Written By: - Date published: 1:46 pm, October 19th, 2007 - 52 comments
Categories: economy, workers' rights -
Tags: economy, workers' rights
The National Party are clearly worried. They’ve done pretty well so far with the populist rallying cry of tax cuts, but they always knew their record on wages would come up at some point.
Because as National themselves are fully aware, while tax cuts might on the face of it put more money into workers’ pockets, their industrial relations policies are so heavily geared towards keeping wages down that for most working people the promised tax cuts simply aren’t worth the pay cut that would follow.
With the Council of Trade Unions this week announcing its intention to run a strong campaign based on protecting work rights and lifting wages, National clearly saw the game was up and entered into full inoculation mode.
Their first salvo was fired yesterday by the party’s resident blogger and former researcher David Farrar. By calculating the average wage over National’s last term and comparing it to Labour’s, then adjusting for tax rates and inflation, Farrar argued workers gained an extra $83.59 in take-home pay under National and just $33.90 under Labour. That worked out, he said, to a 15.2% increase under National and just 5.1% under Labour.
So the next time someone drones on about how bad the 1990s were for the average worker, Farrar gloated, just remember they were three times better than the last eight years.
Of course, Farrar’s statistics were self-serving crap. Anyone who knows the first thing about stats understands that it’s pointless to use the mean to discuss the wages of the typical worker, especially if you’re looking at the period of the last National government when inequality increased as rapidly as it did.
The median is a better measure by far: 50% of people earn more than it and 50% earn less, while most people earn somewhere thereabouts. As a pollster by trade, Farrar should know this. The man deals in statistics every day. He knows which ones are meaningful, which ones are misleading, and how to spin them either way to say whatever you like. That he chose to use the mean rather than the median shows just how disingenuous his little exercise really was.
Because when you use the median instead, the difference becomes clear immediately. Here’s a graph on median wage increases between 1991 and 2006. Note the difference in wage rises between the red and the blue:
[click graph for full size version]
Median wage
1991 $272
1999 $328
2006 $485
That’s a 21% nominal wage increase under National, compared to a 48% increase under Labour.
But of course, as Farrar points out, you have to adjust for inflation. On that we’re agreed. He also argues that we should adjust for tax rates so that we’re measuring take-home pay rather than wages.
The fundamental problem with this approach is that if I get a $20 a week tax cut but corresponding cuts to public services mean I’m paying an extra $40 a week in user charges, I’m not actually any better off even if my tax bill says so. But we’ll factor it in to keep David happy.
We’ll also exclude Working for Families, a major tax credit for working families that means many low-income workers effectively pay no tax at all. And to make things even harder for the red team, we’ll also exclude government tax credits for KiwiSaver which, as No Right Turn has pointed out, are more generous than National’s 2005 tax cut plan.
So even given all these concessions, how does the typical worker’s take-home pay compare between National and Labour?
[click graph for full size version]
Take-home pay
1991 $284
1999 $325
2006 $394
Yep, even under David’s handicap workers have had an increase of 21% ($69) in their take-home pay in the seven years of Labour government between 1999-2006, compared with just 14% ($41) under eight years of National from 1991-1999. And that’s without having to borrow, sell assets or increase user charges.
So David, next time you drone on about how bad Labour’s been for the average worker, just remember they’re three times better off than they were under National in the 90s.
Because when you add it all up, National’s tax cuts just aren’t worth the pay cut. And sooner or later, the voters are going to figure it out.
[UPDATE: Fixed the median wages graph to include the year 2000.]
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Scoopit!
Yes I did, and for the last time don’t call me Muz
“Jeez – you’ve engaged now though, how about “muzza”?”
I think “mad muzza” is his common tag.
Ok Muz – see what I mean? I hope you like Aussie, where exactly are you heading?
The argument here is that the mid point on a line proves National will cut pay?
What would be interesting to see would be this graph alongside the median cost of living, median house price and median mortgage size over the same period. That would tell you a story.
This is pretty line that could produced from the state owned power generators profits or the ministry of ed budget. A graph for school teachers would of course be a lot flatter.
Burt, it’s adjusted for inflation.
JamesK
And as such it’s a pretty good representation of inflation. Which is what I was saying, perhaps poorly.
I think power prices would track a similar graph (as would state owned power company profits). I also suspect the price of a liter of milk or petrol would track a similar picture. This is the effect of CPI increases on wages, no more no less.
It represents no standard of living increase, just a shift from CPI running at 1.5%-2.5% to 2.5%-4%.
Labour have hiked inflation compared to National – Bravo.
Time series graphs tend not to start at zero, because we’re more interested in the changes than in the actual value. The big bold blue and red colouring in is probably borderline misleading, but it sure does look pretty.
The low-income end of the distribution has less bargaining power and so were more likely to be casualised under the ECA. Chop off the left hand tail and the median jumps to the right (1990-1999). Add the tail back in and the median jumps back to the left (1999-2007). DPF’s figures are dominated by this effect; Tane’s figures capture the actual movements in the income distribution.
burt you moron –
inflation adjusted means that changes in cost of living including house prices is already taken into account. the figures you see say that in 1991 the median income after tax would buy good and serices that cost $284 in 2006, whereas in 2006 the median income after tax would buy goods and services that cost $394 in 2006..
your economic iliteracy is actually embarassing – that is, i feel bad for you for making such a fool of yourself over a basic economic point.
PaulL – DPF’s graph only measures full time wages, Tane’s meaures incomes – why is Tane’s better?
first a premise: the object is to find out how much the typical person has in their back pocket and how that changed under naional and labour.
The after tax, inflationed adjusted median income does this better than the after tax inflation adjusted median wage becuase it measures all income rather than just full time wages – so changes in the balance of sources of income distrort Farrar’s figures but not Tane’s. For instance, since 2000 many high income people have shifted earnings that were previously wages into dividends or trusts, that makes am average wage measurement lower but median income is not affected and continues to show the true picture.
Also,just measuring fulltime wages does not tell you anything about if most people have more money in their pockets becuase there is more work around, the median income does.
Basically, Tane’s figures are the full picture, Farrar’s are a portion of Tane’s figures that have selectd for the parttern they seem to show.
(DPF’s previous one only measured ordinary time wages even wose, becuase it missed out changes around penal rates, and it was a mean so subjec outler effect from a few wealthy people getting much mroe wealthy than others, thus giving a false picture of the ordinary person’s income)
Sam
Sam
$272 adjusted by 15 years of inflation to get $284 shows a total of 4% inflation over 15 years.
Not according to this: http://www.rbnz.govt.nz/keygraphs/Fig1.html
Inflation has been hovering around 2%-4% every year since 2000. Not 4% over 15 years.
Busted. The inflation adjusted graph is sham.
Sam
If inflation has been hovering around 2% for 15 years the total effect of that 2% over time is circa 35%.
$272 adjusted for inflation over 15 years (35%) is actually $418. Your graph should be point down, which I believe is what DPF has been trying to tell you.
So who is the moron?
Sam
I was being nice to you guys with the above numbers, from the Reserve Bank link. “Since 1990 CPI inflation has averaged around 2.5%”, which over 15 years gives a gross increase of circa 46%. (not the friendly 2% I first used)
So $272 grossed up by 46% = $503 which is more than the unadjusted 2006 figure of $485. We really are going backwards compared to inflation.
no burt, i’m afriad the problem is still you’re an idiot.
This time you’ve forgotten to take tax into account. you’ve got to take that off before applying the CPI.
fish in a barrel mate.
burt:
Economists do some odd things with growth rates based on the approximation exp(x)-1 ~ x for small x.
So if prices rise 37.5% in 15 years they’ll call that a 2.5% “average” (i.e. 37.5%/15 = 2.5%)
Using the Reserve Bank’s inflation calculator I get:
272.00 $3q1991 = 370.71 $3q2006
A 46% increase on $272.00 should give you $397.12. Might want to take that calculator in for a service.
here’s how to calcualte it:
a) get the gross median nominal income for the year (1991 $272)
b) take off tax (23.5% in 1991 leaving $208.08 net median nominal income)
c) use the RBNZ’s calcuator to adjust to 2006 dollars (rather than, you know, guess) – CPI in 1991 735,in 2006 1000. $284 net median real income in 2006 dollars.
d) repeat, graph, laugh at Farrar.
I think Muzza’s getting pissed at you, Robinsod! Muzza, chill out.