The average worker would earn $11,500 more a year if wages had kept pace with economic growth since the early 1980s.

OPINION: There are many reasons why working poverty has increased so much in New Zealand that four in 10 poor children now have a parent in full-time work.

For a long time we've not done enough to encourage the innovation that would lead to more highly skilled, highly paid jobs.

But one of the other major reasons is that ordinary staff are now getting a much smaller share of company profits than they did 30 years ago. From the 1950s to the early 1990s, the economy and the average wage grew at about the same rate, which is as it should be.

The economy grows because ordinary people are working harder and smarter, and they should be rewarded proportionately.

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​But since the early 1980s, a big gap has opened up: the economy has grown much more quickly than the average wage. The two have diverged so much that the effect on working people's pay is enormous.

The average worker would earn $11,500 more a year if wages had kept pace with economic growth since the early 1980s.

That's a staggering amount for the typical household. Why has this happened? One fundamental reason is to do with the way company profits are handed out.

In very crude terms, they can go to what is known as capital (shareholders, banks and other investors) or labour (the people who work in the business).

In recent decades, the share of company profits going to labour has decreased sharply, from around 60 per cent to around 50 per cent, one of the lowest levels in the developed world.

That in turn is being driven by technological shifts - workers being replaced by robots - but also changes in bargaining power.

People running companies have much more ability than before to threaten to take their business somewhere else, and can to some extent influence political decisions in their favour.

The fact that there are many people seeking work - and thus a given staff member is usually replaceable - further strengthens their ability to dictate terms. In contrast, staff generally have much less bargaining power than they did a few decades ago.

Trade unions, whatever their faults, helped workers band together and demand a larger share of profits. But they now represent just 20 per cent of the New Zealand workforce, down from 70 per cent a few decades ago.

The IMF - a body not normally very sympathetic to unions - has produced research showing that declining unions have greatly contributed to this increased inequality.

Employment law changes in recent decades have also made it harder for staff to organise and bargain together. In the debate about working poverty, much of the focus is likely to be on boosting skills and education and trying to create better paid jobs that way.

All those ideas, which are about growing the pie, are valuable.

But the evidence suggests that working poverty could be sharply reduced simply by ensuring that ordinary staff - the people who do the bulk of the work in a given company - get a larger share of that pie.

- Max Rashbrooke is the author of Wealth and New Zealand and a senior associate at the Institute for Governance and Policy Studies.