The historic shift from wage to profit share

Image: Zebedeee Parkes

Treasurer Josh Frydenberg claimed the Coalition government’s private-sector led economic recovery plans will get the economy back on track. It has forecast that the economy to be back to the where things were at the middle of last year, before COVID-19 hit. The Scott Morrison government is feeling confident, in large part, because of the underlying gross domestic product trend: the profit share is up to a historic high and the labour share is down. Since 1975, more than $4 trillion has been shifted from wages to profits. Paul Oboohov explains how it got to this.

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p10_trade_union_membership_wages_and_profit_shares_of_gdp_1975_to_2019_graph.jpg

Profit and labour shares of GDP vs union density. Chart by Paul Oboohov based on Australian Bureau of Statistics data.

Australia’s economy fell 9.6% in the first half of the year, having had low growth and low profits growth and contribution to gross domestic product (GDP) growth, as well as stagnation in wages growth over the past year.

After the economy fell by 2.6% in the March quarter, with continued profit and wages stagnation, the “non-essential” industries shutdowns as part of governments’ response to the COVID-19 pandemic, led to real unemployment of 2.3 million by April. This comprised those officially unemployed, plus those on reduced hours of work — equivalent to 20% of the labour market, according to Centre for Future Work’s Senior Economist Alison Pennington. 

Pennington also characterised the low levels of business investment last year and this year as a “capital strike”, and not just about the economic effects of the pandemic.

This meant that the wages share of GDP slumped by 3.1% in the March quarter, pushing it down to 49.4% share of GDP, below a 50% share for the first time since 1959.

The federal government’s JobKeeper payment, paid to employers (and on-paid to their workers at their discretion) led to a sugar hit for the profit share of GDP, from 29% in the March quarter, to 31.1% in the June quarter — a historic high.

How did Australia get to such a low share of wages in GDP?

The answer is that it is has been a long process of decline since the 1970s, involving capitulating to the demands of business by the Labor Party and the union movement’s deference to it in matters of economic strategy and its voluntary withholding on wage rises. This has allowed a massive $4.3 trillion transfer (in 2018 dollars) to profits between 1975 and 2019.

Industrial strength

Australian workers’ wages share of GDP was only 49.8% in the September quarter of 1959, and began the 1960s at 50.9% in the March quarter of that year. Following 20 years of Coalition government rule, Gough Whitlam’s Labor government was elected in December 1972. It was favourable to wage rises for workers, given their low share of GDP, and set about giving large wage rises in the Australian Public Service (APS), as an example to private employers.

This was the time of some powerful industry-wide unions, such as the Amalgamated Metal Workers’ Union (AMWU), which organised industrial campaigns across employers in single or even mega groups of industries, concentrating workers’ bargaining power.

This was aided by an industrial award system and state based arbitration of industrial disputes, whereby wage and conditions gains in one industry could be “flowed on” through similar occupations claiming the same gains in other industries and unions. Such was the “warp and weft” fabric of industrial relations at the time, assisted by half the workforce being unionised in 1975.

Unions used their industrial strength to demand governments and employers give workers a better share of income in the economy. Up until late 1975, the post-war economic boom conditions also meant shortages of labour, that added to the bargaining strength of unions.

This resulted in major industrial gains for workers, with wages’ share of GDP rising from 56.3% in the March and June quarters of 1973 to a historical high point of 62.8% by the March quarter of 1975.

Despite Whitlam being sacked by the governor-general in November 1975, and losing the subsequent federal election, workers were able to maintain a wages share of GDP at, or above, 60% from the September quarter 1975 to the June quarter of 1978.

By contrast, the profits share of GDP fell from 21.1% in the March quarter 1973, to a historic low of 16.3% in the March quarter of 1975.

Business leaders and the incoming Malcolm Fraser Coalition government of December 1975 were determined not to have a wage breakout again, and a diminishment of the profit share of GDP. The latter has risen ever since, rising to 19.6% share by the March quarter of 1983 with the wages share falling to 56.9% in the June quarter 1980.

However, the unions’ industrial strength led to another wages outbreak, into the 60% and above share of GDP, between the March quarter 1982 and the March quarter of 1983: it peaked at 61.9% in the September quarter of 1982.

Prices and Incomes Accord

When the Bob Hawke Labor government was elected in March 1983, unionisation of the workforce was 37.7%. He implemented a series of Prices and Incomes Accord agreements with the union movement, whereby unions voluntarily lowered their wage rise demands in return for the Labor government raising the funding of Medicare and its health coverage, funding childcare for workers’ families, and raising the unemployment benefit payment.

However, over the life of the Accord, Hawke and his treasurer Paul Keating introduced economic rationalist, business-friendly and right-wing policies. They privatised many large federal government entities, such as the Commonwealth Bank, Commonwealth Serum Laboratories and Qantas, as well as fundamentally transforming the economy by deregulating it. In addition, they subjected the Accord to annual negotiations.

By the end of the decade, the Business Council of Australia, a body that emerged from the biggest corporations benefitting from business amalgamations under deregulation, was demanding the introduction of bargaining by “one union per workplace”, which became a demand for bargaining by single employer businesses, or “enterprise bargaining”.

This became policy of the Australian Council of Trade Unions (ACTU) under then secretary Bill Kelty, and unions were obliged to implement it, weakening their industrial bargaining.

Kelty responded to the new giant corporate juggernauts by amalgamating disparate unions into his model of “10 big unions”. It created the largest union bureaucracies in Australian history, further distancing their leaderships’ from control by their rank and file members.

This had a chilling effect on the militancy of union members, and the labour share of GDP fell to a low of 53.3% by September 1988. By the end of the Labor federal government under then prime minister Keating in March 1996, the wages share of GDP was not much better at 55%. Unionisation had fallen to 31.1% of the workforce.

The much more right-wing Coalition government of John Howard quickly set about attacking workers’ industrial rights and wages, in an industrial landscape where workers were already shackled by enterprise bargaining.

It passed the Workplace Relations Act 1996, weakening the powers of the Australian Industrial Relations Commission to adjudicate in industrial disputes. It introduced Australian Workplace Agreements to induce workers to sign individual contracts directly with their employer, bypassing unions and collective bargaining agreements.

By 1998, a profit share of 24% of the national income meant that Australian corporations were not bothered by the Asian Financial Crisis.

In the same year, Patrick Stevedoring, a wharf container operator, sought to sack its unionised workforce, and replace it with sub-contracted companies employing casuals, on individual contracts. This caused industrial action by wharf labourers, members of the Maritime Union of Australia (MUA) and, in April 1988, Patrick locked out the workers, and a major industrial standoff ensued at No 5 Webb Dock, Melbourne Port. The Howard government backed Patrick.

Litigation by the union, pursued by Patrick to the High Court, led Patrick to lose due to its sole aim of restructuring being to dismiss the unionised workers. The MUA prevailed, insofar as being able to negotiate with the employer.

However, the terms of the resulting agreement almost halved the employed workforce, through voluntary redundancies. Some casualisation and contracting introduced smaller crews, longer work hours, employer control of rostering and bonuses for faster work. By this stage, the labour share of national GDP was 54.9% and unionisation of the workforce was 28.1%.

WorkChoices

After the Howard government obtained control of the Senate in 2005, it amended the Workplace Relations Act 1996 with the Workplace Relations Amendment Act 2005, which became known as “WorkChoices”.

It did away with the concept of “unfair dismissal” for companies under a certain size, and the notion of the “no disadvantage test” for workers due to law changes or industrial agreements that disadvantaged them. It also did away with workers needing to submit certified agreements directly to a “Workplace Authority”, bypassing the Australian Industrial Relations Commission.

It also changed the ability of a workforce to go on strike legally, and the ability of individual workers to bargain for themselves without collective (union) representation. Employers could put their own suggested industrial documents to workforces for a vote, and unions had to run “vote no” campaigns to even get to the stage of putting forward and bargaining for their own industrial demands. Union organisers were barred from workplaces and union meetings had to be held off employer premises.

The federal government ran a form of industrial police in the construction industry, the Australian Building and Construction Commission (ABCC), to persecute militant union delegates, and even workplace health and safety representatives.

This triggered the ACTU’s Your Rights at Work campaign which involved the union movement and allies beyond it. Major rallies were organised in cities, union TV and radio advertisements were aired, and some state governments opposed the changes.

WorkChoices became a major issue in the federal election of November 2007, and led to the election of a Labor government under Prime Minister Kevin Rudd. Howard not only lost the election, he also lost his seat in Sydney to a former woman news presenter of the ABC.

In early 2008, the new industrial relations minister Julia Gillard, a former union lawyer, told the ACT unions that the new government had “put the final nail in the coffin of WorkChoices”. She received a standing ovation.

Labor’s bob each way

While the new Labor government gave workers back their individual rights, it also brought across to its Fair Work Act almost all the anti-union restrictions of the Workplace Relations Act. Labor also retained the ABCC until 2010. It also phased out Australian Workplace Agreements over five years.

Some unions labelled this version of industrial legislation as WorkChoices “Lite” — a bet each way between capital and labour.

This has been the bedrock of industrial relations law since, with some oppressive additional institutions by the succeeding Coalition government.

The abrasive experience of the Howard government’s industrial regimes over 11 years had left the labour share of GDP at 54.1% in the December quarter of 2007 (interestingly, it had held up over this time, perhaps due to unions genuinely fighting for their members) but unionisation of the workforce fell to just 18.9%.

After six years of the Rudd–Gillard–Rudd Labor federal governments, the Tony Abbott Coalition government was elected at the September 2013 election.

The labour share of GDP in the September quarter of 2013 was 53.2%, and the unionisation of the workforce was 17.1%.

The Abbott government attempted to smear the union movement by running the witch hunt Royal Commission into Trade Union Governance and Corruption, singling out the Australian Workers Union; Construction, Forestry, Mining and Energy Union; Electrical Trades Union; Health Services Union; and the Transport Workers Union. The result was that, after reporting some illegalities, only one conviction occurred and five other union officials had their charges dropped, or were found not guilty.

In 2016, the Malcolm Turnbull Coalition government, having used the Senate’s refusal to pass bills to establish the Registered Organisations and Australian Building and Construction Commission bill, as double dissolution triggers, meant that the new Senate passed both bills that November.

The bill resurrected the ABCC to tackle “illegal” behaviour on construction sites and “improve productivity”, as it had under the WorkChoices regime. The Registered Organisations bill was designed to create a commission to oversee union and employer bodies, and bring standards for union officials into line with company directors under corporation’s law.

Muzzling union organising

In 2019, the Scott Morrison government attempted to pass a bill to tighten the rules governing what unions and their officials could do: the Ensuring Integrity Bill would allow automatic disqualifications of “registered organisations” (unions) and grant the Federal Court the power to prevent officials from holding office and broaden the court's power to order remedial action with respect to union disputes and governance.

Unions, Labor and the Greens opposed the bill, arguing it was “contrary to international law and Australia’s commitments” and “hostile to the interests of working people”.

Industry groups and the Business Council of Australia argued the bill would “raise standards of conduct in the system” and would enforce penalties against “recalcitrant organisations”. It passed the House of Representatives, but failed to pass the Senate in November 2019, after the third reading was deadlocked at 34–34 votes.

The votes of right-wing crossbench Senators Jacqui Lambie and Pauline Hanson's One Nation Party were crucial to the outcome, with the government having brought the bill to a vote believing Hanson’s One Nation would support it. The government refused to rule out the possibility of attempting to pass the legislation in the future if it could get support in the Senate.

Insecure work

Across the 2000s and the past decade, a factor in the lowering of workers’ share of GDP has been the creeping increase in insecure work, including casualisation, contracting out, the so-called “gig economy” of short term, episodic work, and the increasing prevalence of part time work.

The Australian Bureau of Statistics’ and Australian National University study of the 2016 census showed that a third of the workforce (half for women workers) were working less than full-time hours (35 hours a week) and that this part-time work proportion of the workforce had been steadily increasing since the 1970s.

Now, in late 2020, the labour share of GDP is at 49.4% as at June — a historic low — slightly lower than that of 1959. As at 2018, the unionisation rate is just 13.7%.

A large proportion of workers are now staring down the barrel of unemployment for years, older workers are unlikely to work again and young workers may not work for years — becoming “scarred” for employers who want fresher talent.

The industrial relations environment has steadily moved to be increasingly hostile towards workers’ industrial rights and good economic outcomes. At the same time, unions apparently represent only about a tenth of the workforce.

A balance sheet needs to be drawn as to whether workers have been well served — or not — by their institutional representative bodies in the industrial world and their supposed political representatives in Labor.

In the 1980s, Labor partly capitulated to the industrial demands of the then growing corporate world and, in giving rein to economic rationalism, has facilitated it.

Corporations have burst beyond Australia’s boundaries to become multinational corporates on the world stage, identifying their interests with that of international capital. Globally, they demand workers’ full capitulation to whatever value is put on them individually, without reference to any collective demands.

In the late 2000s, Labor gave individual workers back their rights, but kept the Workplace Relations Act and WorkChoices restrictions in place; this severely hampered workers’ ability to collectively organise.

Since then, the Coalition has added more oppressive institutions to bully and harass workers and their unions.

But there are new unions that give hope: the Retail and Fast Food Workers’ Union; the Hospitality Union (an offshoot of the United Workers’ Union); and the Australian Unemployed Workers’ Union. The Construction, Forestry, Mining and Energy Union, and the Maritime Workers’ Union remain militant, and that is what now matters. And, according to The Centre for Future Work, the ACTU claims there has been a resurgence in union membership — something to be welcomed.

While unions may seek to influence Labor in matters of industrial policy and legislation, it shouldn’t be confined to that party. Unions must take counsel from their members and seek to build broader solidarity for workers’ industrial rights and the myriad other social and ecological issues if we are going to increase workers’ share above 50% of GDP again.

[Paul Oboohov is a long-time unionist and a member of the Socialist Alliance.]

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