Wages, prices (…and profits?) for activists

This post discusses the latest on prices and wages and their connection to profits. (The mainstream productivity obsession can wait for another time.)

In the past 2 weeks, the Australian Bureau of Statistics (ABS) released its latest quarterly data on prices and wages.

Both are a big deal for mainstream commentary on what should happen to interest rates and what is wrong, or right, about government policy, and the struggle over the standard of living.

Union, community, welfare, women, and environmental activists benefit from a careful and critical check on the mainstream blather. The extent to which the mainstream blather prevails shapes the campaigns and struggles that we are all engaged in.

Prices, in brief

The Consumer Price Index (CPI) data for the March quarter shows inflation at 3.8%. We see a small increase in the context of a general trend downward. The related “trimmed mean inflation” (that irons out volatility in some prices) continued to fall to 3.9%. (For more, check the previous post.)

The ABS also provides several other price (inflation-deflation) data that do not receive much commentary. They include the Living Cost Index and the Pensioner and Beneficiary Living Cost Index. The CPI and the PBCLI are used optionally to set increases to the aged and disabled pensions in March and September each year.

Wages, the “new” data

The ABS’ Wage Price Index (CPI) is one of several measures of what’s happening with wages.

The Reserve Bank watches this measure closely because it sees wage increases as the prime driver of inflation and, according to their catechism, higher interest rates are needed to drive down wages to get inflation down. As we know, the employers and their champions that dominate mainstream media commentary want wages down for the profits gain and lower interest rates to help pay off investment loans. So, they are watching closely as well.  

Before taking a closer look, it’s worth remembering how wage increases happen (if they happen). Wage increases come from enterprise bargaining, the annual wage review (the national minimum wage and award minimum pay levels), and individual arrangements between a worker and his/her employer. Individual arrangements are usually dominated by the employer but, unless wage theft is happening, the outcome is relative to the standard in awards or enterprise agreements.

This is a snapshot from the new ABS WPI data.

The ABS provides a breakdown of the newest data. It says quarter by quarter “individual arrangements” is the biggest proportion of the increases. Generally, enterprise bargaining is the weakest. The September quarters for 2022 and 2023 show the better than usual – still inadequate relative to price increases – Annual Wage Reviews (AWR).

By industry, the highest quarterly rises were in mining, public administration and construction. Of course, all 3 would be less without the union bargaining effort.

You will see the ABS presentation is focused exclusively on wages. From the ABS that is understandable. It is just gathering and presenting the data.

However, in the real world wages exist in relationship to prices and, organically, to profits. So, what’s going on there?

Wages and Prices

First, remember that whatever is happening, wages are overwhelmingly chasing prices.

Second, both the CPI and the WPI are not perfect indicators of the real world from the viewpoint of workers, their families and communities, and their class. Most workers are at wages below the averages used by the ABS, and a big proportion of them are well below.

And, at a technical level, it’s tricky to compare the 2 because the ABS starts each index in different years.

In this pic, I try to line up the CPI with the WPI using a common starting point. (I am happy to be corrected if I have this wrong.)

The ABS provides nothing that connects the WPI and CPI to profits. There is no profit index.

The profit connection to wages and prices

The ABS provides several forms of data on profits, both public and private sector.

Overall, mainstream commentary struggles to discuss the profit connections in a meaningful way that relates to the real world.

In the real world, the profit-wages connection is a social relationship not just a dollar number. In their time at work, every worker produces or delivers goods and services with more value than the wages they are paid, their employer takes the difference as their profit. That is exploitation.

The rate of exploitation is profits taken relative to the wages paid.

Some mainstream commentators do discuss wages as a share of GDP relative to the profit share of GDP. In doing so they dodge, or fall short of, the real world of the exploitative character of the relationship. Thus, they reinforce the idea that a certain level of exploitation is ok … the pipe dream of a “fair wage” … without ever saying what that level should be.

Here is one of my efforts to show the rate of exploitation.

This data is from the ABS, but it is “totals” in form, not averages. The profit-wages connection can’t be directly aligned in this form to the CPI and the WPI.

In this next and final graph, I have a go at an index of the totals of wages and profits as shown in the ABS’ quarterly accounts.

It’s rather telling, isn’t it? All power to wage struggles as the key to tackling the living standards crisis.

All sorts of questions arise.

In mainstream commentary, the easiest jump is to align the data to whoever is in government at the time. But, as discussed in another post, governments are more of a secondary factor in setting these relationships.

We haven’t even discussed the connection of wages and profits to the intensity of the class struggle, as expressed in strikes and the repressiveness of labour law. Another time.

Within the general struggle around the standard of living and the rescue of nature, there are many groups involved in specific struggles: unions on the industrial wage, social welfare groups on government tax and spending priorities, housing groups on rents that are formed by interest rates, and not least environment groups. Understanding this basic dynamic of the capitalist society we live in can make all of those and the general one far more effective.