Exploring the Decline in the Labour Share of GDP

The share of total economic output in Australia that is paid to workers (in the form of wages, salaries, and superannuation contributions) has been declining for decades. Workers produce more real output with each hour of labour (thanks to ongoing efficiency improvements and productivity growth), but growth in real wages has been much slower – and recently, real wages haven’t been growing at all. The result is that labour’s slice of the economic pie has been getting smaller. In fact, a recent Centre for Future Work report showed that in early 2017 the labour share of GDP hit its lowest level since the Australian Bureau of Statistics began collecting quarterly GDP data.

To explore the causes and consequences of this decline in workers’ share of national income, the Centre for Future Work convened a special panel of experts at the Society for Heterodox Economists conference at UNSW in Sydney last December. The papers presented at that panel have been peer-reviewed and just published in the Journal of Australian Political Economy. We are very pleased to co-publish the 4 papers here.

  • In addition to further documenting the long erosion of workers’ share of Australian GDP, the symposium sheds additional light on the trend, including the following aspects:
  • The shifting distribution of income from labour to capital contributes to widening inequality in personal incomes (since financial wealth, and income from that wealth, is so tightly concentrated among the richest Australians).
  • The decline in the labour share in Australia has been among the worst third of all OECD economies; and some countries have experienced stable or even rising labour shares, proving this trend is neither universal nor inevitable.
  • The growing power of finance, and the financialisation of business practices even by non-financial firms, have been key factors in the relative fall of labour compensation.
  • New business models involving the fragmentation of work and the outsourcing of direct employment responsibilities by lead companies (what participating author David Peetz terms “not-there capitalism”) have also contributed to the trend.
  • Australia’s minimum wage once established a strong foundation for a healthy labour share of national income, but its influence has eroded over the last 30 years as minimum wages have failed to keep up with overall wage trends and productivity growth.
  • Despite the erosion of union density and collective bargaining, Australian unions still possess an impressive capacity to mobilise working people to demand a better share of the economic pie (including through the political process).

The long decline in the labour share is a powerful, telling indicator of the regressive shifts in the power balances of Australian society over the last generation.  These articles help us understand what has happened – and how to achieve a better distribution of income between factors of production in the future.

Links to the 4 articles, and a rich introduction to the symposium (by Dr. Frances Flanagan of United Voice and Prof. Frank Stilwell of the University of Sydney) are provided below. Please visit the Journal of Australian Political Economy to learn more about the symposium, and to subscribe.

  • Introduction: Frances Flanagan and Frank Stilwell.
  • The Declining Labour Share in Australia: Definition, Measurement, and International Comparisons: Jim Stanford (Director, Centre for Future Work)
  • The Labour Share, Power and Financialisation: David Peetz (Professor of Employment Relations, Griffith University)
  • The Erosion of Minimum Wage Policy in Australia and Labour’s Shrinking Share of Total Income: Margaret McKenzie (Economist, Australian Council of Trade Unions)
  • The Declining Labour Share and the Return of Democratic Class Conflict in Australia: Shaun Wilson (Associate Professor Sociology, Macquarie University)

Frances Flanagan & Frank Stilwell

Jim Stanford

David Peetz

Margaret McKenzie

Shaun Wilson