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National: it’s not worth the pay cut

Written By: - Date published: 1:46 pm, October 19th, 2007 - 52 comments
Categories: economy, workers' rights - Tags: ,

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:

nominal-small-revised.jpg
[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?

take-home-pay-small.jpg
[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.]

52 comments on “National: it’s not worth the pay cut”

  1. ak 2

    Yes, excellent Tane. You’ve bent over backwards and still managed to shove it up Farrar convincingly.
    As a reward you can go and play with burt – though after you big boys picked on him last time I don’t think mrs Farrar’s letting him come over any more….

  2. Indeed! I also think the narrow focus is misleading – any discussion about productivity necessarily requires consideration of the factors limiting competitiveness and productivity improvements. DPF’s focus is like a crooked throw the the lineout, it shifts the momentum in the wrong direction.

  3. Wodger 4

    There’s a different take over here: http://www.kiwiblog.co.nz/2007/10/median_incomes_over_time.html

    There will probably more vigorous discussion at KB as well.

    Crank up the random number generator – I’ll stick with Mark Twain.

  4. Sam Dixon 5

    honesty is the best basis for policy.

    our mate DPF still needs to learn that,

  5. have you fwd this to any media outlets? it might help them with their ‘toys and candy’ twitch

  6. Tane 7

    Hi bean, I figure they’ll probably read it here. But if someone else wants to pick it up and run with it then they’re more than welcome.

  7. pete 8

    Your graph seems to be suffering from the Y2K bug…

  8. Sam Dixon 9

    So, at the end of every week, the typical kiwi has more in his back pocket under Labour,

    and the amount extra is growing faster under Labour

    and Melissa Median gets Working For Families tax credits for her kids, she gets 20 hours free childcare if she has a 3-4 year old, she gets $1040 a year on Kiwisaver, she might get a Welcome Home Loan, she gets cheaper doctor visits and perscriptions, she has more Police on our streets, lower crime, lower pupil to teacher ratio in her kids’ school or maybe interst-free student loans, more elective surgery, better roads, higher life expectancy… anything I’ve missed?

    So, does she want to give up all that and faster wage growth for a 410 a week tax cut? National hopes so.

  9. Wodger 10

    Sam Dixon – do you know Mike Smith? – perhaps you could introduce hime to the concept

    “honesty is the best basis for policy”

  10. Tane 11

    Oops – thanks Pete, I’ll fix that now.

  11. robinsod 12

    Wodger – Yawn. I’m sure you could ask Mike Smith yourself. I just looked up the phone book and Wellington Labour HQ is 04 384 7649. Why don’t you fuck off and ask him yourself. Once you’ve got an answer come back here with it. Now be a good boy and run along…

  12. ak 13

    Yep Sam, as well as all that if she gets crook or falls on hard times she won’t be stigmatised and will get far better service from Work and Income who are now commited to ensuring everyone gets their full legal entitlements, and the voluntary welfare groups who might be able to help her are now better funded and supported by govt. Oh and she’ll be treated by one of the best health systems in the world: check this out – second best health system behind Germany and miles ahead of the US system which comes last at three times the cost per head.
    http://www.commonwealthfund.org/usr_doc/1027_Davis_mirror_mirror_international_update_final.pdf?section=4039

  13. Sam Dixon 14

    “…for a 410 a week tax cut?” should be $10 a week of course

  14. Leftie 15

    Great work….My co-workers would be interested to see these graphs as well.

  15. Wodger 16

    Good to see you are up to date on the Labour Party Talking Points Sam, but you better check on your honesty policy…

    20 hours “free” childcare – I see the architect of that snafu is departing the scene

    lower crime – I guess you missed the headlines “iolent crime rise ‘national disgrace'”
    Violent crime up from 105/1000 pop in 98/99 to 127.1/10000 in 06/07

    elective surgery – every worked that out on a per-capita basis Sam?

    Do you actually know anyone in that situation Sam? Maybe you should ask them how they cope with the rates bill, the power bill, vehicle running costs and so on.

    Next you’ll be claiming that Labour is improving Melissa’s chances in the bedroom!

  16. robinsod 17

    Wodge – I thought you weren’t coming back until you rang Smith? Oh and I’m no economist but I’m pretty sure rates, power and vehicle costs are included in inflation. But of course you could be making a non-tradeables argument (in which case are you saying the govt should be subsidising them?). Somehow I suspect you’re not that sophisticated though.

  17. Sam Dixon 18

    Wodger – go to the stats site there in the table builder you can see the stats for every type of recorded offence going back to 1998 you’ll notice a significant decline across the board.

    Where there has been an increase is in domestic violence – the experts attribute that to higher reporting, a good thing.

    Maybe The Standard boys could post use a nice wee graph from the Stats figures.

    And, obviously, the figures Tane has provided have inflation taken into account: that is, they are adjusted for nominal increases in rates and other non-tradables (checkou the CPI stats to see how everyhitng is included and weighted).

    Also, as men are less likely to commit suicide, be injured at work, be killed on the road or by someone, and as she and her partner are likely to have generally better health, and are less likely to feel lonely or depressed now than in the 1990s (its all in the Social Report), I would say, yes, Melissa’s chances in the bedroom have improved under Labour.

    (anyone want to track down old durex surveys and make sure?)

  18. Wodger 19

    Sam

    I was suggesting that you forget about waving statistics around (have you checked Mark Twain yet) and talk to something else than your keyboard. You might just find that Melissa isn’t a Labour voter, or that her de-facto likes to give her the bash

    Keep up the party line though – if crime decreases, thats good, if it increases, thats just an increase in reporting, and thats good too – I’m sure it sounds good in Labour party meetings, even if most of New Zealand knows what it really means.

  19. Sam Dixon 20

    Wodger – the stats unit of the Police are the ones who explain the crime data, I’m just relaying to lazy buggers. Are you saying they produce Labour party lines now? How’s the tinfoil hat fitting?

    Seriously though, its desperation stuff to say ‘stuff the stats, I knows what I knows’ anyone can say anything, no one story can give an overall picture of society, that’s why stats not stories are the foundation of policy.

  20. robinsod 21

    Wodge – ohh Mark Twain and “the party line”. Between your unsubstantiated claims and your abstract and off-topic references to Twain, Wodge you’re making it really hard for me to say this: but fuck off until you come back with a real argument instead of the smug and self-deluded shit you’re peddling at the mo’.

  21. Lady Leftie 22

    Thanks team for the graphs – it is always good to stick stats up the arse of that National Party blogger David Farrar.

    I was wondering if you had the time for a Lorenz Curve to show the change in income distribution? It might not be the prettiest picture, but relativity is always an important measure to consider too.

  22. This is, frankly, the problem with focusing on a reasonably narrow indicator as a measure of the performance of a government. Wages are at might be a reasonably direct measure of economic activity/performance, but they’re only an indirect measure of government performance. Why not broaden the lens to include capital deepening, exports, R&D etc?

    Labour’s stewardship of the economy has been at least as good as Naitonal’s but lets all be honest and accept that the NZ economy is not performing as well as we’d like. Once we’ve made this leap, the discussion is sensibly on what to do – Labour’s clearly got some ideas and initiatives e.g. increasing workforce skills, improving R&D incentives, investing in infrastructure and promoting personal savings and increase access to domestic capital. What’s Nationals? Cut taxes?

  23. Sam Dixon 24

    mardypants – liked your guys bit on that actually – we mustn’t attribute too much of the economy’s performance to the government – there are other very strong drivers at play. that said, government policy (especially such different policies as 1990-99 and 1999-2007) do have quite an impact on wages – i’ve looked at the median numbers myself and its a flat line from 1991 to 1996, thats the result of the ECA crippling low income earners.

  24. ak 25

    Oh and four weeks holiday, paid parental leave, ever-rising minimum wage, the list is just too long, how about someone doing a “before and after” for Melissa?

  25. Sam Dixon 26

    ak – good idea, its hard with WfF because you have to make assumptions about her family type, what would be the fair way of doing it,assuming she has two kids (the most common family unit apart from couple only). I’ll see what I can do and see if our hosts here wat to put it up.

    thanks for catching 4 weeks leave and parental leave – knew i’d missed stuff 🙂

  26. Sam, points well made. IR is critical to the way the labour market functions and I’ve also seen numbers on the impact of the ECA. I think this discussions is helpful but my concerns are a little broader – setting the rules by which the labour market operates affects access to employment and distribution of benefits (along with tax laws) but there’s so much more to what governments do and Farrar ignored this because he thinks there’s an indicator that advances his political agenda.

  27. PaulL 28

    Damn this site is slow 🙂

    I was taught at school that graphs should start at zero unless you have a really good reason. Not the end of the world, but anyway…

    I’m a bit lost Tane on how you are 3 times better off under Labour, when your statistics seem to say about 33% better ($21 v’s $14).

    You are using median income. Of course, this needs to be corrected for hours worked, which median full-time income wouldn’t. Any comment on movement in the number of hours worked by part-time workers in the relevant periods? Otherwise I’m not sure how we get such a discrepancy between median income here and median full-time income per DPF.

    Can you separate the tax correction from the inflation correction? I’d be interested to see the intermediate result so I can understand how such a big difference in gross translates into such a small difference in net.

    After all this (and if we had the graphs starting at zero) I think we could probably agree that there was little difference between the two in real terms, to the median worker. If you were a median full-time worker a little better off under National, if a median part-time worker, a little better off under Labour.

    We might also ask the question as to why Australia seems to have streaked ahead in this time – the discrepancy between them and us has grown considerably under both these governments. Should we be concerned, or is this just NZ’s lot – we cannot do any better (poor us, too dumb compared to our neighbours?)

  28. Robinsod 29

    Paul, I’d guess that the reason oz has “streaked ahead” is that they haven’t had the ECA (and a barely better version of it) to deal with but don’t worry. I read Costello a year or so ago claiming they needed to make their wages more competitive with ours. Looks like work choices is getting them there.

    Bu they if you want to go back to the pre-workchoices Aussie IR system I’m more than happy to follow…

  29. Murray M 30

    Good to see you lefties having a fine chat amongst yourselves. Nobody with an IQ registering above the Richter scale wants to engage with you.

  30. Robinsod 31

    Well that explains why you’ve dropped in muz.

  31. Murray M 32

    I have not taken part in this discussion, therefore I have not engaged. Don’t call me muz, only my friends are allowed to call me that.

  32. Robinsod 33

    Jeez – you’ve engaged now though, how about “muzza”?

  33. Murray M 34

    Okay I will troll. I’m assuming the Robin”sod” means you where the badge of being sodomised as a source of pride.

  34. Robinsod 35

    Okay, I’ll give away one of the minor secrets of the Kiwi blogosphere – it means I don’t give a sod for you or your arguments and I’ll bend you over when ever I feel like it (it’s not homophobic – it’s about power) Oh and you mean “wear” but seeing as your such a “I’m taking my brilliant arse to aussie – fuck you” kind of a guy I’m sure you made that (really basic) mistake on purpose. Eh Muz?

  35. Murray M 36

    Yes I did, and for the last time don’t call me Muz

  36. “Jeez – you’ve engaged now though, how about “muzza”?”

    I think “mad muzza” is his common tag.

  37. Robinsod 38

    Ok Muz – see what I mean? I hope you like Aussie, where exactly are you heading?

  38. burt 39

    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.

  39. JamesK 40

    Burt, it’s adjusted for inflation.

  40. burt 41

    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.

  41. pete 42

    I was taught at school that graphs should start at zero unless you have a really good reason.

    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.

    Otherwise I’m not sure how we get such a discrepancy between median income here and median full-time income per DPF.

    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.

  42. Sam Dixon 43

    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.

  43. Sam Dixon 44

    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)

  44. burt 45

    Sam

    burt you moron

    So where is the statement that the first graph (which looks very much like an inflation graph) is adjusted for inflation… It is not.

    The second one is adjusted for something, spin perhaps. Perhaps you could publish the percentage used for inflation each year and then I’ll happily debate how you got $284 (as a 1991 median wage adjusted by 15 years of inflation).

    Until then I’m happy being a moron for being able to see the unadjusted graph for what it is, a representation of inflation.

  45. burt 46

    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.

  46. burt 47

    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?

  47. burt 48

    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.

  48. Sam Dixon 49

    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.

  49. pete 50

    burt:

    Since 1990 CPI inflation has averaged around 2.5%

    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

    So $272 grossed up by 46% = $503

    A 46% increase on $272.00 should give you $397.12. Might want to take that calculator in for a service.

  50. Sam Dixon 51

    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.

  51. I think Muzza’s getting pissed at you, Robinsod! Muzza, chill out.

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