Matt Nolan takes a look at the Top 10 things that have improved since the turn of the millennium

Today’s Top 10 is a guest post from Matt Nolan.

Everywhere we turn there is some type of crisis.  In recent years there has been heavy outrage over a vast multitude of perceived crises which I’ve tried to list out in a footnote[1].

Sure crises sell papers and get lots of unique visitors to websites, but the constant state of crisis that we find ourselves in is not at all a fair representation of society in any shape or form.  Anyone who takes all or most of these crises at face value would undeniably feel overwhelmingly pessimistic about anything and everything. 

Now don’t get me wrong, some of these crises matter – every single one of them is exaggerated in its importance by advocates and some don’t really exist, but some of these do matter a lot and deserve public attention.  Crises allow us to focus on the ways we could make things better, but such a focus without a sense of perspective is not a good thing – and can lead us down paths which simply make things worse.  One way to get some perspective is to look at what is underreported – namely in what ways have we seen New Zealand improve since the turn of the millennium. 

Luckily, the hard work of Statistics New Zealand and other government departments gives us a lot of data which allow us to tease out some of the ways things have been getting better.  So, acting as an advocate for optimism, here are 10 of the ways that New Zealand has been getting better and better.

As always, we welcome your additions in the comment stream below or via email to david.chaston@interest.co.nz. And if you’re interested in contributing the occasional Top 10 yourself, contact gareth.vaughan@interest.co.nz.

See all previous Top 10s here.

1. We’re richer
We’ve all heard the stories. Some generation had it better because houses were cheaper, haircuts were cheaper, or milk was cheaper.  That’s nice – and we will get onto thinking about necessities in a later bullet.

However, it is an undeniable fact that the average Kiwi is a lot wealthier now then they would have been at any point in history – including a sizeable increase since the turn of the millennium.

The above figures include GDP and gross disposable income per person (both from the national accounts), and mean and median household income (from the New Zealand Income Survey).  Between June 2000 and June 2014 GDP per person rose 21% while gross disposable income per person rose 33%.  Mean and median household income both rose by 26% during this period.  All these figures are adjusted for inflation, and so represent the increase in real income, or the real goods and services that can be purchased by the average person/households.

Furthermore, the household figures in the above graph understate the increase in take home pay – because it in gross rather than net income.  In this way they include the increase in costs associated with the lift in GST in October 2010, but do not include the corresponding cut in income tax rates.

As a result, it is a fact that the average person/household in New Zealand earns much more now than they did in the year 2000.

If you are in your 20s or 30s, like I am, and you believe your parents/grandparents had access to higher incomes than you will over your lifetime you are fooling yourself.

If there is any intergenerational issue, instead think about what may have been sacrificed in order to generate this growth and higher incomes – we could discuss environmental degradation, changes to the regulation of goods and services, the loss of “social capital” and lower job certainty, and potentially a willingness to allow the worst of in society to become more disenfranchised.  There may be an argument in some of these – and some of these arguments may be completely false.  But it has nothing to do with the affordability of bundles of goods and services.

2. We don’t have to work as long to afford the same bundle of goods
Although New Zealander’s are working more than ever at present, it turns out that if we wanted the same bundle of goods and services we purchased in 2000 we wouldn’t need to.  In other words, we are more productive now than we were in the year 2000.

This may sound a bit strange given how often we are told we have a productivity problem, and how New Zealander’s aren’t productive.  But this is because we are comparing ourselves with other countries – whose productivity is also rising.

With productivity climbing the average firm does not need its employees to work as long to make its products, and the average employee will receive higher pay which makes it unnecessary to work as long to afford the same goods and services.

Instead New Zealander’s have continued to work more, and as a result household incomes have climbed as discussed above.

3. Absolute poverty is being defeated
Relative poverty, which is the poverty you hear about most often in the media, is not something that can be defeated in totality.  The idea of relative poverty involves asking ourselves, in a society made up of current technology, wealth, and opportunities, what is the minimum that an individual or family should have in a “fair” sense – and what are we all willing to sacrifice to ensure this is met.

It is very common for all of us to think solely about our relative status – when everyone else around us becomes wealthier we tend to feel poorer.  This is important, but this way of discussing poverty also implies something that sounds a bit strange – there is a level of relative poverty that we will think is fair, or good, and reducing it from that level may actually be seen as unfair due to the fact that some people may merit higher incomes due to their choices, varying incomes by occupation may be required to incentivise working, some people may value leisure time more than others, and some individuals may have greater needs than others.

However, a clearer question appears when we discuss absolute poverty – if we can define a living standard that we believe every person deserves by right, then absolute poverty is the case where this living standard is not available to the person.  We can then say declines in absolute poverty are unconditionally positive things.

So what has happened here?  Absolute, or “fixed-line”, poverty is discussed in the Ministry of Social Development’s Incomes report.  Using 60% of the June 2007 year median income as our line, absolute poverty after housing costs are subtracted has fallen from 25% in 2001 to 16% in 2013, while for children poverty has declined from 37% to 22%.

We could argue about whether the line is too high or too low, we could argue about whether the poverty defined by this line is too high, and we could debate the idea of whether we think some income is a human right.  But given this way of viewing poverty, this is an undeniably positive story – one which is constantly lost in our debates!

Notice that I only talked about New Zealand here – the even big story is the way that absolute poverty is being crushed globally, helping those in abject poverty in other countries.  To me this is an even more exciting story – but it is a little outside the theme I have here, and so will just need to be a side-note.

4. “Necessities” take up a smaller part of our income
When discussing income there is a presumption that we aren’t really richer as the necessities of life have become more expensive – this feeds into the same idea as absolute poverty, but applies it to the average person.  Now there are a couple of issues with this.

Firstly, the income figures discussed above are adjusted for the increase in prices that have been observed.  Secondly, many of these necessities are now taking up less of our income.

This second point will sound wrong to people – especially given that housing costs as a percentage of disposable income have been rising:

Much of the information used for this is on NZ.Stat.  On that site there is a household survey called the Household Economic Survey.  This survey includes household responses on what they earn and what they spend their money on – and so gives us an idea of how households are spending.

However, it is important to look at the data a bit more carefully for whatever question we are asking.  Spending on housing here include increases in the cost and the quality of housing, and furthermore there are other necessities we may be interested in.  Now these changes are not uniform across the population, and there will be areas of genuine disadvantage and potentially even worsening disadvantage – but of focus here is what has happened on average.

Given this we are actually interested in the change in the CPI (consumer price index) for varying goods and services, and how this lift in prices compares to the increase in incomes that has occurred.

There are a small number of categories where prices have risen more than nominal income between June 2000 and June 2015.  While nominal gross household income rose 79% during this time, cigarettes and tobacco price increased 173%, rates and related services increased 119%, household energy rose 98%, private transport supplies and services 92%, and home ownership prices rose 80%.  So if all you have an average income and all you household does is smoke, build new houses, and run the heater while burning petrol your real income will have dropped during this period.  However, the average household spends 25% of its budget on these commodities – hence why average prices have risen far less than income, and why “real” income has climbed.

But what about necessities?  Let us take a bundle that includes only food (excluding eating out), clothing and footwear, transportation, and housing related expenses, and keep the relative weighting from the CPI.  We have explicitly cut out the purchase of durable goods which have largely fallen in price and focused on goods and services that have been getting more expensive, and are necessary on a day-to-day basis.

Given this basket prices would have risen 53% over this 14 year period instead of 42%, and real median household income would still be up 19% – keeping in mind that this is an understatement of true household income, as the 2010 tax cuts are not included.

Now we may argue that, in 2015 we “need” more things to function in society than we did in 2000 – this is a similar argument to the focus on relative poverty.  If that is the case you want to make that is fine – but as it is the data does suggest that things are getting better rather than worse.

5. We are living longer
Due to a mixture of improving technology, increasing affordability of necessities, and greater medical and nutritional knowledge we have a situation where people are living longer.

The fact that people are living longer now doesn’t necessarily mean there have been improvements recently – as people in their twilight years were facing situations and making choices in a very different time than we are now.  This is why we look at life expectancy “at birth”, to get an idea of how long someone is expected to live who is born in a certain year.  This shows that between 2000/02 and 2012/14, life expectancy at birth for males has risen from 76.3 years to 79.5 years while for females it has increased from 81.1 years to 83.2 years.

If you are interested in how long you think you will live you can’t just use these life expectancy at birth figures though – as average life expectancy rises as you age.  Eg once you are 30 you know with certainty you will not die at a younger age than 30, when at a younger age there was some chance of this being the case.  To check out average life expectancy you can head along to this part of the Statistics New Zealand site.

However, it is not just the length of life that matters – but also the quality of those years.  A common refrain by people defending what they eat, drink, and smoke is that they would rather live fewer years than live a lifetime without these pleasures.  And to be honest that is a fair point.  As a result we need to ask, why is life expectancy rising?

On this issue the Ministry of Health does provide health related reports.  However, as I am certainly no expert on health, there is little I can take out of these (eg I have no good way of combining the information on risk factors).  Statistics New Zealand does a good job of presenting the information in their social indicators site – but even so, for a non-expert like myself there is no clear way for me to say that the quality of life associated with a longer life is any better.  It could well be, but at least we can take the fact we are living longer as a positive!

6. We have the opportunity to see the rest of the world
Overseas travel is more common now than ever.  What was previously seen as a luxury is increasingly seen as a common item of expenditure for a growing portion of the population – both with regards to business trips and holidaying.

In the June 2014 year, the number of trips out of New Zealand made by New Zealand tourists was equivalent to 50% up of the population – up from 32% in 2000.  This does not imply that half the population travelled, as some people will have travelled multiple times.

Although this is partially the result of more people visiting Australia, there has also been a sharp lift in trips to more exotic destinations – the number of trips to destinations that were not Aussie rose from 15% of the population in 2000 to 26% in 2014.

The affordability and ability for people to travel around the world this often is a very modern phenomenon, and has opened up real opportunities for New Zealand citizens to enjoy their leisure time, work on business contacts, and broaden their horizons.

7. We have greater access to the internet/new consumer technology
The improvements in technology that have been experienced over the past 15 years deserves a Top 10 of its own.  However, I’m not qualified to discuss technology in any great detail – I’m no scientist.  As a result, this issue will have to accept a single section focusing on the issues I have some understanding of.

Leading up to the year 2000 there had already been a sharp increase in the number of individuals with access to the internet – up from 0% in 1990 to 47.4% in 2000.  And the lift in availability has continued, with 82.8% of individuals estimated to have had internet access in 2013.  Concerns about the distribution of access to new ICT technologies in 2000 have now given way to a situation where the vast majority of people have access to the internet – and with the advent of smartphones this access exists in a more convenient form than ever.

In 2012, the large number of households with internet connections, and the growing prevalence of smartphones, had been confirmed.  However, since then the internet and convenient connection to the internet has continued – and competition among service providers has risen.  When the next Household use of ICT report is released in 2016 the full impact of magnitude of recent changes will become clear.

Now given this there are a surprising number of analysts who do not seem to be terribly excited by computers and information technology.  The infamous “productivity paradox” mentioned by Robert Solow in the late 1980s has evolved into a broader argument by some that we are experiencing a secular stagnation, with the implied view that society is progressing more slowly than it was in the mid-20th Century – because measures of GDP are not rising as quickly.

But to me this suggests a broader problem with the way many people consider progress – rather than a situation where progress has genuinely slowed.  While the gains associated with mechanisation and washing machines were relatively easy to measure, the increases in opportunity and knowledge associated with ICT are far more difficult to quantify.  Some individuals who will wax lyrically about the impact of railways, roading infrastructure, and general trends of globalisation will turn around and state that any increase in the quality of life associate with the internet is relatively limited – when in truth it is a central piece of infrastructure that creates value, it is simply value that is harder to measure.

Let me give an example, smartphones and leisure time.  Smartphones have transformed the way I spend my leisure time and interact with other people.  By using a smartphone I can easily find where someone’s house is – which has made me significantly more willing to go to events, and made my friends more likely to host events.  Using sites like meetup.com I have been able to find groups of other people who like to run, leading to me running more and getting to go on a whole myriad of new running adventures.  Smartphones have significantly reduced the cost associated with getting information and doing things, and have helped to solve “matching” issues due to asymmetric information between individuals, both factors which increases the quality and value of my leisure time.

In this context, I hear some analysts talk about how the electric washing machine was amazing as it increased the quantity of leisure time for people.  However, the quality of this time stemming from services available is just as important – and this attribute is not captured well by GDP figures. 

Perhaps I’m an optimist, but I believe that the opportunities the internet and related ICT have provided people are criminally underrated.

8. Total criminal offence numbers keep falling
One negative area that is thrust into our face all the time is crime. Crime is a popular hobby horse of people all across the political spectrum – with fear of crime used to justify prison building and harsher punishment, but also used to justify greater income redistribution due to crime representing a lack of social cohesion.

However, once again this is an issue that has been in retreat over the past 15 years in New Zealand.  The total number of reported offences has fallen from 432,354 in 2000 to 353,564 in 2014.  In per capita terms the decline is even more impressive, with offences as a percentage of the population falling from 11.2% to 7.9% during this period.  Now a cursory look at the data does suggest that there may have been a change in the way the data is reported – given the sharp decline from 2011.  But the overall trend of lower offence numbers per capita still holds.

Looking at the composition of the change in offences, there has been a sharp decline in unlawful entry, theft, fraud, and illicit drug offences – but more violent crimes have increased slightly on a per capita basis.  What about the increase in reported violent crime?  Isn’t that a sign that something is deeply wrong?

Well it could be.  Or it could be the fact that, in recent decades, attitudes have changes about accepting sexual violence and physical abuse – specifically around domestic abuse which is increasingly seen as unacceptable.  If people are now more willing to report crimes, then the measured number will rise even as the level of violence doesn’t – and this could well be a net positive thing if it gets people out of abusive situations.

You may say that perhaps the flipside holds – maybe the reason reported frauds and thefts have fallen is because people are less willing to report them, perhaps given a belief that society itself has become more corrupt.  This is a fair argument.  But while the police report that estimates of domestic violence being reported are rising (while still low) there is no similar suggestion that the trend in fraud and theft reporting has changed – especially when perceived corruption in New Zealand is so low.

9. Discrimination is in retreat:  Sex wage gap
There are a wide variety of ways that discrimination based on an individual’s gender can be prevalent in society.  A discussion of this type of discrimination, and the way countries are showing greater or lesser signs of discrimination, is shown in the 2014 Global Gender Gap report – and according to this report New Zealand is improving overall (see page 36 of the report) .

However, here I will focus on one area where discrimination based on gender can manifest itself – the sex wage gap.  This is a gap that is the focus of policy makers in New Zealand (here, here, and here).

Now two groups may have different wages for reasons that are non-discriminatory.  One example is if men and women, on average, have different physical characteristics, and physical characteristics are valued in the labour market, then average wages for men and women will differ.  However, in the modern world where high paying jobs tend to be in offices this is not necessarily compelling.

Instead, men and women may select different jobs – say if, on average, women and men prefer to work in different types of jobs.  This may be a product of discrimination (eg if the difference in choice is due to small social pressures building up over a person’s lifetime – these differences are then termed socially constructed), or it may be a genuine difference in preferences between the average man and average women.

Finally, there are likely to be reasons why employers will pay differing amounts to men and women.  It could be either direct, or accidental, discrimination.  Or it could be due to other factors that are more difficult to pass judgement on.  For example, in many jobs it is important to build up your skills and knowledge on the job in a way that is specific for that business – so it is important that the employer believes you will stay around.  Given one of the key differences between men and women is the chance of pregnancy, this may make employers take this into account when hiring and setting wages – for them this is a risk. 

All this tells us is that we have to be careful looking at these numbers.  However, there is a general agreement that, for some reason, the gap is too large – as a result, a reduction in the wage gap is likely to be seen as a positive thing!

Using the New Zealand Income Survey from Statistics New Zealand, the Ministry of Women’s affairs put the gender wage gap at 9.9% in 2014 – down from 14.3% in 2000.  In this context, this can certainly be seen as an improvement.

10. Discrimination is in retreat: Sexual orientation
We’ll end with the least quantitative of the points, but one of the areas where progress has been most rapid – the reduction in social discrimination based upon sexual orientation.

Civil unions were allowed in 2005, and then New Zealand finally allowed marriage equality last year. Compared to the year 2000, the New Zealand state has moved a long way in respecting the basic human rights of those who are in same sex relationships. These changes may seem normal and natural to many of us now, but in the year 2000 this was not the case – a sure sign of a reduction in unfair discrimination.

Although we have gone some way in allowing equal human rights to people with varying sexual orientation, there is still likely to be significant potential labour market discrimination on this basis.  Progress does not mean things are perfect, just that they are better than they were.

 


[1] Just off the top of my head we have:  A housing crisis, debt crisis, saving crisis, poverty crisis, inequality crisis, productivity crisis, rental crisis, climate crisis, water quality crisis, various other environmental crises, various moral crises, an obesity crisis, a multitude of drug related crises, various health crises,  superannuation crisis, the crisis of baby boomers holding all the wealth, the crisis of millennials being too lazy/narcissistic, geopolitical crises, a privacy crisis, the crisis of consumerism, the crisis of dole bludging, the seemingly infinite crises of the middle classes, and a marmite crisis.

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* Matt Nolan is an economist at Infometrics, and an author at the blog TVHE. He specialises in looking at the household sector, and household economic data, but will offer an opinion on pretty much anything related to business and the social sciences.