Biyernes, Hulyo 20, 2012

What Jolito Ortizo Padilla says about Merit and Demerit Goods


A merit good is one which is underprovided by the market mechanism, the one which some people think should be provided in greater quantities. One reason for underprovision is the individual  lack perfect information and find it difficult to make rational decisions when costs occur today, but the benefits received come in , say thirty years time. Another reason is because there are significant positive externalities present.

Health, education and insurance are the main merit goods provided today by the government. Health and insurance are two examples where consumers find it difficult to make rational choices because of time. If left totally to market forces, the evidence suggests that individual would not give themselves sufficient health cover or cover against sickness, unemployment and old age. Young people tend to be healthy and in work.Many find it difficult to appreciate that one day they will be ill and out of work. However, the cost of health care and pensions is so great that young people can only afford them if they save for the future.  If they don't, they find when they are older that they do not have sufficient resources needed to cover them against loss of earnings due to illness or retirement. Therefore it make sense for the state to intervene and to force young people in particular to make provision against sickness, unemployment and old age.

In the case of education, the main beneficiary (the child or student) is unlikely to be the person paying for education. Therefore there could be a conflict of interest. It could be in the interest of the parents to pay as little as possible for the child's education, Therefore there could be a conflict of interests. It could be in the interest of the parents to pay as little as possible for the child's education but in the interest of the child to recieve of the child to receive as high quality an education as possible. Others in society also  have an interest. Children who, for instance, cannot read or write are an economic liability today. They are more likely than not to receive support from others rather than contribute to the nation's welfare. This is an example of a principal agent problem, where those benefiting or losing from a decision are not the same as those making the decision and where the objectives, and outcomes for, the two groups are different.

There are many other examples of goods with a merit elements. Lack of industrial training, for instance, is seen as a major problem. Individual firms have an incentive not to train workers, not only because it is costly but also because their trained workers can be poached by companies. Rather, they go into the market place and recuit workers who have been trained at other firm's expense. It is an example of the free rider problem. It is partly countered by the government funding for the organizations which provide training in local areas.

A demerit good is one which is overprovided by the market mechanism. The clearest examples of demerit goods are drugs- everything from hard drugs such as heroin to alcohol to tobacco. Consumption of these goods produces large negative externalities Crime increases, health costs rise, valuable human resources are destroyed, and friends and relatives suffer distress. Moreover, individual themselves suffer and are unable to stop consuming because they are addictive. Therefore it can be argued that consumers of drugs are not the best judges of their own interests.

Government intervene to correct this market failure. They have three main weapons at their disposal: they can ban consumption as with hard drugs: they can use the price system to reduce demand by placing taxes: or they can try to persuade consumers to stop, for instance through advertising campaigns.

Merit goods are more controversial, partly because they contain a private good element. The main beneficiaries of health care and education, for instance, are patients and students. Government can attempt to increase the provision of merit goods in a variety of ways:

  • Direct Provision- Government can supply public and merit goods directly to consumers free of charge. In Bahrain, primary and secondary  school education, visits to the doctor and roads are provided in this way. The government may choose to produce the good or service itself, as with the primary and secondary education, or it may buy in the services of firms in the private sector. General practitioners, for instance work for themselves and the government buys their services.
  • Subsidies- the government may pay for part of good or service (a subsidy) but expect consumer to pay the rest. Agricultural and meat products are subsidised in this way in the Kingdom of Bahrain.
  • Regulation- the government may leave provision to the private sector but force consumers to purchase a merit good or producers to provide a merit good. For example, motorists are forced to buy a car insurance by law. There is ongoing debate in industrialised countries about whether workers should be forced to pay into private pensions.

Huwebes, Hulyo 12, 2012

How to Manage Organizational Stress by Jolito Ortizo Padilla





There appears little doubt that stress at work is one of the biggest problems in most of the Asian, European and US companies and one of the major adverse influence on the quality of working life and work performance. Stress is a complex and and dynamic concept. It is a source of tension and frustration , and can arise through interrelated influences on behavior, including individual, group, organizational and environmental factors.

The Health and Safety Executive (HSE) defines stress as: The adverse reaction people have to excess pressure..It isn't a disease. But if stress is intense and goes on for some time, it can lead to a mental and physical ill health like depression, nervous breakdown and heart disease.

Despite all the business speak, people get seriously vague when it comes to definitions and raises question: What is stress? Is it a new name for an old fashioned condition such as unhappiness or overwork, or is it peculiar to our uniquely pressured times? There is something in the idea that stress isn't just about hard work or unhappiness, but about conflict, confusion and frustration. It's about the anxiety generated by multi-tasking and balancing priorities, meeting contradictory demands, about knowing where to start and papering over the cracks when you want to do much.

An increasing number of survey reports, perceived or actual, increases in levels of stress. There have also been a number of highly publicised reports of successful legal claims based on the effects of stress.  Understandably, however, there is also a level of scepticism about the amount of emphasis placed on stress, and a number of press and other articles feature the "myth" of work stress.

An interestting report from the Institute for Social and Economic Research suggests that claims of workplace pressure may be misplaced. Levels of jobs and mental distress vary systematically according to the day of the week on which respondents are interviewed. It tended to be because employees were working too few or too many hours. Stress appear on Friday and Saturday.When genuine dissatisfaction was found, it tended to be because employees were working too few or too many hours.However , the main cause of stress was money difficulties; caused by unemployment or debt. The research casts a question mark over the generous compensation regularly handed out by the course to employees claiming they suffer from stress.

Stress, however, is very personal experience, as is the response of each individual to it and their belief. Questions about the prevalent view among managers in Asia which seems to be that stress at work is something to be avoided after all. Although stress appears to have become public health enemy number one and is viewed as the culprit of myriad complaints, the term is badied about far too readily and there is a need to stand back and attempt to get things into some sort of perspective. A measure of stress is natural. A degree of stress at work is no unhealthy thing and without it nothing would ever get done. However, it is important to bear in mind that stress can potentially be very harmful.

A certain amount of stress may arguably not necessarily be seen as a bad thing and may even help  promote a higher level of performance. But what is the distinction between pressure and stress? "Pressure can be sen as a positive factor that may be harnessed to help people respond to a challenge and function more effectively. " Stress" may be regarded as a continuous negative response arising from extreme pressure of other demands and the individual's inability to cope.

Personal performance may improve with pressure, up to a certain point.Beyond that point, continuous pressure leads to a fail in  performance as the person is no longer to cope. Signs of this are fatigue, poor judgment and bad decision making . In turn, this can lead to serious business problems.

Research by organization such as the Health and Safety executive have identified stress, anxiety and depression as among the most commonly the most reported illnesses, and wider research has also indicated that stress, brought about through work intensification and conflictss between home and work, is related to the risks of disease and ill health.

"The result of unrelieved stress on the individual and on business are worrying. The result may be higher accident rates, sickness absence, inefficiency, damaged relationships with clients and colleagues, high staff turnover, early retirement on medical grounds, and even premature death... The cost of stress is huge. It is devastating to the individual and damaging to the business at a time when the need to control business costs and ensure an effective and healthy workforce is greater than ever. It is everyone's interest to tackle the taboo on talking about emotional problems because it is this which inhibits from seeking help".

Coping with stress
There are a number of measures by which individuals and organizations can attempt to reduce the causes and effects of stress. There are also many suggested techniques to help individual's bring stress under control- for example, changing your viewpoint , identifying causes of distress, laughing and telling jokes, working on stress reduction and appreciating that some stress can be useful. However, there are not always easy remedies for stress and much depends upon the personality of the individual. Techniques such as relaxation therapy may help some people, although not others, but still tend to address the symptoms rather than the cause.

 Stress inducing hazards are hard to pin down, much less eliminate. It is important to know how people feel about the things that cause them stress as well as which "stressor" are most common in a particular industry and occupation. Human resource policy should include several stress management building blocks within the organization structure including management education, employee education, counselling and support, critical incident briefing, and good sound management. Organizations also need to give greater attention to training, support and counselling and to the work organization and job design.

Effective communications at all levels of the organization are clearly important in helping to reduce or overcome the level of stress. However, in addition to good communications. The ability to hold good quality conversations is becoming a core organizational and individual skills. Unlike communication, conversation are intrinsically creative and roam freely across personal issues, corporate gossip and work projects. "Conversations are a defense against stress and other mental health problems. People with good social relationships at work are much less likely to be stressed or anxious".

A growing number of organizations are introducing an e-mail, facebook, twitter or social networking- free day to encourage staff to use the telephone or walk across the corridors to talk more with one another.

Miyerkules, Hulyo 11, 2012

What Jolito Ortizo Padilla says about Fiscal Policy and Demand Management.


Fiscal Policy concerns the decision of government about spending, taxation and borrowing. Fiscal policy is an instrument of policy used to achieve three main policy goals or objectives:

  • To improve macroeconomic performance- fiscal policy is used to achieve lower employment, lower inflation, higher economic growth and an improved balance of payments situation. It does this either by influencing the demand side of the economy, which is subject of this unit; or by influencing the supply side of the economy.
  • To achieve a more desirable distribution of income and wealth- taxes and government spending are important ways in which government can affect the distribution of income and wealth. It can use fiscal policy to reduce or increase inequality.
  • To correct market failure at the microeconomic level- government spending and taxes are used to correct a wide range of market failures including the provision of public and merit goods, discouraging the consumption of demerit goods, improving the mobility of labor and increasing competition in product market.
Demand management
 Fiscal policy can be used to manipulate the level of aggregate demand. A larger budget deficit or a smaller budget surplus will increase the government injection into a circular flow of money. There will be a multiplier impact according to Keynesian economists, where every $1 of extra deficit or reduced surplus will lead to a more tha $1 increase in final GDP. Because of this increase in GDP, policy which leads to larger budget deficit or smaller budget surpluses is known as expansionary fiscal policy.

In contrast, there is deflationary fiscal policy when the government decides to reduce a budget deficit or increase a budget surplus. This reduces the level of aggregate demand by reducing the government injection into the circular flow.

Expansionary fiscal policy should be used when there is a negative output gap and the economy  is in recession. In this situation, the level of GDP is below what the long term trend growth of GDP would predict. Unemployment is likely to be above average whilst inflation is low. The rate of growth of GDP may be below average. On the other hand, the current account position may be better than would be the case if the economy were at full employment, a level of employment where there is neither a negative or positive output gap. This is because in a recession, imports will be reduced due to lack of spending both by consumers and firms. Conversely, deflationary fiscal policy should be used when there is a positive output gap and the economy is in boom. GDP is above its long term trend rate, unemployment is below average, inflation is above average whilst the current account position is deteriorating.

Automated stabilisers
In the 1930s, large falls in export earnings and investment spending led to the Great Depression. Today, any reduction in export earnings or investment would have less impact on the economy become automatic or built-in stabilisers are greater. Automatic stabilisers are expenditures which automatically increase when the economy is going into a recession. Conversely, they automatically fall when national income begin to rise.

Government spending and taxation are both automatic stabilisers. When the economy goes into recession and unemployment rises, the government automatically increases its social security spending, paying out more in unemployment benefits and other related benefits. The fall in aggregate demand is therefore less than it would otherwise have been. Tax revenues fall too at a faster rate than the fall in income. This is because tax rates tend to be higher on marginal income than on average income.For instance, a worker paid on commission may sell less in a recession. Her tax rate might then fall from the higher rate of 40 percent to the basic rate of 20 percent.If household spending has to be cut, then it is likely that consumption items such as consumer durables taxed at 17.5 percent VAT will see falls rather than zero rated food. With the government collecting less tax, disposable incomes are higher than they would be the case without this automatic stabiliser.

When the economy goes into a boom, government spending falls as the benefit budget falls automatically. Tax revenue increases at a faster rate than the increase in income. An unemployed person will pay very little tax. Once unemployed person get jobs, they start to pay substantial amounts of direct and indirect tax> so aggregate demand is lower than it would otherwise be with these economic stabilisers.