More on the recent labour market data

Via Twitter, James Shaw informs me of the following critique of my post where I stated the media were misrepresenting the latest wage-price data.

Lies, damn lies & statistics. A friend reckons TVHE is also only painting a partial picture. QES includes merit promotions, so wages have kept up with inflation *if* you got promoted. Promotions are meant to be about getting ahead, not keep…ing up, otherwise how’s the next guy going to feed his family? Moreover, while TVHE strips out tax changes from inflation (a little rough if employers factor this into wage rounds), it ignores that Stats themselves picked out food and electricity as rising by more than the headline 5.3%. The Salvation Army reckons that CPI actually understates how difficult it is for lower income families to afford the basics.

There are a lot of points here – and while they are important things to keep in mind, I’m sticking to my conclusion that the initial headline was misleading.  Let me try to explain myself here.

[Note:  The new headline and first paras of the article I linked to in the initial piece are completely reasonable – as I’ve just gone back to read it again to see if there had been changes.  As a result, I am not criticising the article in its current form – I actually quite like the current one.  However, I am still criticising the initial suggestions that came from the article and other ones like it which will be discussed below … what can I say, there is only so much you can listen to John Campbell talking cr*p before you have to write something about it 😉 ].

It is indeed true that the QES includes promotions, changes in job types, and productivity improvements – however, wages should also include such things.  Over time we would expect wages to grow more quickly than prices (such that real wages are rising with productivity), so in that sense that is a fair concern.  However, if we are going down that road I’d also like to point out that unemployment indicates that there is a significant oversupply of workers at the current wage – as a result, we need real wage growth below productivity growth in order to help make the “market clear”.

Now, the claim I called cr*p was the idea that nominal wages have not kept up with inflation.  I can buy the idea that they might not when the labour market is very out of whack, but comparing quality adjusted growth in gross wages with an increase in prices following a lift in GST and cut in income taxes is amazingly, amazingly, misleading – one includes a change in taxes, while one doesn’t!!!  On top of that, the LCI ignores not just promotions and productivity, but substitution between jobs – namely the fact that people are moving between types of work at present.  When we are experiencing quite a substantial shift in the structure of the economy, ignoring this component seems misleading.

The article currently mentions the LCI as wage inflation – in the way the Bank does now – and as a result, the point being made in it is a good one … that the spike in CPI isn’t heading into wage inflation.  I initially commented on the article when it first appeared, and this point wasn’t made clear – and instead there was a focus on wages not keeping up with inflation.  The inference that has been in the media stating that living standards are deteriorating is what I was at pains to call “cr*p”.

Instead, when we want to think about whether people are getting ahead we want to look at real disposable income – something that takes account of these changes.  When we look at that data we get a very different story – yes times are rough, but on average households lot in life is improving … something that is consistent with what households themselves are starting to report.  Cherry picking figures that show “life is getting hard” is not objective journalism – and that is what was done here.

Other points

“Stats themselves picked out food and electricity as rising by more than the headline 5.3%” “The Salvation Army reckons that CPI actually understates how difficult it is for lower income families to afford the basics”

The ETS and a lift in world commodity prices due to scarcity were behind this.  Do I personally believe that we should have tiered price measures, and pin growth in benefits to the “representative basket” for that income level – yes, yes I do.  However, this wasn’t the issue I was terming misleading.

When discussing these things, it is important to keep the normative issues to one side.  If the story had been that increasing scarcity of food and fuel are hurting people this would have been true – instead, it initially inferred that we weren’t getting paid a “fair” amount, an unfair conclusion from the data that was shown, and that irks me.

“TVHE strips out tax changes from inflation (a little rough if employers factor this into wage rounds)”

I don’t quite understand what this is suggesting, so I’ll try to clarify why I was doing what I was doing.  I was suggesting that, if we are going to strip the income tax cuts out of wages (by looking at gross wages) then we should strip the GST tax increase out of prices – especially since everyone was at least fully compensated for the increase in GST by the income tax cut.  All I want is for us to genuinely look at comparable figures – comparing gross wages to price growth is misleading when we have swapped some income tax for some consumption tax (even though these taxes are “effectively” the same thing).

These aren’t little “statistical issues”.  The use of one data set including tax and one data set not including tax is genuinely misinformation.  The use of a measure of “wage inflation” rather than looking at actual income growth is misleading.

I have no doubt we all want to help the worst off in society, but using misinformation to try and justify it is not the way to go about it.