Inequality Divide Growing in Australia

Jobs are what keeps a nation going.

And in recent years we’ve seen glimpses of employment growth, but how well are we doing overall?

Well, unemployment is down, but that’s thanks to part time work rather than full time jobs.

To add onto that, wage growth has been stagnant, or as the Australian Council of Trade Unions (ACTU) argues, ‘anaemic’.

Let’s take a step back and look to the US to see how the future of Australia could play out.

There is a massive gap between the United States’ poorest and richest. In a CNBC article back in July 2018, they reported that the top 1% of families in America earned more than 25-times that of the bottom 99% in 2015.

A paper released by the Economic Policy Institute found that in 2015, the top 1% of families brought in roughly $421,926 before tax. The bottom 99% percent of families only brought in an average of $50,107. It’d be remiss of me not to add that this also depended on geography.

Estelle Sommeiller, a socio-economist at the Institute for Research in Economics and Social Sciences in France and co-author of the paper stated that:

Rising inequality affects virtually every part of the country, not just large urban areas or financial centers

It’s a persistent problem throughout the country — in big cities and small towns, in all 50 states.’

Income growth in the US for the bottom 99% has been declining since 1973. However, concerning the top 1%, which includes CEOs and the like, from 1965–2016 CEOs’ pay increased between 20–271-times. In effect causing a widening between the richest and poorest Americans that is unlikely to ever be closed, in my opinion.

For some reason, the economy just doesn’t have the generation of wage growth we’d like to see,’ Price said.

We like to focus a light on the way that income is distributed to share that the people who make decisions are benefiting from the economy in a way we might not all be.’

So how does this relate back to inequality in Australia?

According to the ACTU, the Morrison government’s policies are leading the way for American-style poverty pay levels, no job security and dead end jobs, the ABC reports.

The union has declared in a recently released paper that Australia could face an ‘economic, social and political disaster’ before the next federal election, most likely to be held in May.

Why is this a concern?

Well, the peak union body also warned that if slow wage growth continues as it is, then the nation could see the greatest fall in living standards in 30 years.

The ACTU paper argues:

The vast wealth generated over the last three decades has decisively gone into the hands of a privileged few,

Profits, executive salaries and bonuses have soared, while average real wage growth has remained anaemic.’

In the graph below, we can see that even when companies (orange line) grow in profits, wages (blue line) have remained stagnant:

Source: Thomas Reuters Datastream, ABS, ABC News

And in the graph below, you can see why the ACTU believes that Australia is currently going through an income recession:

Source: ANU, ABS, ABC News

ACTU secretary Sally McManus ABC’s AM program that the economic policies of the Morrison government has taken away Australia’s title as ‘the land of the fair go’.

She further added:

We’ve got an income recession — income is the amount of money that people have got compared to household items, and that is going backwards, and it’s been going backwards for the last three years

We’ve had the governor of the Reserve Bank, for quite a while now, banging the drum about this and saying there’s a problem.

A couple of years ago he told employers they should just give workers pay rises. Now he’s saying that the minimum wage should go up, so he’s talking about actual intervention from the Government to do something about it.’

Scaremongering campaign or could we really end up as unequal as the US?

McManus also claims that if Australia continues down the path that we’re on, then we could end up like the US where the disadvantaged have a poor safety net and continued low wages and inequality.

Is this a scaremongering paper?

Not according to McManus. While the paper is might sound alarmist, she claims that:

No, it’s true. It’s exactly the same policies [as the US] that are delivering us the same outcome

Donald Trump and people before him have followed policies that were very much based on neoliberalism — we have in Australia as well.

We’re actually more of a class society than we think we are.’

The paper further goes on to explain that children at the bottom of the socio-economic ladder have little chance of moving upwards, and we’ve seen an increase in the rise of neoliberal economic policies in since the 1980s, as evidenced in the following graph:

Source: World Wealth and Income Database

While the report claims that we are heading towards a US-type socio-economic structure, we don’t believe there is cause for panic just yet.

In an ideal world it would be nice to think that everyone would be able to get jobs that people want, including those born into disadvantaged families, though it is more idealistic than realistic thinking.

But by staying financially aware, you may be able to avoid falling towards the bottom end of the financial divide.

Kind regards,

Alana Sumic,
Editor, Markets & Money

We believe Markets & Money is unlike any other finance newsletter. Our mission is to look at the world of investments and finance in a sceptical and contrarian way. Our editorial team looks beyond the headlines and obvious explanations to bring you what we think is really moving the market. More importantly, we’re trying to show you where the next big opportunities and  big risks could be that you might not be aware of. In Markets & Money, you’ll read about the state of the Australian housing market, the future of the commodity boom, China’s rise to an economic superpower, the fate of the US dollar, and of course, a whole lot more.

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