Since the Coalition won government in 2013 our living standards have gone down

Extract from The Guardian

Opinion

Australian economy

Greg Jericho

There are different ways to measure living standards but the news is not rosy

@GrogsGamut

Tue 12 Mar 2019 04.00 AEDT Last modified on Tue 12 Mar 2019 04.02 AEDT

Since the middle of 2016 corporate profits have risen 43% while wages have risen just 8%. Photograph: Zheng Long/Stocksy United

The release of the poor GDP figures last week has put the economic debate front and centre for the coming election. It also saw renewed focus on whether or not living standards are improving.
While there are numerous ways to measure living standards, when you focus on workers and households it is clear that since September 2013 things have become worse.
It was not surprising last Wednesday the treasurer, Josh Frydenburg, did not want to focus on actual GDP growth given how poor the figures were (the two consecutive falls in GDP per capita were rather ugly). Instead he tried to shift talk to living standards.
He tweeted that rather than GDP per capita , a “better indicator of living standards is real net national disposable income per capita which is above its 20 year average”.
Now to be fair to the treasurer, “real net national disposable income per capita” has long been used rather lazily by both sides of politics and the media (including myself in 2014) as a measurement of living standards.
The ABS, for its part, doesn’t call it that, instead it calls it a measure of “national economic well-being” – which is decidedly not “living standards”.
Essentially it measures national income per capita and is useful for showing whether or not for all our economic production, we as a nation actually have more money.
The problem is it is very much affected by our terms of trade. If the price of our exports rises, then so too does our national income:

That was why from 2012 to 2016 while our GDP was growing our national income was not – we were producing more but not getting more income for it. But then in 2016 the terms of trade improved and so too did our “economic well-being”.

It was at this point I started looking for another measure of “living standards”, because at a time when wages growth were at record lows, it seemed utterly absurd to be saying that our living standards had risen by 4.7% in a year.
The issue is that national income is a combination of things, but mostly wages and company profits.
So if our national income rises because exports prices have led to greater profits, which then flow through to more jobs and better wages, then it is a good measure of living standards.

But that is not what has happened.
Since the middle of 2016 corporate profits have risen 43% while wages have risen just 8%.
It has seen a plunge in the amount of national income going to employees:

Since March 2015, the average compensation for employees has grown much slower than inflation:

All up this meant “real net national disposable income per capita” was not cutting it as a measure of living standards.

So I went looking for something better because, let’s be honest, when we’re talking about living standards we’re really talking about households not companies.
The ABS measures household disposable income, but only in current dollars. So I took that figure, converted it into a per capita amount, then adjusted it into real terms using the consumer price index – the most common inflation measure.
Using this measure of household living standards it is clear that during the mining boom it and the “real net national disposable income measure” were in sync, but during the GFC they split as our terms of trade plunged and soared.
Over the past five years, while national income has again risen and fallen with our terms of trade, household incomes peaked in March 2015 and have then consistently fallen as wages have failed to keep pace with inflation:

It is not a measure that makes for good reading if you are the government trying to say living standards have improved:

But maybe I am being unkind, maybe we should use the treasurer’s preferred measure. The problem is even that it is hardly skipping along tickety-boo.
In the past year real net national disposable income grew by just 1.4% – actually below the 20-year average of 1.8%, and even further below the 25-year average of 2.1%:

Yes it has grown by 2.8% since the LNP came to power, but in the same period of time under the ALP government before the September 2013 election it had grown by 4.2%.

In fact whether you measure real compensation per employee, household income or national income, growth was better in the 21 quarters before the September 2013 election than in the same period since:

The reality is the government might be able to use a measure it says shows living standards have increased since they came to power, but I doubt it will pass any smell test.
Workers know how poor their pay rises have been, and they know they are not better off.

• Greg Jericho is a Guardian Australia columnist