Census Data And Tyler Cowen’s Average Is Over

The second major release of 2013 census information happened last week. The 2013 regional census summary tables with household income information were updated, and a very rich set of data is able to be discussed.

Household income data is important in any discussion around inequality because we can use it to look at how the New Zealand population is moving to not only where the jobs are, but where they can afford to live the lifestyle they want.

A common refrain is that housing is too expensive in central Auckland, Wellington and Christchurch. With respect to median household incomes in these areas, that’s quite true. But since the 2006 census the median household income in Auckland has grown from $63,400 to $76,500; in Wellington City from $74,200 to $91,100 and in Christchurch from $48,200 to $65,300.

Percentage increases of 20%, 22% and 35% respectively lead to an obvious question that has to be asked – if Auckland has had the lower growth in median household income, why has it had the highest growth in median house prices?

But wait, the Auckland region is an aggregation of all of the different areas of Auckland. We have to look at local board areas to get a better idea. Taking higher income areas – Devonport/Takapuna where median income has grown from $68,800 to $85,800 (24%) and the Orakei local board area where median income has grown from $88,700 to $107,900 (22%) – there’s a big story inside relative income gains between different suburbs linking to relative changes in house prices.

How do I link this back to what Tyler Cowen was discussing in Average Is Over? Well, in order to live in central cities where higher salaries are on offer, the entry price point will rise relative to other areas over time as the economy moves closer towards higher levels of capital utilisation in service industry business processes.

More people will have to sell out of expensive central city areas and buy in cheaper areas in order to survive after retirement or any change in their ability to earn labour market income.

During this process, capital losses in suburbs that aren’t close to “good schools” and job opportunities are a distinct possibility. Perhaps many people who think they’ve gotten “bargains” will find that higher interest rates and capital losses in the medium term are not as pleasant as being able to say that they’re on the “property ladder”.

One thing that the income inequality crowd haven’t wrapped their heads around is that as Auckland becomes larger and more integrated into Asia Pacific conglomerates corporate structures, significantly higher income inequality is essentially a given. Hardly anyone is making the connection between technology driven job polarisation and the risks to non-superlative suburbs in terms of capital loss.

Tyler Cowen’s Average Is Over On Econtalk Podcast

Tyler Cowen is interviewed by Russ Roberts on the latest EconTalk podcast.

The subject of the interview is Tyler Cowen’s latest book Average Is Over.

If you’re interested in his thoughts on income inequality and how humans can complement machines, it’s well worth a listen. I particularly like the idea that people will self-select into lower rent areas of their home country or immigrate to countries with a lower cost of living if they find themselves not able to earn as much labour market income as they used to.

Within New Zealand, I would expect many cash poor baby boomers to be selling their real estate holdings in order to maintain their standard of living. They’ll buy cheaper houses within a few hours drive of key provincial centres. As long as they have enough disposable income to fly to see grandkids or whatever, it won’t be as big of an imposition as some might make it out to be.

He has some interesting thoughts on how young women are outcompeting many young men on conscientiousness:

Well, one thing we are going to get very good at in the future–you see it now–is just measuring quality. So, whether it’s doctors, lawyers, economics professors, there’s always a randomized control trial now; there are always numerical ratings. Everything has a Yelp rating or an Amazon rating or something. And we all know these are highly imperfect but basically they are still better than not being informed at all. So it’s like in the future there’s a credit score for everything. So people who test well young I think will have a lot more invested in them early in their lives, early in their careers; and they’ll have a head start. And another way to think of this is, I think, within 5 years the world’s best education will be available online and it will be free. Arguably that’s already the case. But the question is: Who is there to learn from this? It’s the people who are disciplined and conscientious, which is still distinct from just raw intelligence. Now, if you ask the question if you compare men to women on average which group is less conscientious, I think you have to hand that one to the men. At least the lower tail of the distribution. So I think we already see in higher education and many other areas women doing better. And not just better because there is less prejudice. They are just outright doing better and out-competing the men. And I think that trend will be magnified by this increase value for conscientiousness.

It would be interesting to test this at New Zealand universities. How are the GPA distributions different between male and female graduates? Without discussing specific labour market skills employers are looking for I’m not convinced this approach would yield any interesting conclusions.