Corporate profits must take hit to save workers

The Australia Institute's Centre for Future Work

Historically high corporate profits must take a hit if workers are to claw back real wage losses from the inflationary crisis, according to new research from the Australia Institute’s Centre For Future Work.

Despite inflation peaking, workers are still struggling to recoup wages growth lost during the pandemic and subsequent cost-of-living crisis.

Centre for Future Work Director Dr Jim Stanford and Australia Institute Chief Economist Greg Jericho will today (Thursday) give evidence to the Australian Council of Trade Unions’ Price Gouging Inquiry, headed by Dr Allan Fels, about the true cost of record post-pandemic corporate profits to workers.

A new report, Profit-Price Inflation: Theory, International Evidence, and Policy finds that corporate profits still account for the clear majority of cumulative excess inflation since the pandemic hit.

Key points:

  • Corporate profits in Australia have fallen modestly in recent months, coinciding with a partial slowing of inflation, but remain well above historical norms and account for the clear majority of inflation since the pandemic.

  • Real wages have fallen by an average of 6% since mid-2021, the fastest and largest decline in the postwar era.

  • To curb profit-led inflation, Profit-Price Inflation is calling for key measures, including:

    • Price regulations across strategic sectors such as energy, housing, and transport

    • Competition policy reforms to restrain exploitive pricing practices by powerful large firms

    • Support for wage increases above inflation for a sustained period, to repair recent real wage reductions.

“The evidence couldn’t be any clearer: enormous corporate profits fuelled the inflationary crisis and remain too high for workers to claw back wage losses,” Dr Stanford said.

“Real wages in Australia saw the largest and fastest fall since the Second World War, yet the usual suspects in the business community want to blame labour costs for inflation.

“That claim simply doesn’t stack up under the weight of international and domestic evidence that shows corporate profits still account for the clear majority of excess inflation, despite inflation moderating from its peak last year.

“Profits have fallen modestly, but this trend must continue in order to repair real wages while further reducing inflation.

“Our research being presented to the Price-Gouging Inquiry also debunks the myth that you can carve out eye-watering mining profits from an analysis of inflation.

“There is abundant Australian and international research confirming that companies in many industries, not just mining, were able to increase prices far above their costs, fuelling the surging inflation that rippled through the economy and now threatens it with high interest rates and possible recession .”

Centre for Future Work Director Dr Jim Stanford and Australia Institute Chief Economist Greg Jericho will give evidence to the Price-Gouging Inquiry from 10.10am on Thursday September 21 at Karstens Melbourne (123 Queen Street).

/Public Release.