Matt Nolan takes a look at income inequality in NZ, including why it is there

Matt Nolan takes a look at income inequality in NZ, including why it is there

Today's Top 10 is a guest post from Matt Nolan.*

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See all previous Top 10s here.

Although it is nearly impossible to walk somewhere without tripping over research on the distribution of income in the United States, New Zealand is a very different country that has faced very different changes.

So I thought I’d share with you 10 of the most interesting pieces I’ve found discussing New Zealand that have helped me to gain an appreciation of what has happened – but only with an early health warning.

The fact incomes are different (and therefore, unequal) does not immediately imply that incomes are unjust.

Here my only focus is on what has been said about what income inequality is and what we can tell about why it is the case – arguments about what is right and wrong are significantly more complicated, and largely lead to situations where people try to yell on top of each other.

I’ll leave the conversation about what is right and wrong for other people, my only goal here is to try to distill down some information.

1. Describing Inequality:  Ministry of Social Development’s Income Report
Each year a new Income report from MSD (written by Bryan Perry) is released. This provides the most comprehensive and up-to-date run down on income inequality trends, along with a sizable discussion of poverty measures and wealth inequality.

The take-outs of the report with regards to income inequality are:

- Income inequality, as measured by the Gini coefficient, rose strongly during the late-1980s and early 1990s but has been virtually unchanged during the past decade.

- Given housing costs are difficult to avoid, especially for those on lower income, looking at income after housing costs are removed is useful – especially given the regional differences in housing costs.

- On the face of it the lowest deciles (those earning the lowest income in a year) have not done too badly – however, this hides compositional differences, with those on National Super and those on low in-work incomes seeing strong income growth while the real value of benefits have stagnated.

- Strong household income growth has been partially due to increasing female labour force participation.

As the author states in the report, the purpose of the Incomes Report is to describe trends in income inequality and how income is distributed across New Zealand households – not to explain how New Zealand got there, what trade-offs exist from government policies, and not to suggest what the government should do. 

Before we can even start to consider these questions we need to dig into these numbers a bit more deeply to see what we know about potential “causes” of this change.  Note that there are many potential explanations that I won’t cover here– but by looking at a few issues, we at least have a neat starting point for chatting about the issues.


There have been a number of studies focused on income inequality in New Zealand prior to the 2000s, mostly relying on Statistics New Zealand’s Household Economic Survey (HES). 

There is a tricky disconnect between what income inequality is and what we often care about when we talk about inequality. When talking about policy we often care about differences in people’s claim on real goods and services – whether we frame this as a concern around outcomes, or the individual/family/household’s opportunity to claim and create resources.

This inequality in terms of consumption (and peoples willingness to trade-off between measured consumption and non-measured consumption, such as time off work to work on the garden) is related to income inequality – but can differ when the relative price of different products change, types of income and consumption aren’t measured, and due to the fact that consumption and income generation for an individual happen at different times (as we can save and borrow).

The studies mentioned below try to deal with elements of this.  Furthermore, many of the results were summarised by Des O’Dea in 2000 – although at the time some of the research was not yet complete.

2. Considering the spread of income by income type
One common way of considering income inequality is to look at sources of income – rather than looking at the income of individuals directly.  A key proviso to keep in mind here is that many of us rely on multiple income sources over our lifetime, so interpreting these numbers can be a bit difficult.

In 2002, Nripesh Podder and Srikanta Chatterjee looked through self-reported income source data from Statistics New Zealand’s Household Economic Survey for the 1984-1996 period.  By doing so they are able to break down how changes in the Gini coefficient for income (as a measure of income inequality) is due to changes in the source of income (eg benefit income, wage income, investment income).

The sharp increase in unemployment over the latter part of the 1980s and early 1990s while, again, not a direct cause of increased inequality, has certainly contributed to the process. Likewise, the distortions in the financial markets, which saw the nominal interest rates soar to unprecedented levels in the later 1980s and early 1990s, resulted in changes to household incomes in a way that, again, contributed to the increased inequality.

Interestingly too, whatever the positive outcome of the changes in the tax expenditure policies over the period of the reform, they contributed to increased income inequality.

Outside of this the paper also indicates that changes to benefit rates and globalisation/technological change may well have played a role in explaining the ways sources of income changed.

Although the exercise of breaking down shifts in the income distribution into the types of income that is generated is a useful exercise, in this instance I find the willingness to attribute the changes to the reform without further analysis a bit weak.  The discussion of financial markets is especially fraught – the high nominal interest rates occurred in the face of high levels of inflation and nominal wage growth, implying that we really need to pull inflation out before making such claims!

3. Ethnicity and population groups
Rather than just looking at sources of income, it can be interesting to consider different subgroups of the population.  Such a breakdown can tell us about the ways that inequality between these groups contributes to overall inequality, and how much inequality exists within certain groups of people.

One common population breakdown for all economic and social questions is one based on ethnicity, given that there are often structures within society that may lead to otherwise equivalent individuals from different ethnic groups experiencing very different outcomes.

In 2007, Chatterjee and Podder also discussed this issue, looking at data from the 1984-1998 period:

Our findings suggest that (a) the average incomes of the ethnic groups are strongly dissimilar – the average income of the pakeha group being substantially higher than that of each of the other groups; and (b) the intra ethnic-group variations in incomes, as measured by the within-group Gini coefficients, is much smaller for the Maori and Islander group than it is for the pakeha.

The suggestion here is that average income for European New Zealanders is higher than for those of Maori or Pacific Island descent (between group inequality), but that inequality among Europeans is also higher than among other groups (within group inequality).  Exactly what this means is a difficult issue – is it a case where there is a group with significant claim on income, and is this group defined by race or some other characteristic?

When it comes to considering ethnic issues, an important part to consider is how the groups incomes “overlap” – in terms of members of one ethnic group earning more or less than other ethnic groups.  The greater the overlap, the less race based inequity is likely occurring. 

One encouraging part of much of the literature on ethnicity has been the increase in income overlap between 1984 and 1998.  However, this paper contends that this is largely due to changes in the population shares (the rising relative size of Maori and Pacific Island populations) and that when we correct for this there has been no improvement.

4. Graphical measures of inequality:  Lorenz curves
During 2002, Chatterjee and Podder took another tack in analysing changes in income inequality in New Zealand during the 1984-1998 period, focusing on a concept called generalised Lorenz dominance.

We don’t want to get into too much detail here, but the idea of Lorenz dominance between two years is that, for a fixed average level of income over the population a split in income that is more equal will Lorenz dominate another split that is less equal – as long as the level of inequality is seen as a negative thing. 

Of course, average income generally rise over time – so we want to generalise what we are looking at.  Generalised Lorenz dominance moves away from only looking at the relative income of individuals, and also takes into account differences in the amount of income earned. 

Using this method they look at four years, 1984 (pre-reforms), 1992, 1996, and 1998.  They show that 1998 dominates all the other years, but that 1992 tends to be dominated by all other years.  They then state that the choice of distributions in these different years was largely a policy choice – this is much more debatable.  And even if it was a policy choice, in the longer term there is a question of whether New Zealand was on a sustainable path – would we have eventually been forced into drastic changes at a less opportune moment?

This broader concern about interpreting changes during the reforms as primarily due to the reforms themselves is in part supported by a 2007 paper by the same authors in conjunction with Paul Dalziel and Sven-Olov Daunfeldt.  Here they found that the more extensive reforms in New Zealand, as compared to Sweden, did not seem to lead to a comparatively larger increase in the inequality of incomes.

NoteDalziel 2002 and Quiggin 2000 both state that the more intensive reforms in New Zealand relative to Australia was part of the reason for our relative under performance to Australia during the 1990s.  However, this was a discussion regarding the level of incomes (not inequality), relied on very different data, and is also highly argued about in the literature – the research by the Productivity Commission on comparing Australia and New Zealand is about trying to disentangle the reason for these differences in performance.  I am just noting it here so no-one thinks I’m ignoring it!

5. How do our differences drive “income inequality”?
The analysis of income and population subgroups, and Lorenz curves, that we have discussed above are useful descriptively – but as we noted they are still hard to interpret.  In order to help tease out this puzzle we have to look even more deeply at the types of underlying changes to the fabric of society that have occurred, to determine whether they have contributed to the lift in inequality through the 1980s and early 1990s.

A paper by Dean Hyslop and Dave Mare, that is incredibly popular in the New Zealand economic community, (an early version here) attempts to explore this issue by estimating how the income distribution (in terms of gross household income) would have looked if certain social and demographic factors had not changed.  The factors considered are:  changes in household structure (eg how many people living in a house, how many are children) changes in sociodemographic characteristics (eg age, sex, ethnicity), changes in the return to these characteristics, changes in employment outcomes, and changes to National Superannuation.

Although it is important to keep in mind that this doesn’t tell us what caused the changes, it does give us more of an impression of what the change in income inequality measures actually mean, by showing that the change in income inequality was related to underlying changes in society.

So what do the authors find:

Examining income inequality across all households, we find that the main factors which contributed to the change in inequality were changes in family and household structure (primarily a pronounced drop in the fraction of two parent households and a rise in the fraction of sole parent households), and changes in the socio-demographic attributes of households.

However, as is often the case it is important not to view these as “causes” of the changes we’ve observed – this just tells us that the observed change in income inequality was associated with changes in these factors.

Why is this distinction important?  Let us consider the increase in sole parent households – what does this tell us?  Does it tell us that rising observed income inequality is due to a breakdown in the institution of marriage and falling opportunities for those with children?  Does it tell us that falling stigma about raising a child alone is allowing people to do it alone instead of staying in abusive relationships?  Does it tell us that living standards are rising in such a way that sole parents are now able to have their own separate housing rather than living with others?

Each of these reasons implies a very different set of things about the change in inequality – some good and some bad!

Including the 2000s

Although it is important to consider what happened in the late-1980s and into the early 1990s times have moved on.  So what do more recent studies of the New Zealand situation suggest?

6. Differences in wage income
Although the study in bullet five only used data up until 1998, a paper released in 2005 by Dean Hyslop and Suresh Yahanpath considered wage income data between 1998 and 2004 – so the six years following the previous study.  This is not as comprehensive as looking at all income, and it also relies on a different data set (the Household Labour Force survey), but the trends discussed as still of interest.  The focus here was on changes in both the level and spread (inequality) of incomes during the period.  They found:

The principal results of interest here are that the income gains in the low-mid range of the distribution are primarily due to increasing employment, while the income gains observed higher in the distribution are more strongly due to increasing returns to demographic and employment characteristics. These findings are suggestive of employment gains at the lower end versus wage gains at the higher end of the distribution, however there are several caveats associated with such a simple interpretation.

The caveats they point to are that, given the composition of employment growth the wage growth for those in the low-mid range of wages may be underestimated.  And that income and wages are different – as wage growth for those on low incomes may well come with lower benefit payments!

One important point to keep in mind is that this study still predates Working for Families.

7. One on decomposition
In a similar vein to the previous two papers, a recent Treasury working paper by John Creedy and Jesse Eedrah investigates some of the changes that may have been responsible for movements in income inequality – in this case comparing the HES surveys in 2007, 2010, and 2011 (when significant tax changes were introduced).  Unlike the earlier papers, this work focused on the impact of tax and benefit changes with all changes in the social structure (age, household type, education levels, sex, and ethnicity) lumped into one “population structure” category.

When decomposing changes in inequality into tax and population components, it was found that for all disposable income distributions and inequality measures, the effect of the tax and transfer changes between 2007 and 2011 was to increase inequality of disposable incomes slightly. However, the population structure changes had the effect, in all cases, of reducing measured inequality. The overall effect on inequality (depending on whether the population component outweighed the tax change effect) was found to depend on the inequality measure used.

The focus on such a short period of time with very small changes indicates that the impact of tax, transfer, and population changes in measured income inequality were not enormous.  However, what this exercise does point out is that changes in income inequality over time have been the product of a range of different factors – some that we may view as fair, and some that we may view as unfair.  Separating out these effects, as this and studies we have mentioned earlier have attempted, is a useful exercise for asking ourselves what is going on.

8. What happens when we include government spending?
As mentioned above, interpreting income inequality is difficult.  It turns out that government policy makes the interpretation here even more difficult – as the “incidence” of government taxes, transfers, and spending can fall in unintended places.  In other words, when the government works to transfer goods and services in society, who wins and who loses is unclear, as is the way this shows up in the data.

This is a complex point, so let me discuss it with regards to the types of measures I am going to discuss in this bullet.  When looking at income we can look at “market income” (the gross amount we are paid for work and as a return on our savings), “post-tax and transfer income” (market income, taking out tax, and including government payments such as superannuation, working for families, and the job seekers allowance), or “final income” (further adjusting income to attribute “government spending” on goods and services such as education and health to households).

As taxes, transfers, and government spending are mostly “progressive” (in terms of those on lower incomes receiving proportionally more from transfers and spending, and paying proportionally less in tax, than those on higher incomes), then by definition inequality in market incomes will be higher than inequality in post-tax and transfer income which is higher again than inequality in final income.

These final income measures have been studied by Ron Crawford (for 1988 to 1998) and by Omar Aziz, Matthew Gibbons, Chris Ball and Emma Gorman (for 1988 to 2010), and they find that this is the case – with inequality in final income:

Final income, which is disposable income plus health and education expenditure but less indirect taxation, has been considerably more evenly distributed than market income, and has increased for almost all income deciles.

Although this is very useful, it leaves out an important point which is also missing from the prior analyses – in what ways do market prices and wages change due to the introduction of government tax, transfers, and spending?

In this way, it is important to consider all three types of income inequality – recognising that each only provides part of the information about the puzzle of what is going on.

9. Income over your lifetime – the idea of “mobility”
One issue about income inequality which we have put to the side so far is that of mobility – however, it is a big issue so it is going to get a big bullet.

Over our lifetime the amount we earn changes – there is income inequality between a young version of you and an old version of you, even if you work just as hard across your life.  Furthermore, even though capital gains are often excluded from this form of analysis, the decision to sell or purchase assets (or to save) does influence the income individuals and households earn – another issue that varies over a person’s lifecycle.  As people are all at different stages of their life, some income inequality in this sense seems entirely fair – as long as individuals are “mobile” in the sense that they can move up and down the income distribution over their lifetime.

Extending the paper we discussed in bullet 6 to also use longitudinal data (data that links individuals over time), Ron Crawford wrote the following paper in 2009.  Focusing on mobility in labour market earnings (not overall income), this paper found that human capital accumulation (education) was important for explaining changes in earnings. 

Furthermore, it suggested that mobility was greater during the recessionary period of 1997-2001 than in 2001-2004 – this is an important caveat for thinking about income mobility, it is not solely a measure of the opportunity for groups but can also be a measure of the level of social upheaval and instability!  

The author suggests that the SoFIE data should be used to build a greater understanding of what is going on.  A recent Treasury Working Paper, this time authored by Kristie Carter, Penny Mok and Trinh Le took on this challenge to look at the issue of income mobility – while trying to correct for some part of the lifecycle effects by concentrating on people aged between 25 and 55 at the start of the survey they used for analysis.

If no-one ever moved from one quintile of income to another quintile, then the point in time measures of income inequality that we’ve been discussing from the HES would be appropriate for thinking about the claim on resources these different income groups have over their lifetime.  However, the more mobility there is, the less useful these measures are for discussing this issue.

The working paper finds that:

Also although there were strong correlations in income between years, there was substantial (relative) mobility in income. Much of the mobility was short distance to adjacent income (quintile or decile) groups. Over the long-run there was much more mobility with almost twice the amount of mobility than shown in the annual change tables.

However, even using this longer data set this paper notes there is only so much we can take out with regards to mobility – just like inequality, we need to understand the cause of mobility to truly understand whether what is going on is good or bad.

10. Using a different lens – “factors” instead of individuals/families/households
A lot of the recent attention around income inequality has not been with respect to the measures I’ve discussed above.  In his 2014 blockbuster, Capital in the Twenty-First Century, Thomas Piketty focused primarily on income accruing to “factors” rather than individuals, families or households.  Economists term this the “functional distribution” of income, as compared to the “personal distribution” which was discussed above.

The factors Piketty focuses on are capital and labour, and in some sense our own income is generated from some mix of both – we all have some claim on capital and some claim on (our own) labour.

We don’t currently have much research regarding this specific way of viewing inequality in New Zealand, and one of the takeaways from a recent book about the relevance of the Piketty thesis in New Zealand indicated that this is an area which requires future research.

New Zealand’s experience with changing income inequality has been unique and complex, and defies an easy right vs wrong characterisation.

In many ways the debates we hear about inequality (and also poverty – which is a separate but related issue) within New Zealand today are not the result of some natural tendency of capitalism to drive inequality, or some ever increasing gap between the haves and have nots.  Instead, it is a debate around whether the reforms of the 1980s and early 1990s shared the burden and rewards of the reforms in a way that people believe is fair.


* Matt Nolan is an economist at Infometrics, and an author at the blog TVHE. He specialises in looking at the household sector, and household economic data, but will offer an opinion on pretty much anything related to business and the social sciences.

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You say
"The fact incomes are different (and therefore, unequal) does not immediately imply that incomes are unjust."
How, and who defines what is "Unjust"?

We should be doing so as a society, we are failing IMHO.

The perfection of lies.
Academics, particularly Historians employ a nifty trick.
Historian A writes a book exagerating the truth. Some years later Historian B writes a book, quotes from A's book, and exagerates, and so on.
Eventually we get the History that they want you all to believe.
Economists are no different.
Just because sombody does a study, or writes about something does not make it correct.
Lets make the issue of inequality so complicated no one will understand it and so nothing will change.
Put simply
If you have more than me we are unequal - now how difficult was that?

Actually you are wrong I think. What you'll actually find is that historian c will review a and b and point out the errors and gain a reputation advantage over both.  So really believe it or not acadmia is very cut thraot and brutal, just done very politely and its reputations and careers that bleed all over the floor and not actual blood.
ie in a peer reviewed system just like the claim that once Govn debt gets to  90% "all hell will break lose claim" sooner or later it gets outed.
Inequality is a complex issue but the biggest mis-direction is not that inequality has not changed much but that yes it is indeed significant and too wide.

Matt...  in case u had not seen this... (Bill Gates review of Pikettys' book )
Interesting article.....  My own view is that rentier income might be higher than Bill gates thinks it is..???
I mostly agree with what Bill Gates' says.....     even agree with the idea of inheritence tax
Thou I dont really agree with what he says on consumption... ( maybe I dont understand )
I like his conclusion...."Piketty’s work contributes at least as much light as heat. And now I’m eager to see research that brings more light to this important topic."

Those of us who have awoken a great many mornings will have noticed that the weather we see each day differs from other times we have seen it. We may recall days, weeks, months, years or decades past, very wide variations or simarlarities. Then we adapt and go about our business.
I supect this will also happen on a macro level as the entirety of this planet and all its hangers-on experience and deal with any future change in their own way. It's all a bit grounghog dayish and has attracted too many handwringing shriekers.
The underlying inevitable truths and strength of probabilities remain, this planet will be circling the sun long past human demise in the grand sweep of geological time. You may test the goodness of your actions while you are here, but you will not alter the outcome.

The Bill Gates review was included in Monday's Top 10.
I don't agree with what he says about taxing consumption either.  The current consumption based economy does not work without consuming.  Ideally you would tax those that hoard and accumulate wealth (a wealth tax?) and don't invest in productive enterprises.  Given that the purpose of tax is government revenue you just tax all three the same.  Only if you are attempting to use taxes to influence behaviour do you discriminate.  Obviously this all assumes business as usual and that a consumption based society not only makes sense but can actually continue.

I completely disagree with inheritance tax.  Why should the asshat government that parasited a person their whole life, get to help themselves because the person dies!!!   If the dead person wanted the guzzlement to have the funds they could will it to them.

If the person has property, assets, investments and they're alive they can give them to other people.  It's their natural right of ownership, to be able to enjoy the use of their property like that.  they earnt it, created it, then it's their and theirs' alone to handle as they see fit.  No yours, certainly not the governments.

So why should that change when a person passes away?
You expect parents to support children, and others their dependants, how is this different?  Oh do we cap what parents are allowed to spend on their own children?

And if a person dies early, why should the government get anything?  Just because that person didn't last long enough to get a chance to give away THEIR property.

And if a person lives a very long time, then that property is still theirs.  It came from their actions, their reinvestment, their and their families sacrifices and choices.... not the government...often in spite of the government.   so that property should never go to the government or to taxes unless that person directs it so.

And Bill Gates.... if you think you personally need to pay more tax, then they actually have donation systems available.  And if you want to do so in your Will, then there already exists mechanism for that.   Spend your own money and property, not that of others via rort.

Now give me a valid reason -why- the government should be entitled to anything from an inheritance.  they own none of it, created none of it, and every portion has already had taxes paid on at its earning.
   So what reason beyond social parasitism and greed for consuming that which doesn't belong to you, could you possibly use to justify your "pro-tax" position.  (remember I'm not stoipping _you_ from paying more if _you_ want to, just stopping you stealing property/money from others who don't want to)

Okay, fine. But what's your solution to childrens' lifetime earnings being 90% predictable from their parents' wealth then? It's gonna cost more money to give children from poorer families more of the opportunities of rich ones, and the money has to come from somewhere. Or are you okay with life being a lottery?

In other news:

Global average temperatures for October 2014 and year-to-date are highest on record
October 2014
The combined average temperature over global land and ocean surfaces for October 2014 was the highest on record for October, at 0.74°C (1.33°F) above the 20th century average of 14.0°C (57.1°F).
The global land surface temperature was 1.05°C (1.89°F) above the 20th century average of 9.3°C (48.7°F)—the fifth highest for October on record.
For the ocean, the October global sea surface temperature was 0.62°C (1.12°F) above the 20th century average of 15.9°C (60.6°F) and the highest for October on record.
The combined global land and ocean average surface temperature for the January–October period (year-to-date) was 0.68°C (1.22°F) above the 20th century average of 14.1°C (57.4°F). The first ten months of 2014 were the warmest such period on record.


and it isnt even an El Nino....
meanwhile in other news the GOP wants to ban academics,
....oh boy.......

Yeah "on record". "On record" is a blink of an eye. Historically it has been warmer and the sky didn't fall in. Also this century it is only warming at a rate 1/5 of the IPCC projections and only at a rate 1/4 of what it did when 1860-1880 and 1910-1940 when comparatively we didn't have any industry - this century being the period where 20% of industrial CO2 was emitted. 
Cursed statistical significance ruining a good scare story. And it was such a good scare story too - oh well into the dustbin with population bomb, Y2K, eugenics, dudes who wasted careers arguing with Wegener...
Phil Jones UEA CRU on the recorded temperature period:
"Temperature data for the period 1860-1880 are more uncertain, because of sparser coverage, than for later periods in the 20th Century. The 1860-1880 period is also only 21 years in length. As for the two periods 1910-40 and 1975-1998 the warming rates are not statistically significantly different (see numbers below).
I have also included the trend over the period 1975 to 2009, which has a very similar trend to the period 1975-1998.
So, in answer to the question, the warming rates for all 4 periods are similar and not statistically significantly different from each other."
Nature 2014:
"Simulations conducted in advance of the 2013–14 assessment from the Intergovernmental Panel on Climate Change (IPCC) suggest that the warming should have continued at an average rate of 0.21 °C per decade from 1998 to 2012. Instead, the observed warming during that period was just 0.04 °C per decade, as measured by the UK Met Office in Exeter and the Climatic Research Unit at the University of East Anglia in Norwich, UK."
0.04 degrees/decade - inside the margin errror and not warmer than historically. Not exactly runaway global warming.

There you go again, the zombie "it isnt warming" still shuffling along. Cherry picking your trend data per decade and not multi-decade which shows the clear rising trend.
Sorry old chap but really the deniers sush as yourself now are showing up as more and more the isolated  kooky fringe no one takes seriously.  The rest are the bought and paid for  Pollies, mostly if not it seems owned by the fossil fuel industries.

ah no - it is warming. Just not rising very fast and the key point not significantly different to periods earlier last century when industiral CO2 output was tiny compared to today. I didn't pick the periods - the Head of CRU did based on the obvious trend in the temperature record.
As usual you have no data - just misrepresenting what I clearly state and clap trap about deniers and being bought off. Lame. Can you show me any data that it is warming faster now than early last last century or warmer than historically? Though not. And to do so you would have to contradict the head of CRU. Even the Cowtan and Way "hybrid" "optimal interpretation algorithm" implies a warming rate less than 1910-1940. Who is in denial here?

I know its only weather... but check out these photos from the States at the moment.
I think the game might be cancelled.

No it hasn't.  You've never heard of Rossby Waves I take it.  Google is your friend.

A whole bag of Qs, thanks for the interesting top 10.

Interesting top 10 , and it articulates some of the things we were thinking as being the causes of inequality .
That said , I have lived in a few places in my life , and NZ is the most egalitarian society I have ever come across .
Basically 4 of the 6 billion people on the planet either live in China , India or an Islamic country , where " opposition" , or women , or minorities,  or some class or race or religion ,  is discrminated against .
That discrmination has led to entrenched economic and cultural inequality.
Its also exists n the US ( Black and Hispanic ) , Australia ( Aboriginals and to a lesser exent Asians  ), the  UK (Class structures ) Israel ( women cannnot worship alongside men in the synogogue, and Palestianians are kept out ), and parts of Europe where there is resentment towards outsiders or foreigners right up to Prime ministerial level such as in Italy  or in Greece where Macedonians cannot find work , become self employed and are treated as tax cheats .
Germans dont like the Turks or Roma who are the poor underdogs, the Dutch dont like the Muslim immigrants who are often on the dole , the French only tolerate foreigners on the outside , but remain deeply resentful.  
All these groups discriminted against are " less well off' then the rest

Such is the tribal nature of humankind and most other mammals. Although complicated by our ability to travel and settle elsewhere, we exist in groups of those with whom we are identifiably similar by intellect, ideology, interests or, dare I say, race among others. The continuous political denial that this is natural flies in the face of common observation by any that care to look, or not overlook and non-inclusion of this clear state of affairs in examining inequality of any type within a population is simple misdirection for those same political motives.
We need effective managers for our societies, they have come and gone in many forms and temperaments through the ages with varied results for all concerned. All forms of government can be successful, or not, dependent on the leaders motives. Democracy is not the pinnacle as it is usurped by the rich and decays into oligarchy over time, but it is what we have now in the west.
There is no solution, just a sales pitch.

Well, folks, it's Friday.  Time for Funny Stories.  And as this 10@10 is about the Dispossessed, Tom's yer man.
What we need is a Rallying Cry, so, to the tune of the Battle Hymn of the Republic, here's one.  That first line is filched from Tom Waits 'Whistling past the Graveyard', in case yez were wondering....
Mine eyes have seen the glory
of the draining of the ditch
Which some aver we dug ourselves
And filled with Carp and Bitch
But excavation's over 
it's a Brave New World of which
I'm Leader! Marching On.
Glory! Glory! Hallelujah! 
Tory! Tory! Sock it to ya,
Glory! Glory! Hallelujah! 
The Left is marching on!
The housing bubble rattles on,
All FHB's aghast
Their Kiwisaver pot falls short
of Land Inflation's Blast
The worker suffer at their desks,
Poor dears, their lot is Cast
With Labour's fate. March on!
Glory! Glory! Hallelujah! 
Labour's here to listen to ya
If you're Boss-class, gonna screw ya
O-ver you, we'll March On!
The cleaners and the rest-home workers
Slave away each day
Their toothless unions cry aloud
'We can't live on this pay'
The power bills are swingeing,
and the rents have shot away,
The Destitute March On!
Glory! Glory! Hallelujah!
Labour's here to dish out Moo-lah
Where it comes from, well, Petunia,
Trust Us, March blindly On!

Many a true thing said in jest, eh.

A lot of fluff for something that can be explained relatively simply. 
The cause of income inequality is because we do not value one another equally.
Instead we put our faith in economic theory (which anyone with any intelligence knows is bullshit) and believe in "the market" if left to itself will solve all economic problems.  We allow a value to be attached to the work being performed rather than to the person performing the work.  This might be ok if our collective value system wasn't ass about face or if we weren't taught/indoctrinated into believing that certain jobs were more valuable than others.
The market is made up of individuals, corporations, government institutions, all with varying levels of control and power.  Problem is the group with the most power have been fooled into believing they don't have any and allow themselves to be ruled/lead by the groups that don't give a shit about anything but power and control.
Why don't we value one another equally?  In one simple word - Ego.
Like sheep - given the promise of green grass and the illusion of freedom, even though they remain fenced in - they blindly follow the shepherd who cares not of their wellbeing unless it serves his purpose.  Unlike sheep, they have the ability to be aware, the knowledge to change.  If only they would develop wisdom to realise that as a community of individuals, they have the strength to be free of the shepherd, to be free of the fences that cage them in.

The market is always there is the amount of manipulation in the market that causes problems.......
We can value one another equally but this does not necessarily mean that each person will exert the same amount of effort hence things like income inequality.......
Then there is the person who over-exerts and is treated with inequality by the system.
The whole of the planet functions on host and parasite.......and humans are no exception!!!
I treat all people fair and equally but only if they are not a parasite!!!  Parasites generally want all the nice to haves without doing the work themselves......or they invent things for people to be fearful of.

Really, you just stated yourself that the system indeed does treat hard workers with inequity - or did you just invent that?

Inequality is everywhere Raegun!!!  The whole planet is all about hosts and parasites.
Controls by the State creates inequality.
Employers are treated with inequality over employees by the State.
Foreign Investors are treated differently to local investors.
If the rich paid all the taxes and middle and low income would be inequality.
If the poor, low nad middle income people received all the taxation benefits and the rich none again it would be inequality.
If you and I work side by side doing the same're the employer I'm the employee.....I go home at night and relax....while you go home and complete all compliance obligations, any other paperwork and source new that the price you pay or is really just  inequality at work.

That's funny, years ago when it was considered that Jack was as good as his master and the gap was not so wide between the have a bit mores and the have not so muches we did not think of each other as hosts or parasites.
Having said that I guess it is a matter of opinion as to just who is the host and just who is the parasite, eh? The guy in the gas station being docked for someone else's dishonesty, I suggest, was not the parasite, his boss almost certainly was, if you want to de-humanize the whole thing. But if you want to go that way, then I see the guy making money out of money as a parasite
We use the word inequality which has the effect of meaning that we must therefore be equal, of course that is not so, perhaps we better find another descriptor. That's the problem too many people think that addressing great inequality must automatically mean we must become totally equal. 
I'm sorry but sometimes we do have to look after ourselves before we worry about whether or not foreigners can have free rein over property that we just cannot compete with. Take it on a smaller scale and I am sure you will protect your family in a similar way.

The purpose of our existance is to see who can gather the most wealth.
Without that challenge there is nothing.

No it isn't, go climb a mountain instead, at least at the end of that you may just have some sort of sense of achievement and satisfaction, just gathering more and more wealth will never truly do that and you will not have had to deny anyone else in order to do it

Surely that is tongue in cheek.  You can't be that shallow.

Inequality is a subject that politicioans should not be allowed anywhere near, what percentage of the voting public do you think have a good grasp on the subject?
Money is the best idea we could come up with for valuing time. Not all time is of equal value, its hard to argue that the time value of someone that never went to school should be the same as a person that went to university for 10 years or if you have give up a great day for fishing to be called back to work in the weekend you generally want a lot of money for what you are giving up.
Having income and inequality in the same sentence is bull shit. Income equality means every one is poor.

Nobody is arguing that everyone should be paid the same. The problem is a few gathering vast amounts (I won't say earning as it goes way beyond what anyone could earn by actually working) while far too many can barely survive on what they earn. It does not require everyone earning the same for that to be fixed

I dont see what going to school has to do with anything.  sitting in a room full of dullards, while a "Teacher" attempts to keep order for 6 hours a day, 200+ days a year, gives what extra value?
 I'd far rather pay more for a master craftsman, or a person tutored in their subject.  Often the over educated see their education as an intrinsically valuable property that everyone else should owe them for - yet if I am entering trade with them, what is their value to me that I give them money for.

Paying people for time is just a dreadful crutch which the government likes for the obvious reasons that it justifies their own non-productive wages and gives them something to tax.

And to be giving that fishing up...well you'll happily do it right, because with enough population you have no specialisation value, so must rush back to your master to receive a continuation for next years contract.
 And for all those poor quality workers, who should be productive, well in order to ensure the government keeps it's taxes rolling in, we'll give them so many rights to keep them in servitude, that their masters can only replace them if they don't heel on command.

Valuing time... well your time has no value to me.  Why *should* I be paying you for it??
I pay you what I believe your product of service has worth to me - sadly however in the world few people care about seeing through the quality they promise.

eg: I brought a UV and cartridge water filter 14 months ago. Checked repeatedly that it wouldn't need servicing more than twice a year.   Water tests a month ago reveal it doesn't work...  they strip it down and are trying to tell me I need to strip out the elements and glass tubes and clean them for it to work .... at least once a week.   more than 20 times more labour than orginally specified - and they look at me like I'm an idiot when I say "F... No. Not good enough"   They say to me "but that's what you -have- to do"

Sooner the global economy burns itself to armageddon the better