This is the new format for the ACTU economic
Now that commodity prices have started falling from
reports. This Bulletin will be released monthly, and
their historic peak, the terms of trade are subtracting
replaces the quarterly Wages, Jobs, and Economic
from our national income rather than adding to it.
Reports. The main part of the Bulletin contains a
This means that the blue line in Figure 1 is falling
feature article – this month’s is on national
towards the black dotted line. We’re no longer going
competitiveness. The back section of the Bulletin
to get a lift in average living standards from changes
contains charts and tables summarising recent data.
in prices. From here, improvements will come by
Please
or
increasing the amount of goods and services we can
compliments about the new format or the content
produce. Productivity growth will, once again, be the
of the Bulletin to mcowgill@actu.org.au.
main source of increased national income.
send
all
comments,
complaints,
Figure 1: National income and domestic output
Is the Australian economy becoming uncompetitive?
Index 170
Is this a high cost place to do business? This edition of
160
the ACTU Economic Bulletin will try to answer these
150
questions with a close look at the data. 140
The economic context
130
Over the past decade, the prices we receive for our
120
exports (like iron ore) have risen much faster than the prices we pay for important (like televisions). This lift in the ‘terms of trade’ means that our national
110 100 Mar 93
Real national income per person Real domestic output per person Mar 97
Mar 01
Mar 05
Mar 09
Mar 13
income has been able to rise faster than the total
Source: ACTU calculations based on ABS 5206.
amount of goods and services we’re able to generate.
On this point, Australian unions and business groups
You can see in Figure 1 that our national income and
see eye-to-eye. Improvement in our material living
domestic output grew at more or less the same pace
standards depend largely on the rate of productivity
in the 1990s, when the terms of trade were fairly
growth and this will be more important than ever in
stable, but our income has grown faster than output
the next few years as commodity prices fall.
in the past decade. The blue line in Figure 1 is a better proxy for the living standards of Australians,
The investment phase of the mining boom is also
but the black dotted line is the more commonly-cited
coming to an end. This means that the mining
measure (GDP per capita).
industry won’t add as much to output growth in the coming years. Our ability to keep increasing our real output at a decent rate, at least in the short run, will ACTU Economic Bulletin - July 2013 – Page 1
depend on whether the Australian economy can
The real exchange rate
‘rebalance’ away from a dependence on mining
Everyone understands the nominal exchange rate – if
investment and towards other industries. We’ll need
the Aussie dollar goes from being worth $US1 to
broader based growth, including industries like retail
$US1.10, then an American dollar will buy fewer
and home construction, as well as traded-sector
Aussie
industries like manufacturing and tourism. So the two
competitiveness is the change in the amount of
elements to Australia’s economic challenge in the
Australian goods and services that can be bought
coming months and years are to sustain productivity
with a US dollar. To calculate this, you need to take
growth, and to rebalance economic activity away
account of the different rates of inflation in the two
from mining investment.
countries. The exchange rate adjusted for different
Defining competitiveness
rates of inflation is called the ‘real exchange rate’.2
Some business groups have claimed that this
dollars.
But
what
really
matters
for
This is a measure of national competitiveness.
rebalancing process will be hampered by our lack of ‘competitiveness’. It’s not always clear what is meant by this. A company is competitive if it is able to secure market share and operate at a profit. But what
If the real exchange rate goes up, this means it has become more expensive for people in other countries to buy our goods and services – we’ve become less ‘competitive’. By this measure, our competitiveness
makes a country competitive?
has indeed worsened – the real exchange rate is The OECD defines competitiveness as “a measure of a country's advantage or disadvantage in selling its
around 10% higher than it was five years ago, as shown in Figure 2.
products in international markets”. Similarly, the ABS says “a fall in our competitiveness implies that goods and services produced in Australia have difficulty finding buyers in both foreign and domestic markets”. Based on these definitions, it seems that competitiveness relates to our ability to find willing buyers for our products. If so, we’re not doing too badly – Australia exported $26.4 billion worth of goods and services in May, recording a trade surplus.1
But it’s important to diagnose the cause of this real appreciation. The real exchange rate can rise for two reasons: the nominal value of the Aussie dollar could increase
relative
to
other
currencies;
and/or
Australian domestic prices could increase faster than the price level in other countries. The evidence suggests that the increase in our real exchange rate in recent times is almost all due to the increase in the nominal exchange rate.
A common way of measuring competitiveness is to compare prices across countries. This is either done by comparing consumer prices – like the CPI – or the
You can see in Figure 2 that the real and nominal exchange rates have risen virtually in lockstep with
cost of producing goods and services. We’ll look at these two measures in turn.
1
ABS 5368, table 1.
2
The rate used here is the ‘real effective exchange rate’ – the value of the dollar relative to a trade-weighted basket of our trading partners’ currencies, adjusted for their inflation rates. ACTU Economic Bulletin - July 2013 – Page 2
one another. The real exchange rate has risen because the nominal exchange rate has appreciated, not because Australia’s inflation rate has surged ahead of our peers’.
Figure 3: Real and nominal effective exchange rates (1970 to 90) Index (2010=100) 140
120
Figure 2: Real and nominal effective exchange rates Index (2010=100) 120
100
80 110 60 100
Real effective exchange rate Nominal effective exchange rate
40 Jan 70
90
Jan 74
Jan 78
Jan 82
Jan 86
Jan 90
Source: Bank for International Settlements.
80
Real effective exchange rate Nominal effective exchange rate
70 May 08
May 09
May 10
May 11
May 12
May 13
Source: Bank for International Settlements.3
In May, the nominal exchange rate fell by 4% and the 4
Yet the claims from business regarding Australian competitiveness seem to suggest that it’s our domestic costs that are the problem, rather than the nominal exchange rate. It is difficult to reconcile this with the fact that the real exchange rate has risen
real rate fell by 3.6%. This is not what you’d expect if
and fallen with the nominal rate, suggesting that our
high and rigid domestic costs were responsible for
price level has risen at much the same rate as those
making us ‘uncompetitive’. Instead, we’ve had a
of our trading partners.
situation in which Australian inflation has run at more or less the same pace as our trading partners, but our
Unit labour costs and labour’s share
nominal exchange rate has shot up (and has now
The real exchange rate measures international
started to come down).
competitiveness using different countries’ inflation rates, measured using the CPI. Another measure
Compare this to a previous period in Australian
relies on a comparison of unit labour costs. This is a
economic history: 1970 to 1990. Over this period, the
measure of how much it costs to purchase enough
Australian dollar depreciated by 43% against our
labour to produce one unit of economic output.
trading partners, yet the real exchange rate only fell by 16%. As the dollar fell, domestic inflation
If wages grow fast, but labour productivity doesn’t,
increased relative to other countries’ inflation rates,
then unit labour costs will rise. If wage growth is
offsetting the fall in the dollar to a large extent.
sluggish, and labour productivity grows rapidly, then unit labour costs fall or don’t grow by much. That’s more or less the situation we had in 2012 – wages
3
The BIS EER data were used here rather than the RBA growth fell a little, and productivity growth picked up, indices, as the BIS data are updated monthly. Note that the quarterly average of the BIS REER and the RBA REER have a so unit labour costs barely rose. The RBA said correlation coefficient of 0.974 over the period 1970-2013 “growth in unit labour costs remained relatively slow – they are virtually identical. 4 Based on the BIS nominal and real effective exchange rates. ACTU Economic Bulletin - July 2013 – Page 3
over 2012, reflecting continued strong growth in labour productivity.”5
Figure 5: Labour share and real unit labour costs Index (1990=100) 100
When you adjust them for inflation, changes in real unit labour costs are effectively equal to changes in labour’s share of income.6 If real wages grow more
98
96
rapidly than productivity, then labour’s share (and real unit labour costs) will grow; if real wages lag behind productivity, labour’s share shrinks. That’s
94
92
Labour share (ACTU)
what has happened in Australia since the turn of the century – labour income hasn’t kept up with productivity growth. Figure 4: Output and labour income growth since 1990 Index 1990=100 150 Real output per hour Real hourly labour income
Real unit labour costs (ABS)
90 2000
Labour share (OECD) 2002
2004
2006
2008
2010
2012
Source: OECD Stat; ABS 5204; ACTU calculations based on ABS 5204. See A Shrinking Slice of the Pie.
This is not what you would expect to occur if we had runaway wages growth that was making us ‘uncompetitive’. Indeed, it is the opposite of what
140
happened in the late-1970s and early -1980s. At that 130
time, real wages rose much faster than productivity growth and pushed up labour’s share of income. At
120
the same time, unemployment and inflation both rose sharply, and many commentators blamed the
110
rise in labour costs for the poor economic conditions. 100 1990
1995
2000
2005
2010
Source: ACTU calculations based on ABS 5204. See A Shrinking Slice of the Pie. Deflated using the GDP implicit price deflator.
As a result, labour’s share of income has fallen by
This concern, in part, was what led to the Accord – a deal that included some restraint in wages growth in exchange for the gains for working people via government services and the tax and transfer system.
around 9% since 2000. You can see in Figure 5 that the ACTU’s estimate of the change in labour’s share of income is very similar to the OECD’s estimate, and to the ABS measure of real unit labour costs.7
Far from seeing a re-run of the economic conditions of the early-1980s, Australia’s labour share is at a record low. Our current situation is emphatically not a re-run of the 1970s and early ‘80s. Again, the fact that Australian costs have risen faster than costs elsewhere, when denominated in foreign currency, is largely due to changes in the nominal exchange rate,
not ‘excessive’ wages growth. RBA 2013, Statement on Monetary Policy, May, p.55. For further information on this, see the ACTU’s paper A Shrinking Slice of the Pie. 7 ABS RULCs include payroll taxes, which are not included in labour income for the ACTU or OECD labour shares. ACTU Economic Bulletin - July 2013 – Page 4 5 6
Figure 6: Labour’s share of income
Figure 8: Labour productivity growth in two-year periods Per cent 8%
Share 80% 75%
6% 70% 4%
65% 60%
2% 55% 50% 1960
1970
1980
1990
2000
2010
Source: ACTU calculations based on ABS 5204. See A Shrinking Slice of the Pie.
0% Mar 93
Mar 97
Mar 01
Mar 05
Mar 09
Mar 13
Source: ACTU calculations based on ABS 5204, trend.
Australia’s goods and services have become more
WPI and productivity Australia wages growth has been moderate – the Wage Price Index only rose 3.2% in the year to
expensive in recent years for foreign buyers, but this is almost entirely due to the appreciation in the nominal exchange rate.
March, compared to a long-run average growth rate of around 3.6%.
Business groups that suggest that wages should be
Figure 7: Wage Price Index growth
restrained in response to the rising real exchange
4.5%
rate seem to think that a 10% rise in the nominal exchange rate should be met with a 10% fall in
4.0%
Australian wages, so that our real exchange rate 3.5%
Long-run average
doesn’t respond to changes in the nominal rate. While this point is never made explicitly, it seems to
3.0%
be the implication of calls to restrain domestic wages growth
2.5%
in
response
to
the
‘competitiveness
problems’. 2.0% Mar 01
Mar 05
Mar 09
Mar 13
The ACTU will always welcome the opportunity to
Source: ABS 6345, seasonally adjusted.
Inflation is low and stable. Labour productivity growth has picked up strongly in the past year or two, recording the strongest rate of growth in a decade in 2012 (3.6%). Because year-to-year productivity
discuss
Australia’s economic
performance
and
examine ways to boost our national income. But the national debate is dominated by disingenuous calls for wage restraint to cure a problem that isn’t there.
growth rates are volatile, Figure 8 looks through this volatility a little by showing the growth rates over two-year periods. It’s clear that recent performance has been strong. ACTU Economic Bulletin - July 2013 – Page 5
Employment and unemployment The tables and charts below summarise the latest available data about the Australian labour market.
Figure 10: Change in employment in the year to June Thousands 20 14.8
15
Table 1: Summary of jobs figures Level
12.1 10.3
10.4
Monthly change
Yearended change
Employed persons
11668500
10300
160400
- Full time employment
8144500
-4400
64100
10 4.4
5 1.7 0
- Part time employment
3524100
14800
96400
-1.7
-5
-4.4 -6.1
Working age population
18949600
25400
336200
Employment-to-population ratio
61.6%
0.0
-0.2
Unemployment rate
5.7%
0.1
0.5
-10 Full time Males
Part time Females Persons
Total
Source: ACTU calculations based on ABS 6202, seasonally adjusted.
Unemployed persons
709300
23700
75300
7.40
0.3
0.1
6.0
65.3%
0.1
0.1
5.5
Underemployment rate (quarterly) Participation rate
Figure 11: Unemployment rate Per cent 6.5
Source: ABS 6202, seasonally adjusted.
5.0 Figure 9: Change in employment between May and June Thousands 20
4.0 3.5
14.8
15
4.5
12.1 10.3
10.4 10
3.0 Jun 03
Seasonally adjusted Jun 05
Jun 07
Trend
Jun 09
Jun 11
Jun 13
Source: ABS 6202.
4.4
5
Figure 12: Unemployment rates by State/Territory
1.7
7.0
Tas
0 -1.7
-5
8.1
SA
5.6 5.9
Qld
5.6 6.0
Vic
5.5 5.7
-4.4 -6.1
-10 Full time Males
Part time Females Persons
Total
Source: ACTU calculations based on ABS 6202, seasonally adjusted.
5.0 5.5
NSW 4.0
NT
5.3 3.7
WA
4.9 3.6 3.7
ACT 0
2
4 6 Per cent Jun 2012 Jun 2013
Source: ABS 6202, trend.
ACTU Economic Bulletin - July 2013 – Page 6
8
10
Figure 13: Employment to population ratio
Figure 16: Employment growth in the year to May 2013
Per cent 64
Wholesale Trade
9.2%
Transport, Postal and Warehousing
63
Accommodation and Food Services
62 61
5.7%
Education and Training
4.1%
Public Administration and Safety
3.4%
Health Care and Social Assistance
3.3%
Retail Trade
3.1%
Construction
2.1%
Other Services
1.0%
60
Professional, Scientific and…
59 58 Jun 03
8.4%
Seasonally adjusted Jun 05
Jun 07
-0.8%
Arts and Recreation Services
-1.9%
Financial and Insurance Services
-2.5%
Manufacturing
-2.6%
Mining
-2.7%
Trend
Jun 09
Jun 11
Jun 13
Source: ABS 6202.
Figure 14: Participation rate 15-64 (%) 77.0
Participation rate (trend)
15+ (%) 66.0
0.4%
Administrative and Support Services
Agriculture, Forestry and Fishing
-7.3%
Information Media and…
76.5
65.5
76.0
65.0
75.5
64.5
75.0
64.0
74.5
63.5
-7.7%
Rental, Hiring and Real Estate…
-8.6%
Electricity, Gas, Water and Waste…
-8.9%
-10%
-5%
0%
5%
10%
Yearly change in employment (%) Source: ACTU calculations based on ABS 6202, trend.
Figure 17: Consumers' unemployment expectations
74.0 Jun 03
15-64 (LHS) Jun 05
Jun 07
15+ (RHS) Jun 09
Jun 11
63.0 Jun 13
Index 200 180
Source: ABS 6202.
Figure 15: Underemployment and unemployment rates Per cent 14 12
Percentage points Unemployment expectations (index) (LHS) 3 Change in unemployment rate (year-ended) (RHS) 2
160 1
140
0
120
10 Underemployment
-1
100
8 80 Jul 93
6
Jul 03
Jul 08
-2 Jul 13
Source: ACTU calculations based on Westpac-Melbourne Institute Unemployment Expectations Index and ABS 6202, trend.
4 Unemployment
2 0 May 08
Jul 98
May 09
May 10
May 11
May 12
May 13
Source: ABS 6202, trend.
ACTU Economic Bulletin - July 2013 – Page 7
Output and productivity growth
Figure 20: Annual growth in labour productivity (GDP per hour)
Table 2: Summary of March quarter National Accounts
Level
Quarterly change
Yearended change
Year-ended growth 5% 4%
Real gross domestic product (GDP)
374210
0.6%
2.5%
3%
Real GDP per capita
16069
0.2%
0.7%
2%
Labour productivity (total economy)
-
0.0%
1.6%
Labour productivity in the market sector
-
0.6%
2.0%
Terms of trade
-
2.6%
-6.2%
Fair Work Act
Work Choices
1% 0%
Wages share of income
54.0%
-0.7
0.2
Profits share of income
26.9%
0.6
-0.8
-1% -2% Mar 03
Seasonally adjusted Mar 05
Mar 07
Trend
Mar 09
Mar 11
Figure 21: Growth in output (gross value added) – year to March 2013 Mining
Source: ABS 5206.
Figure 18: Growth in real GDP per year 6% 5% 4%
8.1%
Health care and social…
6.4%
Financial and insurance…
6.1%
Transport, postal and…
4.6%
Rental, hiring and real estate…
4.1%
Retail trade
20-year average, 3.4%
3% 2% 1%
4.0%
Professional, scientific and…
3.4%
Administrative and support…
3.2%
Wholesale trade
2.9%
Education and training
2.5%
Public administration and…
1.5%
Accommodation and food…
0.5%
Arts and recreation services
0% Mar 03
Seasonally adjusted Mar 05
Mar 07
Trend
Mar 09
Mar 11
Mar 13
Source: ABS 5206 and ACTU calculations.
Figure 19: Annual growth in nominal unit labour costs 6%
4%
-0.3%
Manufacturing
-0.7%
Electricity, gas, water and…
-1.5%
Information media and…
-3.3%
Agriculture, forestry and fishing Other services
Source: ABS 5206.
0%
Seasonally adjusted Mar 01
-5.9% -9.4%
-15% -10% -5% 0% 5% 10% Annual GVA growth
20-year average, 2.4%
Mar 97
0.3%
Construction
2%
-2% Mar 93
Mar 13
Source: ABS 5206.
Mar 05
Trend Mar 09
Mar 13
Source: ABS 5206 and ACTU calculations. Non-farm.
ACTU Economic Bulletin - July 2013 – Page 8
Prices and wages
Figure 23: Headline and underlying CPI inflation Per cent 5%
Table 3: Summary of prices and wages data
Wage Price Index (WPI)
Latest quarter
Level
Year-ended change
March
-
3.2%
4%
3%
Full-time average weekly ordinary time earnings (AWOTE)
November
$1,396
4.9%
Real full-time AWOTE
November
$1,396
2.6%
Total average weekly earnings (AWE)
November
$1,081
4.5%
National Minimum Wage per 38 hour week
From 1 July
$622.20
2.6%
Average wage increase in collective agreements
March
-
4.5%
Headline CPI
June
-
2.4%
Trimmed mean (underlying CPI)
June
-
2.2%
March
-
1.7%
November
17.5%
0.1%
2% RBA's target band
1%
Headline CPI 0% Jun 03
Underlying CPI Jun 05
Gender pay gap
Jun 13
4.0%
Figure 22: Annual growth in the CPI and workers’ cost of living (LCI)
Long-run average
3.5%
3.0%
6%
Trend
5%
2.5% Mar 03
4%
Source: ABS 6345.
3%
Mar 05
Mar 07
Seasonally adjusted Mar 09
Mar 11
Mar 13
Figure 25: WPI growth in the public and private sectors
2%
5.0% Underlying CPI 4.5%
Employee LCI
4.0%
-1% -2% Jun 03
Jun 11
Figure 24: Wage Price Index growth
Source: ABS 6345, ABS 6302, FWC, DEEWR Trends in Federal Enterprise Bargaining, ABS 6401, ABS 6467, ACTU calculations.
0%
Jun 09
4.5%
Employees’ cost of living (LCI)
1%
Jun 07
Source: ABS 6401.
Jun 05
Source: ABS 6467, ABS 6401.
Jun 07
Jun 09
Jun 11
Jun 13
3.5% 3.0% 2.5% 2.0% Mar 03
Private Public Mar 05
Source: ABS 6345.
ACTU Economic Bulletin - July 2013 – Page 9
Mar 07
Mar 09
Mar 11
Mar 13
Figure 26: WPI growth in the year to March by industry 0% 1% 2% 3% 4% 5% Electricity, gas, water and…
4.4%
Mining
WA
4.2%
Wholesale trade
Figure 28: WPI growth in the year to March by State 0% 1% 2% 3% 4% 5% 3.7%
ACT
3.4%
SA
3.3%
4.0%
Other services
3.4%
Health care and social…
3.3%
NT
3.3%
Public administration and…
3.3%
Victoria
3.2%
Administrative and support…
3.3%
Tas
3.2%
Tas
3.2%
Australia
3.2%
Transport, postal and… Professional, scientific and…
3.2%
Qld
3.1%
3.0%
Manufacturing
3.0%
NSW
Financial and insurance services
2.9%
Source: ABS 6345.
Construction
2.9%
Information media and…
Figure 29: Average weekly ordinary time earnings for full-time adults $0 $1,000 $2,000
2.8%
Arts and recreation services
2.8%
Retail trade
2.7%
Education and training
2.7%
2.9%
Mining
$2,360.90
Financial and Insurance…
$1,642.10
Rental, hiring and real estate…
2.4%
Professional, Scientific and…
$1,633.90
Accommodation and food…
2.4%
Information Media and…
$1,631.80
Electricity, Gas, Water and…
Source: ABS 6345.
Figure 27: Range of WPI growth rates across industries 7% 6% 5%
$1,479.40
Education and Training
$1,474.10
Construction
$1,418.70
Wholesale Trade
$1,414.40
All Industries
$1,396.00
Transport, Postal and…
4% 3% 2% 1%
Range of growth rates in all industries
Mar 05
Mar 07
Mar 09
Mar 11
Mar 13
Source: ABS 6345 and ACTU calculations. Based on a 5-quarter centred moving average.
$1,369.40
Rental, Hiring and Real…
$1,308.70
Health Care and Social…
$1,306.90
Administrative and Support…
$1,269.60
Arts and Recreation Services
$1,234.00
Manufacturing
$1,223.00
Other Services
$1,105.90
Retail Trade
$1,008.30
Australia 0% Mar 03
$1,610.50
Public Administration and…
Accommodation and Food… Source: ABS 6302.
ACTU Economic Bulletin - July 2013 – Page 10
$992.80