Newly released statistics allow us to update the share of New Zealand’s income that goes to wages and salaries – the labour share – for the year to March 2018 for the whole economy and to 2017 for individual industries.
The labour share of income of income fell from 61.2 percent of Net Domestic Income (NDI) to 59.1 percent in 2018, worth an average of $2,122 out of the pockets of each wage and salary earner per year. The 2018 labour income share of 59.1 percent is a small rise from the 59.0 percent last year.
Incomes of the self-employed have risen from 12.2 percent to 13.7 percent of NDI between 2009 and 2018, probably helped by rising farm incomes and rents, but the trend is flat or falling.
The largest beneficiary of the change in income shares over this period was corporate profits. For locally owned companies I estimate profits have risen from 11.6 percent to 17.9 percent of NDI over the 2009 to 2018 period. Together with profits, interest payments and other investment income going to overseas investors, the corporate sector’s profits are taking a steeply increasing portion of income.
The cost of housing is directly seen in the national income accounts only in the “imputed” income of owners of owner-occupied houses – the rent they save by owning a home. It peaked in the early 1990s as a proportion of NDI and has been falling since then. Capital gains, which have been large recently, are not recorded in national income. However part of housing costs is shown in the rapid growth of the profits of the “FIRE” sector: Financial and Insurance Services, and Rental, Hiring and Real Estate Services. Its profits rose from 8.4 percent of total profits in the economy in 1972, to 15.2 percent in 2008, to 20.5 percent in 2017.
From 2009 to 2017, the labour income share fell in every industry except Mining; Food, Beverage and Tobacco Manufacturing (whose profits had a bad year in 2017, but its labour income share had been falling before that); Professional, Scientific and Technical Services (which unusually has had a rising labour income share since about 2000); and Arts and Recreation.
High salaries are taking an increasing proportion of total wage and salary income. Between 1994 and 2016, the average salary among the top 0.1 percent of wage and salary earners has risen from 13 times the average for all wage and salary earners to 17 times (rising from 1.3 percent of all wage and salary income to 1.7 percent). The average salaries of the top 1 percent grew from 6.3 times average wage and salary incomes to 7.4 times. Most of these people will be business executives or highly paid professionals and will be receiving additional income through the likes of bonus shares and the dividends on shareholdings.
Download the full bulletin: CTU Economic Bulletin 205 – November 2018