Hallowe'en: trick or treat for the UK economy?

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The number of gory black and orange posters on High Streets can’t have escaped your notice in the last few weeks – yes it’s that time of year again – Hallowe’en! Today, on the Economics blog, we consider the economic impact of Hallowe’en.

And if you think it’s far-fetched, consider this: recent revisions to GDP famously included the economic impact of other elements of the black market.

One key way Hallowe’en could impact the economy is through “black magic employment”. Tonight, millions of children will descend on UK households, playing “trick or treat”. This practice of demanding sweets amounts to a major (albeit short term) increase to the UK labour market. According to the ONS there are 13.3mn children living in the UK. If they all worked* for Hallowe’en night, this would be equivalent to a one-off boost to the labour market of 0.15mn people in Q4.

But what impact would this have on the economy? Is it a trick? Or a treat?

Productivity: trick

A big increase in the labour supply tends to reduce productivity, and that’s exactly what happens in our model:

Halloweengrpah 

Thankfully, this is only temporary, as labour supply returns to normal after Hallowe’en.

But this is actually a parallel for what has happened to UK economy more generally in recent years. As Mark Carney laid out in a speech to the TUC, since the recession hit the UK, the supply of labour has increased by an estimated 1.5mn people; driven mainly by women and older workers.

Since the recovery began, employment has increased, and there are now over 1mn more people in work, but the corollary of this has been lower wages. For example, some workers have taken less-productive or lower-skilled jobs.

With more workers at more competitive wages, Carney argued, companies have been encouraged to hire. And they may have chosen to hire rather than invest. All other things equal, this substitution of labour for capital is likely to have pushed productivity down.

Consumption: treat

Consumption has been pretty strong in this recovery, at least in part due to the better-than-expected performance of the labour market.

An increase in hours worked as a result of trick or treating activity would also increase sweet-based income. All this acquisition of sugar adds up. The boost to income resultant from sugar-fuelled activity could mean that consumption grows 0.72% in Q4 rather than 0.7%. Hardly astounding – but that’s one evening’s worth of work.

Taxes: trick

If all our kiddies paid taxes on their “trick or treating” returns, the Chancellor would be a happy man. Indeed, our model shows a modest increase in the Chancellor’s tax take.

Sadly, children do not typically pay taxes on sweets earnt over the course of an evening (and even if they did, it would take some impressive effort to breach the personal allowance on sweets alone).

Recent economic growth has also presented similar problems for this Chancellor. As George’s blog points out, some of the recent squeeze on public sector finances has stemmed from lower revenues on income tax. Income tax receipts have remained subdued as a result of limited wage growth. This has depressed the largest source of income on the Government’s balance sheet.

Other points… treat

Some manufacturing sectors stand to benefit from events such as Hallowe’en. A key beneficiary is the food and drink sector – with sales of Hallowe’en related products expected to top £240mn this year – but other sectors that might benefit are chemicals (think of all the cosmetics!); textiles (hallowe’en costumes) and paper and printing… which brings us neatly back to all the gory posters on the High Street.

All in all, hallowe’en will be a treat for some, but a trick for others.

*yes I know “working” and “trick-or-treating” are not directly analogous, but bear with me, there’s a serious point
 

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