The Standard on Real Wages
April 1st, 2008 at 11:45 pm by David FarrarThe Standard has done a post with a graph showing purported real average weekly earnings from 1990 to 2007.
In 1990 dollars it shows real average weekly earnings staying constant from 1990 to 1999, and then increasing from around $465 a week to $510 a week from 2000 to 2007. They conclude average weekly earnings under Labour increased at 30 times the rate of National.
But it is very very hard to verify the data for their graph. They do not state what the source of their data is. I’ve gone back to an old data series done by the Parliamentary Library (who are neutral) and verified it with the Stats NZ data in the quarterly employment survey. It is very different to what The Standard claims. Now this maybe because they are using a different data series, but again with no reference I don’t know. I would welcome their clarification and posting of full data, as I have done.
Below I show the following data. The ordinary time average weekly earnings from the quarterly employment survey (series SBAZ9A), the CPI, the real average earnings and the real after tax average earnings. The Standard did not provide after tax figures, but I provide both before and after tax figures for people to do a full comparison.
Jun 90 – $502.95 av earnings, CPI 716, $502.95 real av earnings, $385.81 real av after tax earnings.
Jun 99 – $639.96 av earnings, CPI 832, $550.73 real av earnings, $436.78 real av after tax earnings.
Jun 07 – $846.19 av earnings, CPI 1020, $593.99 real av earnings, $459.32 real av after tax earnings.
Now one is over nine years, and one is over eight years. If you divide the increase by the number of years you get the average annual increase in real ordinary time weekly earnings as $5.31 from 1990 to 1999, and $5.41 from 1999 to 2007.
And if you look at the average annual increase in real ordinary after tax earnings, then the increase is $5.66 from 1990 to 1999 and $2.82 from 1999 to 2007.
So on the Stats NZ figures, average real weekly ordinary time earnings increased by almost exactly the same annual amount from Jun 90 t0 Jun 99 and Jun 99 to Jun 07. And if you take into account tax, the increase was twice as high in the earlier time period.
Again, if The Standard can provide their full data and reference sources, I would be happy to try and work out why the data is so different. I did look through many other data series in the QES to try and reverse engineer a series which fitted their data, but there didn’t seem an obvious one that fitted.
Related posts:
- How has the average worker done under Labour?
- The importance of low inflation and tax cuts
- Median Incomes over time
- The importance of tax cuts
April 1st, 2008 at 11:59 pm
Yeah, good one,
Try telling that to the 140,000 who have just had their wages increased.
That’s a lot of votes,
Vote:April 2nd, 2008 at 12:53 am
Well put DPF. You have posted on income increases under National and Labour before (esp since 1990) and always been transparent with your sources, assumptions and interpretations, allowing yourself open to scrutiny. This gives immense overall credibility particularly when compared to other blogs that publish what suits them and shy from accountability by hiding their source so at to avoid giving context.
Vote:April 2nd, 2008 at 12:55 am
Try telling that to the 140,000 who have just had their wages increased. That’s a lot of votes
Gruela – are you referring to the minimum wage increase for youth to $12/hr? If so, please note that 16 and 17 year olds can’t vote.
Vote:April 2nd, 2008 at 1:06 am
And your point, Gruela? Back in the real world, a good way to lose your job is being employed by fraudsters who have the nasty habit of *cough* being a little economical with the truth when dealing with clients, banks and regulatory authorities (the Inland Revenue Department not least among them).
If you can spare a few moments, I recommend Darrell Huff’s How To Lie With Statistics, a layman’s guide to the art of massaging stats for fun and profit that is still disturbingly pertinent fifty-four years after first publication. I’m sure the failure to properly attribute the reference sources Tane based his graph on was an unintentional oversight that will be promptly corrected. After all, he wouldn’t fabricate data for political ends. Would he?
Vote:April 2nd, 2008 at 3:22 am
I seem to remember that the last time this issue came up they said they used the median weekly wage (which would mean their graph was wrongly labelled).
They argued, with some merit, that the median wage better captured what an “average” or “ordinary” wage was like as opposed to a literal average, which is distorted by the lower limit being zero and the upper limit being boundless (well, in theory). For example, if fat cats get fatter under a certain party but everyone else stays stationary then the average will still increase, although most people are no better off.
Whereas using the median value captures better what is happening to ordinary people – (assuming that is the labelling mistake the standard has made.
In my opinion, it is silly to take an after tax figure as many people are entitled to writeoffs, rebates and if you have children you essentially get a tax reduction as well.
[DPF: It may be median, but that doesn't tend to be reported as regularly as mean. One can debate the usefulness of before and after tax. By providing both, I let people decide]
Vote:April 2nd, 2008 at 6:29 am
npog: In my opinion, it is silly to take an after tax figure
Not when you consider how much our taxation level has increased in the 1999-2007 period. And I’m not only thinking of the envy, rich-prick tax; but of the approximately 41 other taxes introduced since then. If we started taking those into account as well … eek.
Vote:April 2nd, 2008 at 6:43 am
They argued, with some merit, that the median wage better captured what an “average” or “ordinary” wage was like as opposed to a literal average…
Exactly. “Average” wage nicely covers up National spending the 90s transferring wealth from the poor to the rich. “Median” is way more useful.
In my opinion, it is silly to take an after tax figure…
It certainly is, unless you go to a lot of trouble to define exactly what you mean by “after tax,” including accounting for things which are taxed in one country and not in others (eg capital gains taxes, compulsory insurance etc), and providing some mechanism for establishing which services are paid for from taxation in one country and paid for directly by the user in the other. Bill English didn’t bother with any of that in his press release, which makes it useless.
Vote:April 2nd, 2008 at 7:14 am
So true psycho milt, but after tax income won’t matter much to the 100,000 kiwi’s leaving this deranged country permanently this year. Who can blame them as it is run by corrupt politicians who are a disgrace to the honour of New Zealand.
Vote:April 2nd, 2008 at 7:45 am
The Labour Party is making a pretty naked pitch to the low paid and the welfare beneficiary. They put them on very high marginal tax rates and trap them in a very low income but with vague promises that the Labour Government will take care of you but they make them scared of the National Party. They tried the same line with maori but maori could see that mainlining welfare is a trap and now think they are better off with the maori party who is very skeptical of welfare.
Vote:April 2nd, 2008 at 8:18 am
I’d like to know why it appears our tax rates have increased by 0.1%, I know the ACC earners levy has increased between 2008 and 2009 by 10c per $100 (0.01% increase) but if you look at the four weekly and montly deduction table documents for 2008 and 2009 the following is seen
The PAYE on primary employment is:
– 16.3% on income up to $9,500
– 22.3% on income over $9,500 up to $38,000
– 34.3% on income over $38,000 up to $60,000
– 40.3% on income over $60,000 up to $99,817.
And then 39% on any income over that
Now for 2009 they are as follows:
The PAYE on primary employment is:
– 16.4% on income up to $9,500
– 22.4% on income over $9,500 up to $38,000
– 34.4% on income over $38,000 up to $60,000
– 40.4% on income over $60,000 up to $102,922.
And then 39% on any income over that
I’m sure there is a reason for it, but find out why…..
Vote:April 2nd, 2008 at 8:30 am
Yeah, good one,
Try telling that to the 140,000 who have just had their wages increased.
That’s a lot of votes,
Yeah great, that goes half way to making up for the inflationary increases. Hey they might be able to afford half a tank of gas by the end of the year!
Vote:April 2nd, 2008 at 8:35 am
Tim – I agree completely with you and it is on this matter where national and Maori Party also agree strongly and why the Maori Party will work with the Nats after the election.
What is laughable is that Cullen will be bringing in tax cuts (his definition needs some work no doubt) two weeks before the election. But after nine years in power and tax increases and a massive glut of surpluses, one can only be cynical about tax cuts two weeks before Labour are evisted. Is this not the ultimate in posk barrel politics? And now after down playing the tax cuts saying they will be moderate, he is saying they will be significant – Maybe the unreleased polls contain more bad news for Cullen and his bunch of sorry arse corrupt socialists.
Vote:April 2nd, 2008 at 8:43 am
You haven’t been sucked in by an April Fool’s prank, have you DPF?
Vote:April 2nd, 2008 at 8:45 am
Graeme – isn’t the standard sewer blog one big foolish joke?
Vote:April 2nd, 2008 at 8:54 am
Agreed D4J, every day is April fools over at the VDS.
Vote:April 2nd, 2008 at 9:41 am
Hey, if this was a little April Fools joke by Tane, it is a good one. I didn’t know lefties like him had sufficient sense of humour to be capable of it !
Vote:April 2nd, 2008 at 9:53 am
But while Tane and Co want to beat up on the “minimum wage” subject, HERE’S a little economics lesson for them……..
The Temperamental Minimum Wage
by Walter Williams (May 9, 2007)
“The first fundamental law of demand postulates that the lower the price of something, the more will be demanded, and the higher the price, the less will be demanded. To my knowledge, there are no known exceptions to the law of demand. That was until last fall when 650 economists, including several Nobel Laureates, signed a letter calling for an increase in the minimum wage.
They said, “We believe that a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed.” I’m not sure if these 650 economists meant increases in the minimum wage will have no effect on the employment of low-wage workers or if they meant its magnitude won’t be large. If their argument is the former, I’m embarrassed for them.
Maybe these economists, like House Speaker Nancy Pelosi, see the law of demand as being somewhat temperamental — sometimes having an effect and sometimes not. This would be like a physicist suggesting that the velocity of light, in a vacuum, is temperamental — sometimes a constant and sometimes not. But they and Speaker Pelosi might have a point.
On Jan. 10, the House of Representatives voted to raise the minimum wage from $5.15 to $7.25 per hour. Their bill, for the first time, extended the federal minimum wage to the U.S. territory of the Northern Mariana Islands, but it exempted American Samoa, another U.S. Pacific Ocean territory. American Samoa would have been the only U.S. territory not subject to the federal minimum wage. If increases in the minimum wage, like my 650 fellow economists claim, are so helpful to low-wage workers, why deprive Samoan workers from the benefits? Are Speaker Pelosi and my fellow economists anti-Samoan?
StarKist Tuna, whose parent company is Del Monte, and Chicken of the Sea employ nearly 50 percent of the Samoan workforce.
Samoan cannery workers earn about $3.50 an hour. I’ll give you one guess what would happen if the minimum wage were raised to $7.25 an hour. Here’s a hint: The average cannery wage in Thailand is 67 cents an hour, and in the Philippines, it’s 66 cents. If you guessed that StarKist and Chicken of the Sea might move their operations to Thailand or the Philippines, go to the head of the class. Perhaps Speaker Pelosi agrees that mandating a higher wage would have an unemployment effect, but just in Samoa.
There’s a better explanation for Speaker Pelosi’s position that has nothing to do with the possible fickleness of the law of demand. StarKist, which owns one of the two Samoan packing plants, has been a big opponent of increases in the U.S. minimum wage. Del Monte, its parent company, is headquartered in Speaker Pelosi’s San Francisco district. Chicken of the Sea is based in Southern California. It’s not unreasonable to guess that Speaker Pelosi’s position has to do with the interests of her well-heeled constituents. In any case, Samoans are off the hook for now because the proposed legislation enacting a higher minimum wage didn’t pass Congress.
Many minimum wage supporters, like the Speaker, are hypocrites, but most supporters are decent people with an honest concern for the well-being of their fellow man. True compassion for our fellow man requires that we examine not the intentions behind public policy but the effects of that policy. There’s no question that Congress can mandate the minimum wage at which a person is hired, but Congress hasn’t found a way to mandate that a person have a level of productivity commensurate with the wage. Moreover, Congress hasn’t chosen to mandate that an employer hire a person whose productivity is less than the minimum wage. This means higher minimum wages cause unemployment for the least-skilled workers.”
Vote:April 2nd, 2008 at 9:58 am
Hi David, I’ve flicked you an email with the source data. The figures come from Treasury.
Vote:April 2nd, 2008 at 11:10 am
“It certainly is, unless you go to a lot of trouble to define exactly what you mean by “after tax,” including accounting for things which are taxed in one country and not in others…”
The same can be said of before tax income. Essentially what you are demanding is an examination of whether the public sector provides things people want more efficiently than the private sector. To be more specific, you need to see whether the additional taxation and spending is more efficient*.
What you need is proof that the decrease in after-tax income is counteracted by an increase in the amount or quality of services. In this you are pushing shit up hill, as much of the growth in spending has been in areas away from frontline staff, and things like health and education (as well as other social services) have hardly been improving at extraordinary rates.
*There are always going to be some things the government can provide more efficiently than the private sector.
Vote:April 2nd, 2008 at 3:13 pm
Thanks Tane – will try and find time tonight or tomorrow to go through it all.
Vote:April 2nd, 2008 at 5:31 pm
Phil Best
Why is it that our minium wage increased from $7 to $12 and unemployment fell from 7 to 3.5%?
Most economists think low wage levels are the reason for low productivity and that productivity increases drive growth and wealth creation.
For example, in an economy with low unemployment, it is good if workers are replaced by new tech investment so that the labour can be re-allocated (thus replacing postal sorters with machines) to export sectors short of labour for example.
It is a nonsense that a first world economy like the USA with associated living standards and costs could co-exist with an underclass on $5 an hour – everyone knows it’s disparity in wealth which drives crime. The USA under the Bush regime was heading southward towards a Latin American military style regime us and them security policy (PA’s real purpose) society and legitimising illiegal immigration was part of that process along with their low minimum wage. The Democrats know there is a better America than that. Economists know it’s simply good economics anyhow.
Vote:April 2nd, 2008 at 6:11 pm
DPF -
To get any meaningful results you need to use “core inflation”, not CPI. CPI includes inflation from sources completely out of the government’s control (i.e. the price of oil). For example, since 2002, inflation resulting from the quadrupling of the price of oil has meant about 1% extra inflation each year across the OECD. Conversely, in the 1990s oil was flat at between US $20 (20% of the current price) and US $25 a barrel for the whole decade. As such, your figures are useless.
[DPF: So you are arguing that wages should only increase to compensate for inflation when the inflation is core inflation, not from external sources. No wonder you have no staff]
Vote:April 2nd, 2008 at 6:18 pm
Also, here’s a post i did a little while ago on and old post of David’s, on this same subject. Because I also use CPI figures, the analysis isn’t completely accurate, but because non-core inflation has been much higher during labour’s time in power than it was during the 1990s, we can assume that my findings actually far under-state labour’s success.
http://rogernome.blogspot.com/2007/10/median-personal-income-over-time.html
Vote:April 2nd, 2008 at 6:27 pm
DPF:
“So you are arguing that wages should only increase to compensate for inflation when the inflation is core inflation”
If you would stop trying to be semantically manipulative for one second in your life you would acknowledge that my point was, you can’t blame helen clark for the international price of oil. In your analysis you do, which is why you’re wrong. It’s that simple.
Vote:April 2nd, 2008 at 6:32 pm
SPC:
“most economists….”
“everyone knows….”
baseless assertions from a typical leftist.
Vote:economists =/= socialists
April 2nd, 2008 at 6:34 pm
“CPI includes inflation from sources completely out of the government’s control (i.e. the price of oil).”
There are many things outside the governments control, should we remove them all?
“A) He provides no links to his sources, and gives no account of his methodology, which means his results are dubious at best.”
Remember when you said that same thing about a chart at Kiwiblogblog or The Standard? Neither do we.
Vote:April 2nd, 2008 at 6:39 pm
“There are many things outside the governments control, should we remove them all?”
If we’re to try and gain an accurate indication of a government’s performance, then yes, where we can. This is why most OECD govts provide core inflation data (unfortunately ours doesn’t).
Vote:April 2nd, 2008 at 6:44 pm
farfetched
Call it left wing, or call it socialist, but real economics is real economics.
Where was all the unemployment, if raising the minimum wage (7 to 12 dollars) leads to unemployment?
Obviously the value of the labour was higher than $7 and the employer could afford to pay more (the ECA meant suppressing wages below the value of it to the employer …)
Vote:April 2nd, 2008 at 7:20 pm
socialists and real economists are mutually exclusive don’t delude yourself into thinking you are of the latter.
if you were expecting an instant repsonse to an artificial minimum wage increase you’ve been kidding yourself. you’ve been looking at this small action/reaction in a vaccum.
heres reality in simple terms: opportunity cost +
real businesses operating in a globalised environment (ie pretty much anywhere outside of n.korea) need not just to stay afloat, but to make more money than they could make from interest if they were to leave their capital in the bank + a suitable amount of compensation for the risk the face in operating. If they can’t achieve this they will close shop/move to china (think unemployment), thats how business works.
or in the case of business that cannot move overseas such as supermarkets
they will a) close shop or b) put up their prices by exactly the amount of wages, this is called inflation.
one of these things has happened or will be happening. given that we’re not a manufacturing nation if i had to go out on a limb i would guess option b)
Vote:April 2nd, 2008 at 7:45 pm
“Why is it that our minium wage increased from $7 to $12 and unemployment fell from 7 to 3.5%?”
Because employment is a derived demand, and NZ has been benefiting from a bouyant global economy and rising primary prices.
Are you trying to say that the increase in the minimum wage caused a drop in unemployment?
SPC, the increase in the minimum wage puts upward pressure on unemployment. If there is a greater counteracting force pushing the other way, the upward pressure wont be evident.
Of course, if that downward pressue should disappear, lets say, because of an economic downturn, then the upward pressure will start to show.
This whole discussion doesnt matter anyway, because even Tane’s charts show that the wage gap was starting to close during the last years of Nationals influence AND the trend in positive real wage growth started under Nationals watch and has simply continued under Labour.
Labour have been able to affect a slight increase in the rate, but it was obviously Nationals policies (which Labour left largely alone when they took power) got the ball rollin gin the right direction.
Vote:April 3rd, 2008 at 12:40 am
farfetched
“socialists and real economists are mutually exclusive don’t delude yourself into thinking you are of the latter.”
Do you know what a socialist is?
Is the word socialist used like the word witch in the Salem in the attempt to discredit someone seen as a dissident/collective conformist, as the one to be eliminated from the pure new England … those not Catholic or Anglican but true (free religious market) righteous faith puritans … (the term fetch is a term for a role played by a witch for a certain purpose … are you a witch or is that line of questioning as farfetched as the line of logic supplied by your crack cocaine dealer “Apollo Greed”?).
“if you were expecting an instant response to an artificial minimum wage increase you’ve been kidding yourself. you’ve been looking at this small action/reaction in a vaccum.”
So it takes how many years for a real increase in the minimum wage in 2000 to have any effect – how many years 10, 20
- so what you are saying employers can still operate profitably after a minimum wage increase from $7 to $12, but maybe in a downturn some on the right will resort to blaming job losses on minimum wage increases occuring 10 years earlier?
“heres reality in simple terms: opportunity cost + real businesses operating in a globalised environment need not just to stay afloat, but to make more money than they could make from interest if they were to leave their capital in the bank + a suitable amount of compensation for the risk the face in operating. If they can’t achieve this they will close shop/move to china (think unemployment), thats how business works.
or in the case of business that cannot move overseas such as supermarkets
they will a) close shop or b) put up their prices by exactly the amount of wages, this is called inflation.
one of these things has happened or will be happening. given that we’re not a manufacturing nation if i had to go out on a limb i would guess option b)”
That is at least logical, but still quite unconvincing.
We export at about one third of our GDP. The OECD average is half (because of the EU and a little from NAFTA). Most of our exports are primary sectors (the labour cost factor is minimal in most areas and very very little if any at minimum wage, not in the meatworks or in the dairy factories, not even in the orchards) – so there is little or no impact from minimum wage increases (I would imagine that still applies even at $12 an hour and also applies to local production competing with imports). Our future is in R and D improvement of primary produce and new tech niche market products (related to local and international need) also not involving low wage labour.
The minimum wage only applies (as in most modern nations) to the domestic service sectors (cleaning, care worker support staff, retail etc).
You cite the domestic inflation impact – I would imagine it has been so negligible that the RB would not even mention it let alone be able to quantify it. It’s fuel costs, rising food prices in the global market, rising power costs and higher end labour skill costs in building and construction (and otherwise rising land value costs to business) which are behind our inflation.
Is it .25% is it .2% pa … Employers cut margins, improve efficiency or increase charges. The users, as always, pay for a more realistic labour cost for the services they receive – they enjoyed the low labour services, now they don’t.
Domestic service sectors exist to meet local need which cannot be outsourced to offshore labour. As the need catered to barely reduces even in a downturn – little change in employment results from an increase in the minimum wage (those exports sectors sensitive to local labour cost movement were lost with the fall in tariffs, exporters use higher cost labour and worry about the dollar value and borrowing costs).
In fact, I would argue some service sectors actually do better because of the higher minimum wage, because they have more customers. And this continues even in a downturn because most service sector jobs are immune in a downturn. Rest home workers do not get laid off. Support labour in hospitals do not either.
And in the end, in the terms of economic allocation system costs – the higher the minimum wage and the higher wages in general at the lower end (ours are still too low to be effective), the lower the transfer costs to support of families in the tax system (I would prefer a $15 an hour minimum wage, a means tested social wage to a non working partner and a means tested family benefit per child over WFF … but for now we still need WFF and tax credits, despite all the distortions, to make a positive difference for familes/children). One could simply eliminate the top tax rate and exclude those over $60,000/$75,000 (fix at 2 times the average/median wage) from a social wage to a non working partner and universal child benefit.
New Zealand has benefited from the higher minimum wage – it has contributed to the economic growth and the budget surplus – and more of the same would also be good.
Vote:April 3rd, 2008 at 12:51 am
Nome, on that same thread many people pointed out your errors. Misquoting and partially quoting is one thing, doing it about a thread that many of us participated in is just stupid
Vote:April 3rd, 2008 at 12:51 am
Kimble
There was no bouyant global economy with the 2000 tech crash and the 2001/2002 scare after 9/11. Terms of trade have only improved in the last few years.
Labour’s policies enahanced any inheritance from National – being mean to those over 65 – made them feel insecure (they retrench to cope and then vote Labour). Keeping 100,000 people on $7 an hour does not increase local employment because the service sector grows because of demand, not low cost labour. Admit it. Labour offering security and a higher minimum wage creates the necessary confidence for demand to increase – employers respond to the market … .
You can call it socialism, if you want, but whatever you call it, it works.
Vote:April 3rd, 2008 at 12:59 am
“but maybe in a downturn some on the right will resort to blaming job losses on minimum wage increases occuring 10 years earlier?”
THIS is exactly peoples fucking problem. Unless it shows an impact right now, it doesnt exist.
“- and more of the same would also be good.”
Yup the increase in the minimum wage is what has been driving the economy along so well for the last few years. Lets increase it to $25.
SPC, I am not even going to bother pointing out how stupid that is.
Vote:April 3rd, 2008 at 2:54 am
Kimble
So you “believe” that unemployment results from increasing wage levels. That it is a matter of time. You sound like the believer in the Second Coming, eventually it will happne and then the doubters will believe.
There are economic cycles, and in recessions unemployment does rise – are you going to claim that when one occurs that any job losses are because wage levels are too high (usually it is falling demand, not the cost of the supplied service or product)?
Genesis – 101 revisionism.
Not all markets are the same. General 101 theory does not speak to every market.
You are making the assumption that unemployment results from a too high wage level (this only applies in a competitive (on price) marketplace (when there is a minimum wage for local services in the domestic economy – it is an equal playing field in price terms). The real issue is relativity to local skilled worker job value. If the minimum wage level reaches too high a level, it could discourage people from acquiring skills for jobs in other sectors. This level has not been reached.
The correct policy would be to increase it by $1 pa to $15 over 3 years.
It would still be lower than in Australia – and we are now bleeding unskilled workers to Australia – unless you are advocating we allow unskilled immigrants (speaking what language?) into the country to replace them, what other choice is there?
The idea that it would have been better for our economy if 140,000 people wers still paid $7 an hour is ludicrous – we have coped very well with the labour price increase so far and there is no evidence that the service sector will retrench because of labour cost rises off these levels either.
Given few of these workers can afford the Kiwi Saver take-up and will not be receiving the employer contributions other workers will, continued above CPI increases in wage level are appropriate. And given CPI increases do not actually cover the cost increases in rent, power, food and fuel these people are facing, it is a social neccessity.
Higher wage levels will eventually allow us to review the need for tax credits and related distortions (high abatement rates for extra income). This has economic (and bureacracy reducing) advantages.
Vote:April 3rd, 2008 at 7:10 am
roger nome: If you would stop trying to be semantically manipulative for one second in your life you would acknowledge that my point was, you can’t blame helen clark for the international price of oil. In your analysis you do, which is why you’re wrong. It’s that simple.
Refer: Petrol Price breakdown – 91 – December 2007
In 2007 the tax component of petrol was 41% of the total price. 47% was the international price, 4% shipping and the other 8% devoted to the retailer’s operating expenses.
Could the Labour government have done something about one aspect of the CPI? Quite feasibly. I like how you suggest though that we should ignore all the things that might make the Labour Party look bad – even when that is the reality of life.
Good one. You’re a funny little bunny.
Vote:April 3rd, 2008 at 9:28 am
SPC:
In a nutshell a socialist is a watered down version of a communist, that kills the economy with love and compassion with no regard for economic implications all the while wondering why the country they inhabit is becoming poorer and poorer.
I just ran a quick back of the envelope calculation on woolworths 2007 financials (i know its not a perfect example as the bulk of its operations are australian but foodstuffs dont have nearly as much detail in their annual reports) you may be interested to know that a 71% increase in wages for woolworths today would (keeping the same profit margin) result in an 8.8% increase in food prices. I think it would be safe to assume the figures for NZ supermarkets would be in the same ballpark. note this isn’t even taking into account any labour related increases in production cost of the food itself.
It doesn’t help to be always looking each individual action/reaction in a vaccum
the reason its possible for minimum wages to have “no effect” on unemployment is the presence of the welfare state, while you can debate the merits of having one (a welfare state) you cant deny their are opportunity costs. if you have your economist hat on you’re ruthlessly maximising output with zero regard to the wellbeing of individuals. society may intervene to set new rules of the game according to its values, then the economist goes about ruthlessly maximising once more.
if we take the example of the supermarket you can guarantee there would be greatly increased employment at the free market wage (lets say $5) in the abesence of welfare (you don’t work you don’t eat). and so there is reduced employment now when compared to the default position. aside from a better customer experience and perhaps less time spent waiting in checkout queues (which is a positive spillover for the rest of the economy btw), what additional output is intrinisic to this marginal employment? not much! and that is why these roles are paid so poorly (and even more so in the free market). depite this, these minimum wage low value workers have enjoyed a REAL increase (think quasi-communist government) in wages of over 50% over the past 8 years. A minimum wage is by definition artificially inflated above the market rate, it is not more realistic as you put it but completely fake.
Before you go bagging me as being unreasonable and of the extreme right (I’m a fair bit more centrist) I want to point out that they above is just being objective it doesnt reflect my full point of view or preferences. I do in some respects pity people in minimum wage work but i want to point out that its neither your fault nor mine that they are in that position, neither is it our responsibility to try and raise their wages.
Ideally (and practically too if you look in other countries) in my view minimum wage jobs are the exact sort of positions we want to fill with unskilled foreigners at the lowest price possible (remember its a benefit to the foreign workers too as they pull more $ than in their own domestic markets, ofcourse basic accomodations/entitlements would have to be provided), while New Zealanders move further up the foodchain. We could have foreigners (speaking any language) doing the menial tasks while local students fill the bulk of the customer service/communication related jobs. Labour’s demeaning of the education system has me believing we will have a large supply of homegrown low value workers for sometime yet.
If you take off your rose-tinted socialist (quasi-communist) glasses for a second and look at the wider implications of your utopian ideals you catch the slightest glimpse of reality.
welfare state – seems like a good idea caring for the poor. although the preempative victim mentality of society on their behalf doesnt sit well with me
minimum wage increases – seems like a good idea, and look no resulting unemployment ! inflationary
robin hood tax schemes – “good” for certain families. what about everyone else?
progressive taxes – they dont need it. huge disincentive to earn more once you’re comfy
People need to start waking up to reality, New Zealand is a poor country and we can’t afford all of the above (not to mention the army of bureaucrats in wellington). While socalists (that is geniune socialists) dillydally in the dilemna’s of what is in their view “fair” and “equitable” for other people, making sure everyone has a piece of the cake, tomorrows cake gets smaller and smaller.
Vote:April 3rd, 2008 at 11:37 am
“So you “believe” that unemployment results from increasing wage levels. That it is a matter of time.”
No, I am just a grown up that can appreciate that the economy is a very complex dynamic system, and just because something doesnt have an immediate or dramatic effect this doesnt mean it has no effect at all. You know, kind of like what an economist would do.
“You are making the assumption that unemployment results from a too high wage level…”
You havent displayed enough intelligence to tell me what my assumptions are. Ask next time.
“The idea that it would have been better for our economy if 140,000 people wers still paid $7 an hour is ludicrous…”
Dismissing ideas out of hand is what all the best economic thinkers of our time have done.
Where did the money come from, SPC? How did you figure out that this transfer of wealth was advantageous for the economy? I really dont think you have even given this any consideration.
Vote:April 3rd, 2008 at 1:05 pm
Hey, well done, Kimble, and “farfetched”. I don’t think I need to reply at all to SPC’s criticism of my posting earlier.
SPC: DUH ! DUH ! DUH !
Vote:April 3rd, 2008 at 2:33 pm
Pascal:
“In 2007 the tax component of petrol was 41% of the total price. 47% was the international price, 4% shipping and the other 8% devoted to the retailer’s operating expenses.”
In 2007 we had the third lowest tax component on our petrol prices in the OECD. Most countries have a higher tax on petrol, so as to provide a cushen in the event of an oil shock – i.e. in Europe most countries have around a 100% tax on petrol. Economies like the US, Aus and NZ with low petrol taxes are much more vulnerable to price spikes.
See the fourth graph at the following link.
http://www.med.govt.nz/templates/ContentTopicSummary____20094.aspx
Secondly, because of there low petrol taxes, these economies are much more carbon intensive. We all have a very high carbon to GDP ratio, making us the worst global warming offenders in the world. So no, a pragmatic government doesn’t really have the option of lowering petrol taxes.
http://images.google.co.nz/imgres?imgurl=http://www.ems.org.uk/Fireworksheader/images/OECD_graph1.jpg&imgrefurl=http://www.ems.org.uk/energy_carbon_intensity.htm&h=176&w=381&sz=12&hl=en&start=2&um=1&tbnid=gzHyYzjzflk2-M:&tbnh=57&tbnw=123&prev=/images%3Fq%3Dcarbon%2Bintensity%2BOECD%26um%3D1%26hl%3Den%26sa%3DN
PaulL:
“Nome, on that same thread many people pointed out your errors.”
Such as? Or are you all bluster?
Vote:April 3rd, 2008 at 2:36 pm
Pascal:
“In 2007 the tax component of petrol was 41% of the total price. 47% was the international price, 4% shipping and the other 8% devoted to the retailer’s operating expenses.”
In 2007 we had the third lowest tax component on our petrol prices in the OECD. Most countries have a higher tax on petrol, so as to provide a cushen in the event of an oil shock – i.e. in Europe most countries have around a 100% tax on petrol. Economies like the US, Aus and NZ with low petrol taxes are much more vulnerable to price spikes.
See the fourth graph at the following link.
http://www.med.govt.nz/templates/ContentTopicSummary____20094.aspx
Secondly, because of there low petrol taxes, these economies are much more carbon intensive. We all have a very high carbon to GDP ratio, making us the worst global warming offenders in the world. So no, a pragmatic government doesn’t really have the option of lowering petrol taxes.
PaulL:
“Nome, on that same thread many people pointed out your errors.”
Such as? Or are you all bluster?
Vote:April 3rd, 2008 at 2:43 pm
Sorry about the dubble post.
Oh and on the minimum wage Kimble is of course wrong. The Labour market is a quizotic one. i.e. there are many workers out there that employers wouldn’t even hire if their labour was free. They’re just too much of a hasel to bother about. So, to a certain point, a minimum wage won’t make a difference to employment levels, and the empirical evidence proves this.
Read this study for example.
http://www.jstor.org/view/00028282/di976326/97p0148a/0
Vote:April 3rd, 2008 at 3:00 pm
oh, and you just have to look at which countries have the lowest unemployment levels. They’re all highly unionised, so have higher wage levels then market rates would deliver, yet they have the highest employment rates. (if you don’t trust wikipedia, then click on the link to the OECD source data.
http://en.wikipedia.org/wiki/List_of_countries_by_employment_rate
Vote:April 3rd, 2008 at 3:25 pm
Phillip John/Roger Nome:
So, unlike last time, you’re now happy to use net real wages?
Speaking of mistakes, Phillip John, do you remember this one about the top personal tax rate in Australia:
I note you’re doing your usual trick of referring Kiwiblog reader to XYZ website and look at ABC graph or table. Blah blah blah. As PaulL quite rightly said on another thread, several of us (apparently) have clicked through to your “evidence” in the past – and found your intellectual integrity, well, somewhat lacking. Given your past performances here, I think Kiwiblog readers are entitled to treat your latest claims with suspicion.
Vote:April 3rd, 2008 at 3:33 pm
POC:
So you think a typo on an unrelated topic is relevant? That’s desperation. BTW Australia’s top tax rate is higher than ours – which was the real point.
Got any comments to make on my current analysis? or are you content to distract with technicalities from ancient threads? i.e. you know my current analysis is spot on, so you won’t touch it.
Vote:April 3rd, 2008 at 3:36 pm
“you know my current analysis is spot on, so you won’t touch it.”
Clearly rogered gnome is suffering from delusions of grandeur.
Vote:April 3rd, 2008 at 3:38 pm
hey dad! Have you taken your Aropax today?
Vote:April 3rd, 2008 at 3:44 pm
Phillip John/Roger Nome:
You call 59% – instead of 45% – a typo? 56% I might have accepted as a typo, but not 59%.
No, Phillip John, the real point is when pressed on that mistake you finally admitted you were too lazy to fact-check the Australia’s marginal tax rates. I say Kiwiblog readers are entitled to know this when considering your latest claims.
I reiterate PaulL’s comment on the other thread.
Vote:April 3rd, 2008 at 3:52 pm
“No, Phillip John, the real point is when pressed on that mistake you finally admitted you were too lazy to fact-check the Australia’s marginal tax rates”
Sure, which is why I usually provide a link to the raw data – but you don’t seem to like that either.
“I reiterate PaulL’s comment on the other thread.”
So you won’t engage in the substance of the debate. Instead you’re content to distract/manipulate the focus of the discussion. That’s what good lawyers do when they’ve got nothing of substance though, so it’s hard to blame you. Must be hard-wired into your brain by now. So let me guess, you work in corporate law? Sell your soul to the highest bidder?
If you haven’t you should watch this movie. Tis a good one.
http://en.wikipedia.org/wiki/The_Firm_(novel)
Vote:April 3rd, 2008 at 3:54 pm
Phillip John/Roger Nome:
Oh dear, having a hissy fit?
I hate bursting your ego bubble by dragging up previous threads – you characterise them as a distraction – I say they’re relevant to your credibility. On the previous thread I linked to, you were taking DPF to task (at least, you thought you were). Now you’re apparently happy to take inflation into account (accepting DPF’s view, despite previously disagreeing with it). You’ve got absolutely nothing to say about that? And you expect to be taken seriously?
Vote:April 3rd, 2008 at 3:57 pm
Kimble
It would appear you are a fan of Yes Minister.
Phil Best
As if they had answered my post – the point about low wages discouraging more efficient use of labour resources is not one either has covered. And given the fact that inefficient use of labour results in labour shortages its relevance to inflation seems to have escaped them.
farfetched
Your post warrants some attention. Later when I have time.
Vote:April 3rd, 2008 at 4:01 pm
POC -
“Now you’re apparently happy to take inflation into account (accepting DPF’s view, despite previously disagreeing with it).”
Unlike many here, I’m open to having my opinions change with new information. That’s one of the main reasons I’m here. I like to have my views challenged. I still however hold that DPF’s analysis is bogus (it’s core inflation and the income of the entire population that matters, not just the weekly wage of the 60% that work full-time). So far you haven’t even tried to challenge that. You merely attempt to distract with trivialities.
Vote:April 3rd, 2008 at 4:09 pm
You mean like this:
There’s so many claims rolled up into one. That’s why, as PaulL has rightly said, it takes time to debate you – and you haven’t shown yourself to be terribly open to other viewpoints in the past.
Shorter Phillip John: you said gross income is the appropriate measure. You were wrong. You now agree with DPF that real income is the appropriate measure – except you now prefer “core inflation” (a delightful concept which you haven’t quantified). Perhaps next time this topic comes up you’ll be happy to settle for the CPI.
Vote:April 3rd, 2008 at 4:50 pm
“There’s so many claims rolled up into one.”
I guess often I assume a bit of prior knowledge about the subject I’m talkin about. If you do a little research you’ll see that I’m right. Actually I encourage you to try and prove me wrong on any points, if it’s the only way your skepticism will be overcome.
“you said gross income is the appropriate measure. You were wrong.”
Actually, it’s more complex than that. Gross income can be seen is appropriate.
As Tane has pointed out over at the standard:
My opinion is that both before tax and after tax figures are of interest, because they reveal different things. So as with any rational person, as my understanding of an issue improves, my opinions change. For this reason it’s more productive to debate current positions rather than old ones. You can advance the debate that way.
Vote:April 3rd, 2008 at 4:53 pm
Deleted double comment:
Vote:April 3rd, 2008 at 5:01 pm
POC:
“and you haven’t shown yourself to be terribly open to other viewpoints in the past.”
To change my mind you have to stump up with facts, not just semantic distractions. You’re good at the later, but not too flash with the former I’m afraid. But you are a lawyer after all, so you don’t have a lot of time to do the research, but you’re plenty practiced at hatcheting techniques, so that’s what you do. Fair enough i say.
Vote:April 3rd, 2008 at 5:25 pm
“Oh and on the minimum wage Kimble is of course wrong.”
Nome that is really pathetic, either address what I was saying or dont bother referencing me. Lets see what I said:
“the increase in the minimum wage puts upward pressure on unemployment.” And, “If there is a greater counteracting force pushing the other way, the upward pressure wont be evident.”
So what was I wrong about? Does an increase in the minimum wage put upward pressue on unemployment or doesnt it? If this force is small, or if another counteracting force swamps it, will it show up?
See? I am not saying it increases unemployment, just pointing out the direction of the force.
When the economy is booming and running at full employment, an increase in the minimum wage isnt really going to be noticeable. Which is why the minimum wage can go up and the unemployment rate can come down at the same time. Labour has used the bouyant economy and the tight labour market as an opportunity to increase the minimum wage.
So where was I wrong? Or are you just fighting paper tigers again?
Vote:April 3rd, 2008 at 5:59 pm
No Kimble. Your words were
“the increase in the minimum wage puts upward pressure on unemployment.”
Now you try to qualify that by saying that a moderate minimum wage won’t make any discernable negative difference to the employment rate when the economy’s going well (in this situation it has no upward pressure on unemployment). Glad you’ve come around to my position.
Vote:April 3rd, 2008 at 6:53 pm
Phillip John/Roger Nome:
This is for you:
I suspect many Kiwiblog readers – at least those who’ve tried to debate you – would endorse that sentiment.
Your first contribution to this thread was brimming with your usual pseudo-intellectual arrogance:
You’ve made no attempt to quantify “core inflation” or explain how one subjectively excludes “sources completely out of the government’s control” or even provide your own figures to rebut DPF’s. As such, your argument is useless.
Vote:April 3rd, 2008 at 10:17 pm
Kimble
Apart from claiming the maturity and an understanding of complexity and nuance of the sort belonging to a real economist – without making any substantive point – apart from admitting that you are inclined to suggest that unemployment might result from minimum wage rises without making any such forecast (the sort of semantics famous in Yes Minister) – you also said
1. you would not dismiss the idea that it would have been better for our economy if 140,000 people were still paid $7 an hour
How “could” it have been better. You are aware of
1. family poverty
2. the distortions that result from tax credits to support families on such low incomes
3. the cheaper the labour cost the more inefficent the use of labour gets
4. we are losing minimum wage labour to Australia as it is – the only immigrants capable of replacing minimum wage labour are who exactly (Polynesians would not be a long term solution – there are not enough).
“How did you figure out that this transfer of wealth was advantageous for the economy? I really dont think you have even given this any consideration.”
If you had read my post, it covered on greater focus on productivity gains if labour costs rose AND also the various ways of support for those on low incomes can be given. While incomes are this low, tax credits are the most effective way to target support to families. They have disadvantages in high abatement rates. But until wages are higher – two preferable options – tax deductions and or universal benefits (discounted for tax purposes) are not going to be seriously considered as options (despite being in economist terms more optimum for the well being of the whole economy).
Vote:April 3rd, 2008 at 11:20 pm
farfetched
So you saying there are two forms of economics – one from those whose choices reflect their concern for the impact on people and those who see no place for this in “rational” economic decision making. The economic concern for people you call socialism (somwhat different from the original meaning) and the other type I would term economic rationalism.
“you may be interested to know that a 71% increase in wages for woolworths today would (keeping the same profit margin) result in an 8.8% increase in food prices.”
I use to do costing of contract pricing, so I understand it is simply the labour factor in the total cost … . Ignoring the fact many workers are not on the lower wage level, if they were paying minimum wage at $7 and now it is $12, the 70% wage increase over the 8-9 years could thus result in a 9% rise in food price – about 1% pa …
Of course the eventual effect might be to increase the use of scanners by shoppers and a declining use of counter staff. Thus an increase in labour productivity when workers transferred to other areas.
The shop staff concerned will spend more on other services and increase aggregate demand – the increases to other workers will increase supermarket sales also. This increases the tax take – GST, company profits and income tax revenue.
“the reason its possible for minimum wages to have “no effect” on unemployment is the presence of the welfare state, while you can debate the merits of having one (a welfare state) you cant deny their are opportunity costs.”
I disagree, the welfare state allows low minimum wages by topping them up with accomodation supplements and tax credits. Effectively subsidising employers (low wage workers could not keep up their work effort without the help from the state). The state is the buffer between the employer and worker poverty, if this was not the case the civil peace of recent times would give way to the class divide of decades ago. We went too far in this direction and need to expect more of employers (higher wages and more efficient use of labour), so that the welfare state is run in an optimum way rather than distorting the wider economy.
“we take the example of the supermarket you can guarantee there would be greatly increased employment at the free market wage (lets say $5) in the abesence of welfare (you don’t work you don’t eat).”
How does one ration out the death by homelessness (I presume you mean ending accomodation supplements along with money for food and power) and hunger, if there is no welfare – it only exists for those not in the employment (ignoring WFF tax credits). Rationalism that results in the death of surplus labour during recession also results in labour shortages and inflationary impact from that during subsequent economic growth. Welfare here maintains a workforce for the employer – as a labour service provider. It thus acts to regulate the economic cycle to the employers advantage. The provider of welfar may ask tax in return for this service and also regulate some labour standards convenient to the welfare provider (such as a minimum wage – which can assist the welfare provider in optimising, in economic terms, its own support system).
“A minimum wage is by definition artificially inflated above the market rate, it is not more realistic as you put it but completely fake.”
Have you heard of the global market (for skilled professionals)? Have you heard of the CER labour market (which includes any New Zealander who wants work over there). If they value unskilled labour too much above our minimum wage we will lose unskilled workers across the Tasman – we already are – despite the increase to $11 last year.
“neither is it our responsibility to try and raise their wages.”
Here I disagree again. It as I have pointed out – not optimum public policy to be left supporting families with accomodation supplements and tax credits because so many are on wages way below their counterparts over the Tasman.
“Ideally (and practically too if you look in other countries) in my view minimum wage jobs are the exact sort of positions we want to fill with unskilled foreigners at the lowest price possible We could have foreigners (speaking any language) doing the menial tasks while local students fill the bulk of the customer service/communication related jobs. Labour’s demeaning of the education system has me believing we will have a large supply of homegrown low value workers for sometime yet.”
If the homegrown low value workers keep going across the Tasman for higher wages you may get your wish – though it will be the Pacific Islanders as the foreign workers coming in as in the 1970′s – then even they will cross the ditch and we will have to go somewhere else.
“mnimum wage increases – seems like a good idea, and look no resulting unemployment ! inflationary”
If wage rates are too low there will be a poor allocation of labour which results in labour shortages and this is inflationary.
“robin hood tax schemes – “good” for certain families. what about everyone else?”
Other people are children from families, people who will form families and people who will retire and be supported out of the wages of those raised up in families.
“progressive taxes – they dont need it. huge disincentive to earn more once you’re comfy”
A bit simplisitc. What if the flat rate was 50 cents in the dollar or the progressive rates were a low rate 20 cents and a high rate 33 cents? It really depends on whether the tax rate is anywhere near 50% or not.
“People need to start waking up to reality, New Zealand is a poor country and we can’t afford all of the above (not to mention the army of bureaucrats in wellington). While socalists (that is geniune socialists) dillydally in the dilemna’s of what is in their view “fair” and “equitable” for other people, making sure everyone has a piece of the cake, tomorrows cake gets smaller and smaller.”
A first world country affords those things and competes so it still can. If we are as ever as defeatest here as you are, I will cross the ditch and renounce my citizenship. It won’t be long before the fruits of rationalism are known and a merger would follow anyhow (we would lack the self respect to remain independent).
Vote:April 4th, 2008 at 5:13 am
this is getting awfully longwinded so I’m going to *try* and make this as concise as possible.
1) “the economic concern for people.” my main idea from earlier is that this is an oxymoron. Social concerns are not an element of but an impediment to economic decision making, this is not to say that social concerns are completely unimportant. In anycase an economy without concern for people creates much wealth and looks after the people at large (while not looking after each person individually). Where as communism creates no wealth and looks after everyone equally (ie not at all). We want to operate much closer to the former than the latter, 50%? of children being propped up by welfare is not.
2) “Of course the eventual effect might be to increase the use of scanners by shoppers and a declining use of counter staff. Thus an increase in labour productivity when workers transferred to other areas.” this is a text book argument for why unemployment will eventually increase. If supermarkets move towards self service scanners (meaning the scanners are more economical than counter staff) the counter staff become redudant, they don’t magically get transfered to other areas as the limited skills they possess are nolonger required. Yes average output per worker (a totally artificial measure of “productivity” in this case) will increase as the number of employees reduces.
3) “If the homegrown low value workers keep going across the Tasman for higher wages you may get your wish – though it will be the Pacific Islanders as the foreign workers coming in as in the 1970’s – then even they will cross the ditch and we will have to go somewhere else.”
Thats the nature of a global economy, unskilled workers (meaning someone who is not in the process of upskilling themselves) should move to where they can attain the highest wage. They can only keep going across the ditch until Australia has employed all the minimum wage workers it wants (and note kiwi migrants to AU are not immediately eligible for welfare), demand for these unskilled workers at the AU minimum wage is finite and at some point the excess workers (who are now unemployed in the AU market) will have to move to the next highest available wage (that may or may not be NZ). From our point of view it doesnt matter whether the workers filling our low skilled jobs come from the pacific, asia or the southpole for that matter.
4) “A bit simplisitc. What if the flat rate was 50 cents in the dollar or the progressive rates were a low rate 20 cents and a high rate 33 cents? It really depends on whether the tax rate is anywhere near 50% or not.” Firstly a flat tax at 50 cents in this day and age is beyond rediculous. Try taking a look at the growth rates of flat tax regimes such as Hong Kong and Singapore and compare that with those that fit your socialist ideology. Its simplistic because it really is that simple.
5) “A first world country affords those things and competes so it still can.” While we are part of the global economy and thus in competition with other countries, i don’t see us as actively competing. If we are serious about actually competing we should be attempting to emulate the best, not Australia, not some midperforming OECD country. IMO The first world country tag its utterly meaningless when we are falling behind many of the so called developing and third world countries. In a dozen or so years if someone were to coin a term “the new first world” we would not (on our current trajectory) be part of it.
Vote: