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Shrinking share of income to low and middle-income earners

A new report on inequalities in wages, salaries and the income of the self-employed finds growing inequalities in the income they earned per hour over the period 1998 to 2015.

To a reasonable approximation, two-thirds of employees are paid below the average wage and they received either very low wages or experienced low wage growth, or both. That means growth in the average hourly wage is not a good indicator of the rises most people receive.

The data analysed was provided by Statistics New Zealand from their annual New Zealand Income Survey. It covers all jobs held by a person and is before tax and benefits such as Working for Families tax credits.

For wage and salary earners, the minimum wage formed a very strong backstop. The rise in the hourly pay of the lowest income one-tenth of employees was strongly boosted by rises in the minimum wage, so that over the whole period they received on average the same increase as the tenth of employees with the highest hourly pay – 39 percent in real terms over the whole period. But the average hourly wages of the next 50 percent of employees above the minimum wage rose at just half that rate – just 18 to 20 percent.

People on low rates of pay increased the hours they worked over period – while those at the highest rates reduced their work hours.

Inequality among the self-employed was even greater. The lowest hourly incomes among the self-employed were negative: they were making losses. The highest one-tenth received an hourly income double that of the highest income wage and salary earners.

But many were on very low incomes: in 2015, the hourly earnings of an estimated 41 percent of the self-employed were under the minimum hourly wage and 51 percent were under the Living Wage. The average hourly earnings of the lowest 30 percent fell in real terms between 1998 and 2015. However even the top earners saw average earnings rise only 17 percent.

While hours worked per week by self-employed people fell over the whole income range, the higher their incomes, the fewer hours self-employed people worked per week.

There are ways many self-employed people can hide their incomes, especially through capital gains, so we cannot take these results entirely at face value. But either some self-employed are earning very poor rates of income or there is a lot of work for tax authorities and tax reformers to do, and probably both. A capital gains tax would help considerably.

Download the full bulletin: Economic-Bulletin-192-August-2017