Australia is experiencing, right now, a rare seismic upheaval in the distribution of wealth and income.
The share of the national pie enjoyed by wage earners has tumbled suddenly and dramatically. Not just to the lowest point since the Coalition government was elected — which would be no surprise — but to the lowest point since the Australian Bureau of Statistics (ABS) began recording this data in 1959.
For the third quarter in a row the share of Australia’s gross domestic product allocated to employees has been below 46.9%. This strongly suggests a structural change, rather than a statistical blip.
Rises and falls
The history of this is quite intriguing. No, really, it is. Stick with us. Over the ABS journey, from 1959 until now, workers’ share of GDP has averaged 49.9% — near as dammit to half. The rest is shared among company profits, government, non-employee income and housing stock.
The long-term chart reveals several remarkable periods in Australia’s post-war history. But none quite as startling as now.
(This chart is a simple Excel line graph using the quarterly data, seasonally adjusted, from columns AI — compensation of employees — and column AV — total GDP — in table 7 of file 5206.0, Australian National Accounts: National Income, Expenditure and Product.)
Twice Australia has had periods of steady, gradual increase in the proportion of income going to wage and salary earners. The first was from mid-1959 when this data was first collected, or possibly earlier, until December 1973. The second was from September 2008, when the global financial crisis whacked the developed world, until September 2016.
There have been three periods of quite rapid and substantial rise in the share going to employees. They were March 1974 to March 1975, then December 1979 to September 1982, and December 1988 to September 1990.
There has been one long, slow, steady decline in the labour share, from December 1990 to June 2008.
Three times the share has collapsed rapidly and severely. They were from June 1975 to September 1979, from December 1982 to September 1988, and now the current period, from December 2016 to June 2017.
Correction or collapse?
But here’s the thing. Only the last of these three is not a correction from a preceding dramatic rise. And only the current decline is happening at a time of robust global trade and record company profits.
In the late ’70s, the workers’ share corrected from the all-time high of 58.3% down to 51.8%. That was a rapid drop, yes, but to a nadir still well above the nation’s average of 49.9%. The late seventies was the period of recovery from the impacts of the global energy crisis, the OPEC oil price shock and the secondary banking crisis in the UK.
The 1980s was a period of profound readjustment in Australia’s economy — floating the dollar, deregulating the banks, introducing superannuation and replacing decades of industrial mayhem with the prices and incomes accord. It was also impacted by the early 80s global recession.
What is transpiring now is quite bizarre: a sudden and apparently sustained collapse in workers’ share from a historically low starting point — just 48.6% — and with no problems whatsoever with the global economy. In fact, these are global boom times with all-time high trade volumes, robust commodity prices, record company profits and arguably the most benign tax and regulatory regime ever.
Causes
As this is occurring right now, most economists will report it in about five years’ time. As it is a shift in favour of the rich to the disadvantage of the poor, the mainstream media is reporting that the opposite is happening.
One economist across this is Jim Stafford at The Australia Institute. He noticed the drop in this year’s March quarter to an all-time low and explored the causes.
Key factors, Stafford reckons, are the swings in the resource and mining sector.
“After world commodity prices turned down in 2014, mining companies squeezed their labour costs brutally: redundancies, wage freezes and restructuring collective agreements,” he told Crikey this week. “Then when prices came back up — for a while, anyway — the profit margin was all the fatter. And since resources are so capital intensive, that froth goes straight to the profit line. In fact, since so much of the industry is foreign-owned, much of it never even ‘lands’ in Australia!”
The greatest structural shift in income distribution in Australia, Stafford says, is that workers “have lost the institutional power with which to negotiate a healthy share of the output they produce”.
Remedies
To reverse this, Stafford believes the institutions and programs that once helped workers win a fair share of total output must be rebuilt.
The crucial areas he nominates are:
- Restoring collective bargaining “which has become increasingly unviable in the private sector, as evidenced by the sharp decline in the number of private sector workers covered by EBAs”;
- Higher minimum wages “so that someone who works full-time year-round is not in poverty”; and
- A fairer tax system “with fewer loopholes for the owners of capital, such as capital gains partial taxation, preferential treatment for dividends and others.”
Under Turnbull and Morrison? No chance.
We know it Alan . . . we know it!
The Australian ethos, values, were built upon our earliest of struggles to survive, prosper in a new land . . . and despite best efforts of Squatters and their political friends we achieved as a nation, some success. Today, the struggle for a fair days work for a fair days pay threatens to extend far beyond economics or a living wage. Our current, future struggle is for who we are, or might be as Australians. Our beliefs, opportunities and capabilities are at stake. The opponent is ideology, power, lack of transparency and accountability. And we are increasingly angered by the calibre of existing leadership; their lack of vision, and a preparedness to act on behalf of our children and future generations.
If we are to fight . . . for our nation and a fair and equitable future; we would do well on an empty, rather than a full stomach.
Couple this with the divergence between productivity and wages growth, it’s just further evidence that we have entered a strange new land.
Expect years of economic commentary from the experts, and following that the realisation that the economic experts were wrong again. Sorry guys, this is not just technological change, it is systemic power movement to the corporate world, which was always the aim and end game of neoliberalism. I can just feel that trickle coming now, hhmmm, smells a bit like piss.
You’re not wrong to ridicule the Coalition’s appalling economic management record, Alan, but it does force the question: Would a future Labor government be willing, and able, to help reverse the decades’ long decline in the labour share of national income?
It’s really difficult not to be totally skeptical about that, given Labor’s own participation in governing over the labour share decline, its reliance on unions like the SDA and AWU as facilitators of that decline, and its leadership cadre’s now constant parachuting into post-politics high-flying corporate career positions legitimating that decline.
Indeed, you could almost sympathise with working class people voting for the Tories given how thoroughly they’ve been f**ked over by Labor figures time and time again.
Perhaps it’s more fitting to refer to them as “the COAL-ition”
As long as the working class keep voting for the LNP this is the reward. Glib slogan as a motive to vote for the LNP is a futile exercise.
I note, without surprise, that one of those periods of “.. quite rapid & substantial..” decline in wages was 1982-88.
Take a bow, ALP.
Does anyone believe the same thing wouldn’t happen again once they fall into office?
Except that at the time, the ALP’s explicit policy was “The Accord”, whereby direct wage increases were offset by increases in the “social” wage. The most significant and enduring part of that was Medicare. Quite simply, if you no longer had to put your hand in your pocket for a medical appointment, that was a part of a wage increase you didn’t need. Subsequently, compulsory employer superannuation contributions mean that one needs less in the pay packet each fortnight to be able to provide for retirement.