Income disparity undermines social cohesion

Welcome to Indian Newslink March 15, 2022 Digital Edition

Venkat Raman
Auckland, March 15, 2022

Last week, the Waitakere Ethnic Board in West Auckland published a report which said that ethnic communities in New Zealand contribute about $64 billion to the national economy, claiming a share of 10% of the Gross Domestic Product (GDP).

The Report was based on a study conducted by Shamubeel Eaqub, Economist at Sense Partners, a Wellington-based boutique consultancy firm.

About 15 months ago, another report from the same firm placed the contribution of Indians at $10 billion, about 3% of the GDP.

While these figures are important, not enough attention is being paid to the widening disparities in the income earned by people in various communities. While the income per person among Pakeha was $67,264, it was $52,275 for the Asian communities (including Chinese and Indian), $36,343 for Maori and $27,375 for Pacifica. At the low end of the strata were the African communities, with $24,502.

This is the pattern in almost all countries around the world. It would seem that two persons of the same educational qualifications, competence and experience could be earning vastly different pay, the only consideration being their ethnicity.

Diminished economic opportunity

An increase in income inequality matters because of the potential for social and economic consequences. People at the lower rungs of the income ladder may experience diminished economic opportunity and mobility and have less political influence.

Researchers have also linked growing inequality to greater geographic segregation by income. In addition, there is evidence that rising inequality may harm overall economic growth by reducing consumption levels, causing excessive borrowing by lower- to middle-income families, or limiting investment in education.

This measure of inequality, known as the 90/10 ratio, takes the ratio of the income needed to place among the top 10% of earners in the U.S. (the 90th percentile) to the income at the threshold of the bottom 10% of earners (the 10th percentile).1 It is a simple measure of the gap in income between the top and the bottom of the income ladder and is commonly used by researchers and government agencies. (See text box for more on measuring inequality.)

The 90/10 ratio varies widely by race and ethnicity. In 2016, Asians at the 90th percentile of their income distribution had 10.7 times the income of Asians at the 10th percentile. The 90/10 ratio among Asians was notably greater than the ratio among blacks (9.8), whites (7.8) and Hispanics (7.8).

Dismal performance by New Zealand

New Zealand performs poorly compared to other OECD countries. The 2020 OECD Innocenti Report Card shows New Zealand has room for improvement across all the educational measures. The estimated percentage of children aged 15 years who have basic proficiency in both reading and mathematics was just 65%. This ranks New Zealand 17th of the 39 countries where data was available. New Zealand ranked above Australia, the United States and the United Kingdom which all have greater income inequality (as measured by the Gini coefficient). However, with the exception of South Korea, the top ten countries with proficiency in both reading and mathematics had lower levels of income inequality than New Zealand.

The Partnership of Ethnic Communities

The Report on Ethnic Communities points to the partnership of

Eaqub said that it is common to use a national accounts approach to calculate ethnic contribution, taking into account the contribution of the stock of economic drivers including capital and labour. Income from labour is usually based on Household Income Survey and Census Data and income from capital.

However, the value of unpaid and voluntary work is not included in the calculations. However, the problem arising from relying on the reasonably accurate number of people belonging to an ethnic group is that some people may declare themselves broadly as ‘New Zealander,’ or group themselves in more than one category. For instance, a Fiji Indian may have described himself or herself as ‘Indian’, ‘Pacifica’ or ‘Fiji Indian.’

“Ethnicity is a self-defined concept. The Statistics New Zealand Census collects the ethnicity information of all those living in New Zealand. Each person may pick more than one ethnicity. We report on the basis of those who identified as these ethnicities in the Census. The availability of the quality of the data at detailed ethnic levels is variable,” Eaqub said.

There are analyses and other stories in our March 15, 2022, Digital Edition.
Please read and share with your colleagues, friends and family.

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