Actually middle income households have done best

Stuff reports:

Since 2007, the income of a household in the top 10 per cent (90th percentile) has increased by at least $28,000, while a household in the bottom 10 per cent (10th percentile) has had gains of just $3100.

By focusing on the gross increase, instead of the percentage increase, Stuff basically produces a nonsensical figure.

Of course the top 10% of households will have higher gross increases than the bottom 10% of households. Just as Vodafone will have a bigger gross increase in sales than the corner dairy. If Vodafone increases its sales by $100,000 in a year that would be regarded as a horrendous failure. If the corner dairy increases its sales by $100,000 they’d regard that as the best year ever.

So this is why we use percentages – something Stuff fails to do, in order to support a narrative.

So what can we learn from the Stuff data:

In 2015, a household with an income in the middle (median), earned $76,180 annually compared to $58,237 in 2007.

For a household nearer the bottom the increase has not been so pronounced. A 20th percentile household (richer than 20 per cent of households and poorer than 80 per cent) has seen its annual income increase by $5200, from about $28,900 to $34,100. 

At the other end of the spectrum, an 80th percentile household has seen its income increase by $24,300, rising from about $110,800 to $135,000. A 90th percentile household had income of $175,700 in 2015, up by $28,000 since 2007.

Here’s the percentage increases for the percentiles above:

  • 20th percentile – 18% increase
  • 50th percentile – 31% increase
  • 80th percentile – 22% increase
  • 90th percentile – 19% increase

So those on the 90th percentile have actually had much the same relative increase as those on the 20th percentile. And households in the middle are the ones that have done best.

Note of course this is not actually studying individual households. The households in the top 20% in 2007 will not be the same households in the top 20% in 2015. We have reasonable income mobility in NZ where households move from one decile to another.

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