Unions – not the cause of our 40 hour workweek
10 Nov 2015 Leave a comment
in applied price theory, applied welfare economics, economic history, entrepreneurship, health and safety, human capital, industrial organisation, labour economics, labour supply, Marxist economics, minimum wage, politics - Australia, politics - New Zealand, politics - USA, poverty and inequality, unions Tags: The Great Enrichment, union power, union wage premium
When did buying your own home become an investment in New Zealand?
09 Nov 2015 Leave a comment
in economics of regulation, politics - New Zealand, Public Choice, rentseeking, urban economics
Buying a house became an investment in New Zealand coincidently with the passing of the Resource Management Act and all the restrictions on land supply it empowered. Prior to then buy a house was a good idea except if you want to make money because real housing prices in 1993 were the same as in the mid-70s.
Source and notes: Dallas Fed International Housing Database July 2015 – The author acknowledge use of the dataset described in Mack and Martínez-García (2011); real housing prices are nominal housing prices deflated by a personal consumption deflator.
Housing prices rose by 50% in the first few years after the passage of the Resource Management Act. Housing prices doubled again in the last five years of the last Labour Government in New Zealand. With the economic recovery, housing prices increased again by 30% in the last four years or so.
The housing prices charted in deflated above are nationwide figures originally from nationwide nominal data published by the Reserve Bank of New Zealand and Quotable Value. They do not show the even faster growth in housing prices in, example, Auckland, Wellington and Christchurch and stagnant housing prices in declining regions, cities and towns of New Zealand.
Did @MaxRashbrooke make his case for wealth and inheritance taxes?
08 Nov 2015 2 Comments
in applied price theory, applied welfare economics, politics - New Zealand, public economics
Veteran left-wing grumbler Max Rashbrooke yesterday argued for a wealth tax and inheritance taxes in New Zealand because of a widening wealth gap. He wants to tax inheritances of more than a mere $200,000 over your lifetime!
Yeah, I mean, we really are an international outlier in the sense that we don’t really tax wealth in any form. We don’t tax capital gains except now in very limited circumstances. We don’t tax inheritances. We don’t tax gifts. We don’t tax wealth in general, and this is a complicated area. In a lot of countries inheritance taxes are falling out of fashion. They get called death taxes and that kind of thing. But in response to that, what a lot of people are talking about are things like kind of a lifetime capital receipts tax. So rather than taxing the giver, you tax the recipient, and you say, ‘Look, over your lifetime, you can inherit, say, $200,000 tax free,’ so that your parents can pass on a bit to you.
That means an inheritance tax on the family home given current house prices in Auckland and Wellington and small families. I can’t see the Labour Party or even the Greens following him in on that one if they want to win office ever again.
Did Rashbrooke make a case for a widening wealth gap by looking at a 2004 survey of income and wealth?
Currently, the most recent publicly available information on wealth inequality in New Zealand comes from the 2004 round of the Survey of Family, Income and Employment, known as Sofie… Because wealthy people often refuse to take part in surveys such as Sofie, such data tends to underestimate how much of the pie is owned by the wealthiest people and overstate the share of everyone else. But it is still the best data we have.
Rashbrooke used this 2004 survey to draw a number of conclusions about the distribution of wealth in New Zealand:
The wealthiest tenth of individuals (including that wealthiest one per cent) had 52 per cent of all assets. In contrast, the poorest half of the country had just five per cent of all wealth. Some 190,000 people had negative net worth (more debts than assets), owing $4.7 billion between them.
Did Rashbrooke make his case that there is 52% of all assets in New Zealand are held by the wealthiest 10%? He did not because his definition wealth is too incomplete. Because of that, his focus on inheritance taxes and wealth taxes as solutions are equally poorly made. Any definition of wealth including that by Rashbrooke that doesn’t include human capital or acknowledge the limitations of not including human capital isn’t worth serious attention in public policy circles.
Source: Gary Becker, ‘Give Us Your Skilled Masses’ (2005).
Rashbrooke ignores 70% of the capital, the wealth in any economy. Gary Becker’s estimate that human capital is 70% of all capital in the US economy travels well to New Zealand as shown in the chart below.
Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006), Table 4.8: Human and physical capital stocks.
Over 70% of all capital in New Zealand is human capital. That cannot be ignored in any discussion of a widening wealth gap or in a case for inheritance and wealth taxes.
Dollar value estimates were available to Rashbrooke of human and physical capital of the same vintage as his wealth data from an excellent New Zealand PhD thesis by Lˆe Thi. Vˆan Tr`ınh. Her estimates of the aggregate dollar value of New Zealand physical and human capital are charted below. These estimates show that physical capital doubled between 1981 and 2001 but New Zealand human capital quadrupled.
Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006), Table 4.8: Human and physical capital stocks.
The rich are clearly not getting richer and the poor getting poorer and some people have no wealth at all. Human capital is the dominant form of capital in New Zealand and is growing rapidly. Any discussion of wealth does not include estimates of human capital or acknowledge the limitations of not having those estimates, which are easily available, should not be considered in public policy debates on inequality.
Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006).
The only group in New Zealand that doesn’t have more human capital in 2001 than in 1981 were the unskilled as the chart above shows. This was because their numbers dropped by one-third as a share of the working age population.
Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006), table 3.1.
I don’t think a solution to skills gaps is to increases taxes on those who investing in human capital. But that is the logic of Rashbrooke. When someone gets ahead, drag them back down rather than lift everybody up.
The reason for the lack of growth in the dollar value of unskilled human capital is the massive increase in investment in higher education in New Zealand. More New Zealanders go to university, Polytech or other diploma education. Working class New Zealanders are taking the advice of that unrepentant Stalinist but brilliant screenwriter Dalton Trumbo.
What is most disappointing is the unrepentant lack of gender analysis in the writings of Max Rashbrooke on inequality and wealth. Without a gender analysis, no discussion of wealth and inequality in New Zealand has any meaning.
Few labour market statistics have any meaning unless broken down by gender. Whenever you don’t see statistics with a gender breakdown, the first question for any sort of credible audience is “Gender analysis! Gender analysis! Where is your gender analysis?”
Max Rashbrooke inadvertently illustrated the meaningless of statistics that don’t have a gender analysis when griping recently about poverty and inequality in New Zealand as compared to the good old days before the economic reforms of the 1980s.
To paint pre-1984 New Zealand, pre-neoliberal New Zealand as an egalitarian paradise, Rashbrooke had to ignore two thirds of the population. He brushed over the inequalities they suffered in the heavily regulated, heavily taxed economy so looked upon with dewy eyes by the left of politics:
“New Zealand up until the 1980s was fairly egalitarian, apart from Maori and women, our increasing income gap started in the late 1980s and early 1990s,” says Rashbrooke. “These young club members are the first generation to grow up in a New Zealand really starkly divided by income”.
Racism and patriarchy can sit comfortably with a fairly egalitarian society if you are to believe a leading spokesman of the Left. I disagree as would John Rawls with this boy’s own view of trends in New Zealand inequality. Boy’s own because trends in gender inequality are not discussed. No weight is given to the closing of the gender pay gap, a massive increase in female employment and women out-numbering male university new graduates for well over a decade.
Perry (2014) reviews the poverty and inequality data in New Zealand every year for the Ministry of Social Development. He concluded that:
Overall, there is no evidence of any sustained rise or fall in inequality in the last two decades. The level of household disposable income inequality in New Zealand is a little above the OECD median. The share of total income received by the top 1% of individuals is at the low end of the OECD rankings.
As there is no evidence of any sustained rise or fall on inequality New Zealand for the last 20 years, the case for inheritance and wealth taxes simply doesn’t get out of the box.
Source: OECD Employment Database.
That case for inheritance and wealth taxes by Max Rashbrooke doesn’t deserve to get into the box to go under starter’s orders if that analysis doesn’t include an analysis of human capital and a gender analysis. For example, male human capital increased by 31% in New Zealand between 1981 and 2001. Over the same period, female human capital increased by 112%. This not insignificant achievement in gender empowerment by capitalism and freedom bears celebration in any discussion of inequality.
Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006).
The only group of women for whom the gender pay gap has not all but disappeared over the last 30 years are the top 10% of women. This is the very group that Max Rashbrooke wants to tax heavily to prevent them accumulating and inheriting wealth.
The reason for those taxes on wealth and inheritances on successful women in the professions and business is growth in inequality but there is little to no evidence of that in New Zealand for at least 20 years.
How many of the richest Americans inherited their fortune? Find out. buff.ly/1DNM3g2 http://t.co/QlarE5yAdT—
HumanProgress.org (@humanprogress) August 14, 2015
The case of wealth and inheritance taxes as a way of coping with inequality is just not keeping up with recent trends in superstar wealth. New Zealand top 1% is lazy when compared to their more entrepreneurial American brothers.
Source: The World Top Incomes Database.
Our local top 1% earns the same share of total income as 30 years ago or even 60 years ago. Any growth in wealth gaps in New Zealand isn’t showing up in top incomes shares.
Source: The World Top Incomes Database.
As for overseas, Piketty and Saez (2003) concluded that a substantial fraction of the rise in top incomes was due to surging top wage incomes. These world-renowned social economists concluded that top executives (the ‘working rich‘) replaced top capital owners (the ‘rentiers’) at the top of the income hierarchy in the USA and Canada. The largest portion of the top incomes comes from earning wages. Top wage earners work for their living founding, building and/or directing successful businesses.
@PhilTwyford fantastic @nzlabour policy breakthrough on housing affordability
08 Nov 2015 Leave a comment
in applied price theory, economics of regulation, fiscal policy, politics - New Zealand, urban economics Tags: housing affordability, land supply, New Zealand Greens, New Zealand Labour Party, RMA
Labour yesterday announced an excellent policy on housing affordability. The reforms proposed by Labour stress increasing the supply of land and improvements to local government finances surrounding infrastructure investments for new housing:
Labour will free up density and height controls to allow more medium density housing and reform the use of urban growth boundaries so they don’t drive up section costs. This will curb land bankers and speculators.
Labour has struck at the heart of two major constraints on urban land supply New Zealand: restrictions on density and height of new developments, and much more importantly, the use of urban growth boundaries to drive up land prices. These proposed regulatory reforms could not be more welcome.
The other shoe of Labour’s housing affordability reform proposals is improving the incentives for local councils to support new housing developments:
The other new element is changing the way we fund infrastructure for new developments. Currently those costs are either subsidised by the ratepayer or passed by the developer onto the price tag of a new home. That makes houses much more expensive. It also means they are paid off through mortgages at expensive bank interest rates.
Our new policy will see infrastructure funded by local government bonds, paid off over the lifetime of the asset through a targeted rate on the properties in the new development. This will substantially reduce the cost of new housing.
The reforms proposed by Labour to local government financing will reduce the financial burden on existing ratepayers of the local government funded infrastructure necessary to support new land developments.
Source and notes: International House Price Database – Dallas Fed June 2015; nominal housing prices for each country is deflated by the personal consumption deflator for that country.
These Labour Party reforms are fantastic because the main party on the left-wing of New Zealand politics has faced up to restricted land supply as a key reason behind housing unaffordability. I wonder what the New Zealand Greens will think of these major new reforms.
Of course, nothing is perfect in the art of policy development. New Zealand Labour continue to want government to build 100,000 affordable houses and scapegoat foreigners for high housing prices.
A few more sensible economic and fiscal policy announcements such as those today by the New Zealand Labour Party and it will start looking like a credible alternative government.
Increase in real New Zealand household incomes since 1982 – before and after housing costs
07 Nov 2015 Leave a comment
in economic history, politics - New Zealand Tags: housing affordability, living standards, RMA, The Great Enrichment
It is those below median household income that are suffering more from rising housing costs in New Zealand since 1982. Those on low incomes in particular have suffered the most.
Source: Bryan Perry, Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2014 – Ministry of Social Development, Wellington (August 2015), Tables D3 and D4.
The data for the lowest decile is somewhat unreliable because there are so many implausibly low and zero incomes in that decile.
$1/2 billion in customs duties still collected in New Zealand!
06 Nov 2015 Leave a comment
in international economics, politics - New Zealand
In the course of feuding with strangers on Twitter about how much tariff revenue is still collected in New Zealand, I discovered that the revenue from customs duties are less than I recall but more than most think. These customs duties are distinct from any GST collected at the border by New Zealand Customs.
Source: Tax Outturn Data — The Treasury – New Zealand.
Source: Import Tariff Levels After 2015 Cabinet Submission by Minister of Commerce.
There is a God! @AlboMP and @tanya_plibersek could lose their seats to Greens at the next election
06 Nov 2015 Leave a comment
in election campaigns, politics - Australia, politics - New Zealand
Source: Do it | Catallaxy Files.
Similar karma here. The deputy leader of the New Zealand Labour Party wins his seat because the Greens do not fight for it. The co-leader of the Greens happens to contest that seat. The Greens win or almost win the party vote in that electorate for several elections now.
End the separate and unequal New York public school system
05 Nov 2015 Leave a comment
in economics of education, entrepreneurship, politics - New Zealand, politics - USA, unions
@JulieAnneGenter @jamespeshaw kill the case for electric cars @NZGreens
05 Nov 2015 1 Comment
in applied price theory, energy economics, environmental economics, politics - New Zealand, transport economics
https://twitter.com/RadioLIVENZ/status/662064658203840512
In the course of calling for generous subsidies to electric cars, Greens co-leader James Shaw and transport spokesman Julie Anne Genter destroy the case for further public investment in electric cars and charging stations.
The Greens’ spokesmen refer to the biggest drawback of electric cars. Right now, it takes hours to recharge an electric vehicle. With generous investment by the long-suffering taxpayer, this recharging period will still be reduced to a still unacceptable 30 minutes.
Source: Business Tax Breaks for Clean Transport Options | Green Party of Aotearoa New Zealand.
Recharging times for electric cars are much worse than I previously thought. They highlight how little progress has been made in solving that problem.
Tesla destroys the competition when it comes to how far its cars go on one charge buff.ly/1LphuLg http://t.co/UhIAECZIFp—
Business Insider (@businessinsider) October 17, 2015
Range anxiety is the biggest drawback of the electric car unless you’re willing to buy a very expensive Tesla. Even with a Tesla, because of the amount of time it takes to recharge even when a short is 30 minutes, the effective range is much less than the maximum range.
The motorist will have to build a larger buffer into their range of their batteries because of the time it takes to recharge. It takes a couple of minutes to fill my tank. Half an hour out of my day is still unsatisfactory, much less the current hopeless several hours.
Rather than fill up when you near empty, the green motorist will have to recharge when say a quarter empty or even half empty. The buffer must be larger than for a conventional car because the motorist does not necessarily always have time spare in the day to fill up.
With a conventional car, you can fill up at any time. With an electric car, you must plan in your week to ensure you have that half hours spare when you won’t need your car, can retrieve it from the recharging station with convenience and anticipate no urgent use of the car will arise.
Source: Business Tax Breaks for Clean Transport Options | Green Party of Aotearoa New Zealand.
In an quirk, the Greens want to increase electric car ownership by subsidising alternatives to car ownership for commuting purposes. People have fewer reasons to buy a car, much less an expensive sort of status symbol car, if they can commute for less because their employer gave them a free bus pass to take advantage of a fringe benefits tax concession.
Electric cars are a poor investment to begin with and what’s the point of shelling out all that cash if you don’t even drive it much? What more, electric buses are to be phased out in Wellington soon you will be commuting in a diesel bus to work courtesy of a free bus pass supported by the Greens.
How the first world war changed the world
04 Nov 2015 Leave a comment
in politics - Australia, politics - New Zealand, politics - USA, war and peace Tags: Armistice Day, World War I
#Dailychart: How the first world war changed the world econ.st/1rvj6tW http://t.co/OldeGaiJEe—
The Economist (@ECONdailycharts) July 28, 2014
The wisdom of Homer Simpson: peak oil, oil pollution and the price at the pump
04 Nov 2015 Leave a comment
https://twitter.com/NZReuben/status/661793755171655680
https://twitter.com/JimRose69872629/status/661802293549887488
The number of oil spills is decreasing.
More on oil spills: OurWorldInData.org/data/environme… http://t.co/mcXEodJzYc—
Max Roser (@MaxCRoser) June 14, 2015
Is the living wage a form of indirect sex discrimination?
03 Nov 2015 Leave a comment
in applied price theory, discrimination, gender, labour economics, Marxist economics, minimum wage, politics - New Zealand Tags: expressive voting, living wage, offsetting behaviour, rational irrationality, The fatal conceit, unintended consequences
The living wage will certainly be to the profit of incumbent workers at the time of the wage increase but that is provided that their employer stays in business. The introduction of a living wage will result in indirect sex discrimination because of the higher job turnover rates of women. Women also have shorter average job tenures than men in any particular job.
Source: Worker turnover rate in New Zealand by sex – Figure.NZ.
Any benefit premised on not quitting jobs discriminates against women because of their higher job quit rates. More women than men will have to quit living wage jobs because of motherhood and other changes in their personal circumstances. Isn’t that discrimination?
One in six workers change their jobs every year. That job turnover rate is higher among the workers with less human capital simply because both sides of the job match have less reasons to continue. A job quit or job layoff for a less skilled worker does not result as much of a loss of job specific and firm specific human capital than would be the case if the worker was more skilled with more firm-specific human capital.
One of the iconic empirical facts of the labour market is job turnover rates are higher and job layoff rates are higher for less skilled workers. As workers acquire more job specific human capital, they are more reluctant to quit and their employer hesitate before laying them off. This is because of the firm specific human capital which both invested would have to be written off.
Women quit jobs more often than men, work part-time or switch between part-time and full-time work more often than men and enter and re-enter to the workforce because of motherhood and maternity leave. Women also tend to invest in more generalised, more mobile human capital. Women anticipate a more intermittent labour force participation and more spells of part-time work. As such, women have less reasons to invest in specific human capital if they anticipate leaving because of motherhood and either changing jobs more often are working part-time. If you are changing jobs more often, such as women do, investing in more general human capital and less in specific capital increases options when searching for vacancies.
Any benefit of the living wage will erode faster for women because they quit jobs at a higher rate than men. Is this indirect sex discrimination? This higher job turnover rate is driven by human capital investment strategies and career plans. The living wage, which privileges the incumbent workers at the time the living wage increases implemented, discriminates against female workers because they change jobs more often or are likely to quit sooner after the living wage was initially implemented.
The particular form of indirect sex discrimination at hand arises from the Golden Handcuffs effect of the living wage. Closer Together Whakatata Mai – reducing inequalities explain the Golden Handcuffs effect this way:
You may have noticed in the article it is actually the SAME people being paid the living wage (“all of them have stayed on as staff”). This is how labour markets can work if employers make different choices. If you look at the Living Wage employers – they haven’t hired a whole new set of people – they have invested in the people they already have. The world has not ended and many more people are happy and businesses and organisations are doing just fine.
Even the proponents of the living wage admit that a living wage increase will segment the labour market and create insiders and outsiders with the insiders paid more than what used to be called the reserve army in the unemployed by the same crowd of activists. A reduction in job turnover will increase unemployment durations because there are fewer vacancies posted every period.
Hopefully all the existing employees of the living wage employer are capable of the requisite up skilling they need to match their new productivity targets. Not everyone did well at school. One of the reasons workers on low wages are on those low wages because they perhaps didn’t do as well at school as activists who appointed themselves to speak for them. A harsh reality of life is 50% of the population have below-average IQs.
This up skilling answer to the cost to employers of a living wage increase is a variation of the standard policy response in a labour market crisis. That standard labour market policy response in crisis is send them on a course. Sending them on a course as a response to a crisis makes you look like you care and by the time they graduate the problem will probably have fixed itself. Most problems do. I found this bureaucratic response to labour market crises to repeat itself over and over again while working in the bureaucracy.
The reason was sending them on a course was so popular with geeks as yourself sitting at your desk as a policy analysis, minister or political activist all did well at university. You assume others will do well through further education and training including those who have neither the ability or aptitude to succeed in education. People don’t go on from high school to higher education for a range of reasons that include a lack of motivation to study or a simple lack of ability no matter how hard they try.
The living wage hypothesis about reduced turnover, up-skilling and greater motivation is a small example of the American company that decided to pay a minimum wage of $70,000 a year. Those workers who cannot earn as much of this elsewhere would never quit. Some of his better employers quit because they resented being paid the same as less productive employees. Hopefully, the minority shareholder suing his brother who is the CEO for offering that above market wage doesn’t end up bankrupting the company. As such, the incumbent workers’ fortunes are unusually closely tied to their existing employer if they are paying above the going rate in their industry and occupation.
I suppose you could hold on like grim death but women tend to have more reasons to move on than men if only because of pregnancy and motherhood. These golden handcuffs are of less value to them than to men. Younger workers are also less advantaged because many young New Zealanders take a overseas working holiday of several years, if not more. If they have a living wage job now that have to give up that advantage.
Workers who lack the labour productivity to earn a wage equivalent of the living wage elsewhere will never quit a living wage job, and will have a much reduced incentive to up-skill or seek promotion. There will be less internal reward for undertaking additional training or job responsibilities among low skilled is because the living wage will mean they will not get a wage rise. That wage rise is gobbled up by the living wage increase if you’re already a low-paid worker.
Naturally, as vacancies arise, recruits will be drawn from a much higher quality recruitment attracted by the higher wage at the living wage employer. The less skilled workers who don’t currently work for the living wage employer will miss out completely.
@GreenpeaceNZ @RusselNorman Can We Rely on Wind and Solar Energy? @NZGreens
02 Nov 2015 Leave a comment
in energy economics, environmental economics, global warming, politics - Australia, politics - New Zealand, politics - USA Tags: Big Solar, Big Wind, bootleggers and baptists, expressive voting, green rent seeking, rational irrationality, renewable energy, solar power, wind power
@economicpolicy Top incomes and the decline of unions in the US, UK, Australia and New Zealand
02 Nov 2015 4 Comments
in applied welfare economics, labour economics, Marxist economics, politics - Australia, politics - New Zealand, politics - USA, unions Tags: top 1%, union power, union wage premium
The Left in the USA and the UK like to show correlations between top incomes and the decline of union membership.
I thought I would check how this hypothesis travelled to European offshoots such as Australia and New Zealand. For example, in the USA, top income shares have been increasing while union membership has been in decline since 1960.
Source: OECD Stat and Top Incomes Database.
Source: OECD Stat and Top Incomes Database.
In the UK, the relationship between union membership and top incomes is gentler than in the USA.
Source: OECD Stat and Top Incomes Database.
Source: OECD Stat and Top Incomes Database.
Moving down under, the relationship between top incomes and union membership is non-existent in New Zealand.
Source: OECD Stat and Top Incomes Database.
Source: OECD Stat and Top Incomes Database.
The same pretty much goes for Australia in terms of no relationship between top incomes in union membership to extent that this relationship is anything more than a spurious correlation.
Source: OECD Stat and Top Incomes Database.
Source: OECD Stat and Top Incomes Database.
Utopia, you are standing in it! 
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