If you’re hoping for a post-pandemic pay rise, don’t hold your breath. Even though the economy has returned to growth after the slump triggered by COVID-19, the outlook for wages is lousy.
Wages growth was feeble long before the pandemic and has now flatlined for much of 2020 thanks to the recession. Reserve Bank governor Philip Lowe warned last week wages would “remain subdued” for years.
More than 17 per cent of Australia’s labour force is either unemployed or underemployed and that means there’s little pressure on employers to pay workers more.
Australia is not alone. A report released by the International Labour Organisation on Thursday showed the pandemic had sapped wages growth across the world. It found monthly wages fell, or grew more slowly, in two-thirds of countries for which official data was available for the first half of this year. Even in nations where wages did appear to increase, the study found it was largely due to lower-paid workers losing their jobs and therefore skewing the average, since they were no longer included in the data for wage-earners.
Women and low-paid workers have been disproportionately affected across the 136 nations included in the study.
“The crisis is likely to inflict massive downward pressure on wages in the near future,” the ILO warns.
With nearly 1 million Australians officially out of work the biggest economic problem facing the nation right now is employment. But high unemployment isn’t just terrible for the jobless, it’s also bad for those with a job who need a pay rise.
A healthy economy needs wages to be growing at a steady clip. Lowe has previously indicated he’d like to see wages rising by 3 to 4 per cent a year, with an inflation rate of 2.5 per cent. But we haven’t had that combination for the best part of a decade and the pandemic seems to have pushed it even further out of reach.
The quarterly report card on the economy released by the Bureau of Statistics on Wednesday drew attention to an important trend affecting all Australians who live on a pay cheque. The share of national income accruing to wage earners fell to a record low of 49 per cent in the September quarter. That compares with a peak of 63 per cent back in 1975.
Almost all the decline in the “wages share” – as economists call it – in recent decades has been offset by a corresponding rise in the proportion of national income accruing to company profits. In the September quarter the “profit share” jumped to a record 31 per cent, which is almost double what it was in the mid-1970s. (A proportion of national income also goes to unincorporated businesses, independent contractors and other self-employed individuals – the “mixed income” share – but that’s remained relatively stable.)
Recessions usually put downward pressure on profits because sales margins are hurt by weaker demand and firms must meet fixed costs such as rents and utilities. But this time the economic stimulus policies chosen by the government have bolstered company profits, especially the $100 billion JobKeeper wage subsidy.
In Federal Parliament last week, Labor MP Andrew Leigh pointed out that some Australian firms that received taxpayer support had ended up making “more money than last year”. He wants the government to release a list of companies which benefited from JobKeeper and increased their profits.
While this year’s record profit share has been temporarily boosted by public subsidies, there’s no escaping the long-term trend showing a steady shift in the distribution of national income away from labour and in favour capital.
ANZ economist Felicity Emmett warns the wages share of income is likely to remain around the current lows or “perhaps even trend down” after the pandemic passes.
The proportion of national income going to wages has fallen in many advanced economies since the 1970s.
But research by Jim Stanford from the Centre for Future Work shows the decline in the wages share of economic output in Australia has been relatively big by international standards. He compared the wages share across 25 wealth-nation members of the OECD over the past four decades and found Australia had the 18th largest fall out of the 25 nations in that period. Australia had the fifth-highest share among the countries in the study during the 1970s but that had fallen to 15th among the same 25 nations by the 2010s.
The decline in the wages share has been quite pronounced in Australia over the past six years.
Economists have offered various explanations for the slump, including the waning influence of trade unions, the effects of globalisation and greater use of digital technology and automation. Another factor is a long-running increase in income earned from housing assets, driven in part by rising property prices and rents.
Changes to the financial sector since the 1980s, including its growing size and profitability, have also played a role. A recent Reserve Bank study showed the share of financial industry income going to finance workers nearly halved between 1990 and 2018.
A sustained revival in wages growth, which Australia badly needs, looks a long way off.
Source: Thanks smh.com