Income Mobility in New Zealand

Treasury commissioned two public health researchers from Otago University to examine Stats NZ  longitudinal survey data on family incomes. The report from Otago University is here and an analysis by Treasury here.

I think income mobility is far far more important than income inequality. I do not think there is much merit in insisting that an untrained unskilled 18 year old should be earning the same as a 50 year old professional with 30 years of experience.

100 years ago in the United Kingdom there was little income mobility. Those families with wealth tended to keep it, and poor families stayed poor. I can understand the appeal of socialism 100 years ago. But today, while of course not perfect, there is greater income mobility. The knowledge economy especially means that land and capital are not as important as previously. More and more of the world’s billionaires and millionaires created their fortune, rather than inherited it. This graph from the analysis shows the situations in New Zealand over just a seven year period from 2002 to 2009.

So of the families who were in the bottom 10% of family income – in just seven years, 74% of them were no longer in the bottom decile. And only 46% of those in the top decile were still there seven years later.

By far the biggest characteristic indicating likely persistent deprivation is being a sole parent family.

Also of interest is that only a third of familes who spent the whole seven years on low income had been in deprivation at any point.

The Treasury’s conclusions:

  • Policy should emphasise mobility, deprivation and persistent low income
  • Policy should be designed with mobility in mind
  • Targeting policy effectively can be difficult
  • Solo parents are perhaps the group to be most concerned about

Income inequality is used by the left to argue for higher taxes and more welfare.  But as I said I do not accept that there is a problem that an 18 year old with no mortgage, no kids, no skills, no experience is paid less than someone with decades of experience. What we want is the ability for that 18 year old to get a job, to get education and training, to earn more over time and not spend a lengthy period of time (if any) in deprivation or hardship.

Some other stats:

  • Around 47% of families moved at least two income deciles over seven years
  • Over the seven years, 50% of families experience low income at least once
  • But 43% of those who had low income, only had it for one or two of the seven years
  • Sole parents are 12% of families but over 50% of those in persistent deprivation

This is one of the reasons why I think the welfare reforms are so important.

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