The Distribution of Recent Economic Gains: Some early observations Ben Dolman

2 Some early observations n Sources of income growth n The labour share of income n Labour market outcomes

Sources of income growth

4 GDP per capita Average annual growth in GDP per capita (per cent)

5 Market sector output Contributions to average annual growth in market sector output (percentage points)

6 Industry contributions Share of output Share of hours worked Per cent

7 Market sector output Contributions to average annual growth in market sector output (percentage points)

8 Summary n Reforms to the supply side of the economy led to productivity growth in the 1990s. n Since then, output growth has been input driven …  Strong investment  More workers (though lower average hours) n … and price driven, through soaring terms of trade. n These changes can be identified with changes in demand.

The labour share of income

10 Labour income shares Per cent of total factor income

11 Labour and capital Indexes, = 100

12 Labour and capital 1981/82 to 1989/ /90 to 1999/ /2000 to 2006/07 Initial labour share (%) Final labour share (%) Annual change (% pts)

13 Labour and capital 1981/82 to 1989/ /90 to 1999/ /2000 to 2006/07 Initial labour share (%) Final labour share (%) Annual change (% pts) Annual contributions (% pts): Real consumer wage Other changes0.1 ― Profit / capital services ― Capital-deepening

Changes in labour income shares … … within industries Share of total factor income, per cent

Changes in labour income shares … … within industries … between industries Share of total factor income, per cent

16 Average return on capital Per cent per annum

17 Average return on capital Nominal return less 10-year bond rate (Per cent per annum)

18 Some implications Share price indexes Capital services Indexes, = 100

19 Gross national income Contributions to average annual growth in GNI per capita (percentage points)

20 Summary n Through the 1990s, the benefits of microeconomic reform were evenly shared with workers – through higher wages and lower output prices – and firms. n Since then the labour income share has fallen mainly because profit rates on capital have increased. n The labour income share has fallen in most market sector industries. The largest contributors are mining (about ½ of the overall fall), construction and finance. These industries have experienced particularly strong demand-driven growth. n Higher profit rates have also seen more earnings remitted offshore.

Labour market outcomes

22 Labour market outcomes n A. Jobless families n B. Jobs growth and the wage distribution n C. Male full-time employment n D. Unemployment and education

23 A. Jobless families Percentage of families with dependent children and no working head

24 B. Jobs growth by wage rate Annual average growth in hours worked (per cent)

25 C. Male full-time employment Full-time employment rate (per cent of civilian population) Age group

26 D. Education Employment rate Unemployment rate Per cent of civilian population Per cent of labour force

27 Labour market outcomes n A. Jobless families n B. Jobs growth and the wage distribution n C. Male full-time employment n D. Unemployment and education

28 Concluding observations n Australia’s economic growth this decade has been marked by strong demand growth, particularly in construction, mining and finance. n These have brought much higher profits which in turn appear to have driven strong investment and employment growth. n Labour market outcomes have improved in many ways.