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.

 

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Idiocy

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?

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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.

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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.

payrates

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.

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Wages

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.

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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.

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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 :-)

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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!

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EPMU on Wages

January 24th, 2009 at 3:01 pm by David Farrar

From the Herald:

The Engineering, Printing and Manufacturing Union yesterday warned it would further weaken the economy if the private sector followed Mr Key’s plan.

It would, in effect, cut wages and the union would continue to seek above-inflation pay increases to ensure its members didn’t bear the brunt of the recession.

National secretary Andrew Little said higher wages were a key element in avoiding a “vicious economic cycle”.

No, higher wages (without productivity gain) will lead to fewer businesses surviving and fewer jobs. So the EPMU is saying they would rather have less people in work.

There is no magical source of money for businesses.

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And no pay rises for state sector CEOs

January 23rd, 2009 at 1:23 pm by David Farrar

The Dom Post reports that not only will MPs probably not be getting a pay rise this year, neither will state sector CEOs.

It is no surprise, that expectations are that overall state sector pay increases will be modest, if at all. The PSA decided to visit another galaxy by exclaiming:

Public Service Association national secretary Brenda Pilott warned if civil servants were denied pay increases, there could be an exodus from the sector.

As wages are higher in the state sector than the private sector, I somehow don’t think this exodus will be very large.

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20% higher pay in the public sector

August 8th, 2008 at 9:33 am by David Farrar

A study by Waikato University has found that pay rates in the public sector are around 20% higher than in the private sector.

What is amazing about this is that in most countries, public sector pay rates are well below private sector. This is because they tend to have greater security of tenure, are not linked to earning revenue, and have lots of perks such as longer holidays and funding for tertiary study.

To have public sector pay rates 20% higher than the private sector, shows how merrily the Government has been trying to get the PSA happy. That is the same PSA which will shortly be campaigning against National’s tax cuts.

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Nice for Wellington

July 13th, 2008 at 8:00 pm by David Farrar

Lindsay Mitchell has this graph. That big blue line at the top is Wellington, where people are now being paid an average $100 a week more than in Auckland.

I’m not sure the data source for the graph, but presume it is the Stats NZ Quarterly Employment Survey.

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Public Sector Wages

July 11th, 2008 at 3:00 pm by David Farrar

Bernard Hickey takes a close look at public sector wages:

He finds that average wage in the public sector has increased a staggering 9% (hence high inflation and high interest rates) compared to 4.6% for all sectors.  He also finds the gap between public and private sectors wages has grown from $4 and hour to $8 an hour.

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Costs rising faster than net income

May 4th, 2008 at 9:22 am by David Farrar

The Sunday Star-Times reports on how costs for the average family have been increasing faster than their after tax income:

The new figures come as the bad news rolls in thick and fast for New Zealanders on a budget: petrol was last week tipped to eventually hit $3 a litre; electricity costs are set to rise due to low hydro lake levels and the effects of carbon emission trading schemes; food prices are leaving supermarket shoppers gulping and interest rate jumps of recent years are beginning to bite as fixed mortgages expire.

Hickey shows weekly expenses for a household on the average income have risen by $193 since April 2004, while net income has increased by just $156 a week (based on gross incomes rising from $63,400pa to $72,000).

And it’s not just middle income families struggling. A household on $92,000 has had a $217 jump in living costs leaving it $93 a week worse off. A family on $52,000, aided by Working for Families, will have suffered relatively less, but is still $14 worse off.

So in four years a household on the average wage is $37 a week worse off, despite gross income having gone up $8,600. This shows how dishonest it is when people merely talk about gross wages instead of real net after tax incomes.

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EPMU wants higher wages and lower taxes

April 27th, 2008 at 9:08 am by David Farrar

EPMU National Secretary Andrew Little is warning of a desire for wage rises of around 5%. This is understandable with inflation so high, but risks a vicious cycle where inflation continues to get higher and higher and our wage levels relative to Australia drop. Closing the gap with Australia needs wage rises which reflect improved productivity – not wage rises which are just to compensate for prices rises. That is not to say people should not have wage increases to stop their incomes falling in real terms – just that it won’t close the trans-Tasman gap.

Little also calls for clarity over tax cuts:

He also hit out at the government’s “dithering” over tax cuts. One week the government was saying the cuts would take place this year, and then the next week it was suggesting they would be next year. “People are looking for some sort of relief now. People need it, and the government should understand that very clearly.”

Indeed.

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The Standard on Real Wages

April 1st, 2008 at 11:45 pm by David Farrar

The 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.

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Wage gap or tax chasm?

March 30th, 2008 at 9:04 am by David Farrar

Bill Ralston’s column is titled “Wage gap more a tax chasm”.

Actually, Mallard is telling the truth. Those are the wage-gap figures. Gross wages. But what he ignores are the figures that matter most to you and me: our take-home pay.

Because of tax cuts and higher tax thresholds across the Tasman, the gap in tax-paid, take-home pay has widened rapidly under Labour.

Ralston has caught on to the key point – gross wages are misleading in comparisons between countries. You will hear Labour Ministers and supporters talk endlessly about gross salaries.

What you will hear far less from them is actual cash in hand, or after tax income.

And if one is comparing over a number of years, one should adjust for inflation. If after tax income in both countries has gone up 20%, but inflation in one country was 15% and in the other 8%, then it is better to be in the latter country.

So the best measure for comparing between countries is inflation adjusted after tax income.

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After tax income gap with Australia

March 29th, 2008 at 12:59 pm by David Farrar

The Press reports on the figures put out by National showing the growing gap in after tax income between Australia and New Zealand.

In 1999 the average after tax income was $32,704 in Australia and $27,128 in New Zealand. That is a gap of $5,576 and has average NZ after tax income at 83% of Australia’s.

In 2007 Australia is $46,000 and NZ $34,000. That is a gap twice as large at $12,000 and means average NZ income is now only 74% of Australia.

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