Inequality and wages repression in Australia - Part 1

Don Sutherland examines the latest Journal of Australian Political Economy (number 81) which was published last week and reported in the Sydney Morning Herald on Saturday.

This new issue provides an Australian explanation of the connections between wages repression and inequality, led by material from a symposium on this topic organized by Dr Jim Stanford, from the Centre for Future Work, and are about “causes and consequences of the decline in labour’s share”.

Union and broader anti-poverty and social movement activists will find much of use in reading and discussing this material. It brings together a lot of stuff that has been treated to some extent, but superficially, in the mainstream and social media, and also some that can be found in the ACTU and other progressive submissions to the National Wage Reviews.

May 2018 Change the Rules rally

SEARCH members should be encouraging a critical approach to the material, for reasons that I aim to explain in what follows.

The Introduction and Overview is jointly written by Australia’s great political economist and activist, Frank Stilwell, and Frances Flanagan of United Voice (the union). They introduce and summarize all of the articles that follow.

They suggest that the articles reinforce widespread experience and shared data about the decline in labour share and its relationship to rising inequality, and provide new information and insights. I was not immediately convinced that we would get much insight on the “cause” of reduced labour share and rising inequality. There is no mention of exploitation in relationship to “labour’s share”, and precious little on profit.

Jim Stanford’s is the first and flagship article. He explains what “labour share” is, how it is measured, and what’s been happening to it. Except for a couple of important points (see more below) his exploration of “labour share” is meticulous and certainly enhances the potential of labour movement activists to win debates about rising inequality.

“Labour’s share” of new wealth produced (GDP) and total national income (similar but not quite the same) is measured in Australia using data collected by the Australian Bureau of Statistics. All of this data is publicly available and free of charge at the ABS website. In this total data the other shares go to corporations, small employers and the self-employed, property owners, and government.

First, Jim establishes that, without doubt the labour compensation” share (wages plus superannuation and workers compensation paid) has steadily declined from the mid 1970’s highpoint onwards. And, further, that this translates as a consequence into downward pressure on personal income.

There are up and down blips along the way but the decline is steady, and is supervised by both LNP and Labor governments. The Hawke government is marked by steep decline in the “labour share”. There are 2 good graphs that show this. There is a sharp fall again after the 2008 economic crisis – coinciding with the Rudd Labor government - that then rises from a low level before falling to its current extremely low level under the current LNP government.

Second, since the mid 1980’s there is a steep fall in the cost of labour to employers, again with a couple of blips along the way.

Third, and this is a big one: real productivity increases steadily and is much higher than both of the 2 measures of “labour compensation” that Jim uses.

Fourth, continuing his demolition job on those (especially employers and their cheerleaders) who wish to deny the reality of the decline in labour share, Jim presents and explains the data about inflation and prices increases, again using two measures. Again there are blips, price rises and falls are more volatile, and he integrates these into the story of what is happening to the “labour share”.

Fifth, we have his neat summary: since the mid 70’s there has been an 8% fall in the “labour share” and a 7% increase in the share going to corporations. The shift away from “labour’s share” works out at about $150 billion per year. The share going to small business and self-employed falls by 4%.

Finally, Jim compares what’s been happening in Australia with 25 other developed countries. He shows that what is happening in Australia is widespread but not universal. In one third of those 25 countries the “labour share” has been stable or increasing.

In reference to the “cause” of the problem Jim puts primary emphasis on institutional and policy pressures against workers and their wages.

Jim concludes that “economic growth alone will (not) ‘lift all boats’ and (will not) automatically ‘trickle down’ into material improvements for working Australians.” He says nothing of value about economic recession.

Jim’s material can be pinned down further: “Trickle down” under Wayne Swan (the Labor government’s Treasurer 2007-2013) and other Labor leaders has been almost as much a mantra, and a failure, as it was under the LNP’s Costello, Howard, Hockey and Morrison.

Labor, as a potential new government, will have to do much better and different than the ones that have preceded it. Is anything happening that tells us that Bowen and Shorten are up for that?


More to come in Part 2...

Please check your e-mail for a link to activate your account.