How would we know if we were having a wages breakout? Back in the 70s, there was a period in which wages rose faster than productivity, leaving a situation that some economists dubbed a “real wage overhang”. This, I believe, is what people are talking about when they warn of a “breakout” – an inflationary burst of wages growth well in excess of productivity growth. In fact, since around the turn of the century, we’ve experienced the opposite phenomenon in Australia. Wages haven’t kept pace with labour productivity. They’ve “decoupled”.

That’s the main point of a new paper I’ve written for the ACTU. Here’s the central chart, showing that labour productivity and hourly wages rose at the same pace in the 1990s, before decoupling in the 2000s.

decoupling

When hourly wages and productivity grow at the same pace, the share of national income that goes to labour will remain more or less steady. That’s what happened in the 1990s. Since then, decoupling means that the labour share has fallen, and fallen quite dramatically.

lab share

There’s a lot more analysis and description in the full paper. It addresses the question of whether this is all about mining (no), or all about the terms of trade (sort of but not really). It also compares the trend in Australia’s labour share to those of some other OECD countries.

Note: In this post I’ve referred to “wages” as shorthand. What I really mean is ‘labour income’, which includes wages and salaries, employers’ super contributions, and the labour income of the self-employed.

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