Record-Low Labour Compensation as Share GDP

Amidst increasing concerns among economists and budget forecasters about the historic stagnation of Australian wages, the latest GDP statistics from the Australian Bureau of Statistics have confirmed that the proportion of national economic output that is paid to workers has reached an all-time low.

New research from the Centre for Future Work at the Australia Institute confirms that total labour compensation (including wages, salaries, and super contributions) fell to just 46.2 percent of total national GDP in the March 2017 quarter.  That falls below the previous record low, 46.4 percent, dating back to 1959.

The labour share of GDP has been driven downward in recent months by the stagnation of wage payments, despite relatively large increases in GDP.  Over the year that ended in the March quarter, Australia’s quarterly GDP grew by $31.7 billion.  But less than one-tenth of that ($3.1 billion) was reflected in higher compensation for Australian workers.

Over the last year, therefore, workers received less than ten cents of each extra dollar in GDP that they produced.  Australia has never seen a weaker flow-through of economic growth into workers’ pay packets; this confirms that the institutions of income distribution are not doing their job.

Workers’ share of total national output in Australia peaked in the mid-1970s, at around 57 percent of total GDP.  The decline since then (down more than 11 percentage points of GDP) reflects many structural and cyclical factors, the most important being the erosion of wage-supporting institutions like minimum wages and collective bargaining.  The main beneficiary of workers' shrinking share has been the private corporate sector, which has increased its share of GDP by 10 percentage points over the same period.

The report concludes that policies to strengthen income redistribution would be required to stimulate wage growth and reverse the long-run decline in workers’ share of GDP – including stronger minimum wages, protecting penalty rates, and expanding collective bargaining.

Please read the full report, “Labour Share of Australian GDP Hits All-Time Record Low,” by Jim Stanford, Economist and Director of the Centre for Future Work.


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