Several big name economists have questioned the data used by the ALP and the ACTU in arguing that corporate profits are growing at a much faster pace than wages. The ALP and ACTU have claimed that profits rose by 20% year-on-year in the September 2017 quarter, compared with wages growth of just 2%. However, the economists argue that ABS data shows that wages and profits’ share of national income has not changed significantly since 2012-13. From The AFR:
The Australian Council of Trade Unions and Labor have been accused of cherry picking profit and wages data to paint a grossly misleading picture of why household incomes have been slow to lift, economists say.
A key element of Labor’s growing attack on business and Coalition calls for tax cuts is that company profits are up 20 per cent in the September quarter from a year earlier while wages have risen by only 2 per cent…
Official figures expose such claims as simplistic and narrowly focused, say economists, who point to long-run data showing that the relative shares of national income won by by labour and companies has been little changed for decades.
Labour captured 58 cents of each dollar of income in 2016-17, according to figures published by the Australian Bureau of Statistics late last month. That figures is down just one cent from 2015-16, but up from 56 cents in 2012-13.
Similarly, the profit share has stayed remarkably steady, fluctuating between 41 and 44 cents over that period.
Economist Chris Richardson points out that the stability in income shares has come despite extraordinary swings in profit and wages growth since 2002-03, when the commodity and resource boom took off…
“The context on [the ACTU and Labor claims] on profits is important,” Mr Richardson said. “They’ve lifted, but they’re still below the average share of Australian income over the last decade and a half…
Stephen Walters, chief economist at the Australian Institute of Company Directors,… says the ACTU and Labor argument fails to recognise that the gap between profit and wages growth over the past year has been a one off.
So who’s correct, the ALP/ACTU or these economists?
First, the ALP’s and the ACTU’s claim that profits rose by 20% year-on-year in the September 2017 quarter, compared with wages growth of just 2%, is basically correct (i.e. 18.7% growth vs 2.5% growth) and is borne out by the ABS’ data on wages and salaries:
However, the economists are also technically correct to claim that the wages/profits share has not changed materially since 2012-13.
That said, the economists are being highly disingenuous when they “point to long-run data showing that the relative shares of national income won by by labour and companies has been little changed for decades”. This is simply untrue.
The share of national income going to workers has fallen sharply since the 1970s:
And employee compensation has failed dismally to keep pace with labour productivity:
Based on the past 40-years of data, the ALP’s/ACTU’s claims about falling worker shares are spot on.
