Designing Effective Economic Policies: Interview With Dr Andrew Leigh, MP, Essay.

Dr Andrew Leigh's background and expertise

Economists sometimes lament that politicians do not listen to them carefully, and criticise some economic policies as ill?designed or badly implemented. Only a small fraction of economists, however, have the courage (and elbows) to take the matter into their own hands and enter politics.

One such exception is Dr Andrew Leigh, MP. Prior to entering politics, he was an economics Professor at the Australian National University, and recipient of the 2011 ‘Best Australian Economist under the Age of 40’ award. Currently he is Member of the Australian House of Representatives (for the Labor Party) and Shadow Minister for Competition. In an interview with Dr Jan Libich on 5 September 2012 at La Trobe University, Dr Leigh uses his expertise in both economics and politics to demonstrate that economic research can be valuable in designing and implementing effective public policies, and hence greatly improve the lives of individuals. 

1. Watch the interview at , you can put the subtitles on if you need to. Summarise it in about 5 sentences.

2. Summarise Dr Leigh’s discussion on ‘school productivity’ and explain what the main challenge is for educational policymakers. What were the key findings of his research on teacher quality in Australia? Based on the interview and current research you can find on the internet, suggest some policies that are likely to improve the quality of education ? at the primary, secondary and/or tertiary levels.

3. Critically evaluate the following statement: ‘The baby bonus was a well?intentioned and appropriately designed public policy. It is not the government’s role to act as a gatekeeper for the negative consequences of people’s decisions’. Suggests ways in which the implementation of the baby bonus could have been improved (Note: you can read more on the policy in the textbook’s case study “Choosing When the Stork Comes” (pages 10?11 in the textbook, 7th ).

4. The composition of the society as well as people’s lives have changed considerably since The Beatles released their popular single ‘When I’m Sixty?four’ in 1967. Describe the main demographic changes happening in Australia and other high?income countries, and explain the resulting challenges. Propose some policies that could deal these challenges.

5.Dr Leigh finds the debate on the minimum wage ‘enormously frustrating’. Explain why, and summarize the factors that should be taken into account in assessing the pros and cons of the minimum wage legislation. What is your personal view on this policy? 

6. Write down one idea discussed in the interview that you found new or interesting, or that you disagree with, and explain.why 

7. Write down three good questions about any of the topics covered in the interview that you would ask Dr Leigh if you had the chance.

8. Choose ONE of the cartoons below and suggest some funny/interesting text for the bubble that relates to any of the topics discussed in the interview (Note: you can just write the lines in your submission, you do not need to copy the cartoon).

1. The interview of MP Dr. Andrew Leigh by Jan Libich is a discussion about how economics could be used in the formulation of various policies in Australia. It covers a variety of topics, most notably teachers pay and it’s linkages to school productivity, tertiary education student loans. and the social and private benefits derived from secondary and tertiary education, baby bonus and shifting of births, . Dr leigh adovates, higher teacher’s pay, education loans, and a higher minimum wages.

2. Leigh has linked school productivity to teacher’s pay. Dr. Leigh has co-related teacher pay and the to the declining aptitude on teaching explaining how lower wages decrease the incentives for talented people to enter the field of teaching. As evidence, Dr. Leigh cited a study done by him and Chris Ryan that studied the quality of school teachers in Australia and found that in 1983, teachers in Australia came , mostly from the top 30 percentile while in 2003, this cohot has declined to the top 38 percentile. Dr. Leigh noted that school productivity, based on parameters of numeracy and literacy in middle school, has decline and this conclusion has been backed by a study conducted by Gretten Institute.

a) Increasing teacher’s pay help increase the productivity in  (Leigh A. , 2006 Volume 11)

b) Allowing greater increase in school choice could also be a possible solution. (Hoxby, 2001)

c) Encouragement of private schools could help bridge the parity between private benefits derived by students and the private costs paid for by the student.

3. The Government is responsible foe the over all well being of the society and sometimes, the government must provide incentives and disincentives that would encourage or discourage certain kinds of behavior. According to Gans, et al., 2018, people respond to incentives amd hence, incentives are important. The baby bonus as a policy therefore made sense. However,  Leigh has proced that the roll out of the policy raised some concerns. The design of these policies is at are made by the government and hence, the onus od making these policies should be on the government. The baby bonus policy was not very effective in it’s execution.

4. The “Baby Boomer generation” was the generation that saw a rise in birth rates in advanced countries. As a result, approximately five decades later, the number of retires and senior citizens has grown. In advance countries, life expectancy is , generally, high. As a result, the spending on care of the older or aged care rises significantly, and so does the burden on health care system. As a result, fewer social benefits may be available for the generation that succeeds this generation. Additionally, the  burden on the pension system will increase. (Leigh D. A., 2012)

Insights on the use of economic research in public policy design

5. A repeal of policies such as “baby bonuses” that would incentivize birth  could help combat the problem. Additionally, mandatory savings in retirement such as gratuity, provident funds etc. could be placed to ensure that the working population saves enough to pay for the retirement periods.  (Leigh D. A., 2012)

6. The debate surrounding minimum wage has two sides that are both very extreme. There are those who do not acknowledge the overall benefits to the economy that increased earning might have (the income effect). There is also, one side that believes that the imposition of minimum wage could cause dis-employment as firms would be forced to hire fewer people if the minimum wage salary is highly above the average price decided by supply and demand and the marginal productivity of labour.  (Georgiadis, 2012) The factors that should be considered in order to increase in minimum wage are the average worker productivity, corporate earnings and the average disposable of workers below the poverty line.

Personally, I believe that the efficient wages theory has been proven to be effective which  provides a case to increase the minimum wage. Hence, minimum wage policy should be implemented along with investments in the increase in the productivity of labourers.

7. Some of the ideas that I find interesting is the use of economics to predict outcomes at a personal level. For example, Dr. Leigh finds that households that may have lower divorce rates if the household has one girl and one boy as children. This use of economic to preduict very personal outcomes is interesting. One on hand, it seems like an over generalization while on the other hand it seems like a very practical use of economic theories in the personal life of people. Hence, it is very interesting.

8. The three questions that I would like to ask Dr. Leigh are:

• “As a corollary to your research on the ‘baby bonus policy’, the Roll Out of a policy has been proven to be as important as the formulation of the policy. What are some ways that you would use to measure the economic effects of the variations in the rollout or implementation of a policy?”
• Why did you mention, in the interview that the children of baby boomers have smaller inheritances? Did you mean smaller social inheritances (example, lesser budget spending on their education due to higher budget spending on aged care) or personal inheritances?
• How do you guard against over generalization and personal bias when you conduct studies such as (Leigh, 2009 )

Cartoon B

• Old Man: Look honey, it says here that people here of our generation will live longer than the previous generation.
• Old Lady: What is the big deal? I told you so in 1966. 

Gans, J., Stonecash, R., Byford, M., Mankiw, N. G., King, D. S., & Libich, J. (2018). Principles of Economics, 7th Edition. Melbourne: Cengage Learning Pty Ltd.

Georgiadis, A. (2012, December). Efficiency Wages and the Economic Effects of the Minimum Wage:Evidence from a Low-Wage Labour Market. Oxford Bulletin of Economics and Statistics, 962-979. Retrieved from https://pdfs.semanticscholar.org/27ca/f021788ea3b20d3f8a19fa655bc7a82bddb6.pdf

Hoxby, C. M. (2001). School Choice and School Productivity. Could School Choice Be a Tide that Lifts All Boats? The Economics of School Choice (pp. 287 - 342). University of Chicago Press.

Leigh, A. (2006 Volume 11). Making the Grade. Griffith Review, 122-127.

Leigh, D. A. (2009 ). Does Child Gender Affect Marital Status?: Evidence From Australia. Journal of Population Economics Volume 22(2), 351–366.

Leigh, D. A. (2012, Spetember 6). Designing Effective Economic Policies: Dr Andrew Leigh, MP, Interviewed by Dr Jan Libich. (D. D. Libich, Interviewer)

Weiss, A. (1990). Efficiency Wages: Models of Unemployment, Layoffs, and Wage Dispersion. Princeton, USA: Princeton University Press.