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The wage gap and the productivity lie

Written By: - Date published: 11:42 am, March 28th, 2013 - 23 comments
Categories: class war, economy, International, national, wages - Tags: , ,

National was elected on the promise to close the wage gap with Australia. It’s getting bigger – which probably has something to do with why record numbers of Kiwis are crossing the ditch. New figures yesterday continue the trend:

Income gap growing wide as the Ditch

Despite rising salaries, Kiwis’ pay packets are still well behind those of their Australian counterparts – and the gap is getting bigger.

At the end of last year the average New Zealander earned 26.3 per cent – or $12,800 – less than the average Australian, the latest Roy Morgan state of the nation report reveals. Kiwi salaries have risen from $35,000 to $48,600 since 2001, but across the Tasman incomes have increased from $38,800 to $61,400.

Evidence of the widening gap is even more pronounced among fulltime workers, with Australians earning 24.1 per cent more than fulltime workers in New Zealand – a difference that 10 years ago was only 6.6 per cent.

The number of Kiwis chasing the Australian dollar has been increasing in the same decade, a record 53,763 people leaving in the 12 months to June last year.

Great work National. Thank you John Key. Your policies, such as they are, are not the solution, they are part of the problem. And when it comes to the “captains of industry” what we get is the old productivity lie again:

Employers and Manufacturing Association spokesman Gilbert Peterson called the latest figures a “sobering reality check”. “We could do considerably more I’m sure and we need to keep working at it but we have had the global financial crisis to contend with and the earthquake in Christchurch which has been a big challenge, and of course we can do more to lift the productivity of New Zealanders …

This line is just an endless treadmill for workers – the promised higher wages are forever out of reach. Productivity has gone up and up and up – wages have not followed. There’s a long CTU report about it here, but the short version is that:

Between 1980 and 2008 (the latest data available) labour productivity grew by no less than 82 percent – while the average ordinary time real wage grew by just 18 percent.

(See also various Standard posts here, here, here.)

The way to raise wages is to have a healthy economy, a living minimum wage, and a strong union sector. The Nats have held back the first, will never deliver the second, and always work to undermine the third. Nor do we need another rerun of the productivity lie. What we need is a change of government.


23 comments on “The wage gap and the productivity lie”

  1. Enough is Enough 1

    New Zealand sucks at the moment and I hold nothing against those economic refugees who are packing their bags and few possession they have and heading to where they will be able to make a livfe for themselves and their children.

    When will New Zealand wake up and demand more from their governments. This trend has been getting worse for decades yet we continue to elect governments that have policies which force our kids overseas.

  2. Draco T Bastard 2

    This video, (yes, it’s the same one I posted in Open Mike), covers the productivity gains of the last thirty years and how almost all of it the went to the rich and that the rich then went on asset bubble crusades. This resulted in increased inequality, an unstable economy and the GFC but not the improved conditions that the business sector and the political parties said would happen (I was going to just say National but Labour said the same bloody thing).

  3. Poission 3

    Productivity always decrease following banking crises,and almost obvious problem.

    Why? it is the reallocation of financial resources from the productive sectors( read parts of the economy that add value ) to the unproductive sectors such as property ,land and duboius infrastructure that is in essence a financial sink ie they lock in finance into illiquid assets.

    In each of the 61 Banking crises since 1980 (yep) productivity has decreased in every domain it has occured.There is a good discussion of this in Broadbent 2012


    The underlying regurgitating of the productivity fallacy by these lobby groups suggest that they (and their echo chambers) are a bit thick!

    • muzza 3.1

      Someone send that to spokeman Gilbert Peterson, maybe with the instruction that he reads it, and if he can’t understand it, to consult with someone who can walk him through the basics!

  4. infused 4

    Productivity != profit. Cheers.

    • Draco T Bastard 4.1

      The owners profits have been going up in line with productivity – the wages haven’t.

      • infused 4.1.1

        Where? My wage hasn’t increase in 3 years. My staff have.

        • McFlock

          Has the Value of your business changed in that time ?

        • Draco T Bastard

          Well, you’re obviously not the people this government is governing for then even though you probably think that you are.

          BTW, a single person whinging that their profits haven’t gone up while banks and several others have doesn’t pass the evidence test.

          • infused

            What’s the percentage of small business in New Zealand Draco? Banks and a few other very large businesses are the only exception.

            • Colonial Viper

              Those large corporations are the ones making super-profits, draining your local community and your customers of cash. To the tune of several billion dollars a year. And then exporting that cash, typically to Australia.

            • Draco T Bastard

              You’re still only one person and not all small businesses.

  5. UpandComer 5

    The meaningful measure is after tax wages, which have increased by 3% more then oz since 2009.

    The gap is being closed.

    Also I agree with Draco’s comment re wages not keeping track with productivity. I think employer’s in NZ do need to recognise productivity increases and incentivise productivity. Giving employees an option to buy shares in the company they work for at a reduced rate or the likes is a great idea.

    • Draco T Bastard 5.1

      The meaningful measure is after tax wages, which have increased by 3% more then oz since 2009.

      Mr and Mrs Middle New Zealand: Median NZ household income falls

      I think employer’s in NZ do need to recognise productivity increases and incentivise productivity.

      There’s a couple of reasons for that:
      1.) NZ employers are stupid (there’s research around proving that but I can’t be bothered going to find it again)
      2.) Why would they pay the workers more when they can pay themselves more instead? Greed is Good don’t ya know.

      Giving employees an option to buy shares in the company they work for at a reduced rate or the likes is a great idea.

      Ah, yes, having people buy into capitalism will magically make them better off.

      • Colonial Viper 5.1.1

        Not magically, but owner-employees are the way of the future.

        • Draco T Bastard

          Cooperatives are but do you really think that an owner is going to sell voting shares to the workers? For some of them part of the reason for being in business is the power rush they get when they tell people what to do.

    • The meaningful measure is after tax wages

      No it isn’t.

      The best measure is of pre-tax wages (gross income). Taxation legitimately takes a share of the return to labour in order to benefit the overall society (that’s the only legitimacy for taxation).

      The meaningful measure has to be the gross return to labour for a couple of reasons:

      First, closing the gap by reducing tax rates would not be possible. As Bill English pointed out, most New Zealanders are paying around 17.5% in tax. Even removing all income tax for this majority would not close the gap. Further, reducing the top tax rate alone would simply ‘duke the stats’ when it comes to ‘average take home pay’. That is, bigger paypackets would get disproportionately more dollars in their pocket, increase the average disproportionately and leave everyone else potentially just as far behind Australia as ever.

      Second, for the majority of income tax payers, the amount of income tax they pay is less than the benefit they receive from overall taxation. Hence, reducing the tax take (especially at the upper ends) would simply make their after tax wages worth less because of the services that would need to be cut to afford the tax cuts, services which they would then have to pay for one way or the other. Put simply, they would be worse off materially (isn’t this what the right so often complains about? – that the higher income people are paying most tax?). This is especially so if the kinds of cuts introduced were those favoured by right wing governments (e.g., benefits, education, health).

      I know Key and English like to run this line about after tax wages being relevant to closing the gap with Australia, but that’s meaningless given that the benefits of a progressive tax system fall disproportionately on the majority of (low and middle income) people – as is, of course, the intention of a redistributive tax system.

      In addition, cutting the top tax rate (as Treasury and IRD seem keen to do) would increase inequality within New Zealand.

  6. UpandComer 6

    “Real after tax wages

  7. Colonial Viper 7

    So Telecom has to fire 1300 workers to “remain competitive”. It’ll save them $80M in wages, annually.

    And they are forecasting a reduced profit of just over $1B for 2013, once redundancy costs are taken into account.

    Labour, please come forward and criticise the idiocy of shareholder EPS driven capitalism and the insecurity it has created for NZ workers. Any time now would be fine, when convenient, maybe when your members come back from enjoying a long weekend away.

    • fender 7.1


      The greed is rampant, and taxpayers are paying for their future revenue stream infrastructure as well ffs.

    • infused 7.2

      Dude you have no idea. People at Gen-I are sitting around with fingers up their ass. They have lost so much work recently.

      So easy being an armchair warrior eh?

      • Tim 7.2.1

        “Dude you have no idea. People at Gen-I are sitting around with fingers up their ass. They have lost so much work recently.”

        Which is rather strange is it not considering DIA is a bugger’s muddle, the primitive ACC and EQC systems, and IRD?

        The funny thing is that things seemed to work when we had a GCS, a Vogel Computing Centre and a banking system that was more integrated.
        I suspect ‘corporate prestige’ and big egos have been part of the problem over the past 20-30 years.

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