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Opinion: Income inequality in New Zealand

Posted in Opinion

By Neville Bennett

'No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable,' said Adam Smith.

Some claim that there are no poor and miserable people in New Zealand. There could be an exception, it is allowed, for derelicts whose vices and sloth have smitten them. But anyone with any “go’ can become prosperous.

I would not put the issue in stark black and white terms.

I would concede that we have a welfare state that has done a good job in providing good providing accessible education, free health (not dental) services, state housing, old-age pensions and social welfare benefits. These have resulted in a minimum standard of living well above the desperate conditions that might be seen elsewhere.

I want to retain this system and regret that a culture has arisen that is indifferent to the growing disparities between rich and poor, but admires the banking elite and the unfettered operation of markets, sneers at the public sector, is unconcerned about sustainability, and embraces endless expansion.

I believe in efficiency and equity, and prefer that NZ follows models such as Japan and the Nordic counties which enjoy much higher levels of education, income, equality, health and welfare.

It is appalling that New Zealand has slipped down the prosperity ladder.

While we were leaders in per capita income in the nineteenth century, and even in the 1950’s, we are #22 now in the 30 member OECD. As late as 1970 we were ninth. We were also more egalitarian in the 1970’s, but I would be hesitant to claim any causal link between our growing wealth/income disparities and declining prosperity versus other countries.

Obviously there are other faults with our economy, especially a poor export performance.

I raise the disparity of wealth and income as an issue because I believe we cannot become really prosperous until that disparity is redressed.

One argument is that our children must get meaningful opportunity.

At present around 20% of children endure a degree of hardship. The Ministry of Social Development admits:

New Zealand’s children suffer not only a higher rate of hardship than other New Zealanders, but a greater share of New Zealand’s children face hardship than in many other countries. The comparison to other countries shows that New Zealand is unusual in choosing to impose such a burden on the youngest segment of the population.

It does not make sense to allow our next generation to be impaired. The nature of work means that poorly educated and trained people have difficulty in earning a high market income.

We need this, especially as our demographic situation means implies a low ratio of workforce-to-retirees.

Our future workforce will have to be incredibly productive in order to meet their own needs of education and training, service their student debt, save for their housing and transport, and support themselves despite rising taxation to meet accumulated state debt and increased expenditure on health and superannuation.

Inequality

I have already established in Part 1 of this series that wealth distribution in NZ is much skewed. I have found more recent data since my article which indicates that the bottom 30% have negligible wealth, the bottom 70% owns only 20% of national wealth. The top 20% owns 70% of our wealth, and only the top 10% has significant assets in investment property, farms, business and financial assets, and trusts.

Market income increased for high deciles 1987-1997. Since the 1980’s there has been a trend to pay top managers more. In 1968 the CEO of General Motors’s pay package was 66 times the average GM worker. The CEO of Walmart now earns 900 times the average employee pay. In NZ, the CEO of Westpac gets $5.6 million, about 140 times average pay of $40,000, or 110 times average pay of $50,000. Click on  this link to see a chart of wage and salaries in NZ.

That chart also shows most market income is in the $30,000 to $60,000 range. About 34% of market income is earned by the top 10%, the bottom 30% get 5%. The top 3% pay 26% of income tax, the top 9% pay 42% of income tax.

Wages are rising for high-income earners but the unskilled are going backwards, even though many are in firms which are raising productivity.

The Employers and Manufacturers report that employees have received an average of 3% this year, but workers in unskilled jobs averages a 0.1% decline in pay this year. Pay rates dropped for a quarter of the 215 job types in the survey. These workers were not suffering pay cuts but new entrants were offered lower rates.

The measure used for income internationally is the Gini coefficient. NZ is the seventh most unequal in the OECD (our score is 34). This is a higher score than Australia, and puts us in company with the US, Portugal, Turkey and Mexico. We are a world apart from the Nordics and Japan. This link to the NZ Institute gives excellent information on the Gini and graphics showing NZ low relative rating.

The Consequences - Hardship

Hardship is defined by a specific set of deprivations, in which the household is forced to forego goods that are considered required for a basic or minimal acceptable lifestyle. 

For New Zealand these include the ability to keep a home adequately warm; a washing machine; a meal with meat, fish or chicken every second day; a phone; a colour television; a private car; one week’s annual holiday; the ability to pay mortgage, rent and utilities on time; and the ability to face unexpected expenses of $1,500.

The age group with the highest incidence of hardship is children, and the age group with the lowest incidence of hardship is those over 65.

One aspect of hardship is inadequate housing. Housing costs have greatly increased for most NZ groups but especially the poor. 17% of children live in crowded conditions nationally, 25% in Manukau. Crowding helps disease: we have a disgracefully high level of meningococcal disease which is a Third-world disease.

The Consequences - Disadvantage

In the UK and US research shows that social mobility is low. The poor stay poor. This may be the case in NZ now, although it was not in the 1950’s and ‘60’s.

Those unable to escape low incomes are more subject to ill-health, missed educational opportunities, and depression (with some symptoms of alcohol abuse, obesity, drug abuse and minor criminality). The unemployed and under-employment lose skills and suffer anxiety and stress.

Inequality is associated with crime. NZ has the second highest rate of prison sentences in the world. It has one of the highest rates of teenage pregnancy. Our health outcomes are quite good unlike the USA which, despite massive spending, has a life expectancy just above Bosnia and slightly better than Albania. But infant mortality in NZ used to be similar to Denmark but is now twice as high.

Inequality is corrosive. Competition for status and goods increases, people feel a sense of superiority or inferiority because of their possessions, some harden their attitudes to the less well-off and the pathologies of disadvantage flourish.

--------------------------------

* Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR.
neville@bennetteconomics.com

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34 Comments

 PM,  Mr. Brownlee/ Joyce why

 PM,  Mr. Brownlee/ Joyce why does the government not push for industries, which provide better jobs for the workers, to make the country's overall performance so much better – manufacturing ?

( e.g. infrastructure needs - transport. power, communication, etc.) 

They did ! National have

They did ! National have backed the US Hobbit industry . ............ In the same vein  that Labour poured millions into rich men's yacht racing .

You want the government to pick more winners alike these , Walter ?

Yes......the hobbit supports

Yes......the hobbit supports a NZ film making industry that employs skilled workers....the America's cup, boatbuilding...employs skilled workers...and one extra side line is tourists....

Manufacturing is little more than semi-skilled ppl on a production line....making shoes or other stuff, no we dont need much of that, and we cant compete on cost ever....unless we do a green party? and go back to tariffs...

For me what I cnat see in Walter's manufacturing idea is a market.....in general terms....I do think there are niche markets like made in NZ merino wool jumpers...

regards

..and PM why not tell your

..and PM why not tell your ministers in stead of becoming the financial hub of the South Pacific - why not make real money not for a few but for the nation and strive to become the “NZ100% pure Economy” hub of the world ?

 ..and what a waste turning NZpure and valuable Westcoast fresh water into the dirtiest with mining - - continued !

http://www.suite101.com/content/richest-water-countries-a21701

Nevillle, to what extent is

Nevillle, to what extent is it that NZ in the 1950's and 1960's was a very monocultural European society, which since has become increasingly non- European?.  Sadly, all the indices of Maori and Polynesian NZ'ers are nowhere like that for pakeha(health, life expectancy, education, criminal offending, social disadvantage etc), so this must be reflected detrimentally in our national situation. To compare NZ now with 50 years ago is not so straight forward given the increasing non-European proportion of NZ. I appreciate there are other factors too, but feel commentators gloss over some things because they worry about seeming racist or at least open to challege by the politically correct .

"New Zealand’s children

"New Zealand’s children suffer not only a higher rate of hardship than other New Zealanders, but a greater share of New Zealand’s children face hardship than in many other countries. The comparison to other countries shows that New Zealand is unusual in choosing to impose such a burden on the youngest segment of the population."

But it's alright.  JK has just robbed us of our childcare subsidy and now my wife will have to increase her hours at work in order to pay the $55 a week extra the creche will now be charging, and so have less time to spend with the children.

Thank you JK, but whatever you, keep pumping those billions into the over 50s health care because, unlike the children, they can vote....

A great shame that children

A great shame that children cannot vote , because Spongebob Squarepants would be a far better PM than either of those two idiots who have mis-ruled NZ since 1999 . ........ A free Krabby Patty in everyones' lunchbox , every day ! .........Vote " Spongebob 4 PM "

He said he would resign

He said he would resign rather than alter national super.  And remember this biggest electoral bribe of all time was brought in by a National government.  If people are serious about saving government expenditure AND making people realise they must save to be more self reliant when they decide to retire, then that's what would do it.  But the sense of entitlement is so engrained in the mindset of the elderly, they would rather the government slash and burn just about anything else instead. Very self-serving voters which JK will not have the desire to upset!

muzza : will you vote "

muzza : will you vote " Spongebob 4 PM " in 2011  ? ......... An extra Jelly Patty in with your Krabby Patty  , if you support us ! ........ C'mon , getcha tentacles  outta your pockets and tick our box , 8 times .

 'No society can surely be

 'No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable' A Smith

No society can surely be flourishing and happy, of which the far greater part of the members are refused the right to own private property and operate a business and hire workers and invest their profits as they see fit' and educate themselves as they wish........ A Cuba......

Think about it Neville!

Cuba would come under Adam

Cuba would come under Adam Smith's line.....however what evidence do u have that the ppl of cuba are un-happy?

Bearing in mind their hardship is caused in no small part by the US's embargo.....remove that and Cuba might indeed flourish.....China after all has a one party state also.....and chains take different forms....

regards

Well Steven...it might have

Well Steven...it might have something to do with the FACT the Cuban dictatorship has filled a number of jails with Cubans who dared to ask for some freedom from being treated like dog droppings by Castro and his brother. You blame the Yanky govt for the Cuban economy..get away man...what's stopping them from trading with China....they have sugar...and tobacco....and...err ummm oh yeah they have revolutionaries...

not a balanced comment, Wally

not a balanced comment, Wally - you're old enough to remember who was running Cuba, proir to Castro, and where the money was going.

Same country has a jail on Cuban soil.....

Cuba is the example of where countries go when deprived of resource input, and have to powerdown.

Learn from her - because despite the optimistic egg-head rhetiric that washes around here, that's where we are all going.

Unless we get cheaper land adjacent to cities, of course.

Then we can grow forever.....

not a balanced comment, Wally

not a balanced comment, Wally - you're old enough to remember who was running Cuba, proir to Castro, and where the money was going.

Same country has a jail on Cuban soil.....

Cuba is the example of where countries go when deprived of resource input, and have to powerdown.

Learn from her - because despite the optimistic egg-head rhetoric that washes around here, that's where we are all going.

Unless we get cheaper land adjacent to cities, of course.

Then we can grow forever.....

Maybe try looking at Cuba's

Maybe try looking at Cuba's history pre-castro....Im sure the guy's with Tommy's were very uh....democratic......Trade, yeah right.....but the Castro guys might get the last laugh....plans to drill for oil in Cuban waters....now that will be funny if as though Cuba becomes very rich.

Like I said earlier chains take several forms, americans are chained by debt, just as effective as red flags...

regards

"what evidence do u have that

"what evidence do u have that the ppl of cuba are un-happy?"

The fact that personal computers/Internet access are illegal (*)? :-)

I wonder what the people do all day long without computers to take up their time.  Oh, that's right, growing food to keep alive.  Cuba's 'special time' (effectively peak oil) must have been very interesting.  Jolly good thing they can grow food all year round.  The effects of Peak Oil may well be slightly more profound elsewhere...

 

(*) not sure if this is still the case, but I believe it was.

 "American Profligacy and

 "American Profligacy and American Power: The Consequences of Fiscal Irresponsibility."

 http://www.marketoracle.co.uk/Article24771.html

This will do damage!

Personally I have been

Personally I have been thinking that guy is an idiot for a while, now with this Im sure of it.

Damage, no, there has been a huge argument for quite a while now for the pro-inflationist, like these and the others like,

http://krugman.blogs.nytimes.com/2010/10/02/how-the-other-half-thinks/

So far PK seems to have got it right also Steve Keen.....the authors are also republican who are only serious about reducing the deficit when its a social policy and not pork barrel politics or armaments....or let tax reductions for the super rich expire....

The behaviour of the Republicans next year will be something to behold, they intend to make the US un-governable...in effect shut it down and let states go bankrupt......thats just going to do un-believeable damage to the American ppl and by proxy, us.

regards

It matters not what they do

It matters not what they do Steven...they are in the Titanic and it's already under water on the ride to the bottom. That's the point being made.....there is no escape...that includes us....you either get rates going higher for longer or you have an economic western world slump for a bloody long time!

Thats the point Im making

Thats the point Im making Wolly these guys are the inflation and cut the deficit camp. This piece and others are ammo to decimate the medical and social safety net such that it is but its a joke....the ppl writing it are the ones causing it....its like letting the guy in chainsaw masacre in to do your appendix and handing him a running chainsaw.....like duh.....but thats exactly what the American ppl have done.

The  rates are in a liquidity trap so are not going to go higher....inflation is declining, in fact its heading into deflation either this month or early next year....Add in that the Fed is desperate to keep the economy from imploding, which it was failing to do...or I should say failing to get it to recover....they did just about manage to keep it on lifesupport by pumping in Triilions....but for every Trillion they pumped in there were even more trillins being withdrawn or lost....its like somone opened your jugular but you are expecting the drip feed to improve things.

In terms of the titanic then if you will...these guys are the Captian Smith's of this world and are now trying to find more icebergs!

regards

Do I detect a Keynesian in

Do I detect a Keynesian in you Steven?.....and a bit of the socialist?

  "Federal Reserve made $9

  "Federal Reserve made $9 trillion in short-term loans to only 18 financial institutions. Since 2000 the US dollar has fallen by 33 percent. The hidden cost of the bailouts".

 http://www.marketoracle.co.uk/Article24782.html

That's about equal to the debasement of the NZ dollar by our govt and RBNZ..........the hidden cost of poor govt.

The figures in this article

The figures in this article are misleading. Firstly, the NZ economy has not really performed that badly. 

Real GDP growth 1994 Q1 - 2008 Q3 (www.rbnz.govt.nz/keygraphs/Fig2.html)

NZ:  65%

US:  59%

Aus: 73%

Japan: 20%

UK: 58%

Median household income 2008

US US$50K

Australia A$67K (PPP US$46K)

NZ NZ$63K (PPP US$41K)

Giving the vastly different tax systems and costs of living, I don't think the difference is anything to get excited about.

Secondly, excessive emphasis on our OECD "rank" in GDP/capita or other measures is misleading. Most of the OECD countries are bunched together - NZ is about 0.5 standard deviations below the mean for GDP/capita. Italy, Greece, and Spain are just ahead of us in this ranking - we now know all too well what their economic growth has been based on in the past decade! Germany is ranked 16th, and yet the German economy and society are often thought to be a star performer in many ways - being until recently the world's biggest exporter, for example.

NZ's Gini value of 34 makes us slightly less equal than the OECD average of 31, but again, most of the countries are bunched and there is no evidence that a difference of 3 on this score (which is normalized to the range 0-100) is significant.

Neville says we should follow the Japan/Nordic "model". What model is that? The Swedish model which involves cutting taxes, privatizing the schools, and lots of high-end manufacturing? The Norway model which involves selling a lot of oil? The Japanese model which involves a 20 year decline in property values (that one sounds quite likely actually). Secondly, what specific steps should we take to level our income or wealth distribution?

"NZ has the second highest rate of prison sentences in the world. " - where did you get that one, Neville? Wikipedia (with a reference to the World Prison Brief  of the International Centre for Prison Studies at the School of Law, King's College London) puts us at 60th in the world out of 216 countries, with 203 inmates/100000 population (US: 748, UK: 154, Aus: 134).

Briefly: prison

Briefly: prison population

Cannot recall the source, newspapers I think. Can you name OECD countries that incarcerate more peole proportionately than the US and NZ?

Just go ahead and quote The

Just go ahead and quote The Spirit Level already.

It doesn't help that we live

It doesn't help that we live in a society where housing is unaffordable to an entire generation of people, and all our most skilled bugger off overseas.

I Think there is a lot of

I Think there is a lot of intergenerational inequality in NZ. Richard Thompson wrote a great book years ago saying baby boomers had it good. huge child allowances ( about a third of pension??) free medical, education services, subsidised food, easy access to housing.

wages were good too...a man earned enough to keep a family.   My kids, while studying, often work but the pay is near minimum despite one managing a big outfit.

with unaffordable housing and student debt, the 20-30 year old have poor chances of getting property.. that could be one reason for migration that is often overlooked

Baby Boomers.. a generation

Baby Boomers.. a generation so selfish they're forcing a growing number of their own children to leave the country for better opportunities in Australia. The goldman sachs of the NZ population demographic, sucking the life out of the economy and pumping it directly into their property investment and retirement plans... ensuring there is no capital for business and putting homes out of reach of anyone not on a double income with no kids, or rich parents (and thus poor get poorer as when you need to rely on a $50,000 loan from the bank of dad the poor never had a hope).

Will future generations perpetuate this cycle? If population keeps falling they won't be able to even if they wanted to.. but I dont think the BBs are going to take that option lying down.. they'll do everything in their power to keep their dream alive.. and that means one thing - immigration and lots of it.

Our government needs to make some dramatic changes to policy to make property far less desireable. As many of the responses here have rightly indicated its still the most desireable investment we have going. That one thing needs to change above all else if NZ is to be able to retain talent and prosper in the future both culturally and economically. Who wants this country to degrade into another nihilistic crony capitalism state of America?

Why do you persist in

Why do you persist in labelling all of us in the " Baby Boomer " generation , as selfish ? A number of us ripped into your idiotic generalisations a week ago , and here you are , regurgitating this rubbish .

We are not responsible for a few individuals in political power , who are acting in their own self interest .

Will you understand that ? Or shall I label you as a  "dumb Y-generationer " !

Neville - "Cannot recall the

Neville - "Cannot recall the source, newspapers I think. Can you name OECD countries that incarcerate more peole proportionately than the US and NZ?"

Israel, Chile, Poland, Czech, and Mexico  - NZ is 7th of 33 countries (although Chile and Israel only joined the OECD in 2010). 

OK, I guess you meant 2nd highest in the OECD, not 2nd in the world as you wrote. Be careful - these statistics, especially the rankings that I find so misleading, have a way of getting lodged in people's minds.

NZ's incarceration rate of 203 per 100,000 population is 35% or 0.4 standard deviations above the OECD average of 150.5 - I agree it is a social problem, especially its rapid recent increase, and it is related to income inequality, but also to a strong message sent by ourselves to the government through eg the referendum on sentencing. Can't compare it to the US at 748 though. Now that is a problem.

Neville,  It is a very

Neville,  It is a very interesting subject the people who have more than plenty and those who have bearly enough. Mind you it has always been this way if I cast my mind back.You see the have's if I can put it this way often have had more opportunity this coupled with a better education.These people know how to spend but they also know how to budget if they are required to do so. Generally speaking they would not be persuaded through advertising to put themselves into debt purchasing items they want but listen,that they do not really need.This group of people will always do better because they have contacts in the friends and people they know.They would seldom need to refer to the yellow pages.

The 'have nots" I feel will lack a lot of the above and fall into many traps. I haven't researched history of the welfare benefit in this country but I am wondering that if I did would I find that it was implimented in low economic times as a neccessity  and it remained in place even through boom times and has become a career to many people. I think it has become a curse in some cases because I feel that every man enjoys and needs to work.Meeting comrades and gaining a sense of satisfaction through providing. Problem is I feel this latter group of people have difficulty with some of the most basic concepts. They will buy a vehicle on credit when they have not got the ability to register or insure it thereby protecting themselves against further debt and misery. They will still manage to buy lotto and alcohol when the kids need money for school photographs.

Maybe the welfare benefit system in this country has become so huge and unmonitored,like the ACC that it is unmanageable. I mean for example how many staff and where would you find the great number of special people who have the ability to sincerely help this latter group of people to a better and therefore less stressful way of life?

Do I recall seeing somewhere where a country needs both the rich and the poor classes to prosper? Whats all this then I hear continually about closing the gap between the rich and the poor? I am asking myself is this a statement that merely sounds good?I am asking myself is it really possible or is it really neccessary to close the gap,so to speak?

P.S. I realise that in Christchurch earthquakes have generated an unusual amount of work right across the board. Wait a minute this has created opportunities.If there is a shortage of truck drivers for example lets make it easier for a man to obtain a licence and encourage him off a benefit and become self supporting and happier.

I'm not sure I agree on the

I'm not sure I agree on the baby boomer example Nevelle - when I was a child we lived the typical middle income life style of the times, and were very happy. That changed a couple of decades ago in that for most people to enjoy that same standard of living suddenly required both spouses to work to maintain that style, and I'm sure households started to become much more strained for their children...then in the past 10 years of so, that no longer worked either..to maintain that standard, families had to start borrow, and keep borrowing unsustainable amounts of money to the point we're now reaching where that standard of living is now a pipe dream for many...they can no longer borrow

And forget the arguments about greed, all generations have been greedy for the maximum they could obtain but all go through frazes ...remember many baby boomers were hippyies once and had a distain for such things, temporarily as it turned out until they grew up.

Good to see Adam Smith is

Good to see Adam Smith is being read, though I doubt he would have advanced income equality as a political goal.

I read a piece like this and sigh.  The last century & a bit was dominated by the quest for 'income equality' so it's not as if no-one's been trying.

Let's be honest:  'income equality' in practice means that the state decides somehow  ("to your spreadsheets go!") the appropriate level of income any one person is allowed, and then deploys a small army of civil servants tasked mainly with policing and punishing those that try rise above that, all in the name of those that fall below it.  Lots of variations, same theme, same result.

It's ghastly and is an odious system to a civilised mind.  It sounds caring and philanthropic but it's nasty and destructive of people & prosperity.  It's been tried... alot... and didn't make for happy campers.

Not only is it odious, it's also wrongheaded.  It falls over on the problem of economic calculation: it cannot do it no matter how many bright spreadsheet wizards are on the case.  How much is a particular job worth?  Is all work of equal value just because someone's doing it?  How is this worked out?  (cf: the recent state teachers' pay negotiations.)

It also reeks of an entitlement mentality which is a great way to kill the human spirit by sending the wrong message about how things really are.

Let's try capitalism, huh?  Read Adam Smith, Frederic Bastiat & Ludwig Von Mises (who was right about pretty much everything from economics to sex).  I don't mean
'kapitalism' where government picks winners & underwrites banks & bails out
finance companies & owns half the economy.  I mean the kind where government
stops tooling round with people & things, gets outta the way, and focuses on
what it can do reasonably well: protect people's property and efforts in
making something of themselves from those seeking to nick it.

The writer mentions Manakau City.  That's been a government project from the get-go.
If you really care about those at the lower end, promote capitalism not state control.