GDP figures show workers are losing out

The March quarter GDP figures show that while the economy is growing strongly, workers are missing out of their fair share. 

The national accounts released on Wednesday revealed that in the first 3 months of 2022 a record level of national income is going to corporate profits. At the same time real unit labour costs for non-farm workers fell 2.3%. Labour market and fiscal policy director, Greg Jericho, notes in his column in Guardian Australia that real (non-farm) unit labour costs are now 5.3% below where they were before the pandemic.

This data provides a strong fact check to arguments that workers need to take a pay cut to prevent rising inflation. The increase in inflation is not coming from labour costs, indeed workers are feeling the pain while in the words of the Bureau of Statistics, “Australian businesses benefited from rising prices.”

The GDP figures reveal that far from needing workers to be the ones who need to shoulder the burden of rising inflation, they clearly already have been the ones who have hurt the most. Asking them to continue to take real wage cuts will not help the economy, it will only exacerbate the shift of income going to profits and not to employees.

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Unemployment Rate Does Not Tell the Whole Story

Three days before the federal election, new ABS data confirmed that Australian wage growth is still stuck at historically weak rate (up just 2.4% year over year to March 2022). One day later, another ABS release showed another small decline in the unemployment rate, which is now below 4%. Most of the decline was due to people leaving the labour market (rather than new jobs being created). But the data is being cited by the current government as a sign that better wage growth is just around the corner.

In this commentary, CFW Associate Dr Anis Chowdhury explains why a lower unemployment rate, on its own, is not a solution to Australia's labour market and social challenges.

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Real wages plummet and will take years to recover

The release of the March Wage Price Index confirms what a horror year it has been for workers. While inflation in the past 12 months rose 5.1%, wages grew just 2.4%. Even worse, in the past year the price of non-discretionary items rose 6.6%, meaning for those on low wages, who spend more of their incomes on essential items, real wages would have fallen even more than the 2.6% average fall.

Labour market policy director, Greg Jericho notes in his Guardian Australia column that the fall in real wages has been the worst since the introduction of the GST and in the first 3 months of this year real wages fell 1.5%.

So steep has been the fall that real wages are now back essentially to where they were at the time of the September 2013 election.

The fall highlights that talk about Australia having recovered from the pandemic ignores the most basic aspect of the economy - the living standards of workers from their wages. 

The fall is such that even with the RBA's estimates of solid wage growth recovery over the next two years, should Australia return to pre-pandemic trend real wages growth, it would take till 2031 to recover workers purchasing power back to the levels of 2020. 

That would we a lost decade of living standards. 

 

 

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More Resources on Australia's Wages Crisis

The debate over wages, prices, and living standards heated up even further this week, with the release of new ABS statistics showing continuing weakness in wages despite the acceleration of inflation. The latest data from the ABS Wage Price Index (WPI) shows nominal wages grew just 2.4% over the 12 months ending in March. That is less than half as fast as consumer prices grew (5.1%), producing the biggest decline in real wages this century.

Our Centre continues to develop resources documenting the dimensions and causes of declining real wages, and countering the claim that trying to protect real living standards (by boosting wages at least as fast as inflation) will somehow cause hyperinflation and economic ruin.

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Webinar: Changes to the SCHADS Award and Next Steps to Improve Job Quality in Human Services

The Fair Work Commission recently announced important changes to the SCHADS Award (which sets minimum standards for workers in home care, disability services, community agencies, and other vital services) as part of its award review process. This culminates several years of research and advocacy by unions representing workers in these sectors, aimed at improving job quality and stability in these vital but undervalued positions. The Centre for Future Work provided expert testimony to the Commission as part of its review.

We recently hosted a special webinar to discuss the Commission's changes, their significance, and what comes next in the struggle to improve and properly value work in human services.

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To really address housing affordability we need to think differently

The current election campaign has seen the two major parties put forward housing policies, both of which to varying degrees are aimed at the demand side of the equation. 

The problem is that for many decades, housing policies have overwhelmingly been geared toward increasing demand within the private-sector housing market. This has only served to pump prices and make it harder for first-home buyers to enter the market, and also increasing the age that people are buying their first home.

Policy Director, Greg Jericho, writes in a column for Guardian Australia, that we need to instead focus on the supply side - increasing the stock of housing - and we also need to be bold enough to look outside the typical private-sector model. 

The Australia Institutes' Nordic Policy Centre has proposed a number of measures that have been pursued in Norway, Sweden and Finland that show the solution to housing affordability is not about creating tax distortions that benefit homeowners or which serve only to transfer money from low-income people to the wealthy, but instead treats housing as a need rather than just a wealth-building asset. 

After decades of failure, the solution to housing affordability needs to be something other than more policies designed to lift housing prices. 

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Gig work undermines care quality and job security in the aged care sector

In 2021 the Royal Commission into Aged Care Quality and Safety recommended that gig work, independent contracting and other ‘indirect’ employment arrangements be restricted in the publicly-funded aged care sector.

The Royal Commission found that, to develop the ‘well led, skilled, career-based, stable and engaged workforce’ required to provide high quality aged care, service providers should be directly employing aged care workers as employees.

Rather than adopting this recommendation, the Federal Government referred the matter to a Productivity Commission inquiry.

The Centre for Future Work made a submission to the Productivity Commission's inquiry into Aged Care Employment, in which we argue there is ample evidence to show there are unacceptable risks and consequences for both care workers and people receiving care, where workers are engaged as independent contractors, including as gig workers.

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Real wages should rise - anything else means declining living standards

This week the election campaign has turned to discussion about the increase to the minimum wage, with suggestions that an increase either in line with the curent rate of inflation of 5.1% or marginally above it (such as the ACTU's proposal of a 5.5% increase) would bring about a return to 1970s style wage sprials.

Labour market policy director, Greg Jericho, in his column in Guardian Australia, however notes that wages should grow faster than inflation, and so long as real wages are not outpacing productivity growth then such rises are not exerting any inflationary pressure. He also shows that given the recent estimates for inflation by the Reserve Bank, a 5.1% increase would not be enough to prevent the minimum wage falling in real terms over the next financial year. 

The problem is not that wages have been fuelling inflation, but that for the past 20 years real wages have risen slower than productivity .

We need to change the debate from a reflex that assumes low wages is the ideal to realising that given workers are the economy they should be rewarded fairly for their efforts and improvements in productivity.

You cannot say the economy is healthy if real wages are falling, and most certainly not if the lowest paid in Australia are seeing their living standards decline. 

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Rate rises are going to cause a housing affordability crunch

For most of the past decade the talk about housing affordability has focussed on house prices. As fiscal policy director, Greg Jericho notes in his Guardian Australia column, falling interest rates since November 2010 have made paying off a mortgage less onerous than it otherwise would have given the soaring house prices.

But that is about to change. 

The signal that interest rates are going to rise by possibly 2.5% points over the next 18 months means that for new mortgage holders the cost of repaying a mortgage is going to be harder than ever before - harder even than when interest rates hit 17% in 1990.

It is a hit that will only exacerbate standard of living problems as wages will struggle to keep up with the rising cost of of holding a mortgage - especially given the belief that wage rises need to be contained below inflation rises continues in economic debate.

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High inflation means real wages have plummeted

The March CPI figures showing that inflation rose 5.1% over the past 12 months is not just the highest level since the introduction of the GST it also signals the biggest fall in real wages since then as well. 

Labour market policy director, Greg Jericho, notes in his column in Guardian Australia that even if wages have increased by 2.5% in the next release (up from 2.3% in the 12 months to December) real wages will have fallen 2.5% in the past 12 months.

That would mean real wages would be back at 2014 levels and barely above where they were when the LNP took office in September 2013.

Worse still for low-income earners, in the past 12 months the prices of non-discretionary items rose 6.6%. For those whose income goes more towards paying essential bills than does the average household, the pain of these price rises has been much higher. Their real wages have likely fallen by more than 3% in the past 12 months.

This is why any gloating about a recovery from the pandemic must be tempered to consider the reality of workers' lives. It is not enough to point to lower unemployment if real wages are falling faster than they ever have outside of the introduction of the GST - especially for lower income earners. 

That is not a recovery; that is a failure. 

With interest rate rises now very much on the way, without wage rises that account for inflation and properly reward for increases in productivity, workers standard of living is set to fall and see them back where they were nearly a decade ago

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