Yesterday’s March quarter GDP result shows how we’ve engineered a long-term shift in income from workers to corporations over the last five years.
On the surface, the national accounts data was solid, if historical in nature: 0.8% growth for a 3.7% annual result, propelled by both household and government spending, with households spending more and the savings ratio falling to 11.4%, while strong demand for imports offset our continuing strong exports. Labour productivity was also up — GDP per hour worked rose 1.7% in the quarter, and 2.8% for the year. Real unit labour costs fell 2%, and 2.7% across the year. So employers enjoyed a decent fall in the labour cost of each unit of output.
But buried in Table 24 of the the national accounts is an indicator of how it wasn’t just the 12 months to March that was great for employers. It shows a near-record low for wages share of national income, and a record high for profits.
In the three months to March, the wages share of total factor income fell — for the third time in two years — to less than 50%. The share, 49.8%, was a touch higher than the share in the June 2020 quarter of 49.6% and in the following quarter — 49.1%. But that was during the pandemic. Throughout 2021 during the next round of lockdowns, the share held by wages remained above 50% — just. Now, it’s back below 50%.
The share of profits rose to 31.1% — that was an all time high, up from 30.1% in the December quarter.
And that’s merely the continuation of a trend. The wage share of income averaged above 54% in the Howard years, but fell to 53.7% in Howard’s last term. During the financial crisis it fell to 52.2% but then lifted again in the last years of Labor. When the Coalition came to power, the wages share had been above 53% since the beginning of 2012. Profit share was 27.5%.
But as wage stagnation took hold in the ensuing years, the balance began shifting: 2017 was the key year — after being above 54% in 2016, the wages share fell to an average of 52.5% across that year. In 2018 and 2019 it remained stuck at that level, never recovering like it did after the financial crisis. In the first year of the pandemic, it fell below 51%. In the last four quarters to march this year, it has averaged just 50.3%.
At the same time, profit share has steadily crept up: 27%, 28%, then lurching to over 30% in the pandemic.
This in turn helps explain why Australian business was one of the most profitable places in the world in 2021, with companies paying out record dividends. BHP paid the biggest dividend of all — $US12.5 billion, larger than the big tech firms like Apple, Amazon, Alphabet and Microsoft.
The annual global dividend survey from fund managers Janus Henderson shows that 2021 the best year ever for the world’s 1,200 biggest companies — and a principal driver of that record was the recovery in Australian corporate payouts to shareholders. BHP was joined in the top 10 payers list in 2021 by Rio Tinto and Fortescue — the first time we had three companies in the top 10. Australian dividends reached a record $US63.3bn last year, making us third largest total in the world.
Much of that — as the presence of BHP, Rio and Fortescue in the Janus Henderson list shows — was driven by iron ore exports. But persistent wage stagnation since 2017, and the arrival of the pandemic, has caused a long-term shift of income from wages to profits for corporations.
That exposes the lie pushed by the business community and its media cheerleaders that Australian workers must now cop a real wage cut in the name of protecting the economy from inflation. The real wage cut demanded by business and the commentariat would in fact lock in place the transfer of income to employers that’s occurred since 2017, and extend it. There need be no inflationary spiral if we shift the balance between wage share and profit share back to where it has been for most of the last three decades.
And as the track record since 2017 suggests, that means strong wages growth, not further wage suppression. It’s all there in the national accounts, if people care to look.
