Australia is experiencing, right now, a rare seismic upheaval in the distribution of wealth and income.

The share of the national pie enjoyed by wage earners has tumbled suddenly and dramatically. Not just to the lowest point since the Coalition government was elected — which would be no surprise — but to the lowest point since the Australian Bureau of Statistics (ABS) began recording this data in 1959.

For the third quarter in a row the share of Australia’s gross domestic product allocated to employees has been below 46.9%. This strongly suggests a structural change, rather than a statistical blip.

Rises and falls

The history of this is quite intriguing. No, really, it is. Stick with us. Over the ABS journey, from 1959 until now, workers’ share of GDP has averaged 49.9% — near as dammit to half. The rest is shared among company profits, government, non-employee income and housing stock.

The long-term chart reveals several remarkable periods in Australia’s post-war history. But none quite as startling as now.

 

(This chart is a simple Excel line graph using the quarterly data, seasonally adjusted, from columns AI — compensation of employees — and column AV — total GDP — in table 7 of file 5206.0, Australian National Accounts: National Income, Expenditure and Product.)

Twice Australia has had periods of steady, gradual increase in the proportion of income going to wage and salary earners. The first was from mid-1959 when this data was first collected, or possibly earlier, until December 1973. The second was from September 2008, when the global financial crisis whacked the developed world, until September 2016.

There have been three periods of quite rapid and substantial rise in the share going to employees. They were March 1974 to March 1975, then December 1979 to September 1982, and December 1988 to September 1990.

There has been one long, slow, steady decline in the labour share, from December 1990 to June 2008.

Three times the share has collapsed rapidly and severely. They were from June 1975 to September 1979, from December 1982 to September 1988, and now the current period, from December 2016 to June 2017.

Correction or collapse?

But here’s the thing. Only the last of these three is not a correction from a preceding dramatic rise. And only the current decline is happening at a time of robust global trade and record company profits.

In the late ’70s, the workers’ share corrected from the all-time high of 58.3% down to 51.8%. That was a rapid drop, yes, but to a nadir still well above the nation’s average of 49.9%. The late seventies was the period of recovery from the impacts of the global energy crisis, the OPEC oil price shock and the secondary banking crisis in the UK.

The 1980s was a period of profound readjustment in Australia’s economy — floating the dollar, deregulating the banks, introducing superannuation and replacing decades of industrial mayhem with the prices and incomes accord. It was also impacted by the early 80s global recession.

What is transpiring now is quite bizarre: a sudden and apparently sustained collapse in workers’ share from a historically low starting point — just 48.6% — and with no problems whatsoever with the global economy. In fact, these are global boom times with all-time high trade volumes, robust commodity prices, record company profits and arguably the most benign tax and regulatory regime ever.

Causes

As this is occurring right now, most economists will report it in about five years’ time. As it is a shift in favour of the rich to the disadvantage of the poor, the mainstream media is reporting that the opposite is happening.

One economist across this is Jim Stafford at The Australia Institute. He noticed the drop in this year’s March quarter to an all-time low and explored the causes.

Key factors, Stafford reckons, are the swings in the resource and mining sector.

“After world commodity prices turned down in 2014, mining companies squeezed their labour costs brutally: redundancies, wage freezes and restructuring collective agreements,” he told Crikey this week. “Then when prices came back up — for a while, anyway — the profit margin was all the fatter. And since resources are so capital intensive, that froth goes straight to the profit line. In fact, since so much of the industry is foreign-owned, much of it never even ‘lands’ in Australia!”

The greatest structural shift in income distribution in Australia, Stafford says, is that workers “have lost the institutional power with which to negotiate a healthy share of the output they produce”.

Remedies

To reverse this, Stafford believes the institutions and programs that once helped workers win a fair share of total output must be rebuilt.

The crucial areas he nominates are:

  1. Restoring collective bargaining “which has become increasingly unviable in the private sector, as evidenced by the sharp decline in the number of private sector workers covered by EBAs”;
  2. Higher minimum wages “so that someone who works full-time year-round is not in poverty”; and
  3. A fairer tax system “with fewer loopholes for the owners of capital, such as capital gains partial taxation, preferential treatment for dividends and others.”

Under Turnbull and Morrison? No chance.