Real wages didn’t keep up with productivity growth over 30 years of trickle-down economics

Workers have been short changed by up to one sixth of the wages they should have earned as a result of employers not sharing the benefits of productivity growth, the Council of Trade Unions said today.

A study released today by the Productivity Commission shows that real wages fell significantly behind productivity growth in a large part of the economy between 1978 and 2010. This resulted in wages and salaries, and labour income of self-employed people getting a falling share of the income the economy generates (the labour income share).

CTU Economist Bill Rosenberg has calculated that “wages, in the part of the economy considered by the Commission, would have been 12% higher on average in 2011 if they had kept up with productivity from the point of view of the revenue their employers were receiving for their products over the period studied (since 1978). Wages would have had to be 49% higher in 2011 from the point of view of keeping up with the rise in cost of living which workers have faced over that period. Over a wider part of the economy which includes almost all its market sector, I estimate wages would have been 16% higher in 2012 if they had kept up with productivity growth since 1989.”

“This is an important part of the story of growth in income inequality in New Zealand. The fall in the labour income share is well known and has been happening in most countries around the world. However it was particularly strong in New Zealand.” Rosenberg says.

“Even over a brief period in the late 1990s when the labour income share rose, a large part of that increase went to the top 1% of salaries. It was a period of high growth in the share of income that top executives and highly paid professionals were getting according an analysis of IRD tax data.” Rosenberg says

“The Commission’s work is important in that it finds that a large part of the fall in the labour share of income was due to the high unemployment and the introduction of the Employment Contracts act in the early 1990s. The opening of the economy (globalisation) also contributed through competition with imports from low-wage countries, and offshoring of production to those countries. All of these led to a loss of bargaining power for employees.” Rosenberg says.

“The Commission contrasts New Zealand with Australia where strong productivity growth over a similar period did not lead to wages falling behind and a loss in labour income share.” Rosenberg says

“Wages and salaries matter a lot to New Zealand households. Wages and salaries were 83% of ‘market’ income (before taxes and benefits) and 74% of all their income according to Statistics New Zealand’s Household Economic Survey for 2014, and that proportion has risen since the late 1990s.” Rosenberg says.

Who benefits from productivity growth? The labour income share in New Zealand
http://www.productivity.govt.nz/working-paper/who-benefits-from-productivity-growth-the-labour-income-share-in-new-zealand

ENDS

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