Change and Equal Pay



Daniel Finkelstein wrote this interesting article for The Times the other day which highlighted the power of 'loss aversion' and negative campaigning.

I think it's right to say that the outcome of Scotland's 2014 referendum on independence   was heavily influenced, at the end, by both of these factors as the forces of no change (or as little change as possible) threw everything into highlighting the 'dangers' of voting Yes as polling day approached.

And it worked, of course, as potential Yes voters worried about the consequences of taking a decision that was portrayed as a big 'leap in the dark' even though, arguably, staying with the status quo carried just as many problems or risks.

The same is true for equal pay as well if you ask me, because one reason the trade unions failed to fight for the big changes promised back in 1999 by Scotland's Single Status (Equal Pay) Agreement is that traditional male jobs would have lost out, relatively speaking.

The old differentials between male and female jobs would have disappeared or at least been narrowed significantly as female dominated jobs were properly valued by a non-discriminatory job evaluation scheme - while the pay of traditional male jobs stood still, relatively speaking, as women's jobs closed the pay gap.

Now the employers were against change because it would have cost them more money, but then the trade unions suddenly acquired cold feet and the 1999 Single Status (Equal Pay) Agreement was allowed, essentially, to wither on the vine.  

So the trade union movement is often conservative and resistant to change in my experience, despite what they say, in fact just like Professor Rosett and his expensive bottles of wine.  


Message to Ed: the voters don’t like change


By Daniel Finkelstein - The Times
People may hate it, but negative campaigning will work if it reinforces the status quo in the eyes of a risk-averse public

If you want to understand — properly understand — the Conservative poster depicting Ed Miliband in the pocket of Alex Salmond, and you are thinking about its likely political impact, then first you need to know about Richard Rosett, the wine-loving economist.

Professor Rosett was a very traditional economic thinker. He was also a very sophisticated wine lover. And these two things were in conflict.

You see, Professor Rosett could spot a good wine and bought some bottles for $10 that were soon able to fetch $200 at auction. Sometimes he would drink these bottles but he would never sell them, even at this high price. Fair enough. Yet here is the oddity. He wouldn’t be willing to buy a bottle at $200 either.

As his fellow economist Richard Thaler pointed out, this is not the sort of behaviour you would expect from a traditional economist. After all, if he thinks the bottle is worth more than $200 he should buy some when they are offered at auction for $200. And if he thinks they are worth $200 or less, he should sell them for $200. Yet he did neither.

The reason for this, Thaler realised, was that even though Professor Rosett was an economist he was subject to the same bias as the rest of us. He attached an extra value to his wine just because they were his already.

The story of Rosett’s wine helped in the creation of the field of behavioural economics. People don’t behave as traditional economics had taught. And one important illustration of this is that people value the status quo, put a store by the things they already have, and are scared of change. The idea of losing something looms much greater than the prospect of gaining. We are, to use the technical term, loss averse.

When I first read about this — for instance in the writings of the Nobel winner Daniel Kahneman — it helped solve a political mystery that had long been bugging me.

When the Conservatives were in power, in the 1980s and 1990s, they were able to win votes in elections by warning voters that if Labour got in, it would increase spending and put up taxes. This warning was very effective. In 1992 it was probably the most important reason why the Conservatives won.

Yet after 1997, things were very different. Tony Blair had gained power partly by agreeing to match the Tory spending plans, thus making the traditional Conservative campaign impossible. Now he and Gordon Brown started to reverse the argument. They warned voters that if you elected the Tories, they would cut public spending, leading to cuts in public services.

And this worked too. Which seemed puzzling to me, as someone working on the Tory campaign. Had the voters changed fundamentally? It didn’t seem like it from our polling. Yet their reaction with Labour in power was the exact opposite to the one they had before.

Loss aversion solves the puzzle.

If someone is enjoying a pound of public spending, say on education, and they are offered a pound of tax cuts instead, they won’t accept the deal. But this isn’t because they prefer schools to tax cuts. Indeed if they had low taxes and you offered to put them up by a pound to pay for a pound of schooling, they would turn that deal down too.

No, the reason they reject the deal is because they are loss averse. What they possess — the extra spending, say — is valuable to them purely because they already possess it. They demand £2 of tax cuts for every pound of spending reduction to make giving up what they have worthwhile. Yet a swap of £2 for £1 is, of course, impossible and makes the party offering it look shifty and unfit to govern.

All of which suggests that in an election, the incumbent party has a big advantage. Yes, people may have tired of it and people blame it for everything and these problems may prove overwhelming. But against this, it has one invaluable asset. Any change from the status quo is feared as loss. And we are loss averse.

Show most people the poster of Ed Miliband in Alex Salmond’s pocket and they might laugh, and even say that it is an outcome they fear. Yet they will also bemoan politicians being so negative and say that they don’t like the poster because it is just one set of politicians attacking the other.

They will also tell you the same about the posters depicting Labour as a wrecking ball smashing into the economic recovery. Why not put up a positive poster instead of just knocking the other guy?

This dislike of negative advertising is widespread and also, by the way, completely reasonable. I am not that wild about it myself. But negative advertising works because the idea that you might lose something is much more powerful emotionally than the chance that you might gain something.

People say they don’t like the knocking copy, but the truth is that they are influenced by it.

During the Scottish referendum campaign last summer there were a lot of complaints that the Better Together unionist campaign was too negative. Yet look carefully at the polling and the picture is clear. A majority of Scots wanted independence. Yet they feared risky change and possible loss. They wanted a level of reassurance about the risks that was simply impossible to give them. So they voted “no”, despite themselves.

I think something rather similar might happen if we ever have a referendum on the European Union.

If this analysis is right, it follows that reassurance ought to be a strong theme of Ed Miliband’s election campaign. Just as it was of Tony Blair’s. And, last time, of David Cameron’s. Would Tony Blair have won without promising to match Tory spending plans? Possibly. Would he have won such a landslide? Very definitely not.

Warning of risky change and potential loss is a very strong card for the Conservatives. It even works despite the fact that there are obvious risks from a Tory victory too.

This is why Ed Miliband has to rule out a deal with the SNP and has to provide reassurance on spending and on providing continuity as well as change. I can quite see why he would rather not. But loss aversion is very powerful. It is very powerful indeed.

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