Tuesday, November 25, 2014

It's the elasticity of demand, stupid!

A blogger alert to errors in elementary economics may work from sun to sun, but journalists will see that the work is never done. Such as this from Thomson Reuters Foundation's Kieran Guilbert;
Thousands of foreign workers on United States government overseas contracts have paid large recruitment fees to secure their jobs, according to a watchdog, raising fears of human trafficking in Iraq, Afghanistan and Gulf states.
....Thomas Melito, director of International Affairs and Trade Issues at GAO, said there was a concern that not clearly defining what constitutes a recruitment fee allowed "too much room for interpretation".
The report found that fees paid by workers included the cost of plane tickets, lodging, passport and visa fees and medical screening, among other expenses.
"If a worker needs a passport to go overseas to work, all companies charge a fee for that. Is it considered a recruitment fee or not, that's unclear. The worker will also need a visa, and who pays for that?" Melito told the Thomson Reuters Foundation by phone from Washington.
"The danger of not being clear on fees and transactions is that it creates potential loopholes, which can be exploited," Melito added.
Let's take a little trip to the NBER, and learn about tax (in this case, fee) incidence from Larries Kotlikoff  and Summers;
Prices of goods and rewards to factors [like labor] are altered by taxes [and fees]. In assessing the incidence...it is necessary to take account of these effects. Changes in prices can lead to the shifting of taxes [and fees]. Thus, for example, a tax on the hiring of labor by business may be shifted backwards to laborers in the form of lower wages or forward to consumers in the form of higher prices. ...it is an analytical characterization of economic equilibria.... [bold by HSIB]
In short, just because there's a law stating that X must pay a fee, supply and demand will ultimately shift the burden to whomever is best positioned to actually pay it.

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