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Wages share drops to lowest level since mid-'60s

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The wages share of the economy has dropped to a 53-year low, according to according to ABS data released today, while the Reserve Bank's governor last night suggested that the laws of supply and demand will eventually push up pay.

The ABS national accounts statistics show that the wages share of total factor income dropped to 51.3% in trend terms in the June quarter of this year, the lowest level since the 50.9% recorded in the corresponding quarter in 1964.

The wages share's lowest point in recent years was 51.7% in December 2008.

Meanwhile the profits share grew to a five-year high of 27.3%.

It reached 27.4% in the June quarter of 2012.

Real labour costs down substantially

The data shows that real non-farm unit labour costs fell by 0.5% in trend terms in the June quarter and 5.4% over 12 months.

Private sector productivity grew strongly, with gross value added per hour worked in the market sector increasing by 0.4% in the quarter and 1.7% over 12 months.

Hours worked in the market sector increased by 0.6% in the quarter and 1.3% annually.

Australian National Accounts: National Income, Expenditure and Product, June 2017, 5206.0

Data underlines structural shift towards capital: labour economist

The Centre for Future Work's director, Jim Stanford, told Workplace Express that today's data confirms "the continuing structural shift away from labour and toward capital in the distribution of income in Australia".

He says that when one steps back from quarter-to-quarter fluctuations and examines longer-run trend data, "it is clear that the playing field of Australia's economy has been tilted firmly in favour of employers".

"Both the labour share of total income, and real unit labour costs, have declined to their lowest trend levels in recorded history", he said

He says the data underlines the point that workers "simply do not have the power to demand and win wage increases that reflect their steadily improving productivity".

"This reflects the erosion of the structures and regulations that once supported wages (like minimum wages, awards, and collective bargaining).

"Those who tell workers to just wait, wage gains will come, are ignoring this fundamental change in the structure of Australia's economy", he says.

Stanford adds that after inflation, workers' real incomes are falling.

"Nominal compensation per worker (a good measure of the incomes of average Australians) actually fell in the June quarter, by 0.3% (seasonally-adjusted).

"And there was virtually no change in nominal compensation per worker year over year: up just 0.2% from June 2016 through June 2017."

He says the strong increases in profitability recorded by Australian companies in the past year "are definitely not trickling down into workers' pay packets".

Laws of supply and demand still apply to wages, says RBA

Wage growth will remain low "for a while yet", but is likely to pick up because the laws of supply and demand "still work", according to Reserve Bank Governor Philip Lowe.

The governor told a dinner in Brisbane last night that "slow growth in wages is contributing to low inflation outcomes globally.

He expects this "to continue for a while yet, given that the structural factors at work are likely to persist".

"But I am optimistic enough that I don't see it as a permanent state of affairs.

"It is likely that, as our economy strengthens and the demand for labour picks up, growth in wages will pick up too.

"The laws of supply and demand still work," he said.

Lowe said the bank's liaison program has exposed "pockets" where wages are increasing more quickly due to strong labour demand.

"The Reserve Bank's central scenario is that, over time, this will become a more general story," he said.

Last night's speech followed a statement the governor issued yesterday in which he suggested wages will remain low for "a while yet" (see Related Article).

Remarks at Reserve Bank Board Dinner by Governor Philip Lowe, September 5, 2017

Article originally appeared on Workplace Express: https://www.workplaceexpress.com.au/nl06_news_selected.php?act=2&nav=10&selkey=56025&utm_source=instant+email&utm_medium=email&utm_campaign=subscriber+email&utm_content=read+more&utm_term=Wages%20share%20drops%20to%20lowest%20level%20since%20mid-%2760s