Should wages be the same in Nelson as Auckland?

July 1st, 2016 at 1:00 pm by David Farrar

Stuff reports:

Foodstuffs pays its South Island supermarket staff $2 less an hour solely because they are in the South Island, the FIRST union alleges. 

An ongoing dispute over wages for Foodstuffs’ staff will head to the Employment Relations Authority (ERA) next week as contract negotiations remain gridlocked.

New World Nelson, Pak ‘n Save Richmond and Pak ‘n Save Invercargill’s local owners rejected the FIRST union’s attempt to bargain for pay rises in collective agreements, FIRST’s Nelson organiser Rachel Boyack said. …

Boyack said employees at Foodstuffs’ South Island stores were paid about $2 less an hour than North Island staff without explanation.

“[Foodstuffs] have said that they’re paid less because it’s the South Island.

“The jaw drops on our side of the table. I have never heard an employer say that South Island staff should be paid less.”

I don’t see why wages should be the same in every city. Wage rates are a factor of supply and demand, and this varies by area. It costs more to live in Auckland so wages tend to be higher in Auckland.

Real wages up even more

February 4th, 2016 at 1:00 pm by David Farrar

I blogged yesterday:

So real wages have gone up 1.4%

But I got it wrong. The 1.5% increase I referred to was the labour cost index – which is overall cost to employers. That is quite different to how much the average employee earnings have increased.

  • Weekly Gross Earnings average (for FTE) up from $1,102 to $1,135 – a 3.0% increase
  • Average Hourly Earnings up from $28.79 to $29.41 – a 2.2% increase

So taking into account 0.1% inflation the average FT worker is earning 2.9% more in real terms and getting paid 2.1% an hour more in real terms.

Unemployment drops to seven year low!!!

February 3rd, 2016 at 12:32 pm by David Farrar

Stats NZ reports:

The unemployment rate fell to 5.3 percent in the December 2015 quarter (from 6.0 percent), Statistics New Zealand said today. This is the lowest unemployment rate since March 2009. There were 16,000 fewer people unemployed than in the September 2015 quarter.

Unemployment fell for both men and women over the latest quarter, with the unemployment rate for men falling 0.5 percentage points (to 5.0 percent) and that for women falling 0.8 percentage points (to 5.7 percent).

“Although the number of employed people has risen, there was also growth in the number of people not participating in the labour market,” Ms Ramsay said. “This has contributed to labour force participation falling for the third quarter in a row.”

Over the December quarter, employment grew 0.9 percent, after falling in the previous quarter. This has resulted in annual employment growth of 1.3 percent.

This is good news for everyone except Andrew Little!

It’s probably a bit too good. The HLFS is a survey of 30,000 so has a margin of error. It is quite possible next quarter will see it rise up a bit again. But regardless still a great drop.

Annual wage inflation, as measured by the labour cost index, eased to 1.5 percent, the lowest since the year to the March 2010 quarter. This compares with low annual consumer price inflation of 0.1 percent.

So real wages have gone up 1.4%. Excellent.

The changes from a year ago are:

  • 32,000 more jobs
  • 35,000 more full-time jobs, 3000 fewer part-time
  • 10,000 fewer unemployed
  • Unemployment rate down 0.5%
  • Maori unemployment rate down 1.6%
  • Pasifika unemployment rate down 1.7%
  • 1,200 more manufacturing jobs (recall the manufactured crisis!)
  • 2.1% increase in hours worked
  • NZ has 10th= lowest unemployment rate in OECD, 1.3% below OECD average

Stagnant wages?

September 21st, 2015 at 9:00 am by David Farrar

Stuff reports:

Thanks to rising house prices, stagnant wages and social inequality, renters now make up at least half of our population.

I always get suspicious when a story makes an assertion like this. It sounds like borrowed rhetoric from a politician. So I thought I would check. Have wages been stagnant?

So I looked at Stats NZ average ordinary time earnings increases. The average increase in wages by year has been:

  • 2014/15 – 3.1%
  • 2013/14 – 3.5%
  • 2012/13 – 2.2%
  • 2011/12 – 3.5%
  • 2010/11 – 4.3%

That is far from stagnant, and well beyond inflation.

This then got me thinking whether other facts asserted in the article may also be less than robust. Do renters now make up half our population?

Well according to the last census, 453,135 households rent. This compares to 940,728 households that own their home directly or through a family trust. And around 50,000 households do not own or pay rent (maybe parents own).

So around one third of households rent, not one half. A big difference. But the assertion was renters are now over half the population.  So maybe rental households have more people in them that non rental households.

Well no as Stats NZ says:

In general, rental housing tended to have fewer bedrooms than housing that was owned or in a family trust.  

So if anything it is likely the proportion of people in rental accommodation is closer to 30% than 50%.

It is one thing for an article to quote someone else making an assertion that may not be true. but if the article just stats the assertion as fact, and it isn’t, it undermines the entire article.

Novel – using low inflation to justify high wage claims

April 24th, 2015 at 2:00 pm by David Farrar

NewstalkZB reports:

There’s a call for a decent pay rise for workers, now that inflation has fallen for the second quarter in a row.

First Union says the best way to guard against deflation is to increase workers spending power, with a pay rise of “at least three to four percent.”

When inflation is high they claim a big pay rise is needed to keep up with inflation.

When inflation is low they claim a big pay rise is needed to stop deflation.

I think we can assume that there will never be a time when a union doesn’t think a big pay rise is needed.

But it is good that workers will be able to get pay rises that increase their real standard of living, and don’t get chewed up by inflation.

Workers paid more in foreign owned firms

November 20th, 2014 at 12:00 pm by David Farrar

Another Treasury working paper finds:

Comparison of earnings patterns across foreign and domestically-owned firms shows a clear difference in average individual earnings. Workers in foreign-owned firms earn, on average, around 14 percent more than those in domestically-owned firms. This gap is primarily due to compositional differences, with observable worker and firm characteristics jointly explaining around 80 percent of the raw earnings gap, leaving a residual gap of between 2.7 and 3.5 percent for starting and ending wages respectively.

Workers who move into foreign-owned firms gain around a four percentage point higher wage increase than those moving between domestically-owned firms, of which around half appears to be due to differences in firm characteristics (eg, moves to larger firms and more highly paid regions or industries). Controlling for firm composition, a two percentage point premium remains. Finally, workers experience slightly higher wage growth during their tenure at a foreign-owned firm, which may reflect stronger human capital accumulation.

So he left stands for higher wages, yet they also oppose foreign investment. Do you see the contradiction.

And in case you argue the wage gap is because foreign owned firms are larger:

The foreign-ownership wage premium also varies across firms. It is highest in smaller firms, and in industries that tend to serve the domestic market, suggesting that foreign owners bring knowledge or networks that are of value to such firms and their employees.

So can we stop the fear campaign against foreign investment?

Good employment and wages news

November 6th, 2014 at 12:00 pm by David Farrar

The latest jobs and wages data from Stats NZ finds:

  • Employment up 72,000 in last year, being 66,000 full-time and 6,000 part-time
  • Unemployment down 14,000 in last year
  • Labour force up by 57,000
  • Unemployment rate down to 5.4%, from 6.1% a year ago
  • NZ 9th lowest unemployment rate in OECD of 34 countries.
  • Unemployment rate now 0.7% lower than Australia and US, 0.9% lower than UK and 1.5% lower than Canada
  • The NEET (Not in employment, education or training) rate for under 20s down to 7.2% from 8.1% a year ago
  • Average weekly earnings up (over year) 1.8%, being 2.2% in private sector and 1.4% in public sector
  • Average hourly earnings up 2.4%, being 3.0% in private sector and 1.0% in public sector
  • Male hourly earnings up 2.0% and female hourly earnings up 2.7%

Wages up

October 5th, 2014 at 2:00 pm by David Farrar

The Herald reports:

The median weekly income increased by $25 this year, Statistics New Zealand says.

That’s $800 a year.

In the June 2014 quarter 50 per cent of people earned more than $600 a week — an increase of $25 from the June 2013 quarter, and the largest annual rise since the June 2007 quarter, Statistics NZ said in its New Zealand Income Survey released today.

Good to see incomes rising the strongest for seven years. Note that the median income includes adults on welfare, studying, retired etc. It is not the same as the median wage.

The number of people receiving government transfers fell by 30,700, despite 17,900 more people aged 65 and over receiving income from this source, the survey showed.

Also pleasing.

Issues that matter – the Economy

September 9th, 2014 at 4:00 pm by David Farrar

I think the economy matters and should be a much bigger issue in this election so I’ve put together almost a dozen graphs showing the difference between National and Labour’s record on 11 important economic indicators. These are issues that matter to families and businesses.



Food prices increased 18.6% in Labour’s last term. Food prices have increased only 1.3% in National’s last three years.



Labour left office with the current account deficit at 7.9% of GDP. It is now at 2.8%.



Power prices went up 22.9% in Labour’s last three years. The rate has halved to 12.1% in National’s last three years.



There was a net loss of 35,830 people to Australia in Labour’s last year of office. In the last 12 months only 7,150 net departures – and in recent months under 100 a month.



The overall cost of living increases or inflation totalled 9.5% in Labour’s last three years. A third of that now at 3.3% over the last three years of National.



Labour left office with an annual balance of trade deficit of $5.3 billion. In the last 12 months it has been a surplus of $1.3 billion



Remember Labour wanting to remove GST off fruit and vegetables. Under the last three years of Labour their prices went up 33.2%! Total increase in the last three years is a mere 1.4%.



The deficit in 2008/09 (on the fiscal settings left by Labour, and the impact of the GFC) was a massive $10.5 billion. Labour have opposed every piece of spending restraint since, but despite their opposition we are on track to a small $300 million surplus this year.



In June 2008 the median after tax income for a full time worker was $38,600 (in 2013 dollars). That has increased to $42,100 by June 2013, meaning the median FT worker has an extra $3,500 income to spend – and this during the worst recession the world has seen since the Great Depression.



Unemployment went up by 27,000 in Labour’s last year in office. It has declined by 17.000 in the last 12 months, and is projected to keep declining.

You are welcome to share any or all of these graphs. All data is directly from Stats NZ Infoshare except the income data where I have used the IRD website to calculate the tax impact and the Reserve Bank website to adjust them for inflation.

New Zealanders have a clear choice. Remaining on our present course which is surplus, falling unemployment, low prices, fewer Kiwis leaving, growing after tax incomes and affordable food – or a radical change of policy which would see many more taxes, less competition, a massively expanded state and an unstable alternate Government.

It is only through a healthy economy do we get to have the money to fund our health and education systems. And that brings me to my final graph.


That is economic growth for Labour’s last year in office, and National’s last 12 months.

Government do not directly control many of these economic measures. But they can and do impact them with their economic policies. The difference between where we are today and where we were in the mid to late 2000s is stark.

Greens wages policy

September 2nd, 2014 at 1:00 pm by David Farrar

The Greens wages policy is here. Some extracts:

As a first step to restore workplace fairness, the Green Party will increase the minimum wage to $15 immediately, in December 2014. We will then raise it in $1 steps on April 1st each year, so that it reaches $16 on April 1 2015, $17 on April 1 2016, and $18 on April 1 2017.

They also want to abolish the starting off wage, so they want to make it illegal to hire a 16 year old for less than $18 an hour!

The minimum wage in NZ is very high compared to the median wage. It is set at 66%. This policy would see it go to close to 85% (less any increase in median wages by 2017). The Department of Labour estimates this policy would see 24,000 lose their jobs, and go onto welfare.

Treasury have said that the minimum wage in New Zealand is the highest in the OECD compared to the average wage (at 49%) and third highest compared to the median wage.

National has increased the minimum wage by 19% in six years. Combined with tax cuts, the after tax income of someone on the minimum wage has gone up 27%. Adjusted for inflation a minimum wage worker has had a real income boost of 11%.

There is no case for the massive increases in the minimum wage, proposed by the Greens. We already have almost the highest in the world compared to median and average wages.

The Green Party also supports the Living Wage Movement, which has established that a typical family needs a wage of $18.80 to buy the
basics and participate in society. In order to lead by example, the Green Party will pay the Living Wage to all core public service staff,
and require all relevant Government contractors to pay a Living Wage when their contracts come up for renewal.

This will mean a de facto $18.40 minimum wage for most of NZ. There are very few companies that don’t have a government agency as a client. If you run a photocopier business, and supply services to a government agency, then you’ll have to pay the 16 year old intern $18.40 an hour!

As another major step towards a more stable and secure future for workers, we will implement recommendations from business, Government and unions for a statutory minimum redundancy payment for all staff equivalent to four weeks’ pay

And as part of this:

These changes will give workers more stability, and discourage unnecessary restructuring. In the case of large-scale redundancies, we will also fund union delegates to work with staff for 3-6 months to support them through the transition

This is the real policy – to have taxpayers fund unions.

We will also incorporate pay ratios into Government procurement policies.

So the Greens in Government will ban companies from gaining Government contracts, even if they are the cheapest and best provider, if they think their CEOs are paid too much!!!

The Green Party will work with the Union movement to see how the terms and conditions of unionised workers can be extended to others in their industries, whether through the Council of Trade Unions’ Extension Bargaining model or other policies

De facto compulsory unionism to return!! Joy. And hey by coincidence those unions are major donors to parties on the left.

To tackle the unacceptable face of precarious work, the Green Party will introduce laws banning zero-hours agreements, as part of greater
regulation of hours of work.

This is insane. This means a company would have to pay casual staff, even when there is no actual work to do.

Increasing the minimum wage will cost $1.1 billion over three years, owing to higher Government staffing costs, especially in the health
sector. However, that will be offset by increased tax revenue from wages of $1.9 billion over three years.

This is economic failure of the highest kind. They are counting the extra tax from higher wages, yet have ignored the fact companies paying those higher wages will have smaller profits and pay less tax. And low paid workers pay tax at around 15% and companies at 28% so here’s the actual cost of this policy:

  • $1.1 billion in higher government staff costs
  • Extra PAYE tax from higher wages -$1.9 billion
  • Less company tax from lower profits – $3.5 billion

So the actual fiscal impact of this policy would be $2.7 billion, not the claimed $800 million savings.

Now think about the economic incompetence of a party that doesn’t realise that profits fall if wages increase. And think about how massive that deficit will be if these people are making economic decisions in a Cabinet!

A maximum wage

October 17th, 2012 at 3:14 pm by David Farrar

Waikato history student Ryan Wood writes in the Herald:

This is where the maximum wage comes in. If the top salary is legally fixed at, say, $200,000 a year, these economic miracle-workers running companies will have no choice but to start their own businesses where, as shareholders, they can indulge in the dividends they deserve. The creation of new companies will in turn lead to more jobs, thus negating the need for any “starting-out” wage.

A maximum wage also has a trickle-down effect. The millions of dollars that would have been paid to CEOs could instead be paid as bonuses to workers, or used to lift the average wage of employees at the company. These people could then spend their extra income, further supporting the economy.

Critics are likely to label the concept of a maximum wage as “socialist”. In fact, wage reduction is a neo-liberal idea. The National Government has already espoused it, although their focus was on workers rather than their bosses.

A maximum wage is indeed not socialist, but full out communist.

You see it has been tried. In several countries. In the USSR they had maximum salaries. They had the exact view that Ryan had. They though no one should earn over a certain amount as a salary.

It failed. It was a disaster.

Ryan seems to think we live in isolation from the world. I’d love to see him find a surgeon to operate on him, should he need it, with a $200,000 salary cap. They’d all be in Australia.


Dom Post flays PPTA

October 20th, 2010 at 12:44 pm by David Farrar

The Dom Post editorial pulls no punches:

Editorial: Get back to work, greedy teachers

That headline is so good, it belongs on a blog 🙂

Secondary teachers’ union head Kate Gainsford wants today’s strike to be seen as being all about a Government that does not value teachers or education, and that is mucking her members about.

There is a good reason she is doing that.

Clothing its extravagant wage demands in the beguiling rhetoric of selfless dedication to the cause of education is the PPTA’s only chance of making them acceptable to the public.

If the union were to get real it means it would lose the argument.

To win, it would have to demonstrate why, in straitened economic times when the Government is borrowing to cover costs, its members should get a 4 per cent pay rise after receiving 4 per cent in each of the previous three years.

It would need to convince the public why its members should be treated differently from nurses and police – and the bulk of the rest of the New Zealand workforce, which has had minimal or no pay rises.

The difficulty for the PPTA is that most NZers understand that in the aftermath of the recession, almost no-one is getting big pay increases – and also that we are borrowing $240 million a week just to help pay for their current salaries.

It would mean telling them that there is something deeply wrong with a system where, according to Education Ministry figures, the average pay, with allowances, for a secondary teacher – not including principals – is $71,110, and where, of the 12,300 fulltime secondary teachers on the teacher salary payroll, 65 per cent earn between $60,000 and $80,000, and another 19 per cent earn more than $80,000, including 150 who earn more than $100,000.

Goodness, 65% of secondary teachers are officially rich pricks (defined as someone earning more than $60,000 – the level the rich prick envy tax used to come in at).

However, even there the union is on shaky ground. Its stance would have more credibility were it to acknowledge that fixing what is wrong with the education system involves more than just fattening the wallets of all teachers in the system, increasing employer KiwiSaver contributions, providing flu injections and laptops, and delivering slightly smaller class sizes.

It means recognising that the quality of the teacher has more impact on student performance than class sizes, the background of the pupil or the school where the teaching takes place.

If the union was genuine, it would call off the strikes and work with the Government to devise a pay system that provides pay rises for the best, rather than seeking rewards for all, regardless of merit.

What an excellent editorial.

I think the top 15% or so of teachers – around 2,000 of them, should be on $100,000. Bot the bottom 15% should be on under $50,000 so they have an incentive to pursue other careers.

The importance of low inflation and tax cuts

October 4th, 2010 at 9:00 am by David Farrar

Just been looking at an old press release from Bill English. It compares the nine years from Sep 90 to Sep 99, the same period from Sep 99 to Sep 08 and the 21 months since then to June 10.

The average weekly earnings went up 27% in the 90s, 37% under Labour and 7% since Sep 00. The average increase per year is 3.0%, 4.1% and 4.0%.

But if you take account of tax paid, to look at what someone on the average earnings/wage gets to take home, then the increases are 33%, 33% and 11% – or annualized it is 3.7%, 3.7% and 6.3%.

Finally thought you want to look at the purchasing power – has someone earning at the average (mean) had their purchasing power increase during each of those periods, and by how much. Now inflation during each period was 16%, 29% and 2% Annualised this is 1.7%, 3.2% and 1.2%. This is worth remembering when Labour talks about cost of living.

So what was the increase in real after tax average earnings. They were 15.5% from Sep 90 to Sep 99, 3.0% from Sep 99 to Sep 08 and since Sep 08 8.7%. On an annualized basis, real wages went up 1.7% a year under National, then only 0.3% a year up until Sep 08, and a massive 5.0% a year since Sep 08.

Average FT Earnings Increase/Year
Gross Net Real Net
Sep 90 – 99 3.0% 3.7% 1.7%
Sep 99 – 08 4.1% 3.7% 0.3%
Sep 08 – Jun 10 4.0% 6.3% 5.0%

This table above shows the difference. I’ll update it after we get the Dec 10 figures which will include the latest tax cuts, but also the GST impact.

The moral of the story is wage growth by itself is not enough. You also need low inflation and tax cuts to offset fiscal drag.

Herald misses the key element – GDP

September 15th, 2010 at 9:01 am by David Farrar

The Herald reports:

New Zealand teachers are some of the lowest paid in the OECD, despite working more hours than most of their overseas counterparts, an international report reveals.

The annual Education at a Glance report, which compares the education systems of the 29 countries in the Organisation for Economic Co-operation and Development, found that after 15 years’ experience, a New Zealand teacher made $10,000 a year less than OECD counterparts on average.

The entire article is peppered with stats designed to give the impression our teachers are underpaid. It reads like a PPTA and NZEI press release. But they have missed out the most important stat – our GDP. I blogged this in response last week, and need to repeat it again:

I am not surprised teachers in Australia get paid more. Everyone in Australia gets paid more – they are a wealthier country. The solution to this problem is to increase productivity growth.

The better comparison between countries is how much do teachers get paid, compared to the average wage, or how much does a country spend on education as a percentage of GDP.

The OECD report answers the latter.

In Australia 3.5% of GDP is spent on non-tertiary education, and in New Zealand it is 4.0%. So we are already paying more as a percentage of GDP, than Australia. Hence the solution is to increase GDP, not to increase the share spent on education.

Only three OECD countries spend a higher percentage of GDP on non-tertiary education than New Zealand.

So all these stats about how teachers are paid less than the OECD average – it is because we earn less than the OECD average, and it is basic economic that you have to generate the wealth to spend it.

What would be good is if someone did some proper comparisons, such as what do NZ teachers get paid, compared to the average wage for their country and/or what do teachers get paid compared to the average GDP per capita.

The OECD doesn’t seem to have up to date average wage data for NZ, but there is good data on GDP per capita. So let’s compare teacher salaries to GDP per capita. Taking a primary teacher with 15 years experience, the data is:

  • Australia $46,096 salary vs $38,911 GDP per capita = 118% ratio
  • UK/England $44,630 vs $34,619 = 129%
  • France $31,927 vs $33,679 = 95%
  • Luxembourg $67,723 vs $78,395 = 86%
  • US $44,172 vs $46,381 = 95%
  • NZ $38,412 vs $26,708 = 144%
  • OECD $39,426 vs $35,138 = 112%

So in fact New Zealand is paying primary teachers with 15 years experience far more, compared to our national wealth, than the OECD average, and than Australia, the US, UK, US, France etc.

Even if ones takes secondary teachers with 15 years experience, NZ at 144% pays far more relative to national wealth than even Luxembourg. So bear this in mind as you read:

They also started on an average of $10,000 less than Australian counterparts and earned up to $82,000 less than those in top-paying Luxembourg.

Again – that is because those countries are far wealthier.

New Zealand teachers get paid more, than almost any other country, compared to GDP per capita, and almost inevitably the average wage.

And if you think that this is not the relevant comparison, then you probably think money grows on trees.

The importance of tax cuts

August 27th, 2010 at 9:00 am by David Farrar

Bill English’s office has put out a comparison of real (CPI adjusted) net (after tax) wage growth for a full-time worker on the average (mean) wage.

The Australian data only goes back to 1994, so the first time period compared is Sep 1994 to Sep 1999 – the final quarter before Labour took office.

During those five years the real net income for a FT worker on the average wage rose 13.2% in New Zealand and 6.2% in Australia.

Then over the next nine years from September 1999 to September 2008, the increase in New Zealand was 3.0% and in Australia it was 19.3%. Yep six times greater in Australia. They had high wages, low inflation and tax cuts. We had no tax cuts, higher inflation and lower wage increases.

From Since September 2008, to June 2010, the increase in New Zealand has been 8.7% vs 4.8% in Australia.

If one translates this to average annual increases, then the comparison would be:

  • Sep 94 – Sep 99 – 2.6% NZ vs 1.2% Aust
  • Sep 99 – Sep 08 – 0.3% NZ vs 2.1% Aust
  • Sep 08 – Jun 10 – 5.0% NZ vs 2.7% Aust

Now the time periods used are slightly cheery picked, in that the latest period includes both the April 2009 tax cuts and the October 2008 tax cuts – so they do not correspond exactly to Government terms. But on the other hand Labour did the Oct 2008 tax cuts most grudgingly, because of the election, and probably would ave cancelled them if they had retained office.

The stat that stands out to me is that during those nine years from Sep 99 to Sep 08, the average after tax income only grew 0.3% a year. Fiscal drag mean someone on the average wage paid more and more tax as their salary increased.

The wage gap

July 29th, 2010 at 11:00 am by David Farrar

Claire Trevett reports:

A war of statistical tables in Parliament left National red-faced after even its own figures showed the gap in earnings between New Zealanders and Australians had increased since it took office in November 2008.

Economic Development Minister Gerry Brownlee had said in Parliament on Tuesday that the gap was less than it was when Labour was in power  but yesterday the statistics proved him wrong no matter how they were presented.

Prime Minister John Key produced a table which he said most accurately compared average earnings because it took into account purchasing power parity.

But his own figures showed the gap had increased by $22 in the two years since National took over in 2008. Instead, he said it showed the gap was less than it was at the “maximum point” of Labour’s reign  when the gap peaked at $187.60 in 2005.

But it subsequently shrank to $137.89 by Labour’s final year in 2008 and had since increased again to $160.25 under National.

Of course the wage gap has increased. We went into recession, and Australia did not. In a recession you have little wage growth.

I am surprised that a Minister would claim the gap has not increased. Rather than try to push dodgy comparisons, they would be better to outline policies which will help reduce the gap.

Trevor’s spotless sums

February 23rd, 2010 at 6:05 am by David Farrar

Trevor Mallard blogged last week:

Quick post coz doing electorate stuff but couldn’t resist sharing the Spotless results. These people are currently offering parliamentary cleaners a 25c wage increase that would take them to $12.80/hour despite employing cleaners (sometimes the same people) at $14.62/hour in hospitals and schools.

Their net profit after tax has increased by 40.8% to over $24 million.  Their earnings per share is up 25%.

Message to CEO Farnik – stop screwing our cleaners. Maybe you should pay $15 not $14.62/ hour. But $12.80/hour for parliamentary cleaners is just not enough.

I’ll fisk this post in more detail in a second, but first want to comment that I think it once again shows that most Labour MPs have no idea about how private businesses work. Profit is always treated as a bad thing, and basically as a margin there to be soaked up by increased wages. The concept of a return on capital seems foreign.

Now we are supplied two figures – a NPAT of $24 million and an hourly rate of $12.80, with a conclusion that one can afford to increase wages to $15 an hour. But business is not so simple.

Now let us take Trevor’s figure of NPAT increasing 40% to $24 million. This is correct, and not surprising as a company comes out of a recession. But Spotless have many divisions to their work, and each one has to be profitable (or you stop doing that type of work). The relevant information is the revenues and expenses for the cleaning division.

Now the earnings before interest and tax for the cleaning division actually fell 9.2% from $7.6 million to $6.9 million. So the 40% NPAT figure is irrelevant when it comes to what one can afford to pay cleaners.

Now the cleaning division had revenues of $133.1 million and implied expenses of $126.2 million. This means expenses are 94.8% of revenue and profit is 5.2% of turnover – hardly massive. We don’t know what proportion of expenses are staff wages, but let us assume it is 50%, or $63 million.

Now Trevor is calling for wages to go up by at least 16%, maybe 20%. Now if that was to happen across the board, then that would be additional costs of $12.6 million, which would send their cleaning division into making a loss of $5.7 million.

Now one can dispute the assumptions, and my motivation is not to defend Spotless per se. It is to highlight that the figures Trevor are using to make his case are meaningless. A net profit means nothing unless one is talking about it as a proportion of revenue or capital or both. A company with a $1 million NPAT may be in a far better position to afford pay increases than a company with a $20 million NPAT, as the second company may have $1 billion of equity and the former company $5 million of equity.

Hypocrisy and lies on state sector CEO salaries

January 29th, 2010 at 10:00 am by David Farrar

First the hypocrisy exposed by Keeping Stock:

Mr Rennie said the pay rises flowed through from a decision in 2005 to increase the overall funding for chief executives by 5 per cent a year for five years. …

Yes that is right. Labour signed off on a formal policy to increase CEO salaries by 5% a year for five years. A policy cancelled by National in 2009.

Then we have both the hypocrisy and a lie, from Grant Robertson.

I actually find it hilarious that Grant, the self appointed defender of the public service is promoting Goff’s idiocy.  Grant has oppossed every cost savings National has made in the public service, demanding more public servants and higher wages, and then suddenly he is for a pay cap!

But the lie is this:

A raw nerve has been struck very quickly with David Farrar over the commitment in Phil Goff’s speech to cap Public Sector Chief Executive pay at the level of the Prime Minister. He describes the policy as “idiocy”.

I wonder how DPF’s friends in the UK Conservative Party would feel about him calling David Cameron an idiot. Because, as Phil Goff said in the speech today, this is something that the UK Tories are also talking about.

Grant is wrong. Maybe he did not read his own link and just trusted that Phil Goff was correct, He’s a smart guy so won’t make that mistake again.

What does the article say David Cameron wants to do:

  • speculation that public sector salaries may be frozen if the Conservatives are elected – something Labour and the PSA no doubt would condemn
  • named several public-sector employees who he indicated are overpaid – and I could name some here also.
  • said a Conservative Government will “out” quangocrats and mandarins who have been “getting rich at the taxpayer’s expense” by publishing details of all public sector salaries over £150,000 – well we already publish salaries over $100,000
  • Mr Cameron said that means-tested tax credits for people earning over £50,000 would be scrapped to save taxpayers’ money – scrapping their equivalent of WFF – again not sure Grant is endorsing this.
  • seek to reintroduce Gordon Brown’s “golden rule” – to keep Government borrowing below 40 percent of national economic output – wish Labour would tell us their debt target – seems to be the higher the better
  • The Conservative leader also indicated that the Conservatives may freeze public spending in future – wow a spending freeze

Nowhere at all does David Cameron talk about having a policy that no public servant can be paid more than the Prime Minister who gets 197,000 pounds.

His Shadow Chancellor did in one speech suggest that the Chancellor’s permission be necessary for any pay above the PM. His exact words were:

In the current climate, anyone who wishes to pay a public servant more than the Prime Minister will have to put it before the Chancellor.

There is a huge difference between needing to make a case, and a blanket ban which Goff announced, as the House of Commons itself resolved.

Osborne also incidentally proposed a 5% pay cut for Ministers, cutting the number of MPs by 10% and closing off the parliamentary pension scheme and most of all cutting the cost of Whitehall by one third!

Now the House of Commons Public Administration Select Committee happens to have just published a report on top pay in the public sector. Let us see what they think of Phil Goff’s idea:

Public servants who earn more than the Prime Minister are very well paid indeed. Reward at this level deserves a clear and public justification, and close and sceptical scrutiny. But any proposal to use the Prime Minister’s salary as an absolute cap on public sector pay would be little more than a political stunt.

Little more than a political stunt. That’s NZ Labour.


January 28th, 2010 at 2:22 pm by David Farrar

NZPA report:

Public service chief executives should never be paid more than the prime minister, Labour Party leader Phil Goff said today, announcing the new policy in a speech in Hamilton.

I’m not sure if he is trying to get John Key a pay rise, or what he intends, but this is simplistic drivel.

You pay the salary necessary to get someone who can do the job well. For small agencies this may mean $150,000 or so, but for the Governor of the Reserve Bank it may well mean more than the PM. The Governor’s competence has a huge impact on the economy, and frankly the consequences on the economy make the $50,000 or so Goff wants to save pail into insignificance.

The PM is of course underpaid for the complexity and importance of the role. But people don’t seek it for the money. Hence it is appropriate the role is not paid at full market rates. If you applied that to political jobs,then the US President should be on around $50 million a year!

If Goff’s idiocy ever did become law, the inevitable consequence would be massive pay increases for the PM, if his or her salary becomes the top permissible in the public sector.

Personally I do think pay rates in the public sector senior ranks are generally too high – they actually exceed the private sector, without the risk that top execs face. But a blanket maximum is a stupid way to go.

Take the Solicitor-General. That’s a pretty important constitutional job. Now many partners in law firms can earn over $500,000 a year. The Solictor-General is paid $510,000 or so a year.

Is Phil Goff saying that the top lawyer for the NZ Government should be someone who isn’t even up to partner level in a top law firm? Does he want the Government to get beaten in court all the time?

O’Reilly predicts public service strife

December 27th, 2009 at 10:50 am by David Farrar

The SST reports:

BUSINESS BOSS Phil O’Reilly is predicting 2010 will be a year of industrial strife and an “ugly” budget that will bump up the GST rate.

O’Reilly, the chief executive of Business NZ, said he expected “fireworks” from public sector unions as the government tightened the screws on spending, and Finance Minister Bill English has said total government spending cannot increase more than $1.1 billion in the May budget, a difficult task considering that public hospitals alone have been soaking up an extra $700 million a year in recent budgets. English has warned public servants such as teachers and nurses not to expect pay increases that are “out of line with realistic expectations”.

More than 50,000 primary and secondary teachers will negotiate a new pay deal with the government when their current agreement expires at the end of June.

“I think we will see quite a few sparks fly,” O’Reilly said. “Government departments are being told how much they can spend so you’re going to see an ugly budget from the perspective of government spending and that will impact people like the state sector unions, the teacher unions and so on. I wouldn’t be at all surprised if some of that was turned into industrial action.”

NZ Council of Trade Unions president Helen Kelly said O’Reilly was being “hysterical” but warned that public sector workers would not tolerate zero pay increases or cuts in services.

“We are ready for that kind of a year but we hope commonsense will prevail.

I am all for common sense. Common sense is that the economy has grown only 0.4% in the last six months, so pay increases greater than the rate of economic growth are not common sense. Likewise borrowing more money to fund pay increases is not common sense when you are borrowing $240 million every week just to pay for current salaries.

Public Sector Pay Rates

April 15th, 2009 at 4:30 pm by David Farrar

Once upon a time public sector staff got paid less than those in the private sector. This was because they didn’t have the challenge of actually generating revenue, had better conditions such as study costs covered etc etc.

The situation in the last few years has reversed. Surveys have shown public sector CEOs now get paid more than private sector ones. And a study has shown that there is now a premium of just over 20% for public sector jobs.


So in 2003, the premium was under 5%. Over the next four years it has increased to a massive 22%. And the study adjusted for other variables.

Now this is not an accident. Part of it was that Labour had no fiscal discipline at all with the state sector. Part of it is a deliberate strategy. Ministers encouraged Dpeartments to sign off on higher wage levels or bonuses if people joined the PSA. So taxpayers would pay higher wages to public servants if they joined the PSA. So of course more people would join the PSA, and then the PSA has more money to spent in election year telling people not to vote National. They were the 2nd largest third party spender last election.


March 23rd, 2009 at 5:02 am by David Farrar

Last week Tane at The Standard said:

But in a capitalist system any benefit from productivity increases goes directly into the pockets of business owners. You need a mechanism to translate that into wages. And that mechanism is decent employment protections and a unionised workforce that has the strength to bargain decent wage increases.

I found that statement interesting. In some ways it is not surprising as Tane is employed by a union – of course he would say or think that. But what is revealing is that this seems to be the only way he thinks wages can increase. He over looks:

  • Business owners voluntarily give staff pay rises. This is not uncommon in smaller businesses. I have worked in a small business where the owners hated the fact they could not pay the staff more, but once it was more profitable they increased wages.
  • Individual staff who perform well get increased wages in recognition of their good performance.
  • Staff are paid more to retain them in a competitive market
  • Staff get promoted and get paid more for taking on more responsibility
  • Staff are shareholders in a business

And so on. Now of course the above do not apply in every case. I am not saying every employer is a good employer who will pay reasonable wages. Unions make a lot of sense for some staff. But that is very different to generalising that a unionised workforce is how you increase wages. I would actually argue that a focus on collective contracts can sometimes hold wages back as employers have to pay bad staff much the same as good staff. The classic example is teaching – I think the best teachers should be on $100,000+ but there is no way that will happen until you have performance pay so that the bad teachers are not paid the same.

City Vision campaigns for higher rates

March 5th, 2009 at 7:51 am by David Farrar

The Herald reports that Auckland City Council is joining the list of organisations that recognise the severity of the economic recession, and have pledged to keep overall salary levels constant.

But City Vision is upset:

The freeze has upset the left-leaning City Vision ticket and the Public Service Association, which represents 500 council staff.

“This council has no moral right to penalise workers to keep rates down,” said City Vision councillor Cathy Casey.

Says it all really. Cr Casey not only wants higher rates for “workers”, but also for herself:

City Vision believes staff should get a pay rise this year and wants councillors to take a 3 per cent pay increase from the Remuneration Authority.

What part of recession is so hard to understand. Thousands of Aucklanders are going to be losing their jobs and their income, and Cr Casey wants to make it even harder for them to be able to pay their rates.

Watkins on press secretary salaries

February 17th, 2009 at 4:00 pm by David Farrar

Dom Post Political Editor Tracy Watkin blogs:

It takes a lot to shock the hardened hacks around the press gallery – but news of the pay rates awarded to the new intake of press secretaries has caused quite a stir.

Heh guaranteed to do so. What I found interesting was the range:

Eight media staff were employed under Labour on salaries of $100,000-or-more, seven in the $10,000 band below. And that was in November 2008; as a general rule, the closer to an election, the higher the pay rates – salary demands tend to be ratcheted up when an election is looming, particularly when it looks like a government is on its last legs and the vacancies come thick and fast as longer-serving press secs desert for positions with more job security. …

Meanwhile, you have to feel sorry for the three unnamed National press secretaries who signed up for less than $60,000.

I don’t think it is a problem that some press secretaries are on under $60,000 and some over $100,000.

The most senior Ministers need highly experienced people as press secretaries. They will have people with sometimes decades of experience, and need to pay to recognise that. These are the officers where almost every day is a crisis day – as in there is some sensitive issue they have to deal with.

Some of the more junior Ministers have an easier ride. For example Consumer Affairs doesn’t normally create too many issues, so that Minister may only need someone who has been a journalist for a few years – with their skills being more on good written communication skills, rather than on devising “key lines” etc.

So the salary range isn’t that unusual to my eyes. I will say I was a bit surprised that 18 press secretaries are on over $100,000 as my gut reaction is probably only the front bench (10 or so) need someone that experienced. But I’m no expert on what the market rates are.

I remember my own pay negotiation when I was in the PM’s Office in the late 90s. I got screwed over and settled for far too low a salary. The problem was the bastards knew I’d probably work there for almost free, and exploited that 🙂

CTU on Wages

February 11th, 2009 at 1:00 pm by David Farrar

The ODT quotes:

Combined Trade Unions president Helen Kelly said in an interview yesterday she would not entertain any discussion of an across-the-board wage freeze or pay cuts to help businesses through the recession.

“Any unilateral approach to wages would not be helpful,” she said.

Some businesses were struggling but others remained profitable, and the size of union wage demands would be based on the position of each business, she said.

Well I agree with the CTU. Wage demands should not be across the board, but based on the position of each business. But wasn’t it the EPMU that just a few years ago that was demanding 5% pay rises across the board?

“Shareholders are not saying that because times are tough they will accept a lower dividend.”

Helen Kelly is obviously not a shareholder. Not only are shareholders getting lower dividends, they have had massive drops in their capital value. Shareholders are probably hardest hit. Not geting a pay rise is not the same as losing half your investments.

All parties – workers, employers, shareholders and the Government – should carry an equal burden as they faced the recession, and that included coming up with workplace changes.

This is muddled thinking. Employers and shareholders are effectively the same people. And the Government is not some seperate entity – it is funded by workers and shareholders!