As Australia endures its seventh consecutive year of wage stagnation, Opposition Leader Bill Shorten has pledged that the next election will be “a referendum about wages” and will focus attention on “who the economy should work for”.
Since Reserve Bank Governor Phillip Lowe belatedly declared a “low wage crisis” in June 2017, the federal government’s response has been limited to urging employees to be patient.
Mr Shorten is calculating that a concrete plan to end wage stagnation, including a proposal to ensure minimum wages are increased, will reap a rich electoral harvest.
In the past two years, Australian workers have received the lowest share of total economic output since the ABS began gathering quarterly GDP data in the 1950s — less that 47 per cent of GDP.
As corporate profits rise, wages fall
The share of GDP from Australia’s labour force has declined by 11 percentage points since peaking in the mid-1970s. That which labour has lost is almost perfectly reflected in an increased corporate profit share: up by 10 percentage points over
the same period, and now near record highs.
Throughout this period, economists have continued to fret about the “wages puzzle”.
Economics 101 dictates that if the unemployment rate reduces, then the price of labour in the form of wages should increase. But wages have stagnated while unemployment has fallen.
The unemployment rate hovers around five per cent, a level which Treasury bureaucrats have described as “full employment”. Market forces cannot explain the decline in employee fortunes.
In fact, the answer to the puzzle is staring us in the face. It’s not robots. It’s not the digital revolution. It’s about power.
Employees have lost bargaining power.
A dramatic collapse of employee power
In fact, power has collapsed so dramatically that bargaining over wages has been relegated to a small and shrinking portion of the labour market.
As a result, companies are increasingly unilaterally determining wages and they are not increasing enough to keep up with the cost of living.
If individual employees had real bargaining power, they would not sign template employment contracts with terms heavily skewed in favour of their employer.
They would not agree to non-compete provisions, preventing them from working in their chosen field for up to a year after they end a job.
They would not agree to abide by draconian workplace policies that micro-manage what they do and say at work and outside work. But they do agree.
And it has always been ever thus.
Collective bargaining is on life support
If individual bargaining for higher wages is going nowhere, that only leaves one other option: collective bargaining. It’s not quite dead but it’s on life support. The system is out of reach for most of the workforce.
According to recent data published by the Commonwealth, less than 1.3 million private sector workers are covered by a current enterprise agreement (EA).
Private sector EA coverage has collapsed by 40 per cent in just the past four years.
Collective bargaining has been decimated because the bargaining system has ossified while the world of work has radically changed around it. Bargaining at the firm level has only ever worked well in larger, blue collar companies with
predominantly full-time employment; in particular, male-dominated factories that were prevalent in the period after World War II.
They still exist, but nowadays most employees work in very different environments.
Small and medium enterprises employ over 45 per cent of employees and those workers lack the capacity and power to bargain collectively for better conditions.
As the plight of child care workers demonstrates, they rarely succeed in negotiating collective agreements or decent pay rises.
The role of the gig economy
Smaller workplaces are also more difficult for trade unions to organise and service. Larger companies have restructured by splintering their labour into smaller constellations: using franchising, supply chains, labour hire and more recently
digital platforms in the gig economy.
In doing so, they have cut labour costs, de-unionised the workforce and weakened employee bargaining power. Those working in such structures can’t successfully collectively bargain with their employer for pay rises.
Just ask the nearest Uber driver or 7 Eleven employee.
A recent analysis of ABS data by the Centre for Future Work has revealed that for the first time, a minority of Australian workers enjoy permanent, full time employment with access to sick leave and holiday pay.
Insecure forms of work including part-time, casual, temporary, fixed term, gig work and other contracting now account for a majority of work in the modern labour market.
The old firm-level bargaining system doesn’t function in the contemporary world of work.
In addition, employees are hampered by repressive laws which further impede their ability to band together and effectively bargain. For the shrinking minority of Australian workers who are able to engage in enterprise bargaining, the system
presents a Kafkaesque legal quagmire.
The ability to take industrial action in support of better wages, free from the risk of retaliation and legal liability, is extremely limited.
Only industrial action that doesn’t have a significant economic impact is usually permitted, begging the question: what’s the point?
In stark contrast to the corporate sector, unions are subjected to extreme and repressive hyper-regulation. A workplace watchdog recently prosecuted union officials who attended a work-site and shared a cup of tea with another union member.
The prosecution failed. Others have been sued and punished for attending protests, wearing union insignia and swearing. Under the weight of a flawed bargaining and regulatory system, industrial action to support better collective employment
conditions has plummeted to historic lows.
As the number of workers covered by collective agreements has declined, there has been a significant increase in the proportion of workers covered by awards.
Industrial awards no longer provide a “living wage” but instead provide a bare minimum of wages and conditions but as the steady diet of wage theft cases shows, many of these low paid workers are not even being paid minimum wages or
The dramatic loss of employee bargaining power is not an accident. Rather, it is the deliberate product of decades of campaigns, laws and policies that have sought to suppress wage growth.
Limiting wages is a feature of economic policy
As Finance Minister Matthias Corman recently confirmed, limiting wage growth is a “design feature” of economic policy.
If employee bargaining power is to be revived, decisive legislative intervention will be necessary.
The legacy of laws and policies that have served to suppress wage growth will require a conscious, multi-faceted approach.
One obvious remedy is to resuscitate collective bargaining.
The OECD has recently published a report endorsing bargaining on a sector-wide or multi-employer basis. The report argues that “bargaining systems that co-ordinate wages across sectors tend to be linked with lower wage inequality and better
employment outcomes, including for vulnerable groups”.
This article originally appeared on ABC Online.
The essay, Employees Are Losing. Have Workplace Laws Gone Too Far? has just been published by The Journal of Industrial Relations.