The top end of town has swallowed up more of the nation’s earnings, plunging workers deeper into debt and sparking fears of a property market crash.
New data released on Wednesday raised the red flag on the health of the economy, showing that it shrank by 0.5 per cent between July and September, its first contraction since 2011. If the result is repeated in the December quarter, Australia will officially be in recession.
Treasurer Scott Morrison labelled it a “wake-up call” and a “warning”, while Shadow Treasurer Chris Bowen described it as “deeply concerning”.
The ABS data also showed that profits, rents and interest payments have gradually taken more and more of the national income, eroding the share given to workers.
Despite gains in productivity (making more stuff with fewer people), wage earners are still getting a far smaller chunk than they used to.
The latest GDP figures showed that wages accounted for 54.3 per cent of national income for the September quarter — far less than in the 1970s and ’80s.
Professor Bill Mitchell, an economist at the University of Newcastle, blamed the “pernicious” trickle-down economics of Ronald Reagan, Margaret Thatcher and Labor’s Bob Hawke and Paul Keating.
Wages decoupled from productivity growth in the 1980s because of liberalised trade, tax cuts for the rich, financial deregulation, privatisation of public assets, attacks on trade unions and other ‘free market’ policies, he told The New Daily.
“The whole Hawke/Keating mantra was, if we suppress real wages growth and let productivity growth outstrip it, then the profit share will rise and business firms will pump that money back into capital investment and we’ll have more innovation, high productivity and we’ll all be better off.
“That didn’t happen. What happened was, the money was pumped into financial markets, which are essentially unproductive, but spawn massive speculative behaviour and this rise in the top-end of town.”
Whatever the explanation, workers are hurting, as Brexit, the election of Donald Trump and the defeat of the Italian referendum seemed to prove.
The ABS measure of national income, called ‘total factor income’, adds up worker wages, business profits, interest on capital and rental income to landlords. It then expresses as a percentage the share given to workers.
The reality may be worse, as the definition of ‘worker’ includes bank CEOs and other highly-paid executives, whose share of wages is rising.
Redistributing income away from labour and towards profit is thought by some, such as French economist Thomas Piketty, to worsen inequality because capital is highly concentrated in the hands of the well-off.
Labor’s Andrew Leigh, an economist who regularly denounces rising inequality, said it was no surprise the shrunken wage share resulted in a widening gap between rich and poor. He drew a link to the property market.
“Australia is a much more unequal place than it was,” Mr Leigh told The New Daily.
“One manifestation is the change in the ownership structure of houses. The home ownership rate is now the lowest it’s been in 60 years, which means our housing stock is ending up concentrated in a smaller share of the population, with more lifetime renters.”
Even more disturbing, Prof Mitchell said, was that developed economies, Australia included, continued to grow “unsustainably” by substituting wage spending with debt.
“That redistribution of national income away from wages to profits, where did it go? It went into the financial markets and it coincided with financial market deregulation, which led to the credit boom and record levels of household debt.”
The latest Newspoll found more than one in three respondents nominated jobs and growth as their key concern.
There is a growing consensus, even among more conservative groups such as the World Bank, the OECD and the International Monetary Fund, that the only way to cool worker anger is for governments to invest more in public infrastructure and education.
In its examination of the topic, the OECD, a global group that advocates for economic development, argued that affected nations should funnel more money into ‘human capital’, rather than trying to stem the tide of globalisation and technology.