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Christmas and the Economy: The Pros and Cons (+ How Microeconomy Benefits During Christmas Season)

Christmas and the Economy: The Pros and Cons (+ How Microeconomy Benefits During Christmas Season)

During the Christmas season, we spend money on gifts for family and friends, Christmas trees and decorations, and preparing delicious holiday meals. Many people use the holiday season as an excuse to spend money on various things. 

With all of this spending, many people believe that the holiday season must be great for the economy.

Or, is it? 

In this article, we’ll discuss microeconomics and how Christmas affects the economy. 

What is Microeconomics?

Microeconomics is a branch of economics that study the behavior of firms, households, and individuals in decision making and allocation of resources. Generally, it applies to markets of services and goods, and deals with individual and economic issues. Microeconomic study deals with what decisions people make, how their choices affect the goods markets by affecting the supply and demand, and the price. 

Simply put, microeconomics has to do with supple and demand, and with the way they interact in different markets. 

Does Christmas Shopping Stimulate the Economy?

Arguments that the Christmas season is good for the economy are fairly convincing. After all, the money that Filipino consumers spend on gifts can help stimulate job creation in businesses that produce, market, and deliver products to stores. Many jobs in the community are tied to the retail industry alone.

However, the benefits of Christmas spending go beyond the direct jobs that are created. That’s because those truck drivers, manufacturing workers, and store clerks will spend much of the money that they earn. In turn, this will recycle that cash back into the economy. Moreover, the taxes that workers and businesses pay help fund government services and jobs. This means that much of those funds will also recycle back into the economy. 

Christmas and the Economy: Arguments Against

While some believe that Christmas spending can help benefit the economy, some argue against it. Some people say that Christmas spending is vastly inefficient. For instance, Joel Waldfogel, a professor at University of Pennsylvania’s Wharton School released a book entitled, ‘Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays’. In his book, Waldfogel argues that much of Christmas spending is totally worthless. For instance, a $50 sweater is worth $50 to the consumer who buys it for themselves. But, if they give that sweater to someone else, the recipient may not like the design, color, or size, and so it will be worth much less to him. 

Moreover, whatever positive economic benefit that the holiday season once generated 40 or 50 years ago, when the country had a strong manufacturing sector, has been significantly reduced or wiped out since then. Why? That’s because almost all of those clothing, laptops, and television sets that Christmas shoppers will be splurging on this year will have been made overseas, and that in turn is where a big chunk of the profits will end up. 

Christmas and the Economy: Those Who Benefit and Those Who Don’t

Is the holiday season and Christmas shopping good for the economy? Or does it create an imbalance in the spending patterns of the population? 

  • Cheap Products and the Economy
    In today’s age of globalization, it shouldn’t be surprising that the highest margins on holiday products, such as gadgets, clothing, toys, etc. are imported from locations such as China, Vietnam, and Bangladesh, to name a few. Retailers are more willing to sell products from these nations due to their low purchasing costs and high profit potential. These low-cost toys, goods, and other traditional holiday gifts represent majority of items under your Christmas trees and stockings. Essentially, Santa no longer brings your Christmas gifts from the North Pole – China does and they’re on a ship arriving from a factor in Yiwu, the Easter trinket capital of the world.

    However, these cheap gifts may not be advantageous to the economy. Despite the high profit margins that it brings, these products are nonetheless cheaper than they would be if manufactured locally. As a result, consumers can buy multiple imported gifts for the same price as one locally produced product. This increase in profit margin and increase in sales reaps rewards to the population. Store employees that sell these items are given wages that reflect the high profit margins, higher profits result in more value for shareholders, and therefore, greater wealth. This increase in jobs and wealth will then be put back into the economy in the form of new purchases that further stimulate growth. Thus, while these imported products appear to benefit the economy, it doesn’t necessarily signify that Christmas season are entirely positive. 
  • A Shift to Online Sales
    According to one survey, 2017 was the first year in which online sales exceeded in-store sales during the holiday months. This shift enables consumers to pay less for goods; however, this hurts small businesses that can’t compete with large multi-national firms. For instance, stores that offer both online purchasing in addition to brick-and-mortar locations, provide price matching policies that allow consumers to request refunds on products that a competitor is selling for less. These price protection strategies are commonly found in online outlets, as most companies can support the decrease in profit in return for a higher sales volume.

    In comparison, local stores can’t support this decrease in profit. As a result, online shopping, particularly during the Christmas season, is harming local growth. This results in a loss of small businesses and jobs, and may put local economies into a rut. 
  • Temporary Work
    Many businesses require more staff to deal with the busier period in the lead up to Christmas. This is predominantly true for larger companies who need to take on more staff to deal with online orders in particularly. This leads to an economic boost, with businesses increasing their profits and temporary workers finding themselves with some extra cash to spend. 

Is Christmas Bad for the Economy?

Not necessarily, no. However, if expenditures were spread more evenly throughout the year, the economy could potentially benefit more than in the current state, in which consumers spend about 25 to 30% of their annual expenditures in the period between November to the New Year.

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