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Following contact by Michele Hewitson of the New Zealand Herald a week ago, I put together the following package of information. A number of my comments were used in the Herald feature: "Age of Excess" on Saturday, October 11.
Consumer Price Inflation (9 October)
CPI, June quarter 1987:
790
CPI, June quarter 1997:
1083
"790" represents the price of a basket of goods in 1987. "1083" represents the price of an equivalent basket of goods in June 1997. The baskets of goods used by Statistics NZ are based on the Household Expenditure Survey, and they relate to the consumption pattern of an average income family.
Consumer prices for an average household have risen by 37% in the 10 years since June 1987, at an average of 3.2% per year.
Wage Inflation (10 October)
In March 1987 the average
hourly wage before tax was $11.06.
In June 1987
the average hourly wage before tax was $11.35.
In March 1992 the average
hourly wage before tax was $14.96.
In March 1997 the average
hourly wage before tax was $16.53.
Thus, the average wage
rate has increased by 50% (49.5% to be more precise). Thus, the
average wage rate has increased by 4.1% per annum.
If a product has increased
in price by 50% since 1987, then it is as easily afforded by an
average worker today as it was then. The fact that prices increased
by only 37% means that there has been a small improvement in the
standard of living of the average worker since then.
My suspicion is that the
wages of the highest paid 10% of the workforce have risen faster
than 50%, while the prices of the goods the top 10% consume have
risen by much less than the 37% average.
To test the suspicion,
we can check the census.
In the year to March 1996,
the 95th percentile income was $61,000. That means that 95% of
people got less, and 5% got more. In the year to March 1986 the
95th percentile income was $32,000. Given the average rates of wage increase in each following year (21% for 1986/87, 4% for 1996/97), we get approximately $38,000 for 1987 and $63,500 for 1997.
This suggests that the
average before tax income among the top 10% rose by 67% in the
ten years to March 1997, whereas the average wage rate only rose
by 50%.
An even better exercise
would be to trace the fortune of the people aged 25-34 in 1986.
In 1996 (aged 35-44) the 95th percentile was $80,000. In 1986
it was $32,000. That translates to $38,500 in 1987 and $83,000
in 1997.
This suggests that a typical
yuppie in 1997 is earning 115% more dollars than in 1987. Of course
not all the successful 40 year olds today were yuppies in 1987.
But we can say that today's top-earning 40-somethings have done
pretty well in the last 10 years.
Interpreting the Wage Data (10 October)
We have to be a little
careful. Treasury people like George Barker emphasise that the
composition of today's 35-44 year-olds might be quite different
to the 25-34 year-olds of 10 years ago. Quite apart from the impact
of international migration, many yuppies then will not be in the
high income group today, and many in the high income group today
will not have been yuppies then.
Having said that, a
yuppie of that time who kept his (or her) place on the greasy
pole would be about 115% better off. (There is some margin of
error in the census based estimates because the raw data is from
tables specifying the number of people in an income bracket. Also,
a number of yuppies would have increased their incomes by much
more than the national average of 21%.)
Median Incomes of "Yuppie" Generation (13 October)
The following information relates to the median (ie the 50th percentile)
of incomes of those aged 25-34 at the time of the 1986 census,
and therefore aged 35-44 at the time of the 1996 census:
year to March 31 1986:
$14,000
estimate for year to March 31 1987: $17,000
year to March 31 1996:
$23,550
estimate for year to
March 31 1997: $24,500
Percentage increase
of median income = 45% (cf. 115% for 95th percentile).
The CPI increased 37% in that time, meaning that the typical person aged 25-34 in 1986 is slightly better off in 1997 than in 1987.
A price index based on the "yuppie basket" of goods and services would
almost certainly reveal an inflation rate less than 37% over 10
years. Therefore the person on the 95th percentile is relatively
better off than the figures show.
There is one further
proviso, however. The yuppie basket contains goods and services
such as cellphones and business class air tickets, which are
cheaper today. But it also includes "positional goods"
such as exclusive real estate, investment number plates, art works and other status symbols. These positional goods
tend to rise in price faster than other goods during any era of
rising inequality. This is because there are more yuppies competing
for unique goods. With plenty of yuppie
money chasing properties that are scarce by definition (and is sought because of its scarcity) - as in the Auckland
property boom of 1994-96 - the inflation rate faced by Auckland yuppies in those years may have exceeded the rate for average households.
The real winners in the last ten years have been the persons receiving high incomes who kept their heads down and avoided
the conspicuously yuppie lifestyle.
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