JAFA Inequality

While overall income inequality may have been relatively stable over the last two decades, it appears to be increasing in Auckland (and perhaps in our other big urban centres).

This column honours Bob Chapman (1922-2004), professor of Political Studies at the University of Auckland, remembered for his mentoring of many students including Helen Clark. He was an early New Zealand social scientist who did not just study elections but used the results to explore the social development of New Zealand.

In particular, in a 1962 Landfall article* he argued that New Zealand’s egalitarian society would be stressed by urbanisation. Over 50 years later I am going to report some evidence for his prediction; not just anecdotes – we all have those – but statistics. As you might expect, Bob was not quite right, but he was prescient.

This column is conversational, not clouded by the impenetrable rigours of academia. My conversation is based on a chapter by Omonlyi Alimi, David Mare and Jacques Poot, ‘Income Inequality in New Zealand Regions’, in a recent book.**

The only available data to assess regional income inequality is gross income (market income plus benefits before-tax) reported in the New Zealand Population Census since 1981. It is not an ideal measure because it leaves out housing. Moreover, the researchers report only the figures for adult males. Excluding females means the measure is not comprehensive, but it avoids the complications of women’s unpaid work. It will serve for our purposes.

It has long been known that average incomes differ by region – I reported on this in 1983*** – so I shall largely skip over this. For the record, in 2013 Wellington has the highest average incomes – about 15 percent above the national average, while Northland is 20 percent below it. Auckland was 9 percent above. A major factor examining the difference is different regional industrial structures; Te Awamutu does not have the large financial sector that Auckland has.

The new insights from the research is the income distribution within regions; The researchers find a familiar story for the whole of the economy. Gross-income inequality – measured in a number of different ways – was roughly constant from (census years) 1981 to 1991 and from 1996 to 2013. There is a marked jump in inequality between 1991 and 1996. This is the result of the benefit cuts and (probably) the liberalisation of the labour market (the Employments Contracts Act) which took place shortly after the 1991 Census. (The familiar indicators which also show a big increase before 1991 are after-tax with the big inequality-driving tax-change in the late 1980s. This study uses a before-tax measure.)

To avoid the impact of the benefit cuts, which do not seem to have had a differential regional impact,  I focus on the 1996 to 2013 period. The basic conclusion is that, with one or (possibly) two exceptions, there is not a lot of differences in the internal income inequality among the different region. In general, too, the degree of inequality within each region is similar to the overall inequality in New Zealand.

(I have suppressed a long discussion on the minor variations, the problems of measurement error and the statistical tests I have done to give me some confidence in this assessment.)

The exception is Auckland. On the whole, in 1996 its income inequality looks much like other regions. But by 2013 it is evidently an outlier. That means that income inequality has risen in Auckland even if it has not risen elsewhere and it is now out of line with (just about) everywhere else. (Again I’ve suppressed the details.) Our largest urban centre has become more unequal in recent years even if the nation is not.

The sharpest rise in Auckland (income) inequality appears to be a growing gap between the middle and bottom incomes although top incomes are growing faster than middle incomes but not quite as rapidly. This has not been characteristic of elsewhere in New Zealand. Note this is not directly the effect of the Auckland housing boom; were we able to incorporate the implicit incomes from owning your own homes the inequality would probably be rising even more.

What about the other large urban centres? The definitions of regions do not quite correspond to cities. Wellington’s region contains a bit of rural Wairarapa. Even so, if you squint you can see a similar pattern to Auckland – rising internal inequality to above the typical regional level but not as much. Were there no Auckland, Wellington would be the outlier region.

We might expect a similar story for Christchurch. However, its region includes rural Canterbury and Timaru. Moreover, the urban boundaries have changed because of the Canterbury earthquakes. I can but report that income inequality in the Canterbury region looks much like the rest of New Zealand excluding Auckland (and possibly Wellington). It is both near the average and hasn’t changed much.

What do these statistical results mean? Oh, we do need Bob Chapman.

Here is my guess. The rising income inequality in Auckland and in Wellington (probably) and Christchurch (possibly) presages a different New Zealand, a less egalitarian New Zealand much as Bob expected. Perhaps a little later than he predicted, although arguably the processes were going on earlier but could not be statistically detected.

Will the different New Zealand be a better or worse New Zealand, and in what ways? I am sorry we have not Bob to help us think the answer through. We shall have to do it ourselves.


* R. Chapman (1962) ‘New Zealand since the War (8)' Landfall (63) Vol 16, No 3, September republished in E. McLeay (ed) New Zealand Politics and Social Patterns: Selected Works by Robert Chapman

** P. Spoonley (2016) Rebooting the Regions.

*** B. Easton (1983) Income Distribution in New Zealand.