A resources-reliant economy that’s steadily adding hundreds of thousands of jobs to push its unemployment rate down — while its workers put up with the worst wages growth since 1998. Say hello to … Canada.
Yep, the Canadians are in the same boat as us. According to the June jobs report in Canada, unemployment fell there to 6.5%, over 350,000 jobs had been created during the year (most of them full time). But wages in the year to March grew by just 1.1% — the lowest level of growth since 1998.
If that sounds familiar, it’s because the current level of private sector wages growth in Australia is the lowest ever recorded since the series began in 1998, too. Overall wages growth (i.e. including the public sector) here isn’t much better here — at just 1.9%, or 1.8% if you’re in the private sector — despite unemployment dropping to 5.6%.
Are things any better across the Tasman? No. Despite unemployment below 5%, wages growth has been stuck at 1.6% for the past two years in New Zealand — a growth rate which is now below the rising level of inflation there.
And the Brits? Much worse than us. Real wages fell for much of 2016. In fact, real wages fell in the UK between 2008 and 2014, before making a modest recovery that petered out last year and worsened this year.
Similarly, in the United States, real wages fell between 2009 and 2014, before recovering strongly into 2016. But wages growth faltered this year, slipping back to 2.5%, despite continued strong jobs growth that has pushed unemployment in the US well below 5%.
Nor is it an Anglophone disease: wage growth in France has fallen since 2012 to the lowest level since the 1990s. Japan earliest this year experienced a return to falling real wages, with real wages falling at their fastest rate since 2015. In Germany, wages grew at their strongest level since the 1990s in 2015-16 — but that’s not saying much, because German workers and employers have, under Germany’s non-government, industry-level bargaining process — cut deals to keep wages growth down below productivity growth levels for years. Real wages growth in Germany reached 2.7% — but has since fallen back below 1%, despite unemployment falling below 4%. This has led to economic policymakers calling for German workers to take substantially higher pay rises in order to reduce Germany’s trade surplus — but workers are reluctant.
A wide diversity of economies, all suffering a similar problem of stagnant wages despite, except in the case of France, strong employment growth. And, noticeably, a wide diversity of company tax rates. Let’s use the US Congressional Budget Office’s recent comparison of international corporate tax rates to have a look. The United States: 39% statutory rate, 29% average rate (the total amount of corporate income taxes that companies pay relative to their income). Japan 37% statutory rate, 27.9%. So, wage stagnation in economies with relatively high company tax rates. The United Kingdom, statutory rate of 24% — now reduced to 19% — and average rate of 10.1%. Canada, statutory rate of 26.1%, average rate of 16.2%. Wage stagnation in economies with relatively low company tax rates. And Australia, 30% tax rate for large companies, average rate of 17% — wage stagnation here as well.
Whatever lowering company tax rates does, there’s no evidence that they have any effect on wages growth — indeed, the British experience appears to suggest a correlation between lowering company tax rates and falling real wages, not the opposite.
This is the core failing of neoliberalism, and why it is now dying. Households across the west were ready, if not overly happy, to accept the central trade-off of neoliberalism: that the rich, and companies, would become significantly wealthier and more powerful as long as everyone else also enjoyed rising income levels too. But market economies — or at least the increasingly bastardised version of market economics delivered in many countries — is now failing to meet its side of the bargain.
But market economies — or at least the increasingly bastardised version of market economics delivered in many countries — is now failing to meet its side of the bargain.
“Now” ? It’s been failing for decades. That failure has just been masked by property bubbles and increasingly easy access to credit.
Spot on!
The mistake in BK’s analysis is that it reduces neoliberalism to trickle-down economics, the ‘theory’ that allowing the rich to flourish (by cutting taxes and regulations), greater wealth in due course will flow down and out to all. This leads BK to the idealistic conclusion that if wages as a proportion of national income were just to recover, everything would start to be okay again. Or at least, the worst of neoliberalism behind us.
But this is mistaken, because neoliberalism isn’t just a theory that we can jettison: it’s a whole package of philosophical premises, public policy notions, histories of implementation, and all their practical outcomes, plus all the political-cultural changes that have ensued, at the very least. In a word, neoliberalism has massively changed our world: it has left it gutted across all levels of society, and not just at the level of wages. People’s understand of their own agency, hopes for their material security, and of politics ever working for them, have all been shattered. Institutions that protected and nurtured people through health, education, public utilities and social services have for the most part been dismantled, massively de-funded or destructively privatised. The biosphere has been trashed, and the international system inflamed and armed to the teeth. And business deregulated and elevated to calling the shots everywhere, dictating everything from employee wages and conditions to what political parties may dare even contemplate.
This is why a recovery of wage levels to pre-neoliberal won’t make everything okay again – and more pointedly – is so wildly unlikely to happen in any event. Neoliberalism shifted power: not marginally, but techtonically. What happened to wage levels, and all the rest, are just an effect of that: mere symptoms.
So, when BK confidently reports that neoliberalism is finished as he frequently now does, you know he’s not even begun scratching the surface. It’s not that it won’t be over until the likes of the Koch brothers are dragged through the streets in chains, but that when such oligarchs find themselves increasingly powerless to limit people’s imaginations neoliberalism will have been defeated.
It needs the ‘inclusive growth’ paradigm shift. See my comment below. John Homan
Well said Will.
While many countries, including Australia, are still happily deceived by the con of supply side economics, some of the smart ones, like the Scandinavians have embrace ‘inclusive growth’, an economic system grounded in evidence, that says that ‘reducing inequality benefits the economy’. The Scandinavians have excellent social, health and education services, low levels of inequality, pay high taxes to pay for it all, but… have thriving economies.
In Australia Labor is ramping up for the transition. Inequality, health, education, housing affordability are becoming more prominent in its language, daily!
john Homan
Good comment, John.
We just have to hope that the voters stay on message…54-46 Labor…for the next two years or preferably before that.
Otherwise, we are fd!!
Of course it does John, the bottom has to brought up more quickly than the top for real economic growth. Scandinavian countries are just one possible model, but at base they have to start with the idea of money flowing via the bottom to the top, ‘trickle up’ rather than trickle down.
This was always going to be the end of neoliberal economics, as it was clearly designed to funnel ever-increasing amounts of money upwards.
Don’t dispute your analysis BK, except the part about ‘core failing’ and ‘dying’. The undermining of wage labour is not a core failing if neoliberalism, it is among its core purposes. Neoliberalism is not dying, it is already dead. It has been for some time, shambling on (like our political class still in its thrall) like a zombie. It’s death was not a product of its failures, but it’s grotesque internal contradictions – the emaciation of wage labour and the feeding frenzy for wealth, the desiccation of the public at the expense of a bloating of private interest, the single minded pursuit of privatisation while relentlessly socialising costs.