Here's a summary of Table 2 from Annette Walling's 'Families and work' (ONS, 2005):
Although the stat's are three or four years old, the employment rates for married/cohabiting parents (91% for fathers and 71% for mothers) haven't changed much since. Hence 75% of mothers whose partner is in work are also in work (68/91). The same sources also say that about 55% of lone mothers are in work.
Agreed, unemployed single mothers are synonymous with The Underclass, but maybe marginal tax/benefit withdrawal rates have something to do with it? Remembering always, that without these high marginal tax/benefit withdrawal rates (and generous out-of-work benefits for suitably undeserving claimants) there wouldn't be such a large Underclass in the first place.
The table in my previous post shows that the typical marginal tax/benefit withdrawal rate for married/cohabiting mothers with a working partner is 49% and for a single mother it is 75%. So, one lesson to learn is that higher marginal tax/benefit withdrawal rates discourage employment (no surprises there).
Further, maybe this will help us sketch out the Laffer Curve. We know that at an overall income tax rate of zero, total revenues are zero. The above example helps us plot two more points: if 75% of a group of people subject to a tax rate of 49% are in work, it's fair to assume that the total tax they pay is 37% of their total earnings capacity (75% x 49%). In contrast, only 55% of an otherwise similar group with a tax rate of 75% are in work, so the total tax they pay is 41% of their total earnings capacity (55% x 75%).
Thus a one-half increase in the tax rate (from 49% to 75%) only leads to a one-tenth increase in tax revenues (from 37% of earnings capacity to 41%). Unfortunately, this does not tell us whether the 'top' of the Laffer Curve is at a rate between 49% and 75%; or whether a Big Government, hell bent on squeezing every last penny from its citizens, ought to be aiming for marginal tax rates in excess of 75%. From experience, I would guess the former; and that the 'top' of the Laffer Curve is somewhere between 60% and 70%.
Wednesday, 19 November 2008
UK employment rates: married/cohabiting vs. single mothers
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5 comments:
For God's sake don't tell them that! They'll take it as signal that that's what they should tax us!
L, if it's the truth, I'll tell it.
I have yet to do my final post in the series - the flipside is that scrapping VAT and Employer's NI and having a flat tax in the low thirties would halve unemployment and would be easily affordable if we sacked three million superfluous quangista.
...unemployed single mothers are synonymous with The Underclass...
Hardly likely to ever rebel or join a revolution.
You have a false underlying assumption that maximising the Income-Tax take is a good thing.
The cost of income tax is mainly felt through decreased division of labour i.e. lower pay and unemployment.
AC1, that's the point I was making - taking a real life example, we can see that increasing the tax rate by half nearly doubles unemployment. See my reply to Lola above.
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