Henry Ergas jukes the stats (again) on falling workers’ share

By Leith van Onselen

The Australian’s Henry Ergas has penned another article today attempting to debunk ACTU chief, Sally McManus’s, claim that Australian workers are getting less of the economic pie:

At the heart of those inventions is the assertion that Australian workers are being brutally crushed. “Labour’s share of ­national income,” she says in ­support of that assertion, “is at a 50-year low.”

Like so many of her purported facts, that claim is simply incorrect: at 54 per cent, the share of wages in national income is line ball with the 55 per cent that has been its trend level since the late 1980s.

Moreover, far from being at a low, the wages share of national ­income is materially higher now than it was during the mining boom, when surging export prices boosted profits and helped finance a doubling in Australia’s capital stock.

As for profits being at historic peaks, profit rates, as measured by the national accounts, have dropped since the boom ended to well below their long-term ­average, and the profits share of national income has fallen with them.

…firms won’t hire workers who cost more than they produce. Productivity growth therefore sets a constraint on wage rises.

That McManus entirely avoids that issue is unsurprising: our ­productivity performance hardly creates scope for the steep wage hikes she advocates.

Multifactor productivity — which measures how much output we get for each unit of capital and labour combined — is only 1.5 per cent higher today than it was in 2006-07, implying an annual growth rate of less than two-tenths of 1 per cent.

Now consider the below long-run charts from the June quarter national accounts.

First, the average compensation of employees fell by 0.2% over the year to June 2017 – the lowest annual growth recorded in the series’ history:

Adjusting for inflation, the situation facing Australian workers is even worse, with average compensation falling by 2.1% over the year.

Second, the slump in workers’ compensation comes despite solid increases in labour productivity. As shown in the next chart, real average compensation of employees has badly lagged labour productivity since the early-1980s, however, the divergence has become especially stark over the past five years:

Third, company profits have boomed just as workers’ incomes have declined:

Fourth, the wages share of total factor income has hit the lowest level since June 1964 (53 years):

Clearly, the above data backs the ACTU’s claims that Australian workers are receiving less of the national economic pie.

While labour has been doing a good job, as evident by its strong productivity performance, its efforts are getting killed by dismal capital productivity as savings are massively mis-allocated into profitless houses, profitless energy and a profitless government that wouldn’t know a reform policy if it ran over it in a bus.

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    • I remember his column in the Australian, complete with his photograph oozing the smuggest smirk you’ve ever seen, a look screaming out “by jove, aren’t I just the most amazingly intelligent, most incredibly talented individual Christ ever put breath into?”

      No Henry, you’re not.

      How did your Telstra shares perform in the wake of “the millstone of public ownership being taken from around it’s neck”?

  1. If Ergas had peddled his notions to the Guardian or even Fairfax, they’d have turned it down. An academic economics journal may also have had serious doubts and questions about it too. The Australian’s publication of his pseudo-analysis is just a front in the class war.

  2. I’m far from convinced by Sally McManus’s assertions. Recently the ACTU strongly critiqued Unilever siding with the production workers at the Minto factory. Gone quiet now it has been revealed average salaries for production workers in the ice cream factory were $105,000 per annum.

    Australian workers are well paid. If they are award based overtime penalties, shift allowances, meals etc really do pushup average salaries.

    Kindergarten teachers can earn $100k. Nurses similar. Emergency services similar. Health workers similar. Mid tier public sector sector, similar or more. Trades, a lot more. Recently saw advert In the local paper for an events manager at the local public pool facility, $100k plus.

    • Those production workers are probably doing 12 hour shift work. Working Saturdays Sundays and public holidays and doing overtime. There not doing a 9am – 5pm mon to Friday, 38 hour week job.

      • They possibly are. That was key to the dispute. The company wanted more flexibility from workers who refused to abandon peak production schedules (ie lots of overtime) despite that fact that ice cream production is highly seasonal with the summer period peak.

        Those on a straight 38 hour week earning $80-100k doing very nicely. Public sector take a bow. Those on more, doing even better. Australian workers are well paid. That is their share of the economic pie. Houses and Holes has stated repeatedly that wages need to moderate as a component of the necessary economic readjustment facing Australia.

      • The point is to let the falling Australian dollar rebalance wages and make them more competitive. With record housing debt you can’t just shred wages across the economy that will lead to recession. Employees are also consumers and 60% of GDP is consumption.

      • No one is talking of shredding wages.

        The AUD falls and wages “rebalance”: leads to greater calls for higher wages as workers feel the pinch for all imported goods including fuel and recession results in any case. Recession may be an inevitable conduit, to repair or remorse.

      • True. Not much that can be done now, I think recession is already baked into the cake just a matter of timing.

    • Daniel,

      Sorry but you leave yourself open to being called a f*****g bull******r. Kindergarten workers are lucky to earn half that, same goes for nurses as I’ve known a few. Have a Nurse Consultant friend who earns 110k, but she is at the top of the tree, another ex midwife who left the industry to earn 40k. Also your trades earning far > than 100k….. $50ph for a 38 hr week is 100k. I don’t know any trade getting that other than resource projects on a FIFO basis where they’re working 14 12 hr days. And don’t come back with your electrician / plumber figures of $80ph due to lost time between jobs and I haven’t known one yet who would get even 80% efficiency.

      • Right back at you Dennis as far as your nursing pay numbers go. If a midwife left to earn less than 40k then she took a hefty pay cut. Annual leave is pretty good too.

      • Teachers including kindergarten and preprimary who achieve Senior status are well paid, length of service and a course $100k+. Nurses are very well paid when employed full time and with shift allowances. Trades are well paid.

        We all have anecdotes: My sister is a midwife and earns $107k in a large public hospital, her daughter is an enrolled nurse in the State Children’s hospital, 24 years of age, generally works alternate three day/four day shifts (rest off) very happy to clear $1500-1700 (nights).

        Australians are well paid.

      • Daniel, I also have personal anecdotes – this figure is pure horseshit mate!

        I KNOW what my missus earns and it ain’t anything like what you say.

      • I KNOW what my missus earns and it ain’t anything like what you say.

        I’m sure there’s at least one Kindergarten teacher out there earning a hundred grand.

        Probably somewhere on the North Shore and a blood relative of the facility’s owners.

        3d Daniel’s claims about wages make Telstra and Optus’s “up to” 100Mb NBN look positively conservative and ethical.

  3. Yep – Daniel – our employer (rio tinto) most recently compared our wages for 12.5 hr shift rolling roster – rolling right through night and day, birthdays, Christmas etc – to the 9-5 job average Australian wage as a means to make us feel fortunate – keep our pay rises under inflation for the 9th successive year. That and the unacceptable situation where profits have fallen from the clever-clogs benchmark highest iron ore price in history and like, EVA! – $6b+ profit, fuck all tax etc etc.
    If you’re the guy that says good executives require millions to come up with that shit only to run off with the goodies (and break the law while they’re at it – string of that shit under past execs), but deny stuff like drug rehab funding even though that saves millions in police, hospital, detention etc …

    Then you can fuck right off. Take Henry with you.