The Inequality Blog

The ODT is the latest newspaper to come out arguing that inequality is a crucial issue for New Zealand. In an editorial, it argues that it has to be tackled not just through financial support for people at the lower end but also

fundamental changes in thinking and policy. Oxfam is calling on governments to take urgent action to reverse the inequality trend through various recommendations, including cracking down on financial secrecy and tax dodging; progressive taxation; demanding a living wage; investing in universal education and healthcare. For those who think it is pie-in-the-sky stuff, it points to countries which have succeeded in reducing inequality while growing prosperous.

There is no doubt there will be a significant cost to fix the problem, but perhaps the most pressing question has to be: what will be the long-term price if we don’t at least try to make a start? An unequal society, an us-and-them dynamic? Social unrest, increased global instability, crime, war, displacement? As global citizens, can any of us really afford to turn a blind eye?

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One of the enduring income inequalities in New Zealand is that between men and women. Women are paid around 13% less than men for doing the same work, and the Bartlett case last year showed that entire industries have been poorly paid simply because the work is done mostly by women.

This is especially relevant now because New Zealand has just been through a United Nations process called the universal periodic review, which looks at its human rights record. In general, it’s good, but one of the notable recommendations is this:

 Eliminate the gender pay gap across all groups and ethnicities using demonstrated effective mechanisms, including intensive monitoring processes and legislative levers

Let’s hope we’ll see progress on that in coming years, and a good response from the government when it replies to the universal periodic review findings in June.

It’s sometimes said that raising taxes, as one might do to combat inequality, will force the rich to flee in droves. But not only did this not happen when the UK recently hiked its top tax rate to 50%; not only is Sweden still home to thousands of wealthy people, despite its 50%+ tax rates; not only is there little evidence generally for this claim.

In fact, sometimes as the reverse, as this quote from the weekly inequality newsletter Too Much shows:

A year ago, in the 2012 elections, voters in California opted to up tax rates on the state’s highest incomes. The vote left California’s deepest pockets with a 13.3 percent tax rate on income over $1 million, the nation’s highest state tax rate. That new rate, opponents of California’s tax-the-rich initiative had predicted, would force a massive exodus of the well-heeled off the left coast. What actually has happened in the year since last November’s voting? California, says a new report, has experienced the nation’s largest increase in residents worth over $30 million. Either the super rich are crying wolf when they vow to flee higher taxes, quips New York magazine’s Kevin Rose, or they just take a long time to pack . . .

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A lot of the research behind the Living Wage is based on overseas work (unsurprisingly, since that’s where it originated), so it’s good to see that Massey academics are launching a project to look at what it means here:

Project team co-leader Professor Jane Parker says the project aims to “go beyond the usual economic analysis” of living wage research to provide useful data for any organisation deciding how to respond to this complex issue.

“We want to establish a whole range of indices that might be useful to different parties – whether it’s an employer weighing up the costs of a living wage or a union organisation looking to put forward a case for it,” she says.

Co-leader Professor Stuart Carr adds: “Existing research has tended to focus on the economics of introducing a living wage so we also want to look at it in terms of related benefits like well-being, happiness, quality of life, and empowerment.

“We are trying to take a broad view of how it actually affects employees, their families and poverty levels, and how this might impact on matters like productivity and retention for employers.”

There will be three strands to the research project: an online survey of employers, managers and employees; meetings with government, union and employer organisations and other stakeholders to map out policy considerations; and an in-depth case study of an organisation that has recently introduced a living wage for staff.

As they point out, New Zealand has an unusually large number of small and medium sized businesses in its economy, so there may be more companies that are hard to convert to the Living Wage. On the other hand, most New Zealanders are still employed in big firms.

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Prue Hyman has an excellent piece in the Dom Post today about why it makes sense economically to pay the Living Wage:

Productivity gains, reduced absenteeism, and lower turnover costs are benefits found overseas when committed workers know they are valued.

One key argument against the Living Wage has been that it is not well targeted at low-income families, with single adults benefiting most. But Hyman points out:

More than half of sole parents working earn below the living wage, as does the principal earner in 25 per cent of households with two adults and dependants.

So many New Zealand families struggle, despite having one or two adults in paid work. Of the 270,000 children estimated to be living in poverty, two in five come from households where at least one person is in fulltime work or self-employed.

Further, families are formed from those single adults who could benefit if working for a living wage employer. Higher earnings could help them make modest savings towards buying a house and bringing up a family later, as well as reducing the incentive to jump the ditch to Australia to find better-paying work.

A typical two-parent two-child family could be $3276 a year better off under the Living Wage. That’s significant.

Some argue that the Living Wage would rebalance the role of the employer and the welfare system towards work being the primary mechanism for people to support themselves. But as Hyman argues:

Isn’t this a positive? It’s far too easy for the government and employers to regard adequate living standards as the responsibility of the other with neither group taking responsibility.

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One of the responses to the recent report on child poverty, showing that 265,000 New Zealand children live below the poverty line, is to say that the measurements are flawed.

This, from a blog on the Newstalk ZB site, is typical:

Poverty as defined in New Zealand are the households that make less than 60 per cent of the median disposable income.

So think about that. It means no matter how rich the country is and no matter how high the median household we will always have a class of people that are described as living in poverty.

This is, however, quite incorrect. Here’s a little thought experiment that shows why. Suppose the country was made up of five people: two earning $20,000 each, one on $50,000, one on $70,000 and one on $500,000. The average income would be the total of their incomes combined, $660,000, divided by five: $132,000.

But we’re not interested in that: we’re interested in the median, which is the amount earned by the middle person in this theoretical country. That’s $50,000.

What the poverty line says is that people are in poverty if they earn less than 60% of that $50,000: that is, less than $30,000. So both the people on $20,000 are in poverty.

Now, what happens if we lift both those people up to, say, $35,000, over the poverty line? If we were basing our measurements around the average, it is true that increasing those bottom incomes would lift the average, effectively raising the bar further. But remember that the median is the amount earned by the middle person. And that doesn’t change: it’s still $50,000. So both people would have been lifted out of poverty. That’s why the median, not the average, is used.

That leaves just one final point: why is the measurement 60% of the median? Well, it’s one of the internationally accepted definitions of poverty, and for good reason, because work from focus groups (including those in New Zealand) shows that it is below that level of income that families typically struggle to afford everything they need for a minimally decent life.

It’s worth remembering that in the real world (not our fictional example) the median income for a single person household (albeit this is a bit of a statistical construct) is only about $30,000. Which means that the poverty line for single person households is about $20,000 – and it doesn’t seem too much of a stretch to say that, if you’re living alone and earning less than $20,000, in New Zealand, you really are in poverty.

It’s sometimes said that people living in poverty just need to try harder, but I’m not sure how much more Amy Scott, profiled today in The Press, could be doing:

Amy Scott and her two children have moved houses five times since the earthquakes. Scott lost her job after work as a bartender “dwindled off”. She lost her mode of transport in a minor accident.

She is now on the benefit, and after paying rent and power, she has $70 a week to spend on food.

“It’s a struggle; each week I have to choose which bill I’m going to pay. It’s really hard, especially when you’re used to earning,” she said.

She had been seeking work since losing her job in July, but was finding it hard to compete with the influx of other candidates for the positions.

“I’ve been to every bar, every retail place, supermarkets, The Warehouse … in the past month I’ve handed out 30 CVs.”

She pulled her daughter from Girl Guides because she could not afford the fees. She could not afford to send either child to relatively inexpensive activities, including swimming lessons.

Once again this makes the point that being in poverty is so often about having constrained choices, not the luxurious range of wonderful free choices that are supposedly on offer.

 

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Last week Ted Thomas gave his Bruce Jesson lecture. The text of it is attached, but his basic argument is that the best way to tackle inequality is a rights-based campaign. As he puts it:

“The community, or groups within the community, will need to take a more assertive, if not aggressive, approach to the task of reversing extreme inequality.  Economic, social and cultural rights, I suggest, are the key. These substantive rights embrace the right to work, in which I would include the right to a living wage, the right to health care, the right to freedom from poverty and an adequate standard of living, the right to security, the right to free and equal education, the right to a reasonable standard of housing, and the right to a habitable environment.”

Human rights are the best bet, he argues, because pragmatically they are the most compatible with the existing social and economic structures:

“Human rights are basically ego-centric.  As a result, the enforcement of human rights by individuals – or groups of individuals – is compatible with individualism.  The enforcement of human rights is probably now the most productive means of protecting the individual or groups of individuals from the harsh extremes of liberal individualism and capitalism.  To a large extent, the protection of human rights is beyond or outside the political and economic systems.  Irrespective of those systems, people can insist upon their “rights”.”

He concludes:

“The denial of substantive rights, therefore, must come to be viewed as an intolerable injustice, such as to lead to outrage and a burning anger at the hardship and misery that inequality has visited upon so many good people.”

Ted Thomas – Bruce Jesson lecture 2013

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The only thing worse than being attacked is being ignored, so it’s probably a good sign that people are now taking the time to criticise Inequality: A New Zealand Crisis. This is the latest such, from the Herald:

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11150603

Of course, inequality is not a zero-sum game, as the article claims. The point is that the last 30 years have seen most of the income growth go to the top; it has been (almost) a zero-sum game for those at the lower end! And so the question is, as the economy grows in coming decades, and more income is generated, how does New Zealand ensure that it is spread evenly?

It’s important also to make sure that the country, and its cities, are working for all, not just a few. But another article, describing Auckland as “the new Monaco” and a haven for the higher earners, raises questions about that.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11150595

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More media coverage in recent weeks – in both the main centres and the regions – strengthens the case that inequality is one of the key issues today.

Stuff has just run a major story on income gaps, quoting Inequality: A New Zealand Crisis and attracting over 170 comments. The story is here: http://www.stuff.co.nz/business/money/9330822/Do-Kiwis-care-about-wage-inequality

Meanwhile, an editorial in the Wairarapa Times-Age warns that “a growing social divide” must be tackled in a country that “reeks with the fear and stress of not being able to put food on the table, while those who can are isolating themselves from the problem”.

http://www.nzherald.co.nz/wairarapa-times-age/opinion/news/article.cfm?c_id=1503411&objectid=11147354

 

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