecting the outcome of all these investigations taken together: the detailed results of the various alternative equations were made available to the only person who asked for them and would naturally have been, supplied to the National Institute if they had shown any interest in them.

Note (1) page 63 There are some tiresome differences between the figures used in these calculations and those given or implied in the Review article, which seemed to be due to the following factors :-

  1. (a)

    (a) For all three series I have used a productivity trend based on the years 1954 to 1965, which is the basis used in the Reddaway Report, whereas the Review article used 1955 to 1965.

  2. (b)

    (b) I have used the figures for manufacturing employment in 1969 and 1970 given in the Department of Employment Gazette for June 1970, in place of the provisional ones used in the Review article, and also corrected a miscalculation in its table 2 for the change in employment between 1968 and 1969.

  3. (c)

    (c) I have used output and employment figures for retailing for the years 1969 and 1970 which attempt to continue the series used in the Reddaway Report, instead of the substitute series used in the Review article. (The labour figures, are however, still provisional.)

The combined effects of these changes would be to alter the impression created by the chart in the Review article for 1970, as the residuals are now −0.54 for manufacturing and −2.39 for retailing.

Note (1) page * This point is of particular relevance to the comments made in the Review article about the downward trend of the residual from our basic equation. Inspection of the chart on page 39 shows that the force of the statement about these being all negative in the later years rests mainly on the figure for 1964/5, since the three preceding years are all so near the line that little objection could be taken to them.

Note (1) page * To test the ideas in the last two points more formally (and to allow for cyclical factors as well) we tried fitting equation (4) to the period 1954-65, assuming that the basic productivity trend changed in 1962 and not in 1960. The fit was more satisfactory, with the trend changing from 1 per cent to 3.8 per cent per annum, and the productivity gain for 1970 came out (literally) at 0.0 per cent.