Friday, September 16, 2011

Is it Alive?

"He's just resting - waiting for a new life to come." Dr. Frankenstein (Frankenstein, 1931).
Dracula vs. Frankenstein [1]
Recently the discussion over economic matters revolved around two ABS releases:  National Accounts, June 2011 (ABS cat. Number 5206.0) and Labour Force, August 2011 (cat. Number 6202.0).

It turns out that Australia avoided a technical recession (two consecutive quarters of negative GDP growth: see here), but unemployment rate is increasing (see here).

That discussion, interesting as it is, totally eclipsed the release by ABS, on 30/08/2011, of Household Income and Income Distribution, 2009-10 (cat. Number 6523.0).

This is weird for at least two reasons:
  1. Income fell for the first time in 14 years (see here); and
  2. One would have expected journos to be anxiously waiting for news about income; after all, ABS reports on GDP every quarter and labour force every month, but reports on income and wealth at most only every second year!
Yet, extensive Googling returned just three press items (a couple of opinion pieces, see here, here; a small story, here) and a few bloggers. Who ever said Aussies are materialists?

Meanwhile, the local lunatic Right, like a modern-day Victor Frankenstein, attempts to inject artificial life into the decaying WorkChoices corpse (see here), while the big business chorus wails about "high" wages (here), seconded by "our" taxpayers-funded ABC (here).

So, to avoid disappointing the good folks at ABS, I'll try my hand at this topic.

This is how real average gross household income evolved in Australia since 1994:

Real average household income (ABS 6523.0 Table 1.2)

A few observations: the gaps are years where the data was not collected (See? Aussies don't care about money!); the black dots are years where ABS decided to consider as income things that had not been considered income before (So, it's not just that the series is patchy, it isn't fully comparable: things keep getting better); income as defined by ABS includes lots of things (i.e. wages/salaries, government transfers, interests and profits), but it does not include capital gains and often does not even include the lowest income quintile decile, either ("Many of the households included in the lowest income decile are unlikely to be suffering extremely low levels of economic wellbeing", perhaps due to underreporting (?!). See Explanatory Notes, paragraphs 29, 30 and 31).

In any case, although the data is rather crappy, it's clear that average gross household incomes have fallen since at least 2007: -2.9%.

But why? Data disaggregated by quintile may suggest an answer:

Average household income by quintile.

The lowest quintile excepted (where mid-quintile average household weekly income rose $10 a week, I kid you not! and where "government pensions and allowances were the main income source for more than 60% of households". See Key Results), incomes have fallen since at least 2007 across the board (where "wages and salaries were the main source of income for more than 80% of households"). The most affected group, the highest quintile, fell -4.7%.

Is that data proof conclusive that wages and salaries have fallen? Perhaps not.

Note as well that this fall occurred even though the Fair Work Act (the current industrial relations legislation, accused by our esteemed Right-wingers of strangling poor suffering businesses) was in place since July, 2009: half the two-year period covered. So much for the Fair Work Act causing wages to "soar".

Let's now examine the ACTU report "The Fair Work Act: Two Years On":

In the four-year period immediately preceding the approval of the Fair Work Act, every award classification (from C14, the least qualified, to C1b, the most qualified) increased less than inflation (estimated over the period as 12.53%). By July 2009, for example, a worker classified as C1b lost 7.79% of acquisitive power.

Incidentally, those wages are characteristic of low- to mid-income workers. For instance, a full-time C1b worker (top category of the FWA scale), would earn $1,080 per week ($28.4 per hour or $56,160 a year). If this worker has a dependent spouse, and no children, her equivalised household income of $720 (= $1080/1.5, 1 for the income earner plus 0.5 for the dependent spouse) would put her within the third quintile ($515-$727): roughly median household income (less than average household income).

This worker's wages fell in the 2005-2009 period and, judging by the ABS data, probably ever since. And the way workers can compensate for this loss is through paid overtime or shift penalties.

So, where the hell are those fucking high wages we keep hearing about?

And now our businesspeople and raging Right politicians want to eliminate working entitlements (aka Industrial Relations reform) plus increased "flexibility" to lower wages.

But then, again, we really don't care that much about money...


Finally, for those progressives who "don't believe value exist": when our C1b worker lost 7.79% of her acquisitive power, her employer saved in real wages. In other words, had her June 2005 weekly wage ($1,031.10) risen with inflation (12.53% over the period) it would have reached $1,160.30 in July 2009.

But it didn't. In July 2009 her wage was in fact $1,080.00. The difference ($80.30 or about 3 hours per week) is work effort performed ("labour power sold") but unpaid: she worked about 3 hours for free every week.

Now, you may call it whatever you like (say, "metaphysical substance", while a bit of an oxymoron, as you may or may not know, sounds good). Marx called it "surplus value" (or, more precisely, an addition to it: a drop of your very own metaphysical substance).

Let me close with this quote by Engels:

"And for this change, I must render an explanation (...) to the bourgeois, in order that they may convince themselves how greatly the uneducated workers, who can be easily made to grasp the most difficult economic analyses, excel our supercilious 'cultured' folk, for whom such ticklish problems remain insoluble their whole life long". ("Wage, Labour and Capital", Introduction)

My advice to progressives "proving" Marx wrong without reading him: observe real life, read, and think. It's not that hard and after a while you'll find your head doesn't hurt anymore.

Image credit:
[1] Dracula vs. Frankenstein. Wikimedia


  1. Your first graph could be improved by making fuller use of the vertical space (not including zero) and "banking to 45" the (implicit) lines between successive data points.

  2. Hi Danny

    "Your first graph could be improved by

    (1) making fuller use of the vertical space (not including zero) and
    (2) 'banking to 45' the (implicit) lines between successive data points."

    Thanks! I'll take advice (1) into account in the future. I usually try to represent the whole scale, but at times, like in this occasion, this might not be such a good idea.

    I am not sure what you mean with advice (2), though.