Why Australia is so much richer than New Zealand?
Phil Rennie from the Centre for Independent Studies has published an analysis on why Australia is so much richer than New Zealand.
Major points are:
- Per capita GDP (adjusted for PPP) is NZ$48,000 in Australia and $36,400 in NZ
- The major difference is labour productivity – Australian workers produce a
third more wealth for every hour worked, largely because they have more capital (machinery and technology) to work with. - Tax is a major area of difference between the two countries. Australia is a much lower taxing country, especially in terms of income tax. This affects incentives to work, save, and invest.
- Prosperity does not come by accident. Australia has a stronger political consensus around policies for growth, which contributes to investor confidence. In contrast, New Zealand halted most major reform in 1993, and has increased tax and regulation since 2000.
That last point is an important one. Both the Coalition and Labor in Australia are very focused on increasing economic growth, and making necessary reforms to increase labour productivity etc.
The analysis includes some wage comparisons. For example a dump truck operator in NZ earns $45K to $60K and in Australia $73K to $84K in NZ PPP $.
Going back to Australian Labor, the report quotes the new PM Kevin Rudd:
Kevin Rudd says he is ‘committed to keeping taxes as low as possible to attract investment and reward enterprise.’
Also a good quote:
A myth persists in some quarters that New Zealand is a laboratory for free-market reform, and that it has done all it can to create a level playing field. The reality is that our major reforms are now considered orthodox around the world. If we want to increase our growth, we need to do more, as Australia has consciously chosen to do.
Finally some recommendations:
- Lower income taxes.
- Cut the top rate of income tax.
- Improve the quality of government spending.
- Commit to light-handed regulation as much as possible.
- Regulatory responsibility law.
Now of course some people will decry all these things. But here’s the irony – they’re the same people who probably complain wages in NZ are not high enough. You want higher wages – you need to keep improving the economic environment.
December 4th, 2007 at 2:58 pm
Don’t believe a word of it comrades….just another right wing lie.
Maintain your faith in the collective and Mickey “dead hand of socialism” Cullin.
December 4th, 2007 at 3:00 pm
The Centre for Independent Studies, hs any institution ever been so badly named?
Funny how all of their reccomdations are always thise big business would favout eh?
If we want higher earnings, raising the minumum wage might be a good start, but of course we could not expect such a thought ever entering the minds of the Centre for “Independent” studies now could we?
Rebalancing the share of income between corporate fat cats and ordinary workers?
thats not on your agenda is it David?
[DPF: I was thinking of Sonic when I said those who whine will be those wanting higher wages and unable to work out the connection. Sonic - increasing wages without an increase in productivity is not sustainable. Go try it]
December 4th, 2007 at 3:05 pm
From their own website
“The CIS is actively engaged in support of a free enterprise economy and a free society under limited government”
perhaps they should rename themselves the Centre for Conservative propaganda?
Still, they must still be smarting from the recent Aussie election, so lets all be sympathetic for the poor Tory Losers
December 4th, 2007 at 3:06 pm
Sonic – why don’t we just print more money and hand it out on the street?
What a ridiculous comment. Shoot the messenger and suggest an idiotic alternative. Typical.
What’s more important – both of us earning exactly the same amount tomorrow, or both of us being better off tomorrow?
December 4th, 2007 at 3:07 pm
Is this the same Phil Rennie who has worked for National MPs in the past?
December 4th, 2007 at 3:08 pm
Sorry Julian, not sure what you are trying to say, any chance of trying again in English (rather than idiot)
Cheers
S
December 4th, 2007 at 3:10 pm
Naturally CIS are desperate to argue that Australia’s wealth has nothing to do with its 9% compulsory employer super payments – negotiated by the big bad unions that only want to wreck the economy and destroy capitalism – that have resulted in Aussie workers holding $1 trillion in super payments and made Australia the country with the most managed funds per capita in the world.
December 4th, 2007 at 3:13 pm
Socialists seem to get so caught up in trying to make sure everyone is earning EXACTLY the same amount (whether they’re kicking back on a benefit or not) that they forget we’re falling behind the rest of the world – as this report shows.
But keep trying to attack the CIS. Next you’ll be commenting on what the authors look like. How insightful.
December 4th, 2007 at 3:14 pm
“Rebalancing the share of income between corporate fat cats and ordinary workers?”
That’s it…..!!
Why didn’t I think of that?
The nationalisation of public companies in NZ or 90% tax rates should work a treat at least for the few months it takes for non govt business to rellocate to Aust.
There’s a note of panic in the weasel, perhaps?
December 4th, 2007 at 3:18 pm
proposing to raise the minimum wage is a sign of “panic” Tinia?
Any chance I could order 20 Kilos of what you are smoking?
December 4th, 2007 at 3:21 pm
Bwaaa….a rise in the minimum wage addresses zilch in Dave’s post.
December 4th, 2007 at 3:23 pm
Dim, if the increase labour productivity didnt compensate for the compulsory Super then non-super wage growth would have slowed. It hasnt.
Are you supportive of individual accounts of superannuation savings replacing government provision for retirement?
December 4th, 2007 at 3:23 pm
Sonic – Real wages rise when productivity rises. Raising the minimum wage simply increases unemployment among the young and unskilled.
December 4th, 2007 at 3:24 pm
Well I thought what Danyl said was significant, as 9% of income ends up being an awful lot of money, and when that money is invested in growth instead of say, static property, the results presumably speak for themselves. Only one part of the equation of course.
December 4th, 2007 at 3:24 pm
Corporate fat cats are ordinary workers, there just arent as many of them and they are paid a lot more. Like plumbers.
December 4th, 2007 at 3:26 pm
sonic obviously knows NOTHING about the Centre for Independent Studies. It has respect in Australia from across the political spectrum, in fact, when I was there last year – who was the speaker?
None other than the president of Australian Labor – Warren Mundine, thats who.
Vast right wing conspiracy right there.
December 4th, 2007 at 3:26 pm
Politicize the answer as much as you like but the simple answer is mineral wealth.
On top of that though is this country’s investment in multi-ethnicity or biculturalism, which, while expensive in the short term may reap huge benefits before we are cradling out grandchildren in our laps. Our relationship with Australia means that those who yearn to be like Australians are free to go and live there. That includes commenters on this blog.
December 4th, 2007 at 3:27 pm
stephen, the 9% super does add up, and it could be considered largely to blame for the 25%pa return in local stocks and property for the last 4-5 years.
A lot of money is chasing a few stocks in Australia, the prices have gone up as would be expected.
It isnt necessarily the sort of “investment” that is required to grow the economy.
December 4th, 2007 at 3:27 pm
Also the CIS have often been highly critical of the Howard Government… you only have to see the recent letters war int heir policy Magizine between costello and one of their authors to realise this.
December 4th, 2007 at 3:28 pm
Oh dear, Sonic has given Sam Dickhead his login…
December 4th, 2007 at 3:29 pm
Sorry Julian, not sure what you are trying to say, any chance of trying again in English (rather than idiot)
Oh come on sonic. I used to consider you a decent man – and a funny one at that – quite frankly it seems you are no better than Mallard.
December 4th, 2007 at 3:29 pm
So if we want to raise wages, raising wages is not the answer?
I must admit I sometimes struggle with Tory logic, until I remember it is all about making the rich as rich as possible and screwing the workers (who are the people who actually create the wealth) as much as they can get away with.
If wages are too low in NZ, Lets put the heat on those that are paying the low wages.
Or is that too complex for you to follow?
December 4th, 2007 at 3:30 pm
At least they got this part right. How do we increase the amount of capital per worker? By increasing the cost of labour relative to the cost of capital, e.g. by increasing the minimum wage (gradually and predictably — don’t go bringing out the ” increase minimum wage to $50″ strawman).
Anything that decreases the cost of labour — e.g. tax cuts, regressive labour market “reforms” — will just widen the gap.
December 4th, 2007 at 3:32 pm
Kent – what colour is the sky on your planet?
Multi-ethnicity and biculturalism might (might) make us culturally richer, but they’ll do fuck all for the bottom line.
December 4th, 2007 at 3:33 pm
“Politicize the answer as much as you like but the simple answer is mineral wealth.”
Mineral wealth doesnt tell the whole story. The ability to exploit mineral wealth and to allow the benefits of this exploitation to filter through to the rest of the country is important.
“On top of that though is this country’s investment in multi-ethnicity or biculturalism”
What rot. I would challenge you to find a single office tower in Sydney CBD that has less than 1/3 foreign born workers in it.
“Our relationship with Australia means that those who yearn to be like Australians are free to go and live there.”
40,000 did last year. They werent dole bludgers either. They were skilled workers. Workers who had skills paid for by NZ.
December 4th, 2007 at 3:33 pm
Are you supportive of individual accounts of superannuation savings replacing government provision for retirement?
No – and that’s not what Australia has done.
I also note that CIS don’t particularly care for Australia’s capital gains tax on secondary properties. So New Zealand should just do all the things the Australian government does except the ones that build wealth and maintain government revenue. Maybe Phil Rennie should just release a press release demanding that the Finance Minister give him a pony for Christmas.
December 4th, 2007 at 3:34 pm
Sonic – care to comment about those right wingers at labor and their involvement with the “conservative” CIS?
(This being the same CIS which had a topic on drug legalisation at a 2005 conference)
December 4th, 2007 at 3:34 pm
“So if we want to raise wages, raising wages is not the answer?”
Thats right, sonic. I doubt you will ever understand this, because you do not have the intellect to think beyond stage one.
December 4th, 2007 at 3:34 pm
I obviously need to get my hands on an economics degree.
Sonic seems to be ignoring a lot of common sense. If wages rise, money needs to be found to pay the wages – maybe its there…what if its not?
December 4th, 2007 at 3:36 pm
Sonic – do you honestly believe that the only outcome from raising the minimum wage will be higher incomes for young and unskilled workers? And there will be no fall in employment among such people?
December 4th, 2007 at 3:37 pm
David, the report explicitly points out that NZ’s weak labour laws are a reason wages are so low, which in turn has led to lower productivity. It’s a vicious spiral that was created by National’s Employment Contracts Act.
The effect on wages is clear:
http://www.thestandard.org.nz/?p=527
December 4th, 2007 at 3:38 pm
Thats right Kimble, only an idiot could blame low wages on the employers that pay low wages.
I’m just too dumb to see how the two are unconnected.
Oh and in breaking news it turns out that crime is not caused by people breaking the law and arson is not caused by people setting things on fire.
I’ll leave it to you and your impressive “intellect” to fill in the gaps.
x
S
(ps Mike, no idea what you are getting at, care to enlighten us all?)
December 4th, 2007 at 3:39 pm
“money needs to be found to pay the wages – maybe its there…what if its not?”
Weird that no-one ever asks that question about the pay of company directors?
December 4th, 2007 at 3:39 pm
The Aussies know how to run a successful economy.
It’s an unfortunate accident of geography for Labour that this successful culture is next door for easy comparison.
Sort of shines a light on the lefty dogmas that have to be adhered to in NZ
Otherwise Labour have no reason to be playing the game.
Shocking it is to be choosing failure over success because you can.
December 4th, 2007 at 3:39 pm
The fall in employment will be small compared to the gain in income. Approx 2% fall in employment for a 10% increase in wages.
December 4th, 2007 at 3:40 pm
“Are you supportive of individual accounts of superannuation savings replacing government provision for retirement?
No – and that’s not what Australia has done.”
No, not quite, but it was my question.
It is a compulsory scheme. Do you really think future governments aren’t going to be paring back the estimates for their retirement liability?
How does the CIS’s position on the secondary house capital gains tax relate to this discussion?
December 4th, 2007 at 3:40 pm
“Thats right Kimble, only an idiot could blame low wages on the employers that pay low wages.”
Think past stage one, sonic.
December 4th, 2007 at 3:40 pm
Thats right Tina, low wages have nothing to do with the employers who pay them, it is the governments fault.
Can I ask, what colour is the sky on your planet?
December 4th, 2007 at 3:41 pm
There have been a number of economic and social statistic reports of late. The overwhelmingly common factor of them all has been that NZ has fallen down the tables.
When elected the current government set as its long term strastegic goals that it would get us back into the upper quartile of the OECD tables, that it would transform the economy and that it would strengthen our national identity.
I am having difficulty finding performance data to establish that the attainment of those goals has been successful. The only tired comment offered by government politicians and their supporters is that things are better than when they assumed office in 1999.
Unfortunately the committed advocates of the government who post relentlessly on this and other like blogs simply offer criticism of the past (pre 1999) , no evidence of achievement against the strategic goals set by the government, (from 1999 to date) and prophesise eternal gloom if any one else other than their socialist friends exercise government in the future.
Iwould like to know in a macro sense just what has been the progress that can be substantiated against those strategic goals. (The size of the tax take is not a good justification)
December 4th, 2007 at 3:41 pm
So if we want to raise wages, raising wages is not the answer?
Sonic, I take it you do not understand anything about economics then? Raising wages without raising productivity will lead to massive inflation. According to your logic if the government legislated the minimum wage to be $1,000,000 per year – then of course everyone would become millionaires, but our inflation would rival Zimbabwes.
I must admit I sometimes struggle with Tory logic, until I remember it is all about making the rich as rich as possible and screwing the workers (who are the people who actually create the wealth) as much as they can get away with.
Then why is Australia streets ahead of us sonic? Or are record numbers of Kiwis flying over to Aus to get screwed by the rich? Oh wait, hang on they earn more than us…. Ha! And you ridicule Tory logic.
If wages are too low in NZ, Lets put the heat on those that are paying the low wages.
Or is that too complex for you to follow?
Sonic, how do you know the income of ‘those paying the low wages’ is sufficient to pay higher wages? All legislating a payrise will do if the company is not making enough to cover the increased wage cost is force the company to lay off some staff. How the hell would that be a wise move.
December 4th, 2007 at 3:42 pm
Care to enlighten us Kimble, rather than just play the Faux intellectual?
Thought not, you just cannot answer a simple question can you?
Low wages are a result of NZ employers paying to little.
December 4th, 2007 at 3:42 pm
Here the credibility of the CIS is absolutely destroyed. According to the world bank we are currently the second LEAST regulated economy in the world, yet the CIS asserts that the reason we lag behind Australia in terms wages is that we are over regulated? Go figure.
http://www.doingbusiness.org/economyrankings/
In fact the real reason that we have lagged behind Australia in wage growth over the last 20 years is that National destroyed the bargaining power of our workforce when it effectively destroyed our union movement with its 1991 Employment Contracts Act. Since then growth in wage levels have lagged far behind growth and GDP and corporate profits in NZ, where as in Australia the growth in all three variables has been more or less even.
http://rogernome.blogspot.com/2007/07/brief-history-of-wage-growth-relative.html
December 4th, 2007 at 3:44 pm
” Raising wages without raising productivity will lead to massive inflation”
Yet raising the wages paid to comany directors, managers and other assorted fat cats does not?
December 4th, 2007 at 3:44 pm
Here’s the Australian picture:
http://rogernome.blogspot.com/2007/08/why-new-zealand-needs-its-unions-back-4.html
December 4th, 2007 at 3:45 pm
“perhaps they should rename themselves the Centre for Conservative propaganda?
Still, they must still be smarting from the recent Aussie election, so lets all be sympathetic for the poor Tory Losers”
Thats what I’m getting at.
CIS Fellows include people from across the political spectrum in Australia. They are not as you so ignorantly describe them “conservative propaganda” or “tories” …
That is unless Warren Mundine is a tory, and criticising the Howard government is conservative propaganda.
December 4th, 2007 at 3:46 pm
Your panicking weasel.
Check out the productivity in Aust.
One third more than NZ.
Employers don’t pay more if their NZ business will thereby fold
Any light bulbs on yet?
December 4th, 2007 at 3:48 pm
“Yet raising the wages paid to comany directors, managers and other assorted fat cats does not?”
You’re the only person here who is proposing this be made into legislation.
Good work trying to backtrack, when every commenter who has even a basic understanding of economics has tried to show you you’re completely and utterly wrong. Keep trying.
December 4th, 2007 at 3:49 pm
Kimble, the criteria for introducing non-European ethnicities into Oz are quite different from NZ in which
1. rather than being cast to the sidelines, the indigenous people here are being fully integrated, and make up a considerable and increasing part of the population.
2. our relationship with many Pacific Islanders means that many more people enter the country under criteria that does not necessarily require them to bring a specific skill or asset as is the case with Australian imports.
While you are negative to the point of expletion about our ethnic character I am positive that our experience with finding political solutions to racial problems will reap rewards and leave Australia in our shadow.
December 4th, 2007 at 3:50 pm
“David, the report explicitly points out that NZ’s weak labour laws are a reason wages are so low, which in turn has led to lower productivity.”
No, the report explicitly states that more capital may be used per worker in Australia because unions and a higher minimum wage make capital more attractive than labour. This would also lead to a higher unemployment rate.
December 4th, 2007 at 3:50 pm
Sonic, you are clearly have no knowledge of economics, so why are you even trying to discuss this subject you clearly know nothing about? Tane on the other hand clearly knows what he is talking about and is worth debating.
If you cannot see the link between productivity and wages then you should leave, seriously because what you are saying totally contradicts the basic principals of productivity in economics.
December 4th, 2007 at 3:52 pm
There are two commenters with masters degrees in economics agreeing with sonic on this thread.
December 4th, 2007 at 3:54 pm
Yet raising the wages paid to comany directors, managers and other assorted fat cats does not?
A company directors wage should not rise unless the company they are running is making a decent profit including pay adjustments for staff. Mind you to answer your question directly no it doesnt, as there are far less company directors than there are workers and thats a fact. Also what makes you think a company director doesnt deserve the amount of money they get paid?
Also I think you need to realise that not every company is a big one, there are small businesses out there that may only have a few staff who if were forced to pay their staff a considerable amount more in wages without the companies income increasing would have to lay off some of the staff and/or go out of business.
December 4th, 2007 at 3:56 pm
“This would also lead to a higher unemployment rate.”
Not necessarily – i.e. in the scandanavian countries, which have the strongest unions in the world also have the highest employment rates in the world. It depends on what other labour market policy you use.
http://www.oecd.org/dataoecd/15/24/38335554.pdf
December 4th, 2007 at 3:57 pm
David, the report explicitly points out that NZ’s weak labour laws are a reason wages are so low, which in turn has led to lower productivity. It’s a vicious spiral that was created by National’s Employment Contracts Act.
Really? What page is that on? I skimmed to page 12, but couldnt find anything about the Labour laws.
December 4th, 2007 at 3:57 pm
Kent….
You’re entering our Traders weekly competition for the funniest delusional “correctness” re the 3.49 post.
Stiff competition but I’m touting your case.
December 4th, 2007 at 3:59 pm
“A company directors wage should not rise unless the company they are running is making a decent profit ”
But they do Bevan, check out the figures.
For all of you claiming “you know nothing about economics” I have to say, I do understand fully your right wing, “screw the workers for everything you can while paying the bosses mega-bucks” brand of economic theory all to well.
I understand it, I simply do not agree with it.
December 4th, 2007 at 3:59 pm
“While you are negative to the point of expletion about our ethnic character I am positive that our experience with finding political solutions to racial problems will reap rewards and leave Australia in our shadow.”
Explain the source of your confidence, Kent. Precisely HOW will multiculturalism lead to better economic outcomes for all?
“our relationship with many Pacific Islanders means that many more people enter the country under criteria that does not necessarily require them to bring a specific skill or asset as is the case with Australian imports.”
Thats right, whereas many people go to Australia to work. That is a good thing, and will lead to better economic and social outcomes.
December 4th, 2007 at 4:00 pm
“There are two commenters with masters degrees in economics agreeing with sonic on this thread.”
Pete: It’s not about what Sonic is proposing, because i agree that Tane is proposing the same thing, its that he clearly cannot see the basic link between productivity and wages.
December 4th, 2007 at 4:01 pm
Not necessarily – i.e. in the scandanavian countries, which have the strongest unions in the world also have the highest employment rates in the world. It depends on what other labour market policy you use.
We are not in competition for a good labour force with Scandinavian countries, we are in competition with Australia.
December 4th, 2007 at 4:01 pm
FIrst according to a world bank report NZ is second only to Saudi Arabia in natural resource wealth and ahead of Australia. However most of our mineral wealth is locked up in the DoC estate which after the High Country accord deals will be about 50% of NZ’s land area. Given that we can put only half the country work we should not be surprised if we are not doing well. Furthermore DoC opposes virtually every significant project outside its estate as well.
Consequently we have not built a timber processing plant for decades and keep shipping our logs across the Tasman so the Aussies can add the value.
Or heavy handed regulators such as the ARC and CRC do everything they can to prevent the natural land use churning every modern urban economy requires.
The costs of chaning land use in any way are massive and the outcome almost always negative. So why bother.
No new buildings normally means no new plant. We now have these roading cotributions which means for every 500 s m of factory or retail space you have to pay a tax of say 12,000 before you get your consent. These taxes are paid out of your set up costs not out of revenue. It’s a capital gains tax before you get any capital gain!
Go figure.
December 4th, 2007 at 4:04 pm
“For all of you claiming “you know nothing about economics” I have to say, I do understand fully your right wing, “screw the workers for everything you can while paying the bosses mega-bucks” brand of economic theory all to well.”
Sonic I will try to be as politically neutral as possible, because otherwise you will not trust me. We are not proposing that we “screw the workers”, what we are saying is that for wages to increase and be sustained, productivity must increase. Otherwise we could just raise the minimum wage to $100 per hour and we would all be rich.
December 4th, 2007 at 4:04 pm
Pete increasing wages without an increase in productivity is not sustainable.
Do you agree?
December 4th, 2007 at 4:05 pm
Bev – unsurprisingly you’ve missed the point. The point was that a strong union movement and wage growth that keeps pae with economic growth and growth in corporate progits does not create higher unemployment. In NZ wage growth has not kept pace with the two other variables for tha last 20 years. As such there’s a lot of happy bankers and corporates active in NZ’s economy, but unfortunately not a lot of workers.
December 4th, 2007 at 4:06 pm
The NZ left never had a clue how wealth is created….they think you get it from tax.
December 4th, 2007 at 4:07 pm
Roger: We currently have low unemployment, as you so often gloat about, so why is this not fueling wage growth?
December 4th, 2007 at 4:08 pm
For all of you claiming “you know nothing about economics” I have to say, I do understand fully your right wing, “screw the workers for everything you can while paying the bosses mega-bucks” brand of economic theory all to well.
Just because bosses get paid more money, does not necessarily mean the workers for the company are getting screwed. A company director has far more responsibility running the company than a factory worker on the factory floor. If the worker stuffs up, a delivery may be an hour late, maybe less parts will be manufactured that day, they normally clock off at home time hop in their car drive home and relax for the night. If the Director stuffs up, then everyone working at that company may be out of a job the following day. And when they finally get home, typically they are still working for all hours of the night – and how do I know they do? Because every company Ive worked for, the only people who Ive ever had to inform if Im doing out of hours IT work is the senior managers, because typically they are still working.
December 4th, 2007 at 4:09 pm
Tina:
Do you ever have anything intelligent to say? I mean you’ve got a very snide and at times witty tongue, but it would be nice to see some substance from you now and again.
December 4th, 2007 at 4:12 pm
Nome, I should have said that “This HAS lead to a higher unemployment rate” as I was quoting from what was said in the report.
Nome the report acknowledges the World Bank survey but
“According to Business New Zealand, this survey ‘does not cover compliance with tax, resource management or environment law, which are key issues for New Zealand companies.’ Instead, they say the report is ‘heavily influenced by its ranking on “ease of getting credit”.”
It admits that the message is mixed citing the Fraser Institute’s Index of Economic Freedom, Heritage Foundation/Wall Street Journal’s Index of Economic Freedom, IMD’s Competitiveness Scorecard for 2007, and the World Economic Forum’s Global Competitiveness Report.
(I just want to point out that wages have grown in Australia as union membership has plummeted.)
Lets not ignore what the report ended up saying:
“The key to wealth is productivity, and Australian workers are more productive because they have more capital to work with.”
The report has more to do with capital than labour.
December 4th, 2007 at 4:12 pm
Tina: I happen to agree with you.
I can’t believe that two people with post-grad degrees in economics can possibly agree with this rubbish. What economics school is teaching people this? There should be an enquiry!
December 4th, 2007 at 4:13 pm
Good comments Owen. I would add to my earlier post that the only growth factor of measure is that of compliance costs. Everything that we consider in business is always tempered by the compliance costs, many of which are unpredictable and only bite you on the bum when you get started on examining a new venture.
The overwhelming situation is always one of how can we hinder you not how can we help you (unless it is the expansion of the public service)
December 4th, 2007 at 4:14 pm
Alas, rog…you never made a dollar some dept didn’t pay you…
So you know little about economic activity and it shows.
The Aust success is a philosophical problem for NZ Labour….and it shows.
December 4th, 2007 at 4:14 pm
We currently have low unemployment, as you so often gloat about, so why is this not fueling wage growth?
Er . . . we are. The last couple years has seen significant wage growth in New Zealand.
December 4th, 2007 at 4:15 pm
“Roger: We currently have low unemployment, as you so often gloat about, so why is this not fueling wage growth?”
Simple – in a free (de-unionsied) and globalised labour market, productivity growth doesn’t necessarily translate into wage growth. Just ask workers in the USA.
http://news.bbc.co.uk/2/hi/business/5303590.stm
December 4th, 2007 at 4:15 pm
“The major difference is labour productivity” Is this fundamentally a Governmental issue or one of the lack of ability of NZ industry. To blame the govt for labour productivity is disingenous at the least. It is most probably a result of govt and industry, but you can’t lay all the blame at govt.
“NZ is second only to Saudi Arabia in natural resource wealth” extraction mineral wealth. If you want NZ to look like a barren waste land fine. Many many many of us don’t.
“we have not built a timber processing plant for decades” Too too too simplistic. It is easier for business to skim off a quick buck for wood chip. this is not a govt problem. If business is too simplistic to add value to their product, that again is not entirely a govt problem (a factor but no the whole problem).
December 4th, 2007 at 4:15 pm
Leftist who honestly believe onerous union laws and high regulation contribute to economic growth continue to stagger me.
Sensible social democrats are fully aware of the correlation between free markets and wage growth – they just believe government should keep it in check to counter what they see as its “excesses”. Now I don’t agree with that, but at least they aren’t blind to reality.
The Swedish economy has stayed static since the 1970s when such onerous laws and high regulation were brought in. Just because a country is wealthy to start off with doesn’t make such policies a success, especially when the government consists of 60% of the economy.
December 4th, 2007 at 4:17 pm
“(I just want to point out that wages have grown in Australia as union membership has plummeted.)”
That’s meaningless Kimble – as I’ve told you, it’s about collective bargaining coverage, not union density. Or do I have to explain that to you again?
December 4th, 2007 at 4:19 pm
“I am positive that our experience with finding political solutions to racial problems will reap rewards and leave Australia in our shadow.”
That statement by Mr. Parker deserves the Yeah Right of the century. By the way, tell me: what are you consuming (imbibing/smoking) at the moment?
December 4th, 2007 at 4:21 pm
BlairM and those who claim that non union labour contributes to high productivity continue to stagger me.
You used the sensible word, why not go the whole hog and use common sense.
Business in NZ is narrow minded, with under investment in R&D and over investment in appeasing the shareholder to the detriment of economic growth. However I fail to see how 2.5% or whatever the forecast growth for this year is is a bad thing? You would all be bemoaning the plight of the economy of it gets super -heated.
There simply is no right answer, even with right wing economists there is huge disagreement as to what is healthy growth and how to achieve it, just as there is the debate on the left.
December 4th, 2007 at 4:23 pm
Roger we can all use Google:
‘The notion that increasing the federal minimum wage will push up real wages is also fiction. Average pay in America has been increasing steadily in recent years, despite the fact that the minimum wage has not changed since 1997. Real wages rise when productivity rises. Labor productivity has gained 26 percent since 1997.’
December 4th, 2007 at 4:24 pm
“We currently have low unemployment, as you so often gloat about, so why is this not fueling wage growth?”
As Dim said, we do. But wage growth arising from full employment is inflationary. What is needed is wage growth along with economic capacity growth.
“Producivity – the measure of the output of the economy per worker employed – grew even more strongly, by 16.6%. But over the same period, the median family’s income slid by 2.9%”
Per worker, per family,… is this even comparing the same two groups? Has timing been taking into consideration? Things could simply be out of sync.
December 4th, 2007 at 4:24 pm
But again we look at issues in a vacuum.
how much does that dump truck operator pay for health care, how much is his/her house in Melbourne (if he/she can afford one). How much does one need to for out for the cost of living? It’s all relative.
But it makes more fun using statistics in isolation of other issues way more dramatic – which seems to be DPF’s way to go today. I can only imagine he’s a little concerned about a vote tonight – poor bugger. the sun will still shine again.
December 4th, 2007 at 4:26 pm
Growth is inflationary, there’s no pleasing the economists.
But then it’s their job to worry.
December 4th, 2007 at 4:27 pm
“That’s meaningless Kimble – as I’ve told you, it’s about collective bargaining coverage, not union density.”
Yeah, yeah, then why not use the term collective bargaining instead of union?
When pushed you retreat to the ‘collective bargaining’ definition, but the fact that you start off refering to Unions shows your real intent.
December 4th, 2007 at 4:30 pm
“If we want higher earnings, raising the minumum wage might be a good start, but of course we could not expect such a thought ever entering the minds of the Centre for “Independent” studies now could we?”
Who’s we? How many other socialist dipshits there have designated you as their spokesperson? Anyway, leaving the delusional and egotistical self importance aside, and following through on the logic of your suggestion, why not make the minimum wage $100 per hour (for example) and then everybody can be rich.??
“we could not expect such a thought”
Perhaps the absurdity of this situation is apparent to the CIS Sonic, but evidently not to you.
December 4th, 2007 at 4:31 pm
“Do you ever have anything intelligent to say? I mean you’ve got a very snide and at times witty tongue, but it would be nice to see some substance from you now and again.”
Says the rattling mindless robot.
December 4th, 2007 at 4:34 pm
Bev – unsurprisingly you’ve missed the point. The point was that a strong union movement and wage growth that keeps pae with economic growth and growth in corporate progits does not create higher unemployment.
No roger, you have missed the point. The issue at hand is regarding NZ and Australia, not NZ and Scandinavia. Also you cannot take one small part of the topic and only debate the favourable parts.
List of countries by public debt as % of GDP (2006est):
Sweden: 46.40%
Norway: 44.80%
Finland: 37.70%
Denmark: 28.10%
New Zealand: 19.90%
Australia: 14.10%
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt
Looks like your much loved Scandinavian countries are funding their socialist paradises by racking up a considerable amount of debt…. Not in my country thank you!
December 4th, 2007 at 4:36 pm
“Tina:
Do you ever have anything intelligent to say? I mean you’ve got a very snide and at times witty tongue, but it would be nice to see some substance from you now and again.”
Exactly, I just read this thread from start to finish and other than meaningless platitudes and insults you bring nothing to the table.
I learnt more from punching myself repeatedly in the balls than by reading your comments.
December 4th, 2007 at 4:39 pm
“How much does one need to for out for the cost of living?”
Lets do a fair comparison, Auckland has roughly the same population as Adelaide. According to the Mercer cost of living survey for Australasia, Auckland is ranked 99th with a score of 73.9, Adelaide is ranked 96th with a score of 74.7.
So Adelaide is only 1% more expensive than Auckland.
December 4th, 2007 at 4:45 pm
RB: ‘why not make the minimum wage $100 per hour (for example) and then everybody can be rich.??’
That’s the question these deluded socialists refuse to answer. Perhaps the law of common sense should apply?
December 4th, 2007 at 4:48 pm
“How do we increase the amount of capital per worker? By increasing the cost of labour relative to the cost of capital”
Not necessarily. If you increase the relative price of labour you ensure that the ratio of capital to labour will have to rise by definition, this is what economists like to call an equilibrium condition. However, this doesn’t tell you where the firms quantity will go, if the higher costs ensure that quantity fall sufficiently then we end up with low capital and labour, even if the capital labour ratio is higher.
There are a bunch of reasons why capital density is low in NZ, however I think blaming wages and unions would be low on my favoured list for a developed country like NZ. However, I could buy the argument for somewhere like China.
December 4th, 2007 at 4:49 pm
Only wet Tories worry about things like “overheating the economy”.
December 4th, 2007 at 4:55 pm
“Looks like your much loved Scandinavian countries are funding their socialist paradises by racking up a considerable amount of debt…. Not in my country thank you”
Bevan how is National going to pay of the promised Tax cuts? Borrowing, and that’s their own admission, not mine. So who’s creating debt to give to the people.
So it’s OK to rack up debt to give the people?
Not in my country thank you.
December 4th, 2007 at 4:57 pm
No I don’t; the increase in wages could be offset by a decrease in profits.
I agree that the two are linked, but the right have the direction of causality wrong. Higher wages cause higher labour productivity, but not visa versa.
December 4th, 2007 at 4:57 pm
Kimble – I use “union strength” in place of “collective bargaining coverage” because it’s easier for the uninitiated to understand – and they’re virtually interchangeable. That you can’t understand this doesn’t reflect well upon your grasp of the issue.
December 4th, 2007 at 5:02 pm
Matt, stop being a tease. What are the reasons, and what would be high on your favoured list?
December 4th, 2007 at 5:03 pm
“Higher wages cause higher labour productivity, but not visa versa”
Excuse me? For this to occur employees would require zero bargaining power so that they could not realise any of associated surplus. That is a strong assumption. Higher productivity does cause high wages, the reverse is also possible, but it reduces our national product (as quantity would definitely fall)
December 4th, 2007 at 5:07 pm
“Matt, stop being a tease”
Great call
I would probably put something boring down, like economies of scale. I know people don’t like it, but Australia has a greater endowment of people and easier access to markets, so the return on capital investment is greater, which leads to a greater level of capital and higher labour productivity. There are probably better reasons, but this one just sticks to me like a bit of glue
December 4th, 2007 at 5:10 pm
“I use “union strength” in place of “collective bargaining coverage” because it’s easier for the uninitiated to understand – and they’re virtually interchangeable. That you can’t understand this doesn’t reflect well upon your grasp of the issue.”
Oh I understand it perfectly well, Nome. Do you always mean collective bargaining when you say Unions? I think not.
You should realise by now that “Union” is a word that doesnt go down well with this audience. Use “collective bargaining” instead to divorce this idea from the socialist excesses of the note too distant past.
December 4th, 2007 at 5:11 pm
“, so the return on capital investment is greater, which leads to a greater level of capital and higher labour productivity. ”
Actually matt- returns on capital are greater in NZ than they are in Aus.
December 4th, 2007 at 5:15 pm
“Actually matt- returns on capital are greater in NZ than they are in Aus.”
Lets tell people then, and those foreign funds can come over here and form businesses that get them higher returns. I am of course talking about the marginal rate of return, which in a global marketplace should equalise. If it hasn’t there is probably a good reason like the ‘risks’ associated with investing in NZ
December 4th, 2007 at 5:16 pm
Fair call, I was exaggerating a little there. But I think the assumptions would be nearly met for a low wage worker where the productivity increase was the result of improved physical capital.
Empirically, that seems to be false in recent times.
Assuming we’re on some sort of efficiency frontier, which is a very strong assumption. Regular, predictable increases in wages (I’m not talking $100 minimum wage shocks) could nudge us towards the efficiency frontier, increasing both labour productivity and national product.
December 4th, 2007 at 5:18 pm
“Simple – in a free (de-unionsied) and globalised labour market, productivity growth doesn’t necessarily translate into wage growth. Just ask workers in the USA”.
So Roger what are you suggesting for New Zealand, higher wages and less employment as more production goes offshore?
Much of the growth that you illustrate in the US has been driven off that scenario.
December 4th, 2007 at 5:18 pm
The politics sting a bit do they dave?
Careful, you’ll get a headache……
December 4th, 2007 at 5:20 pm
“If it hasn’t there is probably a good reason like the ‘risks’ associated with investing in NZ”
Thats one of the points Rennie makes, Matt. IIRC.
December 4th, 2007 at 5:31 pm
“Thats one of the points Rennie makes, Matt. IIRC.”
Very good, I guess he has my support on the risk point
.
“Assuming we’re on some sort of efficiency frontier”
Or assuming that the change in policy will not shift us closer to the frontier, which I think is a reasonable assumption (even though this is where we fundamentally disagree I guess)
“Regular, predictable increases in wages (I’m not talking $100 minimum wage shocks) could nudge us towards the efficiency frontier, increasing both labour productivity and national product.”
Regular, predictable increases in wages will lead to regular, predictable increases in prices, which may in fact lead to an increase in the cost of capital (after all you have to pay someone to create the capital).
I have to go home now, so I can’t say anymore, have fun
December 4th, 2007 at 5:41 pm
Any price increases will be smaller than the wage increases since wages are not 100% of GDP.
And if the regular predictable wage increases lead to regular predictable labour productivity increases, there won’t be corresponding price increases.
December 4th, 2007 at 5:46 pm
“I learnt more from punching myself repeatedly in the balls ”
Yeah?? What great depth of understanding on what subject did you arrive at when you’d finally finished that bizarre exercise????
December 4th, 2007 at 5:55 pm
Danyl Mclauchlan (@ 3.10pm) points out but one example – Australia’s 9% compulsory employer super payments leading to a $1 trillion fund, much of which is invested in the Australian economy – as to why ideologues of all hues annoy the bejaysus out of me.
As Danyl says, I’ll bet the CIS could concoct a dozen ideologically pure reasons why it’s “wrong”. Then again, I don’t recall Labour being effusive in it’s promotion of the proposal for compulsory super it allowed NZF to put to a referendum.
Ideology be damned, Australia is evidence that the policy works. As do many things, some of them which could be dubbed “socialism” and others “capitalist” or whatever labels you like to throw about.
Instead of a knee-jerk reaction to something because it doesn’t fit the ideological purity standard, we’d do well to apply the simple common sense standard. But that’s awfully hard when politics has become about throwing pejorative labels about while promoting beige “economic conservatism” in an endeavour to fool most of the people most of the time.
December 4th, 2007 at 5:56 pm
Bevan how is National going to pay of the promised Tax cuts? Borrowing, and that’s their own admission, not mine. So who’s creating debt to give to the people.
So it’s OK to rack up debt to give the people?
Not in my country thank you.
Gee Paul, havnt you heard of the massive surpluses the country has been enjoying (rather embarrisingly I might add…) and last I was hearing the Reserve Bank, Cullen and Clark were saying they were now structural and Cullen and Clark were promising Tax Cuts (well Clark at least)…
And Paul, care to provide a link (post structural surplus admission) where National said they will still need to borrow to fund Tax Cuts? And if you are still adament they will, then care to admit Labour will also have to borrow to fund their Tax Cuts? Or will they just cut services to fund them as Cullen admitted they would do if Kiwisaver prooved unaffordable.
December 4th, 2007 at 6:27 pm
Pita- Kimble – Go back to my example of the NZ Australia comparison – read my blof links, then tell me what part of the analysis it is that you don’t understand.
December 4th, 2007 at 6:40 pm
roger nome, why are people in the millions beating at the gates of the mean, nasty, capitalist exploitive dystopia USA, pleading to be let in (or are illegally there already and pleading to be allowed to stay)?
Actually, there is a strong case to be made that poverty, in so far as it exists in the US, is in large proportion a problem that recently arrived immigrants brought with them.
December 4th, 2007 at 6:42 pm
Bevan
No National themselves have admitted that they will have to borrow to cover their proposed tax cuts. Not my words sorry to disappoint. I don’t have a link for it, as it was an admission on TV3 news, sorry. But like a lot of national party policy you won’t find it in any official policy either, it’s been omitted.
It’s also simple Bevan, Labour’s tax cuts will be smaller than Nationals and won’t be funded through borrowing, this is an admission from Cullen. Now i can only take him on his word for that, as I have to with Key and his admission on TV3 about the borrowing.
December 4th, 2007 at 6:42 pm
yeah I think I remember that thread, I also recall I found a critique of the BBC story, cant recall if I ever posted it or if I did whether you bothered to reply.
December 4th, 2007 at 6:42 pm
Hey, its nice to see guys like Julian, Bevan, Owen McShane weighing in along with Kimble and the other regulars to counter the left wing’s paid bloggers like nome.
December 4th, 2007 at 6:44 pm
Phill
4 killion people slept on the streets in the US last night and tonight and tomorrow night. 40million children don’t have access to primary health care. this is not an immigrant problem. Still nice tory smoke screen blame the immigrants.
Why is it that most Canadian’s aren’t beating their doors down to go south. It’s all relative
December 4th, 2007 at 6:48 pm
yes ok typo of course should have read 4 million.
December 4th, 2007 at 6:49 pm
No way does Roger get paid to do this, too cool, how did you wrangle that cushy perk? Too cool
December 4th, 2007 at 6:50 pm
I think it is hard to define why Australia is wealthier than NZ. It is a combination of mineral wealth, Asian demand, demographics, economy of scale and something in their water. I definitely have confidence in NZ’s social experiment, it is a big part of what defines us as a nation and I believe we can eventually learn how to use it to economic advantage.
December 4th, 2007 at 6:57 pm
Hard to define? Looks pretty easy to me.
And I have no confidence in a social experiment that is designed to hold a majority of NZers as subjugated voter lemmings, dependent on the ‘benevolence’ of the state for some portion of their income.
If ‘big money’ buys elections then it doesn’t get any bigger than that.
December 4th, 2007 at 7:01 pm
At least you have the decency of calling it for what it is: “a social experiment”. You might be inclined to be part of it, I’m not.
My confidence is limited. Why you’d ask? Because of the skills of the scientists in charge of the experimental lab: Clark, Cullen & co., who are far more proficient on history, arts, welfarism, and self-service than in managing the economic matters of the nation.
December 4th, 2007 at 7:05 pm
krazy,
Our social experiment may grab the attention of many European and Asian nations, some of them rich, such as Germany, and create for us a high value market in ideas and social methodology. The NZ you see may be measured too much in Australian and American materialistic terms. Too often we do not see the value of what lies right in front of us or alternatively what might seem worthless, “subjugated voter lemmings, dependent on the ‘benevolence’ of the state” today, may turn out to be gold tomorrow.
December 4th, 2007 at 7:20 pm
Paul, leftist bullshit.
“How poor are America’s Poor?”
http://www.heritage.org/Research/PoliticalPhilosophy/BG791.cfm
December 4th, 2007 at 7:24 pm
Kent, so might slavery if people just gave it a chance.
December 4th, 2007 at 7:48 pm
“It’s not from good luck in the form of natural resources, but in policies which encourage hard work and entrepreneurialism. This is why they have lowered taxes for the last five years and consistently opened up the economy since the early 1980s.”
Rennies sum up is excellent. Labours strategy the complete opposite: sit em on the benefit and keep em in limbo.
December 4th, 2007 at 7:53 pm
sorry kent – reasoned well, but shit none the less. the human spirit is not liberated by dependence on the state. it is crushed by it.
we have too many NZers who feel that their world is shrinking and what few options remain for them are state supplied. we can and should rise above all this… but such a revelation is not in the best interest of continued power for the ruling elite.
if you argue that this social expirement has value perhaps it is as a signpost of what road NOT to go down.
December 4th, 2007 at 7:57 pm
Kent sums up NZs “kept” generations.
Come to Aust. you downtrodden Kiwi masses….. the 8th best thing about the move will be getting people like Kent off your back and out of your life…..permanently.
December 4th, 2007 at 8:08 pm
“This social experiment” is not about benefit dependency. There were more people in receipt of benefits in the 60’s than there are now, when family benefit was universal, when single women were paid widows and war pensions and when the coffers were flowing with the profits of lamb to Britain. I haven’t mentioned the untold subsidies paid on products such as milk.
“This social experiment” is about succeeding on a micro scale what is needed globally to help create harmony between differing politico-cultural views. The view reflected by this blog is largely a mono-culture: European, white, middle class, which is also the view reflected by the Howard government, and potentially, the Key administration.
“This social experiment” is about understanding in advance the “fall of Rome” and that the conservative European, white, middle class domination of the present is likely to be superceded in the near future by something of a slightly different hue. There may be yellow (Chinese) or brown (Polynesian) influences that take centre stage.
Too many of you are quick to ignore all the fantastic things that kiwis are doing to rock the world. If you dwell on things too long they magnify in importance out of proportion to their merit. Maybe some of you guys need to see a bit of the world.
December 4th, 2007 at 8:09 pm
In my mind we had a great chance to build on the reforms of the 90’s. In a period of very low commodity prices, by 1999 our economy had gained an additional 284,000 jobs from 1990, our growth in that year was 3%, we had a 1.5bil surplus and most tellingly, NZ businesses had gained an additional 3bil in new export earning.
I can’t help thinking that NZ would be doing so much better if we hadn’t gone on the massive tax and spend binge brought on by Labour. They are spending an additional 20Bil a year on the state service – and for what. Cullen almost died when he saw that the effective inflation rate of our health service was running at 63% (he was budgeting on 1%), and again, for what?
Without that massive spending binge we could have abolished PAYE altogether, how great that would have been for the low income earner, and what a kick start for the economy. But no, silly me! High tax is good, letting people keep their own money is bad.
HC said she wanted to bring NZ to the top half of the OECD, but the disciplines required to do this very quickly became too much, so at a time where we have had the best commodity prices in a generation, the best the lefty policies can do is to let us slip down another notch.
December 4th, 2007 at 8:13 pm
“”Kevin Rudd says he is ‘committed to keeping taxes as low as possible to attract investment and reward enterprise.’”"
How often do we hear that as against Helen telling us how much many handouts her government has made.
December 4th, 2007 at 8:24 pm
No surprises there rfh, Rudd is a self described “economic conservative”….he knows if he messes with Aust prosperity or the luvvies get control of policy he’s a one term Whitlam.
Howard locked Rudd into matching Howard’s massive tax cuts early in the campaign.
So now Howard’s gone but his tax regime remains.
Cunning bastards those conservatives.
December 4th, 2007 at 8:49 pm
Pity Ruddy signed the Kyoto agreement then, although I suspect he knows the whole thing is a bit of a farce and when the next round comes up in 2012 he’ll throw up the wall like Johnnie Howard did.
Smart boy, the Aussies won’t want anyone spoiling their good life as they snigger at us Kiwis trying to ‘do our bit to fight (the phantom) global warming’.
December 4th, 2007 at 9:12 pm
It gets even better Dazza….
The left in Aust have already started sneering at Rudd because they believe….. “Howard created the Labor Party in his own image”.
Well..of course.
Rudd knows that’s how he stays there.
Let’s just say, Rudd is our best available bet.
December 4th, 2007 at 10:10 pm
Dazzaman: I think it is a good idea for Australia to sign Kyoto. It has no teeth, and none of the signatories are actually meeting it, so why get pilloried for not signing? Easier to just sign it and then ignore it, just like NZ.
December 4th, 2007 at 10:12 pm
And david c…matey…
Don’t tell me you haven’t learned anything about politics reading aunty Tina so far?
But you’re going to have to stop playing with them or they’ll fall off.
December 4th, 2007 at 10:27 pm
If you read my post carefully Paul, you’ll see that’s what I said.
December 4th, 2007 at 10:28 pm
We may probably go the whole hog after the second round, that’s my fear.
December 4th, 2007 at 10:59 pm
have just read this thread from the top.
the overwhelming theme is one of socialists denying that oz is any better off than nz while this report (which follows several others…) quite plainly shows the opposite. oh, and there was the usual denegration of the source of the reports etc.
i’m guessing that exactly the same report data delivered after 9 years of a national government would receive vitriolic left-leaning profanities that would make sailors blush.
December 4th, 2007 at 11:35 pm
“This social experiment” is about understanding in advance the “fall of Rome” and that the conservative European, white, middle class domination of the present is likely to be superceded in the near future by something of a slightly different hue. There may be yellow (Chinese) or brown (Polynesian) influences that take centre stage.
Ah, mate, it’s the 21st century. That shit’s been happening for, oh, at least 10 years…
Too many of you are quick to ignore all the fantastic things that kiwis are doing to rock the world. If you dwell on things too long they magnify in importance out of proportion to their merit.
Not ignoring them at all. Just slightly concerned at the moment about the country going to hell.
December 4th, 2007 at 11:38 pm
KrazyKiwi:
As a latecomer to this party, I also got the same privilege.
What the NZ Left can’t fathom – I’ve yet to see a convincing response – is that Labor in Australia has, in rhetoric if not in actuality, adopted many conservative economic policies. Two examples: substantial tax cuts (deferred above the $180,000 annual income level) and a minister with a special focus on deregulation. It’ll be interested to see how the Rudd Government behaves post-honeymoon.
December 5th, 2007 at 12:34 am
It seems to be an article of faith amongst right wingers / National party supporters that greater productivity and, presumably, higher profits will lead business owners to increase wages and salaries. There are two distinct arguments to be had here. (1) How do we make the pie bigger and (2) How do we ensure everyone is getting a fair share of the pie?
In recent years returns to capital have increased at a far greater rate than returns to labour so it is understandable that your average joe is skeptical of claims that increased productivity will see his pay packet rise. The average Joe’s experience is that increased profits for the business have little effect on his wages.
One of the depressing consequences of the increasing gap between returns to labour and returns to capital is that it does make it seem like working is a bit pointless. This holds true for anyone who doesn’t already have capital assets. Now for many of us it is true that when our parents pass away we will inherit considerable wealth. Of course having to wait around to inherit wealth rather than living in an environment where you can go out and make it (which is the experience the 50 years olds of taoday lived through) makes working too hard seem a bit pointless. The real irony here is that the appreciation in capital returns is fed by debt. Everyone knows this and everyone knows that it can’t go on forever. This is one of the reasons that during the last 10 years when property prices have skyrocketed business owners (who are invariably property owners) have not said to themselves “Gosh, I’m so much wealthier – I guess I will have to increase the wages and salaries of my staff” – because they know it is not real wealth.
Of course one of the inherent contradictions in right wing thinking is that is is obssessed with markets and the rational man but only when it suits it. Take employers and employees. When the argument is about higher wages the right will bleat about how you have to have employers to pay employees and they are all in it together, in the good ship prosperity. When it comes to explaining the disparity between the business owner’s wealth and the paltry pay packets of his staff then it is all about how the owner is putting himself at risk and takes on greater responsibility, needs to be incentivised, etc.
Similarly the right descries strikes. You would think that they would see strikes as the ultimate expression of the labour market in operation. “You won’t pay us enough. Therefore we will not work”.
December 5th, 2007 at 1:39 am
“working is a bit pointless.”
Yup, envy means you dont have to eat. Wistfulness provides christmas presents too.
“The real irony here is that the appreciation in capital returns is fed by debt.”
*blink* *blink* … BAHAHAHAHAHAHAHAA!
“Gosh, I’m so much wealthier – I guess I will have to increase the wages and salaries of my staff”
That is just plain adorable.
“…strikes as the ultimate expression of the labour market in operation.”
No, we would see it as the labour market being impeded from operating efficiently.
“You won’t pay us enough. Therefore we will not work”
Mmmm thats fine. I will find someone that will work for me. Oh wait I cant, because the striking workers are blocking the gate. Damn, I guess I will have to pay their ransom.
The correct quote in reference to a strike would be, you dont pay US enough so we wont work and we will prevent YOU from making any money too, so either pay us more or you starve.
The correct quote in reference to the labour market would be, you dont pay us enough, we will try to find another better paying job elsewhere, or we will increase our skills so we are more valuable to an employer and therefore can get higher wages.
“In recent years returns to capital have increased at a far greater rate than returns to labour”
You really need to explain what you are on about here.
“When the argument is about higher wages the right”… will say that wages will only go up if the work improves, otherwise why would it be deserved?
Owners ARE taking extra risk, so the gains from that risk ARE rightfully theirs. No one else has any right to them.
Look you fcked it up right from the start,
“higher profits will lead business owners to increase wages and salaries.”
By this, you seem to think that a business will make profits and then decide, if they are feeling nice enough, to maybe give a little bit back to the grubby workers.
Business will not make profits without its workers. They dont want to pay too much because that will leave less for the return on capital (assuming they even make a profit). They dont want to pay too little because they need to entice workers to come work for them so they can stay in business. They will find a middle ground. They will even pay closer to the too much level if they want to avoid the risk of high turnover.
Workers arent slaves. They are mobile. They can change jobs at whim. When a boss says, if you dont like what I am paying you can always find another job, they arent being mean and spiteful, they are describing that persons real options.
“You won’t pay us enough. Therefore we will not work”
“You dont produce any more than you used to. Therefore we will not pay you more”
December 5th, 2007 at 2:28 am
Kimble
Asset values have been appreciating more quickly than wages and salaries. House are the prime example of this but I doubt that they are the only example. It is fairly widely accepted that wages and salaries, in real terms, over the last 20 years have stagnated in the higher earnings ranges (leaving aside of course the top 1%), and decreased in the lower and medium earnings ranges. I don’t know how much clearer I can make that for you.
You seem to assume that there is an equality of bargaining power between the employer and the employee. Frequently there is not. For skilled workers, in short supply, there is equality (or even greater power than the employer). For the bulk of the population there is not, particularly when there is a mortgage to pay and mouths to feed.
Nevertheless you make a valid point – workers can leave. And they do. Many go to Australia, some go even further afield.
How does debt feed capital appreciation? Look at houses. From 20 year loans where you had to put down a 20% deposit we have reached 30 year loans with no deposit. Partly that is a result of popular hysteria about not being able to afford a house and partly a result of wages and salaries not keeping up with prices but if the banks had retained their lending policies of old we would not have house prices now that are seven rather three times the average wage for an average house. The effect of the change though is to make people slaves to debt. While any one or some of them could opt out of that servitude they couldn’t all opt out (that would cause prices to crash and leave them in negative equity positions in their houses). High interest rates are also part of the cause of high house prices.
You take issue with my comment that “One of the depressing consequences of the increasing gap between returns to labour and returns to capital is that it does make it seem like working is a bit pointless.”
Surely you can understand that for a low earner, the knowledge that their $12 an hour will probably take 5 to 10 years to rise to $15 an hour, while everything else is costing more and more all the time, makes them feel excluded from society. Now the guy working in the factory or cleaning buildings, or driving buses, does an important job but his earning are made to look ridiculous against the ever increasing cost of anything he might want to buy. His rent is wiping out any ability to save.
Should he persist with his slow death? Or should he do something illegal to make a bit of seed money? Or should he borrow and buy a business secure in the knowledge that he has nothing to lose anyway (casting away any worries about creditors who might suffer if the business goes belly up?
The right lives in a world where everyone is sitting comfortable before they start which enables them to (a) wait for the right things to come along,and (b) negotiate without fear of such severe consequences if they miss out on something.
They cannot seem to raise any empathy for the guy (or girl) who lives week to week, paycheque to paycheque. They can’t seem to understand that it is much easier for people who have something to grow it than for people who have nothing to accumulate anything at all.
December 5th, 2007 at 2:31 am
Also you write
“You dont produce any more than you used to. Therefore we will not pay you more”
to which I respond:
“But my rent has gone up, house prices are through the roof, and you own a house so you are worth a lot more than you were. Maybe we should all share in that prosperity. Put my wages up”.
And your answer to that is . . . “But I deserve the increase in value of my house whereas you don’t deserve an increase in wages.” No reason why. Just a statement and happy confidence that all is right with the world.
December 5th, 2007 at 9:39 am
Paul: How much does one need to for out for the cost of living? It’s all relative.
Comparisons are adjusted for PPP.
December 5th, 2007 at 9:41 am
This has to be the most interesting set of comments I’ve ever seen on a non-economics blog.
Pete: “Any price increases will be smaller than the wage increases since wages are not 100% of GDP.”Any price increases will be smaller than the wage increases since wages are not 100% of GDP.”
If the wage pressure is uniform across the economy then we have a uniform impact on prices, as wages are what consumers spend, if all prices were perfectly flexible (and as capital is fixed in the short-run) this would lead to straight inflation. The relative impact on output and prices depends on the stickiness of prices and the responsiveness of output. As some prices are stickier than others our relative prices are going to get all messed up in the short term, worsening the allocation of resources and moving us further away from our efficient frontier.
Ross K: “You would think that they would see strikes as the ultimate expression of the labour market in operation”
You make some interesting points, but I have to take issue with this. There is a difference between refusing to work because your wage is below your reservation wage and refusing to work in order to increase your share of the pie. The first one is people who do not participate in the labour market, the second type are people that strike. I agree that employer-employee bargaining positions should be relatively even in an equitable society, however are unions the best way to achieve this?
December 5th, 2007 at 10:41 am
Matt
Unions obviously can be too powerful at times but it seems to me that employees without unions are too weak. Maybe I am unduly cynical but I think that the merits of individual bargaining for employees are over-sold by business interests in order to divide and conquer. It must surely be well known that human nature is to view oneself with rose tinted glasses – which I surmise extends to about 70 to 80% of employees thinking that they will be the ones who benefit from individual bargaining.
Are unions the best way? I don’t know. There are serious problems with unions. I can see the appeal of award rates systems although I understand the objections to them too – although isn’t that what we effectively have for the nurses, teachers, police, and fire services? Why not for people in homogenous jobs in private industry? I am an ardent supporter of the minimum wage. I have always considered the arguments against minimum wage a little specious and am unclear on whether empirical studies support the many right wing objections to the minimum wage.
Question. Wages and salary increases are supposedly inflationary but if there are wages and salary increases without increased production doesn’t this simply mean that the money ends up in different hands (i.e. as wages and salaries rather than as profits)?
December 5th, 2007 at 12:01 pm
Hi Ross,
The bargaining power argument is important, as a weak workforce can be taken advantage of. Ultimately the best solution depends on the industry, in some industries giving people skills will give them sufficient power to be paid fairly, and in other industries we may require some type of external employee power. This is the type of question the government needs to look at, but it is hard to decide what is right and what is wrong.
Wage increases will be inflationary if production rises as firms will increase prices. Increasing nominal wages without increasing the amount that can be consumed is the same as throwing money at people (proportional to there income). As there are only limited resources, the price of those resources will be bid up, until people can only buy what they could have before.
December 5th, 2007 at 1:07 pm
RossK, nothing would bring house prices down like freeing up zoning restrictions. The increase is almost all LAND value, not the cost of building the house, OTHER THAN the contribution of increased COMPLIANCE COSTS ( another problem).
You lefties seem to have been born with some sort of brain malfunction so that you just cannot grasp elementary realities. Or is it envy pure and simple? “I have come to believe that reason supported by evidence is insufficient to dislodge from the human heart, a lie grounded in desire”.
(David Horowitz, “Left Illusions” – the ONE book all lefties SHOULD read if they could be persuaded to read ONE book).
It is a betrayal of the way you people think, that the EB “secret seven” in any way represent “the super rich”. Ooooooh, the ENVY, LOOK at that “sprawling villa in Mount Eden” that the office fitout guy who employs 20 people, owns!!!!!!!!!!!! And that lawnmower and chainsaw shop owner, and the guy who makes hydraulic fittings!!!!!!!!!!!!
Having a taxation and government spending regime that REWARDED thrift, enterprise, and hard work, and making sacrifices for better longterm outcomes, rather than PENALISING them, just might make more than a little difference to how well the whole country eventually does. And THAT’S what the Exclusive Brethren represent – thrift, enterprise, hard work…. NOT “the super rich”. But admit it. You still hate them.
December 5th, 2007 at 3:01 pm
Here is much of our problem in a nutshell. Our MPs are masters at getting it wrong. Even when others have done all the homework.
Repeat Media Release.
From the Centre for Resource Management Studies.
The media release below was first released on the 25th November.
However, given that the new Housing Minister, Maryan Street, has introduced the “Enabling Territorial Authorities Bill” to Parliament, it is necessary to present it again.
Ms Street claims ““The Bill, which is based on tried-and-tested schemes in place in the United Kingdom and the United States, will enable local authorities to address imbalances in the supply of new homes through a combination of requirements and incentives for developers.”
Unfortunately the most recent research from the US confirms that such affordable housing mandates have proved a failure in every way. Over a ten year period, in US markets where the mandates had been applied, supply reduced, on average, by ten percent and house prices increased, on average, by twenty percent. This does nothing to make housing more affordable and indeed only makes things worse. (The most up to date information is through the link to the 2007 paper.)
Also, the restraints on resale actually made those “lucky” enough to acquire a “below market” house ended up much worse off than the rest of the population.
There is no need for New Zealand to repeat this failed experiment.
The officials who advise Ms Street are fully aware of this research and its damning findings but have chosen to ignore and exposed the Minister to ridicule.
Owen McShane.
09 431 2775
The Centre for Resource Management studies
Chairman, Dr Don Brash
Director, Owen McShane
Phone (09) 431 2775 – Mobile 0274 767 814 – Email – omcshane@wk.planet.gen.nz
Media release (immediate) 25th November 2007
CRMS warns that forcing developers to supply houses at below-market prices actually reduces housing supply and raises prices.
New Zealand should learn the lessons from California.
“The Government should abandon any plans to force ‘affordable housing’ on to land developers “, said Owen McShane today.
Mr McShane has recently returned from presenting a group of papers to an international conference, in San Jose, California, with the theme “Recovering from Smart Growth”.
“Many of the conference speakers focused on means of achieving affordable housing within the high-priced housing markets in California, and the other highly-regulated markets in the US, and in other countries round the world. Papers from urban economists provided persuasive evidence that forcing developers to provide ‘affordable housing’ as part of their resource consents actually reduced the supply of housing and increased prices,” he said.
“Sadly, recent statements in the media indicate Government is considering requiring land developers to provide a percentage of their housing at below-market prices in return for consent to proceed with large scale residential subdivisions. Furthermore, a Government invited ‘expert’ from the UK has recommended such schemes.
“In England” said visiting Professor Bramely, “if developers want planning permission they have to provide affordable housing within projects.”
“However”, Mr McShane points out, “four visitors from the UK attending the San Jose conference pointed out that the UK was a housing “basket case” with some of the least affordable housing, with the worst standards, and the lowest build-rate, of any country in the developed world.
“These presentations indicate that seeking advice from a proponent of UK housing policy is like asking President Mugabe to advise us on how to manage inflation,” said Mr McShane.
“In their 2004 paper, Housing Supply and Affordability: Do Affordable Housing Mandates Work? Benjamin Powell and Edward Stringham concluded that “By restricting the supply of new homes and driving up the price of both newly constructed market-rate homes and the existing stock of homes, ‘inclusionary zoning’ (forcing developers to provide below market-priced homes) makes housing less affordable.”
“At this 2007 Conference Tom Means, Edward Stringham, and Edward Lopez presented Below Market Housing Mandates as Takings: Measuring their Impact a DRAFT chapter from a book on takings” said Mr McShane.
“A California court recently rejected the notion that ‘inclusionary zoning’ is a ‘taking’ without compensation, and found that such zoning ‘necessarily’ makes housing more affordable. This paper shows why the court was wrong. The three economists have updated the 2004 findings and present more rigorous and detailed statistical analysis. Once again their conclusions should kill off any thoughts of forcing developers to provide a percentage of below market priced housing in return for development consents in New Zealand’ said Mr McShane.
“The three University economists conclude:
Over a ten-year period, cities that impose a below-market housing mandate on average end up with 10 percent fewer homes and 20 percent higher prices. These results are highly significant. The assertion by the Court in “Home Builders Association v. Napa” that “the ordinance will necessarily increase the supply of affordable housing” is simply untrue.
Dr Don Brash, Chairman of Centre for Resource Management Studies, supported these findings, saying “We have been warned, and before any government forces New Zealand home builders and land developers to provide houses at below market prices someone will need to demonstrate why these findings regarding supply and price will not apply in the housing markets of New Zealand.
“That will be a difficult task” said Dr Brash, “because both papers are based on the simplest and most firmly established economic principles linking supply, price and demand”.
ENDS
The URL for the 2007 paper is:
http://www.independent.org/publications/policy_reports/detail.asp?type=full&id=27
For further information contact Owen McShane
09 431 2775
ENDS
December 5th, 2007 at 4:39 pm
RossK, first of all, debt is capital.
Secondly, you state all these things about those on the Right, but they are the same old tripe we see all the time from people who really dont understand our view at all.
“They cannot seem to raise any empathy for the guy (or girl) who lives week to week, paycheque to paycheque.”
Quite frankly if you persist in idiotic statements such as this you will be labeled an idiot. The meme that only the Left truly cares about poor people is absurd, if you even knew the first thing about centre right thinking you would understand this.
Not only are you comfortable in your ignorance you arent even willing to give the Right the benefit of the doubt and assume that they are just wanting the same outcome, just via a different method.
“But my rent has gone up, house prices are through the roof, and you own a house so you are worth a lot more than you were. Maybe we should all share in that prosperity. Put my wages up”.
Well, why dont we do away with private property altogether, everyone owns everything?! Why should you share in my prosperity? Simply because you want to? Get real.
“But I deserve the increase in value of my house whereas you don’t deserve an increase in wages.” No reason why. Just a statement and happy confidence that all is right with the world.”
Bullshit. My response is, the value of my house has absolutely nothing to do with you. The gains in the value of my property fall to me, as I own the damned thing. Why. The. Fuck. Should. My. Profits. On. My. Fucking. House. Go. To. You. When. You. Didnt. Contribute. A. Fucking. Thing. To. Its. Purchase. Maintenance. Or. Servicing?
What right do you have to demand that of me? Do I have that right to demand YOUR labour without paying for it?
Why should your wages go up if there hasnt been an increase in the value of your labour? Just because you want it to? Get real.
If you stopped working would I still have to increase your wages? Would I be able to reduce them? If I can reduce them because you dont work for me, then why cant I keep them the same if you are doing the same amount and quality of work?
December 5th, 2007 at 5:07 pm
While this thread is probably dead, I just read an article that to some extent backs up what I said earlier regarding mining and Asia playing a big part in Auzzie good fortune:
http://www.smh.com.au/articles/2007/12/04/1196530675467.html
December 5th, 2007 at 7:08 pm
It isnt a secret, Kent. But NZ has natural resources too.
December 5th, 2007 at 7:40 pm
The CIS are those sort of people that have “answers” and go around looking for problems to apply these answers to.
Funnily enough the gaps between NZ and Aus massively widened in the 80’s and 90’s when the policies being suggested were being pursued. There were certainly no thinning during the 90’s, and not really any the widening they might expect from our Commie govt.
I’m surprised you righties (and very,very occasional human rights advocates) haven’t started blaming the EFB for the gap yet.
December 5th, 2007 at 8:23 pm
Kimble, NZ resources aren’t nearly as high value and easy to obtain. Most of the Australian minerals are locked up in land that has little value for anything else. They can open cast mine with impunity for iron ore in the outback. Most of NZ land has value either as farmland or scenic beauty. Maybe that stops prospectors from ripping aside the land for a look, but geologists usually can get a good idea what lies beneath by various means, and NZ is relatively young geologically which seriously limits possibilities for accumulated mineral resources.
But, hey, if you think that the reason is largely political, then don’t let me stop you.
December 6th, 2007 at 2:04 am
Kimble you are dead right. The value of your house has nothing to do with me. My point is that it may be that it has very little to do with you either.
Increases in value are an incident of ownership. But, to a large degree, ownership is passive. If the increases in value accruing to owners continue over a long term to exceed the increases accruing to wage and salaries then that is a recipe for social disaster.
Now if, and it is a big if, hard work and conscientious saving are the keys to getting oneself in an ownership position how can that be reconciled with an environment where increases in value are routinely greater than increases in wages and salaries – in such a scenario someone who trys to save up to buy an asset is doomed to fail. In order to get on the bandwagon they must borrow and then pray that the rises continue. Now even if such a system is supportable (and long term I doubt it but as Keynes said in the long term we are all dead) is it desirable? Is it desirable that assuming debt is a necessity to get ahead in this world?
The right hold firmly to the idea that life is basically a meritocracy. The left are more skeptical of this. For my own part I don’t think this is always calculated by the right rather I think that the importance of a leg up is down played in their minds.
As for calling my statements idiotic I can only say that I have known National party supporters who believed ideologically that the minimum wage was a bad thing and yet themselves affirmed that they would never work for so little.
I understand the right very well. They truly believe that everyone could get a high paying job making 100K a year if they only truly wanted to. In that regard the right are no less loopy than the left.
December 6th, 2007 at 2:18 am
Also Kimble you write:
Why should your wages go up if there hasnt been an increase in the value of your labour? Just because you want it to? Get real.
Fair point, but what if I said to you that certain aspects of the curent economic system operate to ensure that increases in the value of labour are kept low while increases in the value of assets are kept high.
Take migration. One fifth of NZ’s population is overseas. Largely they are replaced with immigrants from developing countries or countries that lack our desirable social democracy. That’s right, when a kiwi says screw this I can’t get ahead here and leaves, what does the government do? It opens the floodgates of immigration into NZ. Now you might think that that is fine. Kiwis leave and new people come into to replace them. But ask yourself why the Kiwis leave – do they love the idea of being in another country? Do they think oh hey England or Australia are so much better places to live. No they don’t. They leave for one reason and one reason only. Money. Now the immigrants coming in are frequently moving here not just for money (remember they come from less developed countries) but because it is a nicer country. You could let that immigration thing continue forever. Then we can be like Mexico and have the world’s richest man while most of the populace live in poverty. Take doctors for example. All the young doctors flee overseas. Now if the government refused to bring in foreign doctors then the wages and salaries for NZ doctors would skyrocket and there would be a reduction in the nunber going overseas. But you won’t see it that way will you.
Yuu guys and your property rights. Like property rights are a holy grail. Property rights are a boon when they allow for a stability that lets peole get ahead from the results of their own hard work. They are a tool of oppression however when they operate to deny much of the population the right to own anything. The trouble with your point of view is that it denies the existence of society at all. As far as you are concerned we are all just individuals in a rat race and however we do is a perfect reflection of how hard we worked.
December 6th, 2007 at 2:28 am
PhilBest.
I understand entirely that land prices have been kept artifically high. They will continue to be so kept until the whole thing collapses. Then, because it is the middle class contented that suffer when pyramid schemes like that fall, we will see all sorts of government bailouts to insulate the casualties from the consequences of their own mania. When it is the people who don’t onw homes crying for assistance there is a lot of talk and no action. Everyone knows that land is overprice because supply is strangled. No one will do anything about because councils, parties, are controlled by people who are part of the aforesaid class. The wonder of modern politics is that the lower classes have learned not to waste their time bothering to effect change.
As for having a government that doesn’t penalise hard work. Look at uni graduates nowadays. They invest in themselve instead of a house – no laqc’s for that! They get paid pitifully initially and then when they finally get to a higher salary they are immediately hit with ridiculous taxes so although they still have nothing they end up paying more tax than the guy who has got a 150,000 equity in a house he brought when the graduate was still finishing Uni. Where is the incentive to better oneself there.
December 6th, 2007 at 1:51 pm
Some great theory being thrown around, an
increase in productivity always leads to higher
profits and wages.
Are some of you forgetting one small point,
competitors in business have a nasty habit
of also raising their productivity.
Which leads to pressure to drop prices.
So it is a big assumption to tie productivity to
wages.
Politicians get paid well in NZ, how do you
rate their productivity?
Labour is a commodity, and like all
commodities you will pay more for if those
with the skills you need are in short supply