KEY POINTS:
The gap between rich and poor has narrowed slightly in New Zealand under Helen Clark's Government, but is still wider than in 21 of the world's 30 developed nations.
A report by the Paris-based Organisation for Economic Co-operation and Development (OECD) has found the income gap widened more in New Zealand than in any other OECD nation except Mexico from the mid-1980s to the mid-1990s, when social protections were reduced and the economy was opened up to the world.
The gap here has narrowed slightly since then, thanks mainly to our dramatic fall in unemployment. In contrast, inequality has continued to widen in most OECD nations due to technological changes and globalisation.
But the gap has narrowed much more strongly in Mexico, so the increase in inequality over the whole 20-year period up to about 2005 was greater in New Zealand than in any other developed country.
Data used for the report largely pre-dates the Working for Families package, which has lifted incomes for low-income families since 2004.
The report shows the richest tenth of New Zealanders in 2005 were already in the top half of the OECD, earning an average of about US$56,000 ($92,000) each in real terms, only about $1000 behind the richest tenth in Australia and about $1000 above the OECD average.
But the poorest tenth of Kiwis earned only about US$6000 ($10,000), compared with averages for the same poorest tenth of the population of just over US$7000 ($11,500) for the OECD and just over US$8000 ($13,000) in Australia.
As at 2005, the richest tenth of New Zealanders earned an average of nine times the incomes of the poorest tenth of the population, the ninth-highest ratio among the 30 OECD countries.
Mexico was the most unequal, where the richest tenth of the population earned 26 times the poorest tenth.
Australia was more equal than average, with the richest tenth earning only seven times the poorest. In Sweden and Denmark the richest tenth earned less than five times the poorest.
"Globalisation, skill-biased technical change and labour market institutions and policies have all probably contributed" to the increased inequality.
The report points to a general decline in wage-earners' share of the cake in all developed countries, on average from around 67 per cent of national income in 1976 to 57 per cent in 2006.
This reflects more capital-intensive technology, higher oil prices and weaker bargaining power for workers as the workforce has shifted from unionised sectors such as manufacturing into mostly non-unionised services.
Many manufacturing workers across the OECD lost their jobs in the recession of the early 1990s - a process accentuated in New Zealand by the removal of import protection at the same time.
As a result, the report says, the rich have got richer at the expense of both low- and middle-income earners.
But more recent Ministry of Social Development data shows Working for Families has seen real household incomes rise by more than 20 per cent in the third- and fourth-to-bottom tenths of income earners between 2004 and 2007, compared with an increase of only 16 per cent for the richest tenth.
