Are you getting your share?

We look at how much GDP activity is going for employee compensation and whether this share is growing or falling

16th Jun 17, 6:02am by David Chaston

Thursday's GDP data disappointed the markets somewhat. And policy makers like the Reserve Bank may have been disappointed too.

But how do you feel about this data?

It is supposed to represent a measure of the formal economy, and most readers will be a part of it in some way.

Most will participate by earning an income and spending it as consumers.

That is a core part of Gross Domestic Product, which is a measure of final transactions, rather than the intermediate ones most businesses are involved in.

+3.0% real annual growth has in fact been +4.2% after the 1.2% price deflator has been applied.

But GDP stats at "chain-volume 2009/10" prices are hard things to get your head around. When inflation is low, it is much easier to think about this data on a current prices basis.

And that involves more than just the inflation adjustment.

On a current prices basis, our economy is running at an economic rate of $265 bln per year. And actually, that is +5.6% more than it was running in the year to March 2016.

On a per-capita basis, it is growing at +1.8% pa in the year to March. There is a bit of an urban myth around that per-capita we are not growing.

However there may be something to the feeling that things aren't expanding for many people at quite the same rate as the overall numbers suggest.

In theory, we should be able to measure the share of the economy that people on wages and salaries contribute. You can do that in other countries, but not reliably here. Statistics NZ say they are working on getting that data, but it may be a year or two before they are ready to publish. The issue for them is getting the data to the standard they require.

But we can make an estimate based on other compensation data published by them. There are issues with the data we have, especially in the quantum. But at least we know what the missing bits are. And we can find a trend.

The question is: are people on wages and salaries growing their share of GDP, or are they losing share?

The pub test will likely 'prove' the latter - workers are losing share. But is that really true?

Compensation data is published in the Quarterly Employment Survey (QES) and this can be used to build a related data set.

On that basis, we find that in the year to March 2017, 34.3% of nominal GDP was for employee pay.

In the year to March 2016, that share was 34.5%.

Five years ago the share was 33.2%.

Ten years ago (pre GFC) the share was 33.6%.

Twenty-five years ago the share was 34.9%.

The variations from today are remarkably small. Basically, employees are maintaining their 'share' of our economy. True, they are not winning a greater share, but equally, they are not losing share either.

The numbers used here will be higher when Statistics NZ eventually release official data. That is because the QES under accounts for the self-employed, for some pay at micro businesses, and for much non-cash compensation that should be included. But it is unlikely that the overall trend of a stable share will change.

The data we have set out is over a longish time-frame.

But over a shorter set, we may have some interesting, and worrying elements developing.

On the QES/GDP basis we have used, the change in compensation as a proportion of the change in GDP (in other words, the incremental share) does not look so flash. In the year to March 2017, GDP grew by $14.2 billion whereas compensation grew by $4.3 bln. That means in the latest year those on wages and salaries saw their share of the growth in the economy grow by only +30.6%, a lesser share than the overall 34.3% share. And that is the lowest share at an annual rate since mid 2014.

This is only a taster of the data, and very unofficial. Relating QES data to the GDP has issues because of the way the QES survey is constructed. But it is the best we have at this time.

But we can rest assured that workers are not going backwards.

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10 Comments

by sharetrader | 16th Jun 17, 9:37pm 1497605858

it would be interesting to drill into the data, my hunch those at the top have got a bigger share than those at the bottom compared to twenty years ago, and this has led on to greater inequality, which has led onto government policies to try to redress it ie WFF

by James007 | 16th Jun 17, 8:32am 1497558747

you mean "inequality" rather than "equality"

by ian64 | 16th Jun 17, 8:34am 1497558875

exactly. CEOs are considered employees and those 2million dollar salaries definitely skew the data upwards.

by Advisor | 16th Jun 17, 2:38pm 1497580712

I totally understand where the anger is coming from. Clearly the OECD and IMF reports on New Zealand have warned us on low productivity and subsequently low wages several times since GFC.
A mismatch in skill level is evident even at an institution level. I did a conjoint degree in finance and accounting while my peers chose performing arts, political studies etc. to keep themselves entertained through the three years of study.
Guess what, it's the boring stuff that brought a stable career growth trajectory. The average engineer, or scientist goes on to make a 6-figure salary while arts and social sciences can expect extremes. If it was a student's decision to choose a career out of passion over returns, they should learn to live with less of the latter option. A high school graduate with programming skills is more in-demand than a PhD in history. That is just how the global economy is positioned and we are too small and overly connected to it to do anything about it.

by Boatman | 16th Jun 17, 9:38am 1497562726

So its remained around these levels since 1991 , that's a whole 26 years or a generation

by dictator | 16th Jun 17, 11:29am 1497569396

In summary inequality is remaining at the same level. I suspect the distribution of that share in everyday outgoings differs a lot since 1991.

by JetLiner | 16th Jun 17, 11:10am 1497568219

Purely anecdotal, but my better half works in a multinational retailer, health-related, and has been promised a pay rise based on her excellent performance in the KPIs. Six months later, still nothing happening, and with a new heavy-handed country manager, she has given up hope of seeing anything in the near term.

Referring to the graph, does non-wage compensation refer to things like sales commission?

by bw | 16th Jun 17, 11:16am 1497568608

...sluggish wages growth... has helped support hiring at a time of falling national income....Weak wages growth.... is among reasons that jobs growth has picked up... workers aren't pushing for higher wages because of the uncertain future for jobs....monetary policy can't deal with those questions. It comes to the big issues of energy reform, tax reform, flexibility in the economy, to deal with these transformations that are coming along.... Deutsche Bank, said the strong jobs growth.... implies zero productivity growth, which in turn, suggests there will be no improvement to the weakness in wages growth....The weakness in productivity growth entrenches the weakness in wages growth. That in turn keeps pressure on the household sector and limits the scope for a pick-up in consumer price inflation.....The Reserve Bank's research notes that if a fall in the bargaining power of workers becomes permanent, the (non-accelerating inflation rate of unemployment) would continue to fall. "A permanent decrease in bargaining power would lead the NAIRU to decline to a lower level reflecting decreased wage pressures at any given unemployment rate"

http://www.afr.com/news/economy/why-weak-wages-growth-is-saving-jobs-an…

by Stephen Hulme | 16th Jun 17, 12:22pm 1497572542

"A permanent decrease in bargaining power would lead the NAIRU to decline to a lower level reflecting decreased wage pressures at any given unemployment rate"

Hmmmmm..

If the unemployment rate keeps on going all the way to 3% without triggering the inflation barrier, does that mean NAIRU is 2.9%? Or might it indicate instead the possibility the unemployment rate is itself faulty? The implications of the latter are much more severe, which is why they are always avoided (drug addicts, Baby Boomers). Read more

by scarfie | 16th Jun 17, 11:20am 1497568847

Wouldn't a more accurate and fair measure be wages vs the total quantity of money created?

if you recall I did the figures going back to 1971 a while back. The money supply has been outstripping the growth in GDP since then, but has become more acute in the last 10 years. Exponential growth when you plot it, which is pretty much predicted when you add interest to a money supply.