Income Mobility in New Zealand
May 11th, 2012 at 10:00 am by David FarrarTreasury commissioned two public health researchers from Otago University to examine Stats NZ longitudinal survey data on family incomes. The report from Otago University is here and an analysis by Treasury here.
I think income mobility is far far more important than income inequality. I do not think there is much merit in insisting that an untrained unskilled 18 year old should be earning the same as a 50 year old professional with 30 years of experience.
100 years ago in the United Kingdom there was little income mobility. Those families with wealth tended to keep it, and poor families stayed poor. I can understand the appeal of socialism 100 years ago. But today, while of course not perfect, there is greater income mobility. The knowledge economy especially means that land and capital are not as important as previously. More and more of the world’s billionaires and millionaires created their fortune, rather than inherited it. This graph from the analysis shows the situations in New Zealand over just a seven year period from 2002 to 2009.
So of the families who were in the bottom 10% of family income – in just seven years, 74% of them were no longer in the bottom decile. And only 46% of those in the top decile were still there seven years later.
By far the biggest characteristic indicating likely persistent deprivation is being a sole parent family.
Also of interest is that only a third of familes who spent the whole seven years on low income had been in deprivation at any point.
The Treasury’s conclusions:
- Policy should emphasise mobility, deprivation and persistent low income
- Policy should be designed with mobility in mind
- Targeting policy effectively can be difficult
- Solo parents are perhaps the group to be most concerned about
Income inequality is used by the left to argue for higher taxes and more welfare. But as I said I do not accept that there is a problem that an 18 year old with no mortgage, no kids, no skills, no experience is paid less than someone with decades of experience. What we want is the ability for that 18 year old to get a job, to get education and training, to earn more over time and not spend a lengthy period of time (if any) in deprivation or hardship.
Some other stats:
- Around 47% of families moved at least two income deciles over seven years
- Over the seven years, 50% of families experience low income at least once
- But 43% of those who had low income, only had it for one or two of the seven years
- Sole parents are 12% of families but over 50% of those in persistent deprivation
This is one of the reasons why I think the welfare reforms are so important.
May 11th, 2012 at 10:13 am
“I do not think there is much merit in insisting that an untrained unskilled 18 year old should be earning the same as a 50 year old professional with 30 years of experience”
Nice straw man. Conjuring up images of a high paid, highly skilled and capable professional vs a young upstart that wants everything for nothing.
However, I don’t ever recall seeing anyone make an argument for the situation you describe.
Perhaps your meant a 50 year old professional cleaner with 30 years experience that is earning the minimum wage?
[DPF: If you argue that the minimum wage should be 60% of the median wage you are exactly arguing that unskilled 18 year olds with no experience should have their wgaes set relative to highly skilled and experienced 50 year olds.
And if you can find someone who has been cleaning for 30 years on the minimum wage, let me know. I know a cleaner who gets $35 an hour]
Vote:May 11th, 2012 at 10:19 am
Shock horror! Turns out if you don’t piss and gamble your money away, don’t fuck around and have kids out of wedlock, but work hard, enjoy yourself study stuff from time to time, you eventualy become better off and can pass that wealth to your kids.
Wow!!! Here I thought it was all up to the government to provide me withall I want. My world view is shattered!
Vote:May 11th, 2012 at 10:25 am
“Perhaps your meant a 50 year old professional cleaner with 30 years experience that is earning the minimum wage?”
if that cleaner is that dumb then yes.
Vote:May 11th, 2012 at 10:52 am
This is one of the issues we have in NZ. Labour use a misleading method of comparison in order to create hysteria so they can justifying implementing their whacky policies. The public have no idea about this sort of thing so fall for it hook, line and sinker. I really wish there were a formal set of measures that were released every year which the public could use as an indication of how this country is heading. Done by an independent source and pushed strongly through the MSM so people can see what is happening and make informed decisions based on that. I know it’s not likely to happen but it is extremely important in my view.
Vote:May 11th, 2012 at 11:09 am
Posted in yesterday’s GD but got a bit lost in the noise – somewhat relevant here (on a global scale): uplifting poor nations with green field Charter Cities. A proposal delivered at a TED talk.
Vote:
May 11th, 2012 at 11:31 am
This is great analysis. Similar analysis was done in Aus a few years back, and one of the interesting things was that many of the households in the lowest income bracket had very significant wealth and expenditure. Implication was that many of them were people hiding assets from the taxman (low taxable income) or criminals. That seriously upset many of the lefties, particularly when the CIS got the Australian Bureau of Statistics to restate some of their reports to reflect that there was a significant disparity between reported income and reported expenditure in the lowest income groups.
As for the 30 year cleaner….the income mobility suggests that isn’t the rule. It may be the exception – and as the recommendation seems to be, the appropriate thing to do is to target persistent low income over time, and sole parenthood, not to just broad brush redistribute income.
Vote:May 11th, 2012 at 11:42 am
This is an interesting report but left me with a question I haven’t seen answered – but haven’t read it thoroughly at all so it may have been. How many of the “low income” decile are actually tertiary students? I know I was once.
Vote:May 11th, 2012 at 12:06 pm
It’s a very cool graphical representation
I’m not surprised by the degree of movement and as you’ve indicated having kids will be the key factor here – my wife and I probably dropped 3-4 deciles when our daughter was born two years ago and my wife stopped work, dropped another decile when the 14 weeks paid parental ran out, and picked up two deciles when my wife started back work part time and rose another 1-2 deciles when she did some contracting last year.
I think this statement is a little misleading: “Those families with wealth tended to keep it, and poor families stayed poor.”
Wealth (accumulated capital/net worth) and income are not the same thing.
New Zealand is a fairly wealthy country and this wealth has been built up over hundreds of years – New Zealand doesn’t become a poor country just because we go through a recession one year, it’s the long term trend over generations that matters.
The same is true at a household level. A single mum renting and a single mum living in a mortgage free home would show in the same decile on this chart but have dramatically different standard of living and this is due to their differences in accumulated capital.
I’d be keen to see a chart alongside this that showed family net worth by decile and how it has changed over the 7 years. I would expect to see change as people accumulate wealth over their working lives and spend it during their retirement, but I doubt the changes would be as dramatic as the income stats.
Vote:May 11th, 2012 at 12:30 pm
PaulL,
Along the same lines.. a few years ago a Central NI town’s income and expenditure were analysed and expenditure exceeded income by a wide margin. The difference of course is Dak and the general underground economy that prevails in such places.
JC
Vote:May 11th, 2012 at 1:53 pm
@Alan Wilkinson
Vote:I wondered about similiar issues (tertiary students, and young people “finding their feet”, from the initial red zone, and people going from employment to retirement from the initial blue zone). Appendix 3 of the Treasury report plots the same data for those between 25 years and 55 years (I assume that’s at the start of the 7 year period, but it’s not clear), which should remove a lot of those problems. That graph still looks a lot like the middle result in the example above.
May 11th, 2012 at 3:08 pm
@SGA, thanks, yes that answers the question.
Vote:May 11th, 2012 at 4:37 pm
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10803069
This guy has been a Cleaner for his whole life – Certainly seems to be a content man of diginity.
Vote:Good on him. It takes all types to make up a community, not everyone can be a hi-flyer
May 11th, 2012 at 11:47 pm
Someone send this to that bleeding heart equality fan Tapu Misa at the Herald and bunt it up her.
Vote:May 12th, 2012 at 4:08 pm
It’s difficult to draw any conclusions from graphs like that. We’ll never get *complete* mobility; so important questions to ask are: how much is tolerable; can we do better; is the direction we’re going improving things or not?
Presenting a graph like that with comparable graphs from other countries would at least allow a benchmark to see how well we’re doing. Or, you could present the graph next to one from the 1980s and see whether income mobility has got better or worse since economic liberalisation of the 1980s and 1990s.
Vote:May 13th, 2012 at 5:43 pm
Very interesting statistics thank you. Assuming tertiary students do not distort the lower band income mobility is much higher than I would have expected.
“…I do not accept that there is a problem that an 18 year old with no mortgage, no kids, no skills, no experience is paid less than someone…”
I would have rather you excluded mortgage from your list. What makes you think that a person with a mortgage should be paid more than a person who rents or owns a dwelling with a clear title.
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