The following is my email communication to the Herald. (Gilbert Wong of the Herald made a small mistake with respect to something that I wrote in my email to him.)
Consumer Price Inflation
CPI, June quarter 1987:
790
Consumer prices have
risen by 37% in the 10 years since June 1987, at an average of 3.2% per
year.
"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.
Wage Inflation
In March 1987 the average
hourly wage before tax was $11.06.
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 rates of increase in each following year, we
get $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 roseby 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
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% in the
12 months from 1985/86 to 1986/87.)
CPI, June quarter 1997:
1083
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.