The Share of Wages in Income in Australia

Abstract

In recent years many Australian economists have advocated a policy of gearing wages to productivity or output per man. To give but one example, Downing and Isaac recommend that the Commonwealth Conciliation and Arbitration Commission “anticipate a steady annual increase in productivity of, say, something over 2 per cent and, on the basis of this, … grant automatically every quarter a cumulative increase in all award wages of ½ per cent.”¹ Assuming constant export and import prices, and constant indirect tax rates, gearing wages to productivity will lead to stable prices if, and only if, profits are proportional to wages, i.e. only if wages are a constant proportion of gross national product at factor cost. Consequently, there has been considerable discussion, before the Commission and elsewhere, about whether or not Australian social accounts show wages as a constant proportion of gross national product. Almost all of this discussion has been based on figures for the proportions of wages and profits in the economy as a whole, or in the whole economy excluding certain industries. Moreover, profits have been defined as the gross operating surpluses of both incorporated and unincorporated enterprises. For example, Hawke, in arguing before the Commission that there had been a drift to profits, pointed out that in total in all industries excluding primary production, mining and quarrying, the share of wages fell from 65 per cent in 1953/54 to 61 per cent in 1963/64.² Those who believe that there has not been a drift to profits also look at aggregate figures, though excluding more industries than Hawke does. Hall, in the Australian Financial Review, after arguing that certain industries should be excluded, considered the rest of the economy and found that over the same period “the share of wages in domestic product … did not fall but rose slightly from 64.8 per cent to 65.1 per cent”.³