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.
Facebook
Twitter
Scoopit!
It looks like the oil shocks in the 1970s actually increased workers’ share of GDP. I guess they won above-inflation pay rises because the unions were still strong and the real economic losses were borne by companies.
Steve- I think the right’s genuinely given up. Come on guys, can’t you even muster a “Paintergate! Corrupt!” line of attack?
Macky:
“It looks like the oil shocks in the 1970s actually increased workers’ share of GDP.”
nah – that was the ascendancy of the Labour movement in both Aus and NZ. It could be argued that this was a response to the austerity induced by the oil shocks though. The Labour movement overstepped the mark there IMHO – you can’t go on increasing wage levels by 10% per year when the economy’s stagnating. That’s causes stagflation and unemployment.
Fortunately the Labour movement appears to have learned from these mistakes.
I would argue that wages needed to come down to about 47% of GDP in order to get inflation under control, but that was achieved by the late 1980s, and we never needed to go the way of the employment contracts. That legislation was designed by monetarist zealots who wanted 1-2% inflation, and were prepared to savagely cut wages and benefits to do it.
Have the National Party moved on since then? Well, you’re not going to find out from a vague series of bullet points that fit on to one side of A4 paper.
One thing we also need to take into consideration is that NZ has a lot of very wealthy self-employed people (Dairy Farmers) – which will tend to bring our Labour income share down, relative to other countries.
Still, this doesn’t explain all the disparity, because if you look at the OECD’s labour income share statistics within individual industries, were still one of the lowest.
Take for example the construction industry, where workers in NZ get a much smaller share of the pie than in most OECD countries.
In fact if you use the scroll down function at the top of the link, you will see that Labour income share in NZ is usually down with the “wild west” and “ex-communist” countries like poland, mexico and slovakia, who also have very weak employment laws, and low GDP per capita.
National turned NZ into a “capitalist wild-west” country in the 1990s, and Labour have not made nearly enough ground back. It’s a real shame.
Ahh … debating real issues again
I was going to add a comment that Govt policy is not the only explanation given the double whammy on NZ of the oil shocks and EEC.
The Rightwing Economic Revolution was unavoidable IMO – it’s like someone with a gangrenous limb blaming the DR for amputation. I’m not trying to underestimate the impact but NZ economy was a basket case (ironically I have no option but to blame National
).
Australia clearly has natural resource advantages over NZ, coupled with larger markets not to mention the HO syndrome.
We are still too much a low skill economy compared to Aus.
The answer must be long term economic transformation rather which is beyond simply pay workers more.
Daveski:
“Australia clearly has natural resource advantages over NZ”
nah – mining only accounts for about 3% of GDP. It’s not as big a deal as you think.
“The Rightwing Economic Revolution was unavoidable IMO”
Then you’re ignorant. Moderate Australian-style reform was available. It was just ignored, and in truth the right wing revolution was drawn up between the Treasury Department (which was run by ex-IMF types) and the NZ business Round-Table. The policy development process was woefully inadequate, and they were always going to take a radically pro-employer approach.
“Daveski”
So NZ workers should get a smaller share of the pie than workers in every other developed economy? Guess how many votes that would win you?
“Daveski’
If you want to look at how ridiculous the new-right policy formation process was, just read three pages at this link. It’s very well researched academic work.
Roger – the point I was making was about NZ in the 1970′s being ill prepared for the change that followed the UK joining the EEC. Likewise, I specifically made comment about Australia alone – no where have I suggested what you claim.
The only way to compete long term is to transform the economy to high value, high skill otherwise we will continue to fall behind countries like Australia.
I’m genuinely interested in the revisionism within Labour circles – the labour govt in 84-87 inherited a mess and laid the platform for many of the economic improvements.
Daveski
“The only way to compete long term is to transform the economy to high value, high skill”
Of course. The problem is that a deregulated labour market (like mexico, slovakia and poland have) creates a low-value added, long hours, low tech, low capital investment, low skill, low pay economy. You’re arguing for, what you purport to be against.
Do you have the slightest clue of what you’re talking about?
For you education:
http://rogernome.blogspot.com/2008/07/kiwis-are-overworked-and-underpaid-says.html
http://rogernome.blogspot.com/2008/07/national-prepares-to-make-war-on-poor.html
I sense aggression, Roger
You are twisting my comments in a way that wasn’t implied or intended.
The problem we all have is that we need to encourage investment in high tech, high capital, high skill economy.
This comes from encouraging business investment and high skilled workers. I would ask what strategies are in place to achieve this.
I can’t see how this can be miscontrued in the way you have nor why you adopt such an aggressive pose … I even complimented Labour
Raising the minimum wage per se is admirable in principle but is not going to solve our economic problems without fundamental economic transformation.
Daveski:
You haven’t contributed anything the whole thread. Just a bunch of random, unsupported, vaguely pro-right wing statements. How about going somewhere you can benefit?
Just construct a logically sequential argument that addresses the points that steve made in his post. Back up what you say. Until then you’re a waste of space.
Umm, that OECD data linked to by roger nome, which is presumably on a comparable basis, puts NZ on exactly the same labour share as Australia for the last year available (2004). It also says that the Australian share fell more than the New Zealand share did over 1991-2004. Which rather undercuts your argument.
Actually, the NZ labour share fell less than the OECD average over this period.
As I said yesterday, by itself the labour share isn’t a meaningful measure of bargaining power or lack thereof. Cross-country differences are most likely being driven by differing industry compositions with differing capital levels.
Ireland is the fantastic example of my point – the labour share fell from 50% to 30% after they made the economy an attractive destination for foreign capital. But all that foreign capital allowed the economy to grow rapidly, greatly increasing living standards.
CPW:
“puts NZ on exactly the same labour share as Australia for the last year available (2004).”
Wrong. In 2003 (the last available data), NZ labour income share was 47% and in Aus was 61% (total economy).
See here
“by itself the labour share isn’t a meaningful measure of bargaining power or lack thereof. Cross-country differences are most likely being driven by differing industry compositions with differing capital levels.”
I negated that when I pointed out that NZ is consistently amongst the lowest in every individual industry. You need to learn to read.
“Ireland is the fantastic example of my point – the labour share fell from 50% to 30% after they made the economy an attractive destination for foreign capital.”
Rubbish. Labour income share in Ireland hasn’t fallen below 52% since 1990.
Thanks CPW – I await Roger’s reply
Roger – this is getting boring. Not agreeing with you is quite different from not contributing to the thread. Conversely, I have pointed out the fundamental economic issues that contribute to the decline in the 1970s. You haven’t acknowledged this in any way yet it is economic history 101.
I acknowledged the transformation under a Labour govt in the 1980′s.
Ironically, I was going to mention the Irish situation but given me lack of detailed knowledge chose not too.
You have misconstrued my comments and IMO in an overly aggressive manner. Your comments are worth noting but I don’t see why mods should tolerate your aggression towards me given I am trying to be constructive and debate issues.
Off to read your blog now.
“Daveski”
IMO your posts are so random and without point that your posting has bordered on trolling.
Try constructing an argument, then I’ll give you the time of day.
Roger – you are on home turf here so i will leave. Clearly, the only debate you want is with those who agree with you.
You simply repeat your taunts without backing them up. Tell me that the EEC in the 1970′s is not relevant to NZ’s decline.
Look at my very first sentence. A real issue worthy of debate.
You’ve simply killed the debate. Sad.
Sorry SP – this thread deserved better.
BTW Where are the mods?? A bit quiet for my liking given that Roger is killing the debate.
Enough, I’m out of here.
Daveski,
I was curious before, and I’m now curious again
Surely the EEC and the oil shocks will have affected Australia and New Zealand equally?
So while they might account for a kink in the curve they can’t account for the widening gap.
“Surely the EEC and the oil shocks will have affected Australia and New Zealand equally?”
Yep – which is why I maintain that Daveski is a waste of space. He hasn’t proposed a single coherent argument, and has instead threadjacked with random pieces of unsupported drivel. Yet he has the gaul to accuse me of killing the debate.
BTW – I’m not usually so aggressive. I just have a low threshold for trolls, and Daveski, while being an unusually polite one, that’s all you’ve been on this thread.
ooops – should have been “gall”, not “gaul”.
Hi Anita
Not wishing to appear precious so I will reply.
I’m not an economist but my understanding …
NZ was overly reliant on the UK market for our primary products. We simply produced product and sold it to the UK.
Once that stopped we had a problem with products but no marketing. Marketing as a subject was introduced at Massey in the 1970′s as direct consequence.
The NZ economy was therefore woefully prepared for the economic crises and Muldoon made it worse.
That explains the freefall in the 70′s and the need for action by Labour in the 1980′s.
Admittedly that is now 20 years ago but it is central to what happened in the 1980′s and why we started behind the Aussies.
My view is that simply paying people more won’t achieve anything – it will in fact worsen the situation – unless we attempt to transform the economy.
We can’t simply pay workers more unless we do something to make our products more valuable. Rod Oram I believe is quite passionate about this and he’s no right wing stooge.
Daveski,
Tell me you can read a graph. The most important aspect is of the graph that leads this thread the different shapes between the Aus and NZ series.
Look carefully. Although the data for NZ does not extend as far back as the Aus one, it is clear that up until the wage freeze and the right wing economic revolution, NZ was more or less tracking comparably with Australia.
And then something happened. Around the late 1980′s wages in NZ plummeted in comparison with Aus, and continued to decline until this current Labour govt came to power.
The vital thing this graph conveys is NOT the relative economic performance between Aus and NZ. We all know that Aus has grown it’s total economic pie somewhat faster than NZ. But what is clearly seen here is that differing POLITCIAL policies between the two nations has clearly resulted in New Zealand workers getting a smaller slice of the kiwifruit pavlova.
Daveski,
Equally true of Australia I thought.
Even if it is why we started the 80s behind Australia – my argument, incidentally, is that we started behind the Aussies from the beginning and the two economies moved roughly in tandem until the 80s – it doesn’t explain why we got so much worse when they didn’t.
I also read this graph to say that we need to transform the economy – but I think our answers to the question “to what?” might be different. I would argue that it shows we need to alter it so that the returns go to the workers not the owners of the capital.
It’s not about paying more/less directly, it’s about what proportion of the return goes to labour and what to capital.
Ha ha .. hoist on my own petard
I’ll try to be less verbose also in my reply.
1. We’ve got sidetracked on the 1980′s a bit but we were a basket case in the 1980′s hence Australia widening the gap.
2. Happy to agree that political policies have lead to improvement on this indicator over the last couple of years.
3. Happy to argue that continuing to put up wages without trying to transform the economy is destined to fail.
Most commentators I’ve read argue that the economic advances of the last 9 years built on a platform built by Labour in the 1980′s.
The irony of this is that I’m giving Labour big ups for what it did in the 1980′s
Daveski bro, we have lives. I was working late then grabbed some dinner with a few friends.
Roger etc, I understand it can be frustrating some times, but from what I’ve seen Daveski tends to be one of the more reasonable righties here. Let’s educate him rather than driving him away.
Daveski,
Were we more of a basket case than Australia?
If so, why? I don’t buy either the EEC or the oil shocks.
Rightwing commentators are likely to say that.
Leftwing ones are more likely to say that the advances of the last nine years were built on the nadir constructed by Labour in the 1980s.
It’s really tough to find a balanced commentary on the economic history of the last 30 years. Any suggestions anyone?
Thanks Tane
I’m not grandstanding and I do have a life too – the storm has cut into mine given me MORE time to post. Sorry Roger
I’m also happy to accept that SP and others have a better economic pedigree than I. However, I enjoy the debate and the opportunity to play Devil’s advocate and always try to be constructive even if I don’t agree with all the views.
Daveski,
Oh, and I forgot to ask…
So I’ve told you what I think the economic transformation should look like.
What does the one you want look like?
Anita – “it’s about what proportion of the return goes to labour and what to capital.”
So, what proportion should go to each in your opinion?
My business uses both capital and labour, as all do. I don’t think you will have much/any luck in increasing the labour portion at the expense of the capital portion.
The reason? If my capital is not achieving an appropriate return it will go elsewhere. It is a very simple equation. If you increase the costs too much and the return on capital drops then the business stops. And in fact that is exactly what has/is happenning to my business right now. Last few years – result has been dozens and dozens employed. Now costs have increased, returns dropped, and the business and consequent employment stopped.
To pull more for labour at the expense of capital you will need to adjust countless settings right across the globe so that there is no alternative for the capital owner but to accept a lower return in the event you put labour costs up. Good luck.
I’m not sure what else to say.
vto,
From the graph above it looks like just over 53% goes to labour in Australia. Would it be a problem if that much did in New Zealand?
I agree there is a risk of capital going elsewhere if you shift it in your business alone, out of alignment with your competition. If, however, the economic structure in NZ was changed so that it shifted consistently across the economy – where could the capital go instead?
Anita, firstly I have to point out that I would be more than happy for the workers incomes to increase, as would most long term business folk be.
Your question, ‘would it be a problem if 53% goes to labour like in Australia?’ I don’t know. I imagine though that such an increase must mean a drop in return on capital (as there are no other variables that can change to accommodate such a change). And as mentioned, the capital would move to a better return elsewhere. Remember NZ’s interest rates (capital return) are higher for a reason. Usually associated wih risk.
Re changing the economic structure so that the capital is limited in its possibilities, well sheesh good luck there too. If you can then give it a go. All I point out is the simple equation that owners of capital utilise. It is very simple and very direct. And capital can be very flighty so tread carefully.
Anita
I think we all agree that we risk McJobs if all we offer is tourism and the like.
For me, the future has to involve around smart use of technologies, some of which will obviously involve the primary industries.
We need to take the no 8 wire mentality but in the technology space.
To achieve this, we need to encourage research, education, investment in a business friendly environment.
I would say Labour does the first three but is not perceived to be business friendly. This is most likely why National has become Labour lite.
As with Ireland, it would take major incentives to make this happen in the short term.
I don’t want a low wage economy. Full stop.
I know I will get rubbished for a Pollyanna vision. There is a reality tho – I work in a research environment that is attempting to do exactly this. We do have successes in this area but to do it as a country will take a major transformation.
Sorry, I realise we have sidetracked from the original post but I see this as a logical extension of SP’s starter.
Anita – I’d be surprised if we did disagreed on the where but more likely the how.
Actually, I’ve got a solution that I’ve been banging on about for years that may help ,Anita. It is though, as daveski says, a major transformation. Lower the proportion that goes to capital by simply legislating, perhaps through the Reserve Bank Act (or whatever its name is), a one-off structural and substantial drop in our interest rates.
It would without doubt cause some heavy short term unease and pain but it may simply re-adjust the returns on capital (interest rates) that apply in this country. And all else being equal then there should be a difference that labour could, if it was quick and savvy enough, grab for itself (my god there would be a cat fight over it though).
To be honest I dont see why NZ’s interest rates are so high. I think it stems from all things historic and hangover-like.