Contributed by Joe Montero
Such is the state of affairs that the governor of the Reserve Bank has been moved to call on workers to start demanding pay rises from their bosses.
For someone in this position, to say such a thing would have been unheard of until now. It shows just how serious the impact of the falling wages share is having on the economy. Philip Lowe told a recent conference at the Australian national University (19 June) that the “crisis” in wages growth is cutting back demand.
Data shows that the share of national income going to Australian workers was close to a 50-year low. Bureau of Statistics data this month showed labour’s wages share of gross domestic product has fallen to 51.5%, down from 54.2% in the third quarter of last year. At the same time, the profit share of GDP has risen from 24.5% to a five-year high of 27.5%.
The Australia Institute suggests that the shift has been even bigger, with the proportion of Australia’s economic output paid to workers reaching a record low at 46.2 percent. Official wages growth is also at an all time low, of just 1.9 percent, compared to an official cost of living rise of 2.1 percent. This means real wages have declined by 0.3% over the past year.
Lowe also said that the jobs market is better than many believe and that unemployment was going down to a low level. This, he suggested with fuel demands for higher wages.
He said that with this, workers could ask for a larger share of the nation’s economic pie. “If that were to happen it would be a good thing,” he said
While being right about the impact of the falling wages share, he is wrong about the labour market, because of reliance on official statistics that paint a wrong picture. Australia is not falling to a low unemployment level. It means that a relative labour shortage will not be what fuels the demand for higher wages.
It is not hard to see that the less the largest portion of the population has to spend, the less economic activity there is going to be a little way down the track. Businesses will not produce if they cannot sell.
The problem also goes much deeper than this.
Both orthodox pro capitalist and Marxist economic theory suggest that in times of a decline in the economic cycle, there is a drive to reduce the cost of labour, through the application of new technologies, speeding up the pace of work, taking on the unemployed and those not in secure work at less pay and directly extending the hours worked for the same wage. All these means have been applied in Australia.
As the activity of business becomes more capital intensive, it requires operations to be on a larger scale than before. While the short-term cost might fall, the longer-term cost increases. The use of labour is flexible, while the investment in technical capacity is not. One can be relatively adjusted to market needs. The other cannot.
When the squeeze tightens, the pressure is to reduce labour costs further still. There is also a push to increase labour market flexibility. These two trends have been operating in Australia.
The effect is to decrease the return on investment. This has also been true for Australia, despite record profits being made. The reason for this discrepancy is that ownership of the Australian economy has been falling into fewer hands as those unable to compete fall by the wayside. Operating at a larger volume enables a rise in profit, despite the decline in the rate of return.
But the combination of this falling rate and the growth of monopoly, leads to too many goods and services being on the market, relative to its capacity to absorb. Unless this is corrected a period of economic difficulty leads to a more serious slump and Australia is now reaching this point.
This is what is behind the growing concern.
Philip Lowe is right to suggest that the economic solution is to shift national income back to wages. This would restore the balance. The problem is that the large corporations that dominate are not prepared to sacrifice their advantage, even if it is on shaky ground. And so long as their remains a significant level of unemployment and underemployment, unions will have difficulty in pushing through a change on their own. This means that there must be a political solution, either through government, or through a broad political movement that makes it happen.
Australia is not the only country affected. It is a global problem.
The last two depressions were resolved by finding new markets through war. Should there be a serious enough economic collapse and the issue is not addressed, it may that history will be repeated. Do we really want to go down this road?