The recent Australian Bureau of Statistics (ABS) national accounts for the March Quarter have shown that real Gross Domestic Product (GDP) grew by a pathetic 0.3% during that quarter and by only 1.7% over the year to March, a full percent beneath its ‘potential’ growth rate. It almost goes without saying that this was a long way from the government’s forecast of 2.5% for the 2016-2017 financial year1, with the government’s forecast for 2017-2018 of 3.0% appearing a little enthusiastic.
While much of the irregularity in the quarterly rate has been attributed to weather effects; unusually wet weather decreasing home building and difficulties in exporting commodities cause by extreme weather events such as Cyclone Debbie1.
What is not affected by weather events to nearly the same extent is consumer spending, which over the year to March, has only grown at 1.3%. This is despite households cutting back their level of savings by almost 20% (i.e. consumers are rifling their savings, something that cannot continue interminably)1.
The reason consumer spending is weak is because household income has been held back by weak growth in employment and negligible growth in real wages. Even more disturbing is the fact that real labour costs (average labour cost per unit output2) actually fell 1.7%1.
Reserve Bank governor Philip Lowe warned that record high household debt and low wage growth were hurting the economy, but did not expect wage growth to decline further. However, Capital Economics chief economist Paul Dales thought that wages could start to decrease3. The problem seems to be underemployment4.
Unemployment has dropped over the last two years from 6.2% to 5.5%, about where it was when the current government came into office. While the number of unemployed people has been climbing over the past 8 years from about 480,000 to about 740,000, it is the underemployed numbers which have skyrocketed over the same time interval, from about 670,000 to 1,130,000, with the underemployed outnumbering the unemployed since the early 2000s4.
Philip Lowe suggested that there was a real wage crisis. His reason? The underemployed may be trapped into thinking a wage rise is a trade-off for less job security3. Lowe doesn’t want workers to accept that trade-off. If that was the case, then accepting more hours for lower wages, will just add to the downward pressure on wages, and consumer spending will go further down the gurgler. Lowe calling for worker activism with the aim of getting higher wages, is all very well, but when only a little over 10% of private sector employees are in a union, it is difficult to imagine how this activism will occur4.
The aim of the conservatives has always been to decrease the presence of unions in the workplace, and in this they have largely succeeded. Now that it has perhaps in part led to stagnating wages, it may be useful to remind them to be careful what they wish for. It may come back to bite them.
Sources
- http://www.smh.com.au/business/the-economy/stormy-times-for-an-economy-in-the-doldrums-20170609-gwnvrn.html
- https://stats.oecd.org/glossary/detail.asp?ID=2809
- http://www.abc.net.au/news/2017-02-22/wage-growth-remains-at-record-lows/8293704
- https://www.theguardian.com/business/grogonomics/2017/jun/19/higher-wages-would-be-nice-mr-lowe-but-weak-unions-make-it-unlikely
