NZ fact of the day
So, US real median incomes in 2010 were down 6.4% from their 2007 level, and down 7.1% from their 2001 level. That is a pretty danged poor result, the situation over there has been pretty messy over the last decade. The median income figures are biased by the fact that the cost of goods purchased by low income households have in many cases fallen (think cheap washing machines, and the $2 shop) while higher end products haven’t experienced the same sort of price declines. Yet even with this excuse, it does appear that middle-class America has seen a tough time.
Now this is from census data – and NZ hasn’t done a census for a while so I can’t really tell how we’ve done in the same accurate way.
But what I can do is go to the HES (Household Economic Survey) provided by the good people at Stats NZ. By taking the median households pre-tax income figure, and adjusting it for NZ’s CPI (excluding the recent change in GST – as that was met by a corresponding change in income tax) I get the following regarding the year to June 2010 [note, I’m a moron and used the June 2011 CPI, hence the adjustment – this is fixed below]:
- Household real income is up
2.3% 4.4% from the June 2007 year. - Household real income is up
19.1%21.6% from the June 2001 year.
Also note that the median figure for the US is $49,455 (in 2010 US dollars). In the June 2010 year the US/NZ dollar exchange rate averaged 0.70c … and as a result our median income was $44,429. This is significantly closer than I would have expected, given underlying production in the US.
If we expect the dollar to be at $0.80 during the June 2012 year (not a huge assumption given where the dollar has been), and we assume that real median incomes stay unchanged during this two year period the median NZ household income level would actually be higher than the median US household income level – that is complete madness.
Of course for median income comparisons you should be using PPP exchange rates rather than market exchange rates. The latest OECD PPP conversion factor for New Zealand (2010) is 0.66 – so on a PPP basis NZ median income is equivalent to around US$42,000.
Definitely, you are completely right – the current exchange rate doesn’t reflect the true difference in the price of goods between the two economies, and so doesn’t give a fair reflection of the real income gap.
However, PPP estimates are pretty unreliable and are often based on a fairly antiquated “basket of goods”. Furthermore, using a typical exchange rate makes the idea that “we are increasingly able to buy more goods on international markets relative to other countries” clearer. As a result I’m pretty comfortable just using market exchange rates in the throw away bit at the end of the piece 😉
I bet you’d get different results if you compared two earner US vs NZ households, single earner US vs NZ households, and so on. Much of the difference will be driven by very high US unemployment rates and drops in labour force participation. I’d be very surprised if there weren’t still a wide gap among comparable working households.
In part.
We are comparing the median household here – so in both cases we have an employed household sitting dead in the middle of everyone. The high unemployment rate would have some downward pressure on the wages, interest, and dividend/rental income this household receives – but the bias isn’t as strong as if we were to use averages and tear off the top of the income distribution.
Ultimately, once we are back to “normal” economic times the median household in the US should be substantially better off – the key thing I like to take out of this is just how relatively well New Zealand is doing at current times … and how weird it is that so many people want us to change the institutions that have served us so well during a massive global crisis.