The latest National Accounts release confirms the lack of growth in Australian household incomes. Is this the start of a new era of stagnant incomes? In recent years GDP has continued to increase (save for a small drop at the end of 2016), but household incomes have hardly grown at all over the last half-decade.
The figure shows 40 years of income growth in Australia. Three indicators from the National Accounts are shown: Gross Domestic Product (GDP), Net National Disposable Income (NNDI) and Household Gross Disposable Income (HGDI). All three are shown per-capita, in constant dollars and seasonally adjusted. The vertical axis is in log form, so that equal slopes imply the same percentage rate of growth.
Over the three decades up to the global financial crisis, peak to peak GDP growth sat at around 2% per annum. Since then, it has slowed to just under 1% p.a. – but nonetheless has continued a general upwards trajectory (with the occasional negative quarter). Much of the recent growth, however, has reflected increasing mineral exports. While the value of these exports is included in ‘domestic product’, a large fraction of the income from these exports goes to the foreign shareholders of mining companies.
The most comprehensive measure of national income, (NNDI), however, peaked in 2012 and has declined since (with some growth returning in the last year). This measure only includes income going to Australians. Similarly, the more narrowly defined Household Gross Disposable Income measure has also been flat since 2011. This measure excludes the government sector. The lack of volatility compared to NNDI reflects the cushioning effect of governments running deficits during recessions and also the different treatment of exchange rate movements in the two measures.
The main proximate causes of this slow-down are clear enough – wage growth has been anaemic. See for example Greg Jericho’s compilation of the latest data. The underlying causes are less clear. Nicholas Crafts argues that a slow-down in productivity growth was evident in both the US and Europe even prior to the GFC. Long run demographic trends are also reducing the fraction of the population employed. The Australian mining boom might only have allowed us to delay the onset of the income stagnation that is widespread in other rich nations. Does this mean we will soon be experiencing the same political turmoil as in the US and Europe?