Why aren’t you gaining from Australia’s record run of economic growth?


Posted

September 05, 2018 05:00:00

Have you ever stopped to consider how you’re physically, tangibly gaining from Australia’s record run of economic growth?

If you’re one of the million plus Australians that have landed a job over the past few years, the answer is simple: you’re earning money again!

What if you already have a job? And what if you’ve got just a little bit too much debt, and every time that electricity bill comes in the mail, you feel a bit nauseous?

You’d love a pay rise — but the “economic growth” you hear politicians celebrating isn’t delivering that for you.

You’re told the profits companies generate during this economic expansion will “trickle down” to you.

But the last round of full-year company reports provides some evidence you may be waiting a while.

The results are in

The full-year company reporting season — where corporate Australia “confesses” to the country how it’s performed over the past 12 months — has just now wrapped up.

The result? Corporate earnings are up, but workers’ pay packets are not. The data tells the story.

Based on the most recent full-year reporting season, in the year to June profits hit a record $335.4 billion, up 10.1 per cent on a year earlier.

Wages and salaries, on the other hand, according to the Bureau of Statistics, rose by just 2.1 per cent.

So where is the money going, if not to employees?

Evan Lucas, chief market strategist at InvestSMART, a company that offers investment advice, has been monitoring the reports as they’ve been trickling in over the past month or so.

“As high as 75 per cent of profits go back to shareholders,” he says.

Investors have had a dream run this reporting season. Take the number of shareholder dividends (equivalent to rent for property investors) handed out, for example.

Of those companies reporting a dividend, 70 per cent lifted the dividend. Overall dividends lifted by 13.6 per cent.

“The remaining cash is spent in two ways,” Mr Lucas says.

“It either sits on the balance sheet for a rainy day; the other thing they do with it is reinvest it back into the firm.”

Global biotechnology firm CSL is a good example of that.

It recently reinvested $650 million worth of the company’s profits into research and development.

“Now research and development requires a heck of a lot of employees, and very clever employees at that,” Mr Lucas says.

Employers bringing on more staff

It’s happening right across corporate Australia, where firms are choosing to take on more workers, rather than rewarding existing workers with higher pay.

Indeed official employment data show roughly 427,000 jobs were created in the year to January.

Mr Lucas argues boosting a company’s workforce ultimately makes it stronger.

“If you look at the overall scenario, an overall firm’s performance tends to trickle through everybody, including employees, including the investors, including the overall economy,” he says.

But Community and Public Sector Union national secretary Nadine Flood doesn’t buy that argument.

“The facts don’t bear it out,” she says.

Ms Flood goes further, pointing to evidence that investors are gaining wealth at the expense of company employees.

Ms Flood cites research from the Centre for Future Work which suggests employers are imposing wage freezes, terminating employment contracts and refusing to bargain.

CommSec’s Ryan Felsman agrees.

“While they’ve been rewarding shareholders through increased dividends and also through share buybacks, there’s been a reluctance to really lift wages for workers,” he says.

Mr Felsman also points out that employers are taking advantage of the fact that many workers in the gig economy, like food delivery drivers for example, feel highly replaceable and are afraid to ask for a raise.

How did we get here?

Workplace relations expert John Buchanan says that reluctance is a leftover from what was known as the “real wage overhang” from the 1980s.

Essentially wages started rising faster than productivity, which bosses didn’t like, and it started posing a threat to economic growth.

A series of major industrial relations reforms, courtesy of the Hawke government, ultimately led to a system of enterprise bargaining.

That, however, has seen workers with little bargaining power miss out on pay rises in recent years.

“So you just can’t magically wish away 30 years of institutional change and expect employers to be sharing the gains,” Professor Buchanan says.

He’s now calling for policy makers to help underpaid workers out — drawing on practices that worked in the past.

What’s he talking about? Here’s a snapshot:

In the past, wages of people who had strong bargaining power set the wage norms for the community at large.

The skilled metal workers in fitting and machining, skilled construction workers, carpenters, well organised workers in road transport and in warehouses, all used to set wage norms which were then looked at by the arbitration commission.

The commission then said: “If the economy can sustain the wage increases those wage leaders get, that’s an indication that we can then give wage increases more broadly to the workforce at large.”

And Bob’s your uncle, wages rises all round.

It was known as the wages of the strong supporting the wages of the weak.

Unions, of course, are all for that idea.

“If we go down that track we could see people’s living standards maintained and go up,” Ms Flood says.

So what kinds of benefits should you be receiving from that abstract thing called economic growth?

Well maybe it means you don’t have to feel nauseous when the utility bill arrives, or even better, you can afford to eat out occasionally and enjoy the community around you.

It’d be neat if news of more economic growth actually meant something to you — like giving you something to look forward to.

Twitter: @DaveTaylorNews

Topics:

economic-trends,

business-economics-and-finance,

work,

community-and-society,

australia





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