Stagnation and policy problems are in the ‘too hard’ basket

The picture of Australian households painted by University of Melbourne’s Household, Income and Labour Dynamics in Australia (HILDA) survey confirms that the Australian economy has entered a protracted period of stagnation in which the benefits of economic growth are no longer going to households, and the pact between policymakers and voters that pro-corporate policies and deregulation would deliver rising incomes has been broken.

The longitudinal study of thousands of households illustrates how incomes have stagnated or fallen, social mobility is difficult and male workers have seen real wage cuts over the last six years.

The survey confirms what every working Australian outside a c-suite or Coalition minister’s office knows: our incomes are flat or declining. Mean household disposable income, which grew strongly in the years before the financial crisis, has grown just 3.2% in real terms since 2010 and 0.2% since 2013 (that’s not an annual figure, that’s the total growth). Median household incomes — the mid-point of household incomes — have actually fallen slightly since 2013 after growing 2.5% between 2010 and 2013. When examined on an adjusted per person basis, real mean incomes have grown by 0.4% in total since 2013 and median incomes have been flat.

The survey shows, however, that it is male workers that have borne the brunt of wage stagnation. Weekly earnings for females have slowly trended upwards across all incomes since 2001, with stronger growth before the financial crisis and in the last three years. Male workers, however, have had no earnings growth in real terms in recent years, or in the case of high income earners, have gone slightly backwards.

This, coupled with the strong growth in female participation in recent years (also a feature of the Howard years), suggests that, while it may have happened under both sides of politics — female participation and wages growth are heavily driven by increasing government investment in health and education, which are big employers and dominated by women. The Coalition should get the credit for the economic empowerment of women as well as the blame for economic stagnation.

Alarmingly, however, even the period of strong incomes growth before the financial crisis hasn’t been enough to generate real social mobility. In Australia, your parents’ income strongly determines what income you will earn. The long-term nature of the HILDA study now allows researchers to look at the incomes of people compared to the incomes of their parents at the start of the study in the early 2000s.

It shows that at least a third of people whose parents were in the lowest income quintile end up in that quintile themselves. Between 50% and 60% of people from lowest-quintile backgrounds end up in the bottom two quintiles. Less than a quarter ever make it into the top two quintiles. Equally, those born into high-income families do very well: more than half of people whose parents were in the top quintile end up in the top or second-top quintile themselves; less than one in ten ever end up in the bottom quintile.

Whether this lack of social mobility is worsening or improving isn’t clear — it will take several more years’ worth of data to determine how the pattern is changing. However, the survey also shows that poverty, measured in actual income terms rather than as a relative measure linked to overall incomes, fell dramatically in the years to 2012 to below 4% of the population, though it has remained relatively unchanged since then.

The outcomes suggest that Australia’s economic stagnation, where it can be remedied with government spending, is relatively easily addressed: increased government spending in health and education has driven female participation and wages up; direct welfare spending — despite the government’s obnoxious and increasingly isolated hostility to Newstart recipients — has helped address poverty.

Where failure lies is in more complex policy challenges: restoring the surge in labour productivity that Labor oversaw in government, bringing to life our comatose capacity for innovation, managing the decline of traditional male sectors like manufacturing and, above all, levelling the playing field between workers and corporations so that the benefits of economic growth once again start flowing as much to households as to shareholders.