Aussies who missed out on economic good times

The people who deserve sympathy for missing out on the economic good times are not who our politicians think they are.

Younger women have done better than male counterparts. Picture: Jeremy Piper

Recall the proverb about the struggling Russian farmer Ivan who, granted a wish by God that he could have whatever he wanted on the irritating condition his neighbour would receive double, decided he wanted one eye plucked out. That’s a seriously warped case of envy, but pecking order matters greatly to many, perhaps even as much as their own standard of living.

Analysis revealed in The Weekend Australian today shows the dramatic improvement in real incomes across all income groups since 1988. Overall, our living standards are almost 70 per cent higher than they were then, adjusting for increases in the cost of living. Even the so-called poor are much better off — so-called because Australians today are, across whatever measure one chooses, among the richest people to have lived.

Bill Shorten’s ‘left behinds’ actually got ahead

According to research by Peter Whiteford, a professor of public policy at the Australian National University, the median household income in Australia, adjusted for inflation, has increased more between 1995 and 2012 than in any of the 18 other major OECD countries, just pipping Norway.

Yet the debate about inequality and fairness looks set to define the next election. Labor’s plans to make franking credits non-refundable, reversing 18 years of settled policy, have sent shockwaves through shareholder and retiree communities. But if any group deserves sympathy it’s not retirees or welfare recipients, whose interests have been well protected by a phalanx of well-resourced lobby groups. If any group is worthy of “left behind” status, it is middle-income single men who rent.

Whiteford makes a remarkable observation in his forthcoming essay, Left Behind? Inequality and Inclusive Growth — Assessing the Australian Experience”. Since 1978 the share of working-age men in “good jobs”, defined as those with incomes above two-thirds of median income, has plunged from 71 to 55 per cent. For women the share has increased from 25 per cent to 30 per cent.

Middle and low-income men have been among the worst hit.

The Grattan Institute, in its recent report comparing the wealth of different generations, similarly found that the incomes of low-income men of working age had not yet regained the levels of the 1970s. “Among those over 25, the income of women and men with high incomes increased significantly over the last two decades,” it found.

For all the talk of our “miracle economy”, Whiteford highlights how patchy Australia’s economic performance has been. “The bottom 45 to 50 per cent of working-age households were at the same level of real income in the mid-1990s as they were in 1981,” he says, pointing out how severely the recession reduced the incomes of every group. “Then from 2003 to 2008, everything went gangbusters. If it hadn’t been for the mining boom, things would be pretty gloomy,” he adds.

Living standards may have reversed in the 80s for many, but those with jobs might have felt more secure. The nature of work is changing so rapidly, variously threatened by technology and outsourcing, that job stability and the very idea of the “single career” has become endangered.

Anxiety too appears to have contributed to the wage growth slowdown, as more fearful workers lose the confidence to seek pay rises. “Despite some differences in the level of job security perceptions, the decline has occurred across a range of job characteristics, regardless of industry, occupation, contract type or union membership,” Reserve Bank economists found in a study released this week. “(Yet) there has been little change in actual job security (measured by turnover and duration of work),” the study says.

These are long-term trends. One of Australia’s top labour market economists, Jeff Borland, recently found the share of workers in “low-paid” jobs had risen from 2.2 per cent in the 60s to 17 per cent.

WEB Inquirer How we fare

In its report focusing on millennials, the Foundation for Young Australians found the average teenager today will end up working in 17 different jobs across five discrete industries or careers. Security of employment is an alien concept for millennials but they are also the best equipped to adapt.

WEB Inquirer How we fare 2

Older Australians have been caught in transition and typically lack the flexibility to confront change, either because they are planning for retirement or have had those plans thrown into disarray by divorce, illness or the myriad headwinds of life.

The spectre of income inequality is dealt with in the welfare system, too, where working-age payments such as the dole have lost value in real terms. The benefit has not been adjusted to match wages growth since 1995.

The rationale behind the payment is different to others in the welfare system, however, and it has been deliberately kept low to discourage shirking. Even so, the average duration most people spend on the dole is 257 weeks or almost five years, with almost 114,000 people on the benefit for more than a decade, according to Department of Social Services data from last September.

Even the Business Council of Australia intervened to say the rate of the payment has lost touch to such an extent with living conditions that it has become an impediment to jobseekers finding work. Mission Australia once estimated the average recipient of the dole in Sydney, after paying rent, was left with just $16.50 a day to cover all other living expenses.

Julia Gillard’s explosive decision to shunt single parents off the sole parent pension — finishing policy work begun under John Howard — has had a curious effect not easily captured by the debate about living standards. Much of this cohort, forced to look for work when their youngest child turned six, and who lost the payment when the youngest turned eight, has experienced one of the largest jumps in living standards. Where the big stick of government worked and pushed parents, mostly mothers, into employment, it paid dividends. But those who couldn’t or didn’t find work are among the most disadvantaged.

Apart from fears about the labour market, migration and population growth are adding to the sense of unfairness. Migration, has helped make this group bigger in terms of sheer numbers than ever before. The most recent census shows that in the past five years, the largest share of the population has shifted from the 40-44 age bracket down to those aged 30-34, closely followed by their gen­er­ational peers in the 25-29 ­cohort.

“Prices of housing towards the bottom of the price range went up substantially more than housing at the top,” says Grattan Institute chief executive John Daley.

High immigration tilted to younger skilled occupations has, especially since 2006, transformed the age profile of Australia. There are now significantly more people in their 20s and 30s (more than three million each) than in either their 50s or 60s. “And we suspect property investors in housing are also clustered towards the bottom end of the price distribution because they want to avoid state land tax,” Daley adds.

The boom in Asian migrant workers over the past 10 years has accelerated the rise of the 30-34 age bracket to the ­nation’s largest. Without it, generation Y would likely have had to wait until they were in their 40s before overtaking generation X. Those in the first half of the 30s now make up 7.3 per cent of the population, while those in their late 20s are at 7.1 per cent.

The notion of inequality extends beyond important but isolated measures of wealth, too.

As the nation’s population booms, infrastructure spending has not kept pace. People forced to live in ever-expanding cities — because that is where the jobs are, on balance — on average spend longer commuting to work, across vast (and increasing) distances, than any previous generation.

The fact that rapid population growth has been concentrated in the two largest cities, Sydney and Melbourne, has amplified the sense of inequality. “Cities make the juxtaposition of wealth and poverty very obvious,” says Harvard professor Edward Glaeser, a leading expert on the economics of cities. “This is behind the backdrop of anger over economic change,” he tells Inquirer.

And the cities are home to groups that have done the worst in relative terms.

“We’ve mined the taxation statistics by postcode, and it shows places where incomes generally grew the least were not the regions, they were outer suburbs of big cities,” says Daley.

Nurses, teachers and police officers might once have been able to afford homes to raise their families close to the suburbs where they worked, but property prices and the vastly inflated cost of childcare — thanks to government subsidies, in part — have spun them further out. There is an element of cloistering that develops with these centrifugal forces. School enrolment, governed by catchment areas or private fees, has become increasingly subject to location or income, or both.

In many respects life might feel more complex and difficult for these families, whether or not they are doing well financially. These pressures are felt keenly by families, although younger Australians are set to claim the burden of historic forces in property, wealth accumulation and the way the tax system treats that wealth.

Land and house prices have increased dramatically, benefiting primarily older homeowners. Yet the share of net taxpayers in the population has dropped too, especially among the over-65s, of whom 16 per cent now pay tax, down from 24 per cent in 2000.

Many inequality updates focus on income when household wealth might be a better indicator, particularly in a country where home ownership has long been the engine of success. The cascading effects now for those who fail to even gain access to the market have never been so significant.

“Essentially, children of weal­thy parents tend to be doing quite well already and then their inheritance turbocharges it,” Daley says.

Economists say income should be taxed once, but income previously tipped into superannuation has barely been taxed at all because of generous rules that are slowly being unwound.

In politics, as Bill Shorten well knows, the power is in numbers and he speaks now for a younger and genuinely aggrieved audience of over-educated renters and gig economy workers.

Crucially, as many in conservative circles know, a group of young people locked out of the most conservative ideal, a stable home and a stable career, are not easily picked up by right-of-centre parties.

Labor knows this as well as it knew the realpolitik of its dividend imputation changes: most federal electorates where more than a quarter of constituents are over 65 are held by the Coalition.

While economists are counting on a wage growth renaissance to snuff out discontent, Whiteford points out that hardly any of the periods from 1980 was characterised by strong income growth across all groups: “All this certainly undercuts some of the idea we’ve had a ‘miracle’ economy, which is a bit of a worry for the future. And we’re not going to have another mining boom like that for a while.”

Primatologist Frans de Waal’s capuchin monkeys famously threw food at their keepers when they were given different amounts of food. It’s unlikely the inequality debate is going to go away.