In yesterday’s blog post – Australian national accounts – growth continues but deep uncertainty looms (September 5, 2018), my theme was that the current period of economic growth in Australia was being built on what we might consider to be quicksand – increasing household debt and a run-down in household saving. Australia’s household saving ratio is now down to 1 per cent and falling, which is taking us back to the madness of pre-GFC. By any stretch this is an unsustainable growth path. Last Monday (September 3, 2018), the Australian Bureau of Statistics published their data series – Business Indicators, Australia, June 2018 and – Retail Trade, Australia, July 2018. The latter gives a more recent estimate of what the economy is doing, given the national accounts data that came out yesterday covers the period from April to June. Things are definitely not going in the right direction. The data shows that the benefits of growth are being disproportionately captured by profits and wages are lagging well behind. Overall, this is a recipe for disaster.
The headlines in the last week summarised the inherent inadequacy of capitalism for most of us who depend on real wages growth to enhance our material standard of living in economies that are growing. The latest report from the Australian Council of Superannuation Investors released on Thursday (July 17, 2018) – CEO Pay in ASX200 Companies: 2017 – shows how unfair and unsustainable the income distribution is in Australia. Australian CEOs were fully committed to the ‘greed is good’ binge leading up to the GFC along with their peers across the globe. The GFC interrupted that ‘party’, albeit temporarily. As the emergency environment that surrounded the business community during the GFC abated as a result of extensive government support (bailouts, stimulus packages, etc), the managerial class in Australia has returned attention to its on-going ‘national income grab’. The Report shows that in 2017, CEO pay reached its highest level in 17 years and the managerial class enjoyed real growth in pay at a time when the average worker is enduring either flat to negative growth in pay. Further, overall economic growth in Australia is being driven by increased non-government indebtedness as real wages growth (what there is of it) lags well behind productivity growth. And, at the same time, the Federal Government is intent on pursuing an austerity policy stance. All these trends are similar to the dynamics we experienced in the lead-up to the GFC. They are unsustainable. A major shift in income distribution away from capital towards workers has to occur before a sustainable future is achieved.
The Australian Bureau of Statistics released a new labour market framework on Tuesday (July 10, 2018) – Labour Account Australia, Quarterly Experimental Estimates – which will improve statistical analysis and allow new conjectures to be examined against the evidence. This blog post is really an exploration on my behalf of this new dataset and I know it is rather dry. But that is part of my work and it has to be done to build an evidential basis for the claims I make about this and that. I am still exploring the framework and will obviously use it to advantage (hopefully) in the future but for now here are some of the compelling insights that emerge from it. The first obvious new insight we can gain is to divide total filled jobs (employment) into Main and Secondary jobs. This allows us to assess the quality of the change in overall employment. Up until now we have considered employment in terms of persons employed. But now we can work out how many persons are employed in more than one job and where those jobs are. It provides an excellent check on statements made by politicians etc about the number of jobs being created and their quality.
There is an interesting dilemma currently emerging in Australia, which provides an excellent case study on how governments can use fiscal policy effectively and the problems that are likely to arise in that application. At present, the Australian states are engaging in an infrastructure building boom with several large (mostly public sector) projects underway involving improvements to road, ports, water supply, railways, airports and more. I travel a lot and in each of the major cities you see major areas sectioned off as tunnels are being dug and buildings erected. Not all of the projects are desirable (for example, the West Connex freeway project in Sydney has trampled on peoples’ rights) and several prioritise the motor car over public transport. But many of the projects will deliver much better public transport options in the future. On a national accounts level, these projects have helped GDP growth continue as household consumption has moderated and private investment has been consistently weak to negative. But, and this is the point, there have been sporadic reports recounting how Australia is running out of cement, hard rock and concrete and other building materials, which is pushing up costs. This is the real resource constraint that Modern Monetary Theory (MMT) emphasises as the limits to government spending, rather than any concocted financial constraints. If there are indeed shortages of real resources that are essential to infrastructure development then that places a limit on how fast governments can build these public goods. The other point is that as these shortages are emerging, there is still over 15 per cent of our available labour resources that are being unused in one way or another – 714,600 are unemployed, 1,123.9 thousand are underemployed, and participation rates are down so hidden unemployment has risen. So that indicates there is a need for higher deficits while the infrastructure bottlenecks suggest spending constraints are emerging. That is the challenge. Come in policies like the Job Guarantee.
It is a public holiday in Australia today. Would you believe it is the annual Queen’s Birthday holiday – the Queen of England that is. How Australia maintains this colonial relic is down to progressive forces being divided on rather irrelevant details and some of them siding with the monarchists. Tomorrow’s blog post will analyse the recent ECB behaviour with regard to Italian government bond purchases. But today I consider the minimum wage decision that was handed down on June 1, 2018, by Australia’s wage setting tribunal, Fair Work Australia in its – Annual Wage Review 2017-18. This is the process through the Federal Minimum Wage in Australia is adjusted. The decision announced will increase the minimum wage by 3.5 per cent from July 1, 2018 so that the new minimum wage will be $719.20 per week or $18.93 per hour. Given that the annual inflation rate is running around 2 per cent (or thereabouts), the decision, on the face of it, would suggest that the real minimum wage is now higher than it was a year ago, which is a good sign. But over the last year, low-paid workers have had to endure cuts in pay rates for work during non-standard hours (so-called penalty rates), which Fair Work Australia made operational on July 1, 2017. For some workers the losses from the penalty rate cuts amount to more than $6,000 per year. So our wage setting tribunal is giving with one hand and taking it back (and then some) with the other. The most sordid aspect of all this is that many employers demanded Fair Work Australia deliver real wage cuts in the annual review.
I am back on my regular pattern which means there will be no detailed Wednesday blog – just some snippets if anything. This morning, I did a radio interview on the national broadcaster (ABC) about the growing spread of unpaid work experience. It was clear the interviewer thought that work experience was a good thing. I indicated that it was a creeping disease that has become part of the neoliberal agenda to erode the rights of workers. In Australia, this disease has morphed into a cost-shifting exercise where employers have pushed their responsibility to train their workforces onto the public education system and are now demanding payment from students to allow them to undertake so-called ‘work experience’. Increasingly, this practice is become built-into educational programs, which compromises the quality of the education. But while it is dressed up in mighty descriptions such as ‘preparing our youth for an exciting future’ it amounts to nothing more than unpaid work. The latest iteration is that now people pay to work for free. Our trade unions are largely silent on this scandal.
In advanced nations, poverty used to be a thing of old age, once income had stopped due to retirement and savings depleted. Old-aged pension systems were intended as Welfare States emerged to prevent that fall into poverty. The pension systems reduced the incidence of extreme poverty and the full employment era that followed the Second World War, where governments committed to using their fiscal capacities (spending and taxation) to ensure there were sufficient jobs for all, allowed workers to improve incomes and saving. Research in the early 1970s (particularly from the US, where the pension systems were less generous and working conditions less regulated) started to disclose the incidence of the ‘working poor’. In more recent times, the concept of the working poor has spread from the US to most advanced nations. In this modern era of renewed real wage repression, rising energy costs and housing costs, workers are not only facing increased risk of poverty but also of homelessness. Welcome to Australia – the nation with the second highest median wealth per adult in the world. Yesterday (February 21, 2018), the Australian Bureau of Statistics (ABS) released the – Wage Price Index, Australia – for the December-quarter 2017. Private sector wages growth was 1.9 per cent in the December-quarter continuing the seven consecutive quarters of record low growth. However, with the annual inflation rate running at 1.9 per cent, real wages growth was static. And with real wages growth lagging badly behind productivity growth, the wage share in national income is now around record low levels. This represents a major rip-off for workers. The flat wages trend is also intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth in consumption spending. And now, the latest data shows that workers are experiencing increased homeless. It is not just a problem of the ‘working poor’ now. Welcome to the ‘homeless’ working poor – a new neoliberal KPI.
Last Friday (February 8, 2018), the Reserve Bank of Australia issued its latest – Statement on Monetary Policy – February 2018 – which in its own words “sets out the Bank’s assessment of current economic conditions, both domestic and international, along with the outlook for Australian inflation and output growth.” Of interest to me (apart from all of it) was the discussion of domestic economic conditions, in particular the discussion concerning wages growth. Workers around the world are struggling to gain any semblance of decent (if any) wages growth, are facing real wage cuts, and seeing national income redistributed to profits (even as investment ratios fall). They are observing increasing gaps between real wages growth and productivity growth, which means the workers’ share of output gains is falling. With sluggish investment ratios, it isn’t rocket science to realise that the redistributed national income is being pumped into the financial markets casino, which delivers little or no productive benefit to society and provide for continued economic instability. It is clear that major shifts have to occur in wage setting mechanisms to redress these imbalances. That should be a major focus of progressive activists. It is a global problem.
Today (November 15, 2017), the Australian Bureau of Statistics (ABS) released the – Wage Price Index, Australia – for the September-quarter 2017. Private sector wages growth was marginally higher in the September-quarter at 1.86 per cent (annualised) after six consecutive quarters of record low growth. However, with the annual inflation rate running at 1.83 per cent, real wages barely moved. This follows two-quarters of real wage cuts. With real wages growth lagging badly behind productivity growth, the wage share in national income is now around record low levels. This represents a major rip-off for workers. The flat wages trend is also intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth in consumption spending. Further, the forward estimates for fiscal outcomes provided by the Australian government are now not achievable, given the flat wages growth. There is no way the tax receipts will rise in line with the projections, which assumed much stronger wages and employment growth than will occur under current austerity-type fiscal settings.
This neoliberal era has a habit of getting ahead of itself and exposing its internal contradictions. In fact, the Capitalist system, as Marx, Keynes and others have demonstrated, it inherently inconsistent. The imposition of neoliberalism has only heightened those inconsistencies and made it more likely that we will move beyond this period in the foreseeable future (fingers crosssed). Last week, the Australian Bureau of Statistics released the latest Retail Sales data for August 2017. The data shows that Australia experienced its second consecutive negative month and the August contraction was the largest since 2012. The sharp decline in retail sales is no surprise. Wages growth is flat and in some sectors (retail and hospitality) employers are cutting weekend penalty rates. At the same time, household consumption has been maintained by record levels of household debt – exposing families to bankruptcy risk should interest rates rise. Further, energy companies are gouging prices to record huge profit spikes, which is exacerbating the real wage cuts. The decline in retail sales suggests that households are finally responding to this array of negative data. It doesn’t augur well at all. Corporate greed eventually undermines itself.