Inequality: Fence 2/4

Checking inequality isn’t easy, because there are so many contributing factors, which aren’t always explained after public figures tell the media: ‘Inequality is at a 75 year high’, begging a fact check. Looking at Australia’s Gini coefficient, the story looks pretty good.

A large factor in the measure of economic inequality is a person’s income, for that determines their ability to support themselves and their families. On the face of it, Australia is in its 25th year of consecutive growth. That means no technical recession for a quarter of a century, even after the Global Financial Crisis, unlike most developed economies.

But does consecutive growth mean Australians don’t need to worry about claims of inequality being at 75 year highs? If they’re feeling it, but the facts don’t support it, does that mean it’s not there?

Wage growth is the increase in take home pay, typically measured annually. The wage growth decline of the 80’s was due to an accord between government and the union movement which effectively traded large wage increases for a social safety net. Therefore, the decline seen most recently is not really comparable as there has been no exchange of income or change in policy. This year, the Fair Work Commission handed down an unprecedented increase to the minimum wage of 3.3%, citing previous annual increases as arguably conservative.

The President of the wage growth review panel told the Commission that they no longer believe modest and regular wage increases result in unemployment, based on international studies. He also outlined that company profits had been particularly strong and above average. This is big stuff, coming from a Commission that had cut penalty rates months before. Even bigger when you consider their omission of conservative wage increases in the past.

For context, this decision affects around 2.3 million employees who are reliant on minimum wages. It also has flow on effects to the bargaining power of workers under workplace agreements, who can point to the decision and the commentary as reasonable reasons for an increase.

Income inequality is the gap between high income earners and low income earners. In terms of high income earners, their share of income has grown, but isn’t the highest it has been.

Income distribution however is less equal and projected to continue. This is obviously related to wages and those on higher incomes being more likely to receive higher pay rises. Compared to low income earners whose pay rises don’t make a large impact on their take home pay. Household income growth has effectively stalled since 2011 and casualisation and part-time employment has increased.

Wages have been falling since 2013 and are now at a 20 year low. As the Fair Work Commission decided a 3.3% increase to worker’s pay, the Governor of the Reserve Bank was penning a similar release. Announcing one of the causes of poor economic growth as the stagnation of wages, the Governor called for workers to ask for higher pay rises. What a time when a peak banking body is crying a crisis of low pay.

While his comments were promising to workers who haven’t seen a decent pay rise in years, they didn’t acknowledge insecure work as a problem and he didn’t exactly offer a solution, such as beefing up the bargaining power of unions, therefore workers, to demand better conditions in pay and work.

And the government isn’t setting the best example, paying long-term unemployed youth $4/hour in a job that isn’t guaranteed to last. No, not a joke.

Laws created over the last 30 years have diminished the power of unions and therefore WORKERS. It’s not clear if the RBA Governor thinks a worker can walk up to their boss and demand a pay rise, but that’s just not the case for most. Labour Hire workers would never have met their real boss, only their host employer, who can wash their hands of Labour Hire issues. Workers cannot legally strike if a boss decides to bring in Labour Hire or make other significant changes during the life of an agreement. I will stop with the list of Fair Work Act issues. 

But all of this and low union membership leads to no power in the workplace for workers. When I was born, around 40% of the workforce were union members, 21 years later it’s 15%, even worse in the private sector. When Commissioners and Governor’s on three digit plus salaries are looking at wage growth of working people you know it’s an issue they see as crippling our economy. So is income inequality a thing?

It’s a nuanced question and analysis can be biased depending on timelines and factors considered in the mix. But flat wages, falling household incomes and increased casualisation of the workforce aren’t good indicators. Income inequality might not strictly be at a 75 year high, but there is no doubt it has been rising.

Perceptions of inequality are also arguably strong, particularly since the 2014 budget. The next article will switch from economic inequality to social inequality, where perceptions become even more important.

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