Written By: - Date published: 2:12 pm, July 31st, 2008 - 61 comments
Categories: election 2008, labour, national, wages, workers' rights -
Tags: wage gap
Some of our friends on the Right have been putting themselves through strange mental contortions over the recent series of posts we’ve had on the impact of National and the Left on wages. To recap: we’ve shown that National let the minimum wage stagnate while inflation ate its buying power, the Labour-led Governments have increased it, we’ve shown that the income of the typical Kiwi (the median) went down under National once you adjust for inflation and has gone up significantly under the Left as a result of policy choices taken by the parties when in power. Further evidence for this is that Kiwis wages fell as a share of GDP under National and that share has increased under Labour.
Now, thanks to Redlogix’s research, we can see that the shrinking slice of the cake that working Kiwis got under National and the increasing size of the slice since 1999 is not simply an international trend. Unlike Kiwi workers, Australian workers did not see their share diminish during the 1990s because they had a Labor Government and kept strong work rights laws. It was only when the Howard Government began to put in anti-work rights laws that the share began to fall. (sources: Aus, NZ)
Oh and if you’re worried about the wage gap between Australia and New Zealand – there’s your problem, Kiwi workers get a smaller share of GDP compared to their Aussie mates (see here for how the wage gap opened at the same time as the % of GDP gap). Who has the policies to increase Kiwis’ share and, so, close to wage gap? Who will keep on raising the minimum wage and strengthening work rights? Not National, the Left.
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Daveski,
That sounds like a way to stimulate economic growth, but is it a way to increase the proportion returned to labour?
It seems to me that it risks increasing the return to capital – and consequently decreasing the return to labour – through the perception that the value is in the capital (the technology and the plant).
It’s a great vision! But it seems like a vision of transforming the method of production not the underpinning economic structure.
vto,
But where elsewhere?
Plus, if 53% is unacceptable to NZ capital, why is it acceptable to Australian capital?
I think we need an economist (anyone out there?! : ). While interest is one type of return on capital it’s a small one. To what extent would decreasing interest rates flow through to alter the return to labour? Would lower interest rates make a lower return on invested capital more acceptable? Huh? Huh?
Who needs increasing wages when you can pop out a few kids and be tax free and let other people pay for your lifestyle choices.
Come on guys keep up – workers rights are so 1990′s – today middle class welfare is the new black, even National are starting to realise that bribing voters is more important than sound policies for growth and strategies to lift productivity.
National have learned well from Labour – just buy the votes and forget about the state of the economy.
Flag the economists, they just get in the way of great ideas. Like never ask an accountant how to make money – they know how to count it not make it (peace to all accountant and economists!)
Interest rates correlate directly to business returns. If interest rates are higher, so too are business (capital) returns required to be higher. If they are lower, business returns lower. Examples – The NZX has very high yielding companies compared to say the NYSE, just as NZ’s interest rates are very high compared to the US.
Capital/business will accept a lower business return if the return for the money in the bank is lower. And vice versa. This is a truth.
Your question “if 53% is unacceptable to NZ capital, why is it acceptable to Australian capital?” again is answered by corresponding interest rates, future capital value and perceived risk between the two countries.
So where this leads to is that the cost of capital is the driver. Concentrate on lowering that and I suspect that there will be more dosh for others.
vto,
So, if we were to plot NZ interest rates over the return to labour graph we’d get a correlation?
Do you wanna do it, or shall I?
oh dear not me. Try the interest rates to whole economy return to capital – that’s more appropriate. To capital, labour is just another variable cost which has little directly to do with what the capital is trying to achieve. Hence it would probably not be useful.
Perhaps of more use would be something comparing economies with low interest rates and those with high interest rates, and see what the labour returns there are.
But then there are so many variables… Say rates were slashed here and the difference was up for grabs. It would be grabbed at by EVERY sector of society (you know how people are with money). So the return on labour in that comparison may in fact reflect more which sector of that particular society has more strength to do the grabbing than anything else(be it guns, religion, sheer population, staunch unions, middle-men, etc). That’s why I said before ‘all else being equal’.
Who needs increasing wages when you can pop out a few kids and be tax free and let other people pay for your lifestyle choices.
Burt you can do better than that. I know its been a long wet fortnight and we’ve all got a spot of cabin fever, but hell I thought you were above DPB bashing.
And can I remind you that the definition of a beneficiary is someone who receives more from the State than they pay in taxes. I cannot imagine anyone ‘middle class’ in NZ, who is by this definition ‘on welfare’.
Anita,
I guess that the right wing/left wing divide we are discussing might fall out like this:
The right believes that by cutting the price of labour, the business owners will be more price competitive, sell more volume and make more profit…thereby increasing GDP and total wealth.
The left has argued that by distributing costs more evenly, the total customer market will be wealthier, will be able to pay higher prices and businesses profit is sustained by better margins.
The fundamental difference boils down to this. The right wing model has an inherent tendency concentrate wealth into the control of fewer and fewer people, and thereby REDUCES the velocity of money flow. Taken to it’s logical extent this model arrives at the absurd conclusion of one fabulously wealthy person owning everything… but all that wealth being worthless because it’s flow has slowed down to absolute zero.
The left wing model pushes in the opposite direction, believing that by moderating the natural and inevitable differences between the wealth generating capacities of all people, that the resulting redistribution inherently INCREASES the velocity of money flow, driving more economic activity, increasing total wealth and GDP. But likewise taken to it’s absurd conclusion, this model would mean that all wealth would be worthless because if all money was equally redistributed to everyone, there would be no incentive to do anything and no resulting goods or services to spend it on.
Examining the two absurd extremes shows us that our current social democratic mixed economy utilises both mechanisms. The really interesting question would be, “What is the optimum balance between these two apparently competing forces?”
And the answer to that probably depends on what you define ‘optimum’ to be.
Redlogix, I think right/left divide has zip to do with it. As stated above it is simply the return on capital that drives it. Sheesh, even the most heavily left people I know weigh up whether it is better to put their money in the bank or in some other investment or into a business. It is human nature to maximise your return on resources.
Honestly, if you are looking for some way to increase the labour component of the equation then look to the most easily varied component of the equation – the cost of capital.
vto,
Now I’m so confused
What do you think has to be altered to increase the proportion returned to capital?
no no anita, not increase the proportion to capital, increase the proportion returned to labour. silly. My posts may be a little confusing to follow but I have re-read them and stand by them. I have thought about it many times before. And now I need another 20c for the next thre minutes. Time almost up.
vto,
One person employs 100 people to dig a ditch for a cup of rice a day, that there will be a return on the investment in spades and rice.
Another calculates that if he/she buys a digger to dig the same ditch, and employs 1 person on a good wage that reflects the level of skill and responsibility required to operate the digger efficiently, that there will also be a return on the investment.
It turns out that both employers operating in their respective markets are making a 15% return on capital.
Discuss.
vto,
I think that was my brain-finger interface
What do you think needs to be altered to increase the return to labour?
RL,
While the percentage return on capital to the farmer may be the same, the proportion of the farm’s turnover returned to labour is different.
“Once upon a time there was a little chimney sweep named Tom. He lived in a great town in the north country, where there were plenty of chimneys to sweep, and plenty of money for Tom to earn and his master to spend.”
The opening lines of another classic that somewhat pre-dates Pink Floyd.
Anita.
Exactly. While the return on capital in both cases is the same, and the same ditch gets dug…. but in the latter case the total wealth is much greater because the one person operating the digger is far more productive.
And in being more productive that one person on the digger has effectively freed up the labour of 99 other people to contribute to total GDP in many other ways.
Oh god mr logix, that brings the fear of school and academia flooding back, that word ‘discuss’. Can’t do it justice as have to go but a brief jab…
If that was me – actually, it doesnt make sense because the digger would be infinitely quicker and so the 15% made in shorter time, hence improved return. Easy decision.
But if the time was the same because there were many ditch diggers, um, I don’t know. I guess you would have to look at what other variables are floating around to help the decision fall one way or the other (like the ‘time’ thing).
If there are no other such variables and you were all living in the same community then I would help out my fellow citizens and employ them. Easy too.
Or maybe another variable would be that by using the digger instead of the people it frees up the people for other things. And this exact thing is how the agricultural revolution came about, and the industrial revoltion and the techno one and whatever the next one is going to be etc. That is a great discussion for another day.
Anita, see 9.17 post para 2.
Gotta go
(all just my own opinion of course, developed over many hours spent gazing vacantly into space)
National have learned well from Labour – just buy the votes and forget about the state of the economy.
So National was thinking of the state of the economy in the nineties? How can you not see that this government has done better for the economy than the last national governemnt and it appears to be those same failed policies that you are lamenting the loss of, from your precious National party.
Quoth the Raven
You forget about the state of the economy the National party inherited from the Labour party in the 90′s. The Fiscal Responsibility act, the bail out of the BNZ, stagnating growth, inflation outside desired ranges… Labour legacies… National’s problems.
So Quoth the Raven, which party is to blame for the economic troubles of the 90′s?
Not which party burt, but which policies.
(That’s what matters to me anyway.)
I haven’t read through all the responses, so excuse me if this point has already been made. Australia lost a lot of their work rights under Howard and they have not yet been reversed under Rudd.
Is this another case of (as in NZ)a supposedly left wing government accepting neo-liberal economic BS because there is apparently no alternative (TINA) and merely softening the edges while peddling the same old same old?
FFS if you guys are serious about trying to resurrect ‘info left’ (ie a voice for labour) then you have to step out of and beyond the parliamentary labour party and offer a broader and more comprehensive left perspective. And that means – even for the liberal democrats- being engaged in constructive criticism of the (parliamentarian and beyond)left and generally accepting a pushing of the envelope.
Otherwise you are merely accepting parameters set by the right. Sorry guys, but as incisive as you might be on given issues, the scope is narrow and ultimately defeatist…you have right wing international financial institutions hemming in the possible manoeuvrabilities of social democratic governments….something the various labour parties of the Anglo-Saxon West have not only accepted but promoted in the face of supposed ‘end of history’ pragmatisism.
The voice of labour was never defined by parliamentary parties. That was and will only ever be a strand of the voice of labour. Give full voice to labour or change your definition of what ‘The Standard’ seeks to resurrect and perpetuate. Please.
Rant over.
SP “To recap: we’ve shown that National let the minimum wage stagnate while inflation ate its buying power, the Labour-led Governments have increased it,”
I made the point yesterday and I will continue too as along as you keep making the argument that this National goverment will be the same as the Bolger/Shipley goverment.
There is no basis for this argument. Yes there are a few who will sit in both cabinets. But didn’t Goff and Clark sit next to Douglas and Prebble.
John Key had nothing at all to do with the National government of the 1990′s. He has clearly moved the party left. Yet for some reason you keep bleating on about how his government will mirror that of governments past.
So you can proudly spend your days and nights trawling through statistics from a decade ago, but what does it show.
Even if your stats are true, what do they show? Bolgers government was rubbish? So? How does that make Keys goverment rubbish?
The National Party, as has the Labour Party, evolved. For better or worst I know one thing for sure. The 5th National goverment will differ from the 4th. Just as the next Labour Government in 2017 will be alot differnt to Clark’s.
Razorlight: They certainly do differ as previous prospective national governments put out policy. This lot of play-dough politicians put out ambiguous and largely meaningless bullet points.
In the absence of any policy to analyse, you have to run on a parties previous policies and performances. The Nat’s do have some pretty appalling performances to look back on.
Besides even the Nat’s should be reminded exactly how much the screw the country over when they get into power. They show a long-term trend of thinking short-term. Obviously don’t enjoy reading history..
lprent.
One certianty in Politics is you will make mistakes, the country will suffer and you get booted out. That is not unique to the right. The left make silly decisions that pisses off the electorate and they get booted. If some of Labour’s past performances were not appalling as you say, why have they been booted from office four times, soon to be five. Were they doing a good job? That is stretching credibility.
And as you are questioning my grip on history feel free to show me two governments from the past that have mirrored each other. I cant think of any.
Off to bed (finally)…
Razorlight: It is called the gerrymander. Because of the nature of FPP it was a hell of lot easier for the right to turf out the left in past elections. This is was despite how good or bad they were in office. In practice since the 1940′s, there has only been a single two term labour government under FPP, and that was because the Nats under Muldoon were so damn awful.
With MMP the ballgame is a bit different.
Before you say polls, I’d say that they are completely inaccurate for reasons I’ve expressed elsewhere. At this point they mainly pickup the talkback listeners. Most people haven’t really made up their mind yet.
This election is going to be close – within 5% for the two main parties from my feel. That means that the election is likely going to be decided on who can form a coalition. That is the main reason that the Nat’s have gone to “whatever she is having” as policy. They are looking to leave as much room as possible for coalitions towards the left – because there is going to be nothing on the right.
Problem is – can anyone trust them?
Fortunately Steve provided a link to the source of the stats for the growth in real median incomes over the last 10 years. That source allows disaggregation by age, region, occupation and industry. Those disaggregated stats don’t support the conclusion that the increase in the median wage was as a result of policy choices taken by the parties when in power. Unless of course those policy choices included raising global food prices and moving the most highly paid head office jobs from the Auckland to overseas financial centres.
The latter is important because the loss of a large number of jobs in the 10%-20% above median wage bracket supresses the increase in median incomes in the region where those jobs were concentrated. If, at the same time, that region’s employment growth was concentrated in retailing, which had the smallest median income increase, then you would actually expect to see what actually happened to regional median incomes – Auckland’s median income falling from being 25% above the national average to only 10%.
By occupation the smallest increase in median incomes was 25% for managers and technicians, with factory and clerical increasing 33% and farming/forestry/fishing increasing 50%.
By industry the smallest increases are for manufacturing, construction and transport, second biggest are health and education, biggest of course being ag/fish/forest.
The 60-64 age group increased 150%, 55-59 increased 100%, over 65s (presumably working superannuitants) by 70%, most other age groups were up around 50% except 20-24 which only increased 25%.
Curiously the traditioanlly unionised industries have caught up with managers but it is the least traditionally unionised occupations that have made the biggest gains under Labour.
These stats only go back ten years so it would be going too far to state that this is definitely a case of an industry where supply and demand suppressed wages once SMPs were removed and rising global demand has simply reversed that trend.
If you can find this detailed data for Australia and NZ for the 4 decades shown in today’s graph and it proves my theory false I’ll be quite happy.
Can you provide us with a simple pie chart of the share of GDP for each type of income? The concept of wages as a share of GDP is not as simple as median incomes and wage gaps or taxes as benefits as a percent of GDP.
Sorry Roger nome, I was looking at the wrong table the first time. But the correct (total economy) data still supports my points. Australia’s labour share fell more than New Zealand’s 1990-2003. In fact, New Zealand’s change was unremarkable. In percentage points (% change in brackets) 1990-2003:
New Zealand -3.4 (-6.7%)
Australia -5.0 (-7.6%)
Euro Area -3.8 (-5.6%)
Ireland -10.7 (-16.7%)
The data doesn’t support this post’s thesis that right-wing economic policies reduced the labour share in NZ (or establish that a falling labour share is necessarily bad for workers, again, look at Ireland).
Roger nome – “I negated that when I pointed out that NZ is consistently amongst the lowest in every individual industry.”
You’d expect equalisation of returns on mobile capital between industries, so this is entirely consistent with my claim that industry composition is a crucial factor.
As to the fact that other countries generally have a higher level of labour share, I think people are getting the causation back to front here. Other countries’ workers aren’t richer because they’ve negotiated a higher share of output, they’re richer because they’re more productive – and being more productive, they earn a higher share of output for a given level of capital stock.
I’m not claiming that bargaining power isn’t ever a factor in deciding the labour share. But it is a not a major one for explaining cross-country average income differences, and the data presented so far does not support the claim that it has been significant in NZ’s recent history.
Burt – I think Felix puts it perfectly. The fourth labour government was poor because of their right wing policies. I don’t support labour come hell or high water if labour’s policies don’t align with what I think is good for the country then I won’t support them. We’re not all partisan hacks like you burt. How can you support a right wing party and critise the very same right wing policies when it comes from another party?