Ryan Greenaway-McGrevy on talking about Auckland property, the gender pay gap, the labour market, Shakespeare in Klingon, Dilbert & more

Today’s Top 10 is a guest post from Ryan Greenaway-McGrevy who is a senior lecturer at the University of Auckland. Prior to this he was a research economist in the Office of the Chief Statistician at the Bureau of Economic Analysis (BEA) in Washington DC.

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. Can… can we still talk about Auckland property? 

The Auckland Council announced a policy to target house prices: By 2030 the median price-to-income ratio in Auckland is set to be 5. We should applaud the Council for adopting this target. It is a step in the right direction.

But does anyone believe them? 

As any good central banker knows, simply announcing a target can achieve that target. Why would you buy a property now if you know that it will be cheaper later? As demand falls, so do prices, helping the policy-maker achieve the target.

But that virtuous cycle requires that the policy-maker has credibility. And if it is one thing that politicians do not have, it is credibility. This Council, and this Mayor, is certainly no exception. 

The Council faces a credibility gap. In order for this policy to be successful the Council has to back up its words with actions. Bernard Hickey has provided some sensible policy options that the Council should adopt in order to achieve it’s stated goal. (OK, OK. I realize this is sounding very similar to his column. I promise you, I began writing this Top 10 before his column came out. And it is about to get different).

But I would go a few steps further than Bernard. It is not good enough to relax urban density and building restrictions. It is not good enough to abolish historical character preservations. The Council must demonstrate to the market that it is committed to the target. And the best way to do that is to align the incentives of the Council with the policy target.  

How can it do that? Let’s get the ball rolling. I have a couple of suggestions below. But please use the comments thread to add your own suggestions.

– Let’s make council compensation inversely proportional to the median house-price-to-income ratio. The price-to-income ratio goes up by 10%, then Council salaries go down by 10%.

– Cap property rates at the average level per dwelling in Auckland, so that aggregate funding levels can only increase through an increase in the supply of dwellings in Auckland. 

Too drastic? Too arcane? Too medieval? Too bad. Dark times call for dark measures. Put these policies in place and the market does not need to understand the details of the Council’s housing plan. 

2. Why should we care about the high cost of property anyway?

Well, for one, it is bad economics. Restrictive urban planning and the consequent high property prices are bad for economic growth. It gives our best and brightest another reason to build their lives overseas, and we need young Kiwis to stay in New Zealand. How else are we going to pay for the baby boomer’s retirement and health costs? 

3. The pay gap between what men and women earn widened for the first time in a few years, to just over 11% (based on Statistics New Zealand’s preferred measure). 

If you believe that the gender pay gap is a good measure of the extent to which women are underpaid, then little old New Zealand is doing pretty well compared to the rest of the world. Based on the OECD measure, New Zealand is even ahead of those old Northern European stalwarts of social progression.

4. But … but the problem is that the gender pay gap is not really a good measure of whether women are getting equal pay for equal work. 

There are many factors that determine an individual’s wages. If there are systematic differences in these factors between men and women, then these will be reflected in the average wages across the two groups. And these systematic differences may exist for reasons that have little to do with discrimination by employers. 

What is one of the biggest factors that determines a person’s wage? No prizes for those of you that guessed education. On average, a person with a tertiary education earns 25% more than a person who only completes high school in New Zealand (see number 8 below). 

In terms of tertiary education, women are more educated than men, and have been for some time now. Based on this observation alone, we would expect women to earn more than men on average if we had equal pay for equal work. And yet, despite the fact that they are better educated than their male counterparts, women continue to earn less than men on average. So, even if that gender pay gap eventually reaches zero, it would not mean that women had finally achieved pay parity with their male counterparts. 

Of course there are a variety of other factors apart from education that we would also want to account for, such as experience and occupational crowding (men and women tend to differ in terms of what sectors of the economy they choose careers in). The fact that there are differences in these other factors between men and women may be telling us something about broader gender roles and discrimination within society as a whole. For example, why is it that so few women choose to become engineers? Why is it that women are more likely to sacrifice their careers in order to be the primary caregiver of children? These are questions worth exploring. 

5. While we are on the topic of labour market discrimination: Here’s some definitive evidence of discrimination from days gone past against women (scroll down to the minimum wage for ladies and for gents), and against Maori. You have got to love government bureaucracy, detailing all the minutia of the wrongs of the past. 

6. And here’s some definitive evidence of ongoing labour market discrimination against women in the STEM (science, technology, engineering and mathematics) fields, and against African Americans. Discrimination is still happening, no doubt about it. It is just harder to spot. 

7. I enjoyed Matt Nolan’s previous Top 10 on the labour market. But I feel like he left out a key trend – the substitution of part time for full time employment over time. When expressed as a proportion of the working age employment, we have never recovered the full time jobs lost after Rogernomics.

Now it could be that this is a good thing. Perhaps part time workers want that flexibility. But it is also true that part time work is paid less on average than full time work. 

8. People with a tertiary education earn 24% more compared to people with a high school education. In the international context that is not too much – College grads in the US earn almost 80% more. 

This is no doubt a big part of the explanation for why income inequality in New Zealand has remained flat over the past two decades: The skill premium in New Zealand is so low compared to what is going on in the rest of the world. The key question going forward is whether the skill premium will be coming to New Zealand or not. 

For those of you who think the Gini coefficient is too narrow a measure of income inequality: Almost all measures of income inequality have remained flat over the past 15-20 years in New Zealand. Consider, for example, the share of income going to the top one percent of households: 

9. Nerd Alert!

Paul Krugman, Brad Delong and others debate the economics of the post-scarcity world of Star Trek. I’m man enough to admit that I’ll watch a bit of the old Trek if it’s on. 

What?! You think you’re better than me just because you wouldn’t dare watch Star Trek?! You prefer the so-called classics of literature?! Fancy yourself a bit Flaubert, do you?! You tell your friends that you totally get James Joyce?! Ok, maybe just some Sir Vidia Goddamn Naipaul? All I can say to you is you’ve not experienced Shakespeare until you have seen it performed in the original Klingon.

Hear that sucking sound? That’s the internet pulling you into the endless list of Star Trek parodies. Tell your boss you’re taking the rest of the day off. Enjoy. Here’s your number 10:

10. Epic rap battles of history: Captain Kirk vs Christopher Columbus.