We’ve noted previously how Australian workers’ share of Australia’s Total Factor Income (TFI) has been falling for decades, whereas business’ profits share has been increasing:
In 1974, the share of TFI taken by wages was 62%, whereas as at December 2016 it had fallen to just 53% – a 9% decline. By contrast, the share of TFI taken by profits was 17% in 1974, whereas as at December 2016 it had risen to 26% – a 9% increase.
Moreover, the fall in workers’ share of TFI has nothing to do with productivity. As shown in the next chart, Australian labour productivity (real GDP per hour worked) has risen by just under 80% since 1978, whereas real average compensation per employee has risen by just 28% over the same period:
Yesterday, The Guardian’s Greg Jericho penned an illuminating piece showing how the gap between productivity and pay is wider in Australia than almost any other advanced economy, including the USA, which could ultimately lead to an industrial relations war:
…research released last week by the OECD… showed that while Australia has achieved some of the strongest productivity growth over the past five years, it has not led to similar growth in workers’ incomes…
As in other nations, our more “flexible” IR system has seen a break between the previously linked productivity growth and worker income… The gap between productivity growth and worker compensation since 1995 is actually worse in Australia than in the USA:
That’s a pretty damning indictment of our IR system – our workers are getting less reward for productivity benefits than the USA.
And the OECD also notes a major issue of work that is occurring in Australia – “higher employment rates but lower average hours per worker, which points to more part-time working, often in low productivity jobs”…
The current IR system in place since the early 1990s has certainly led to more people in the workforce, but it has also seen a big shift towards part-time work.
In 1994, when the average hours worked by all adults was at the level it is now, the unemployment rate was 10.1% and just 56.4% of adults were employed compared to 61% now.
It means to get the same hours worked per capita as in 1994, we now have the equivalent of 908,000 more people employed…
The report by the OECD also shows that Australian workers have received less benefit from their productivity growth than almost any workers in advanced economies:
Such a situation might be enough to shake up the IR debate. Workers may be less willing than in the past to swallow the line that greater flexibility will lead to greater productivity and then better pay.
The situation turns even more dire when one looks at multi-factor productivity which includes both labour and capital and has stalled out owing to capital failure:
Capital has done a terrible job of generating productive returns owing to enormous mis-allocation of resources into the housing bubble, marginal mines and various energy rorts (among other reasons). As this failure transpires, businesses have turned more and more towards rent-seeking to sustain profits. That, in turn, undoes productivity reform. And now both capital and government are busy burying both of their failures in relentless waves of immigration to artificially headline growth that further undermines wages.
Remember, too, that Productivity Commission modelling shows that those whom benefit from mass immigration are the migrants themselves as well as the wealthy owners of capital, whereas incumbent resident workers are made worse-off via lower wages.
This has left voters feeling alienated, and helps explain the underlying factors behind Brexit, Trumpism, and Hansonism.
Not only would slashing Australia’s mass immigration program support workers’ pay and conditions, but it would also give infrastructure investment a chance to catch up and deliver some kind of capital productivity lift, not to mention reduce pressures on housing. This should be coupled with a new round of productivity reform aimed at rebooting competition, innovation and efficiency across the public and private sectors.
As things stand, the current system is spinning itself inexorably towards a major political economy dislocation as labour is screwed over and again.