The Two Speed Economy And Wellington

When the cracks were made about Wellington being a dying city were made earlier in 2013, I wrote that basically Wellington can never die as long as it’s the capital of New Zealand. The census data that came out last week showed that Wellington has the highest median income in the country. It also has the most educated population and the highest proportion of people earning more than $100,000 a year in New Zealand.

This should not be surprising stuff to anyone who lives in Wellington. It is a lovely little bubble for some, and is nowhere near dying. The groaning over public service cutbacks over the past few years has skipped examining the data – core public servant numbers are on the rise and a lot of people who had their roles disestablished were able to apply for new roles in the same department or different departments.

The two speed economy is in full swing in Wellington. It’s also in full swing around the rest of New Zealand and every other OECD country – job polarisation where high skill workers receive most of the benefit of productivity growth whilst low skill workers don’t get pay rises because there are so many of them. There aren’t many medium skill workers left, there is no middle class to speak of.

Talking about a “living wage” is stupid without talking about the profitability of the firms that employ minimum wage workers. Witness the hypocrisy of the Wellington councillor who voted for the living wage but admits he can’t pay his hospitality employees $18.40 because he would go out of business!

The enormous differences in labour market outcomes that have arisen over the past 30 years can’t be papered over by legislative fiat. There are hundreds of thousands of people in New Zealand who have not upskilled, who have not figured out how to take advantage of technology and have failed to understand that the present levels of inequality on offer are just the beginning.

If you think that a Labour/Green government would reduce inequality, you are obviously ignorant of New Zealand economic history. Labour governments are the best thing that can happen to the 1% – government contract money is like a gusher emanating forth from The Terrace that sprinkles candy from Cape Reinga to the Auckland Islands. Big jumps in demand enable big jumps in pricing and thus profits. It is not surprising that the biggest booms in New Zealand have generally been under Labour governments – they’re like a “whale” rocking up to Las Vegas!

There is hope for people who want to earn more money and participate in the enormous opportunities currently on offer within New Zealand. But learning the skills would require doing *boring* things like maths, spending time in front of an IDE instead of Facebook or developing a killer understanding of a valuable niche. Most people don’t want to improve because it would involve acknowledging that they’ve failed to invest in themselves outside of a piece of paper from a university.

If you think income and wealth inequality is an issue now, get back to me in a decade. I predict that New Zealand is more likely to resemble Brazil or South Africa as opposed to even Australia or the United Kingdom. The return on conscientousness on valuable tasks and knowledge will grow exponentially as global economic production shakes off the Global Financial Crisis. Milford Asset Management’s Bryan Gaynor is right – 2014 will be a cracker.

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