The claim
The Albanese government has announced it will host a jobs and skills summit in Canberra next month, with the two-day talkfest expected to inform an employment white paper, which it claims will "help shape the future of Australia's labour market".
Appearing on ABC TV following the announcement, the secretary of the Australian Council of Trade Unions (ACTU), Sally McManus, said among the "serious issues" needing to be addressed at the summit was the "issue of workers' share of our overall wealth".
"Labour's share in the GDP [gross domestic product] is at its lowest level; it hasn't been at this point since 1960," she told Afternoon Briefing.
"That's a shameful situation for us to be in as a country."
So, is that correct? RMIT ABC Fact Check investigates.
The verdict
Ms McManus's claim is a fair call.
Figures published by the Australian Bureau of Statistics (ABS) show that, since 1959, the compensation of employees as a share of the nation's GDP has never been lower.
It's important to note that in making her claim, Ms McManus referred to workers' share of Australia's "wealth". Experts told Fact Check this was a different economic concept to income, which is what is measured when talking about labour's share of GDP.
There is no perfect measure for workers' share of wealth in Australia, they said.
Measuring labour's share
In addition to her appearance on Afternoon Briefing, Ms McManus repeated her claim on Twitter later in July, sharing a graph showing the trajectory of labour as a share of GDP alongside a comment noting that "working people's share of our nation's wealth has never been at a lower level".
A follow-up tweet clarified that she was referring to the period since 1959 when the measure was first used.
Ms McManus's claim that labour's share of GDP is at its lowest level since then appears to be based on ABS data relating to "compensation of employees" as a proportion of total GDP.
According to John Hawkins, of the Canberra School of Politics, Economics and Society at the University of Canberra, this measure was "certainly a reasonable way of analysing the labour share".
Economist Saul Eslake concurred, noting in an email to Fact Check that the measure was "a perfectly reasonable way of showing the share of national income going to employees".
Dr Hawkins and Mr Eslake both explained how another measure — the wages share of total factor income — could also be used to assess the claim.
According to the ABS, total factor income is "equivalent to GDP less taxes plus subsidies on production and imports".
Jeff Borland, a professor of economics at the University of Melbourne, said it was "most usual to report labour's income as a share of total factor income".
"But total factor income only differs from GDP in an adjustment for taxes and subsidies, so I imagine that you get much the same series using either factor income or GDP."
Dr Hawkins agreed that it made "little difference whether you use GDP or total factor income or a similar measure as the denominator".
Wealth vs income
Assessing Ms McManus' claim is complicated by the fact that she referred to both "wealth" and "income" — two different economic concepts.
According to Mr Eslake, income was a "flow" concept, something that could only be measured over a period of time, while wealth was a "stock" concept, something that, in theory, could be measured at a particular point in time.
Both Mr Eslake and Dr Hawkins told Fact Check there was no simple way of measuring workers' share of national wealth.
"There is data on household wealth," Mr Eslake said in an email.
"But I don't think it makes sense in this particular context to compare a measure of workers' incomes, such as employee compensation, with a measure of the stock of household assets minus household liabilities (a measure which will have been inflated by the rapid increases in house prices).
"Rather, I think it was just that Ms McManus was conflating 'national income' with 'national wealth', as lots of people often do."
Dr Hawkins, meanwhile, told Fact Check that "to the extent that wealth represents accumulated income, a fall in the labour share will lead over time to workers having a lower share of national wealth".
"But it is complicated by capital gains on houses and shares."
Fact Check has assessed the second part of Ms McManus' claim — that labour's share of the GDP is at its lowest level since 1960 — but notes that this is a measure of income, not wealth, as suggested by Ms McManus.
What do the stats show?
Ms McManus is correct that labour as a share of GDP is at its lowest level since records began in 1959.
Both compensation of employees and the wages share of total factor income "show the labour share around the lowest it has been since the quarterly data started in the late 1950s", Dr Hawkins noted.
Mr Eslake agreed, telling Fact Check: "Both series show that the share of "total factor income" or GDP going to employees in the form of 'compensation' (that is, wages and salaries) has fallen to record lows in the past two years."
Indeed, data from the National Accounts for the March quarter, released by the ABS in June, shows that compensation of employees made up 45.06 per cent of total GDP, down from 45.91 per cent in December 2021.
Prior to June 2021 — when labour accounted for 46.13 per cent of GDP — this ratio had not fallen below the proportion recorded in December 1959 (46.33 per cent).
Labour as a share of total factor income, data for which can also be found in the quarterly National Accounts, has followed a similar downward trajectory, with the June and September quarters of 2020 the lowest on record.
The September and December quarters of 1959 are the only other periods to have recorded a lower ratio of labour to total factor income when compared with the latest figure for March 2022.
Additionally, Melbourne University's Professor Borland shared with Fact Check his own graph showing the labour share of income in Australia, after taking into account the implicit wages earned by self-employed business owners in addition to the salaries and wages of employees.
"Certainly, during the period where we can base the calculation on ABS data, it is the case that labour's share of factor income has never been lower," Professor Borland said of this measure.
What do the experts say?
According to Dr Hawkins, the "broad argument that workers have been getting a smaller share is fair".
He noted, however, that part of the most recent fall in labour's share of GDP could be temporary.
"The spike in commodity prices since the Russian invasion of Ukraine would increase the value of GDP from the mining sector, which does not employ many people," Dr Hawkins explained.
"But, as real wages have not been keeping up with productivity lately (and actually have been falling since inflation picked up), there would still be a decline in the labour share over the medium term."
Mr Eslake told Fact Check that Ms McManus's claim was "essentially correct" but noted the falling share of GDP going to workers was not unique to Australia.
"Similar trends are apparent in most other 'advanced' economies — which suggests that the reasons for the decline in the share of national income going to employees are more likely to be global, than domestic."
He explained that the most critical factor in this trend was the ongoing shift in the bargaining power of employees in relation to employers.
He detailed a number of contributing factors: a decline in union membership, the decline in the share of economic activity and employment in goods-producing industries such as mining, and the increase in the pricing power of large corporations.
Principal researcher: Ellen McCutchan
Sources
- Prime Minister of Australia, Jobs and Skills Summit to be held in September, Media Release, July 11, 2022
- Sally McManus, Afternoon Briefing, ABC TV, July 11, 2022
- Sally McManus, It seems some do not like people knowing the facts. Working peoples share of our nations wealth has never been at a lower level, Twitter, July 23, 2022
- Australian Bureau of Statistics, Australian National Accounts: State Accounts methodology, November 19, 2021
- Australian Bureau of Statistics, Australian National Accounts: National Income, Expenditure and Product, June 1, 2022
