Transcript The Distribution of Recent Economic Gains

The Distribution of Recent
Economic Gains:
Some early observations
Ben Dolman
Some early observations

Sources of income growth

The labour share of income

Labour market outcomes
2
Sources of income growth
Average annual growth in GDP per
capita (per cent)
GDP per capita
4
4
3
3
2
2
1
1
0
0
-1
-1
1964-65 to
1973-74
1973-74 to
1981-82
1981-82 to
1989-90
1989-90 to
1999-2000
1999-2000 to
2006-07
4
Contributions to average annual growth in
market sector output (percentage points)
Market sector output
5
Multifactor productivity
5
Capital
4
4
Labour
3
3
2
2
1
1
0
0
-1
-1
1964-65 to
1973-74
1973-74 to
1981-82
1981-82 to
1989-90
1989-90 to
1999-2000
1999-2000 to
2006-07
5
Industry contributions
Share of hours worked
12
12
12
10
10
10
8
8
8
8
6
6
6
6
4
4
4
4
2
2
2
2
0
1989-90
Finance
Construction
Mining
1999-00
0
2006-07
Per cent
Per cent
Share of output
0
1989-90
Construction
Finance
Mining
1999-00
12
10
0
2006-07
6
Contributions to average annual growth in
market sector output (percentage points)
Market sector output
5
Multifactor productivity
5
Capital
4
4
Labour
3
3
2
2
1
1
0
0
-1
-1
1964-65 to
1973-74
1973-74 to
1981-82
1981-82 to
1989-90
1989-90 to
1999-2000
1999-2000 to
2006-07
7
Summary

Reforms to the supply side of the economy led
to productivity growth in the 1990s.

Since then, output growth has been input
driven …

Strong investment
 More workers (though lower average hours)

… and price driven, through soaring terms of
trade.

These changes can be identified with changes
in demand.
8
The labour share of income
Labour income shares
Per cent of total factor income
80
80
Whole economy
75
75
Market sector
70
70
65
65
60
60
55
55
50
1964-65
50
1973-74
1982-83
1981-82
1991-92
1989-90
2000-01
1999-2000
2006-07
10
Indexes, 1999-2000 = 100
Labour and capital
140
4.9
140
2
4.2
70
170
Capital-labour ratio
Relative rate of compensation of
labour comapared to capital
35
3.6
1964-65
1973-74
1981-82
1982-83
1989-90
1991-92
1999-2000
2000-01
035
2006-07
11
Labour and capital
1981/82
to
1989/90
1989/90 1999/2000
to
to
1999/2000 2006/07
Initial labour share (%)
65.9
60.8
59.8
Final labour share (%)
Annual change (% pts)
60.8
-0.6
59.8
-0.1
55.3
-0.6
12
Labour and capital
1981/82
to
1989/90
Initial labour share (%)
1989/90 1999/2000
to
to
1999/2000 2006/07
65.9
60.8
59.8
Final labour share (%)
60.8
Annual change (% pts)
-0.6
Annual contributions (% pts):
Real consumer wage
-0.1
+ Other changes
0.1
59.8
-0.1
55.3
-0.6
0.3
0.5
0.1
0.1
― Profit / capital services
0.3
0.0
0.5
― Capital-deepening
0.4
0.6
0.7
13
Changes in labour income shares …
Finance
FII
Construction
CON
Mining
MIN
Wholesale
WHL
Manufacturing
MAN
Hospitality
ACR
Culture
CRS
Retail
RET
Transport
TRN
Agriculture
AGR
Communications
COM
Utilities
EGW
53
59.8 per cent
in 1999/2000
… within industries
54
55
56
57
Share of total factor income, per cent
58
59
60
Changes in labour income shares …
Finance
FII
Construction
CON
Mining
MIN
Wholesale
WHL
Manufacturing
MAN
Hospitality
ACR
Culture
CRS
Retail
RET
Transport
TRN
Agriculture
AGR
Communications
COM
Utilities
EGW
53
59.8 per cent
in 1999/2000
… within industries
54
Mining
MIN
Manufacturing
MAN
Retail
RET
Wholesale
WHL
Utilities
EGW
Hospitality
ACC
Finance
FII
Transport
TRN
Culture
CRS
Communications
COM
Construction
CON
Agriculture
AGR
53
55
56
57
58
59
60
56.7
55.3 per cent
in 2006/07
54
55
56
… between industries
57
Share of total factor income, per cent
58
59
60
Average return on capital
Per cent per annum
30
30
Nominal return
Nominal return less 10-year bond rate
20
20
10
10
0
0
-10
1974-75
-10
1984-85
1994-95
2004-05
16
Nominal return less 10-year bond rate
(Per cent per annum)
Average return on capital
30
30
Mining
Finance and insurance
20
20
10
10
0
0
-10
1974-75
-10
1984-85
1994-95
2004-05
17
Some implications
Share price indexes
Indexes, 1989-90 = 100
8007
4006
Capital services
225
5.4
Banks
Mining
Resources
Finance and insurance
ASX200
Market sector
2005
5.0
150
1005
50 4
1989-90
1994-95
1999-00
2004-05
100
4.6
1989-90
1994-95
1999-00
2004-05
18
Contributions to average annual growth in
GNI per capita (percentage points)
Gross national income
4
Net income deficit effect
4
Terms of trade effect
3
3
GDP per capita
2
2
1
1
0
0
-1
-1
1964-65 to
1973-74
1973-74 to
1981-82
1981-82 to
1989-90
1989-90 to
1999-2000
1999-2000 to
2006-07
19
Summary

Through the 1990s, the benefits of microeconomic
reform were evenly shared with workers – through
higher wages and lower output prices – and firms.

Since then the labour income share has fallen mainly
because profit rates on capital have increased.

The labour income share has fallen in most market
sector industries. The largest contributors are mining
(about ½ of the overall fall), construction and finance.
These industries have experienced particularly strong
demand-driven growth.

Higher profit rates have also seen more earnings
remitted offshore.
20
Labour market outcomes
Labour market outcomes

A. Jobless families

B. Jobs growth and the wage distribution

C. Male full-time employment

D. Unemployment and education
22
Percentage of families with dependent children
and no working head
A. Jobless families
20%
Lone parent families
Couple families
20%
15%
15%
10%
10%
5%
5%
0%
1980
1983
1986
1989
1992
1995
1998
2001
2004
0%
2007
23
Annual average growth in hours
worked (per cent)
B. Jobs growth by wage rate
3
3
2
2
1
1
0
0
1989-90 to 1999-2000
Bottom quintile
Second quintile
1999-2000 to 2006-07
Third quintile
Fourth quintile
Top quintile
24
Full-time employment rate
(per cent of civilian population)
C. Male full-time employment
100
100
80
80
60
60
1981-82
40
40
1999-2000
2006-07
20
20
0
0
15 to 19
20 to 24
25 to 34
35 to 44
45 to 54
55 to 59
60 to 64
Age group
25
D. Education
Unemployment rate
90
90
16
No post-school
16
85
85
14
Other post-school
14
12
Degree
12
80
75
80
Degree
75
70
Other post-school
70
65
No post-school
65
60
60
55
1989
55
1994
1999
2004
Per cent of labour force
Per cent of civilian population
Employment rate
10
10
8
8
6
6
4
4
2
2
0
1989
0
1994
1999
2004
26
Labour market outcomes

A. Jobless families

B. Jobs growth and the wage distribution

C. Male full-time employment

D. Unemployment and education
27
Concluding observations

Australia’s economic growth this decade has
been marked by strong demand growth,
particularly in construction, mining and finance.

These have brought much higher profits which
in turn appear to have driven strong investment
and employment growth.

Labour market outcomes have improved in
many ways.
28