Households' share of national economic pie nears 50-year low
It’s not just small by Australian standards but also lies towards the bottom of the international ladder, economist warns
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The Labor party is developing a position on the negative economic consequences from persistently low wages growth. Photograph: Bloomberg via Getty Images
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Gareth Hutchens
@grhutchens
Saturday 10 June 2017 08.07 AEST
The share of national income going to Australian households is close to a 50-year low, and now “lies towards the bottom of the international ladder”, an economist has warned.
Bureau of Statistics data show labour’s share of gross domestic product has fallen to 51.5%, down from 54.2% in the third quarter of last year. At the same time, the profit share of GDP has risen from 24.5% to a five-year high of 27.5%.
Paul Dales from Capital Economics said Australian households had not seen “one cent” of the extra income generated by recent soaring commodity prices because “it’s all gone into the pocket of business”.
He said the share of national income going to households was now “within a whisker” of a 50-year low and a meaningful cyclical or structural upturn in that share of income was “very unlikely” if jobs growth and wages growth remained so low.
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“The share of the economic pie that households currently enjoy isn’t just small by Australia’s own standards, it’s also small by international standards,” Dales wrote in a note to clients.
“As a share of GDP, the compensation of Australian employees lies towards the bottom of the international ladder. That’s not always been the case.
“Back in 1975, Australia households received a bigger share of the economic pie than households in the US, France and New Zealand. Only in the UK did the compensation of employees account for a larger share of GDP.
“But the downward trend in labour’s share of GDP over the past 40 years has been more marked in Australia than in those other economies, apart from New Zealand.”
This trend in most economies was mainlybecause of structural changes that had reduced the bargaining power of employees, including globalisation, the increased flexibility of the labour market and technical innovation, which had flattened firms’ cost curves, Dales said.
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“But the larger decline in Australia may be partly because of the rise in the importance of the mining sector, which tends to generate relatively large profits while employing relatively few workers,” he said.
The news comes as the British Labour party leader, Jeremy Corbyn, says the face of British politics has changed after Theresa May’s snap general election leaves Britain with a hung parliament 11 days before Brexit talks begin.
“People have said they’ve had quite enough of austerity politics, they’ve had quite enough of cuts in public expenditure, under-funding our health service, under-funding our schools, our education service, and not giving our young people the chance they deserve in our society,” Corbyn said.
In Australia, the Labor party is developing a position on the negative economic consequences from persistently low wages growth, with broader policies to crack down on worker exploitation.
The party’s deputy leader, Tanya Plibersek, signalled plans on Thursday to strengthen the bargaining power of workers and unions in an attempt to revitalise stagnant wages.
Her intervention in the low-wages debate followed a speech last month by Brendan O’Connor, Labor’s employment and workplace relations spokesman, in which he Labor’s intention to make it harder for employers to terminate enterprise agreements.
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