Stats Chat on inequality

December 9th, 2013 at 1:00 pm by David Farrar

Stats Chat does a gentle fisk of the Herald’s article on income inequality. They note:

Firstly, any comparison of money in 2006 to money in 2013 that’s not inflation-adjusted in some way is pretty pointless. The CPI went up 19% over that period.

Secondly, minimum wages are pretty obviously relevant. At the last Census, the minimum wage was $9.50; at this Census it was $13.50, a nominal increase of 42% and a real increase of  19%.

Their summary:

So, inequality in NZ is substantially higher than it used to be, and there are a lot of reasons to think this is bad, but the increase was in the 1980s and 1990s, not since 2006.  And this information is not hard to find.

I believe social mobility is the more important thing to measure than income inequality. Of course a 16 year old school leaver earns a lot less than a 45 year old executive. What is more important is whether those in the lower income deciles stay in them all their lives unable to break out and improve their income, or do you have social mobility.

The data for NZ is that we have a reasonable degree of social mobility, which I blogged on here. 74% of families in the bottom decile were not there seven years later.

Social and Income Mobility

June 21st, 2013 at 10:00 am by David Farrar

We hear a lot about income inequality. I find this to be a fairly unsophisticated measure, as it assumes people stay at the same income level thoughout their life. Of course people at age 18 earn a lot less than someone at age 50 with 30 years experience.

What I think is much more important is that people born into a poor household, have the opportunity to earn more than their parents did, and that wealth is earnt not just inherited.

A CIS publication has this graph from Australia.



So only a quarter of those born to a father in the bottom quintile end up in that quintile themselves. 74% move into a higher quintile including 54% who move into the middle or top two quintiles. That’s a good thing. It is not a perfect distribution (which would be 20% in each quintile) but it is far far from static.

Also 17% of those born to the wealthiest quintile, end up in the bottom quintile. So wealthy parents do not guarantee that you are wealthy. In fact 72% end up outside the top quintile.

This is what policy makers should focus on. Social and income mobility and equality of opportunity. Not on insisting an 18 year old should be paid the same as a 50 year old, or that an intern should be paid comparable wages to a group general manager.

Inequality vs Social Mobility

May 24th, 2010 at 9:38 am by David Farrar

The left tend to measure most things by talking about inequality, and how anything that increases inequality is bad. Inequality, being the gap between those on the lowest incomes and the highest incomes.

This of course means that most of the focus grows on how to divide up the cake, rather than grow the cake.

But even putting that to one side for a moment, I want to make the case for focusing on social mobility rather than merely inequality.

In many cases inequality is a normal and good thing. It is a good thing that a 50 year old with 30 years of experience gets paid more than a 16 year old with no experience.

It is also a good thing that someone who spends six years at medical school and four years of specialisation gets paid more than say a parliamentary researcher.

For the vast majority of New Zealanders, they start their working life earning a lot less then they finish it. And this is good – otherwise you extra skills and experience are not valued.

So I reject many measures of income equality as unsophisticated and even counter productive.

The measure that I would like more emphasis placed on is social mobility. I don’t have a problem with a 19 year old earning $10 an hour as a kitchen hand if when they are 30 they are earning say $25 an hour as a cook. However I will agree that someone who spends their life earning just $10/hour is going to have a relatively deprived life.

But for me the solution is not to raise the minimum wage to $25/hour, but to have a society and a labour market which will help people on $10/hour gain skills and experience so they move up the pay scale.

In the UK social mobility has historically been difficult with such a class ridden society. In New Zealand I think it is far less so. Few people really care about where you were born (unless it was Palmerston North) and what your parents did.

In a society with very low levels of social mobility, I can understand why reducing inequality is more important. But in a society which does have opportunities, I want the emphasis to go increasing social mobility, rather than merely the blunt instrument of inequality. If you take inequality to extreme measures, then you end up like the old USSR where cleaners and surgeons get paid much the same.

The data on social mobility in NZ is fairly sparse – partly because you have to measure it over extended periods of time. But that is where I would like more focus to go.