Tough Rules on Unions have Stifled Australian wages

When Reserve Bank governor Philip Lowe recently declared a “wages crisis” following a prolonged period of low wages growth, it appears to have caught the federal government on the hop. Quick to respond to crises about border protection, terrorism and rising energy prices, this is one crisis that renders the government mute. There is no plan, no working group, or commissioning of a white paper from the Productivity Commission. Instead, the government has announced a plan to pay up to 10,000 “interns” to work in the retail industry for as little as $4 an hour. This plan will only exacerbate the wages crisis.

Phillip Lowe is not the first prominent mandarin to observe that stagnant wages threaten economic growth. A new consensus has emerged since the Global Financial Crisis that anaemic wages growth and increased income inequality is retarding economies and stoking political volatility in developed economies. Nevertheless, Lowe is the first in Australia to join the chorus. His suggested remedy – that employees need to speak up more to request higher pay – is strikingly naive, inviting the obvious question. What if the boss says “no”?

Lowe’s counterpart at the Bank of England, Andy Haldane, has offered a more sophisticated analysis of the wages crisis, focused on the transformation of the labour market. Haldane recently observed that profound changes in workplaces had produced a period of “divide and conquer” that left workers less able to bargain for higher wages. “There is power in numbers. A workforce that is more easily divided than in the past may find itself more easily conquered. In other words, a world of divisible work may reduce workers’ wage-bargaining power,” he said.

The collapse in bargaining power for workers that Haldane has observed is reflected in the plight of Australian trade unions, which are languishing at their weakest point in their history. Only 14.5 per cent of employees belong to a trade union. In the private sector, that number sits at a shocking 10 per cent and falling. The tipping point passed long ago. Australian trade unions are fighting for their survival. That wage growth and employee share of GDP has hit record lows is no coincidence.

The decline in union density in Australia has been far more pronounced than in any other OECD country. In austerity-racked Britain, union membership sits at 23 per cent of the workforce. In Belgium, it’s a healthy 53 per cent.

Why has this happened? The same global economic forces that have challenged unionism the world over are to be found here. The loss of blue collar jobs in highly unionised industries like manufacturing. The increase in precarious, insecure work. The piecework economy. The relentless conservative campaigns to strip unions of their legitimacy.

The explanation for the severity of the collapse of unionisation is far more prosaic. It’s our laws. Unions have been seriously weakened by 30 years of constant political and legislative attacks. The last conservative prime minister not to establish a royal commission into trade unions was Billy McMahon (1971-1972). For decades, business lobby groups have permanently and successfully campaigned for legislative change that weakens unions.

In this era, workplace laws have been changed in two key ways. First, the laws have been deregulated to encourage employers to cut wages and de-unionise their workplaces. At the same time, unions have been subjected to complex regulation that restricts their ability to access workplaces, recruit members and to bargain for better wages and conditions. The laws have allowed employers unprecedented ability to cut labour costs, outmanoeuvre employees and their unions while at the same time inveigling unions into a kind of regulatory quicksand.

Under the current system, employers can choose from a menu of wage cutting and de-unionisation options. Many large businesses have chosen to disengage from directly employing staff and instead source labour through an array of intermediaries and other structures including labour supply companies, sham contracting, franchises and supply chains. In doing so, they have cut their labour costs, fragmented the workforce, impeded collective bargaining and de-unionised the workforce.

The right of unions to access workplaces – as important as oxygen is to human beings – has been increasingly restricted by onerous, complex rules. Unions must navigate a labyrinth of legislative hurdles to engage in collective bargaining. In many small workplaces like cafes and shops, collective bargaining is not a realistic option by dint of a lack of resources and the fear of employees that they will be sacked for joining a union. This situation inhibits unions recruiting millions of workers. Not-for-profit unions with shrinking memberships and scarce resources cannot effectively recruit and bargain through large parts of the increasingly fragmented labour market. The result: a two-tiered labour market with secure and insecure dimensions, a litany of extraordinary wage fraud scandals and billions in unpaid superannuation each year.

By dint of Australia’s uniquely anti-union laws, trade unions are forced to give away their key service for free. Union officials spend each day trying to improve workplace conditions. The result of their labour is found in awards and collective agreements which set the terms and conditions of employment for up to 60 per cent of the workforce. This means that almost half the workforce are free-riding on the 14.5 per cent of employees who pay union dues. Under the Fair Work Act, union-negotiated wages and conditions must also be provided to employees who don’t join a union. For the free riders, there is no incentive to join.

What would happen to a business forced to give away its key product to a majority of consumers for free? It would fold. Unions in the private sector, in particular, are slowly but surely folding.

If the suppression of wage growth is to be overcome, our laws need to radically change. When unions are allowed to function, they operate as a check and balance on unfettered managerial prerogative at work and a force that moderates income and wealth inequality.

There is no magic bullet, but a multi-faceted approach is necessary. A fair system will return only when the loopholes that allow employers to avoid collective bargaining and union-won conditions are closed. Collective bargaining needs to be deregulated so that it can be effectively deployed across the different segments of the labour market.

Unions will also need decisive government intervention to re-establish their capacity. Union member only awards and agreements would provide an incentive for other employees to join. An alternative option is for a bargaining fee to be imposed on freeloader employees. A third possibility is for the federal government to provide financial assistance to resource unions to police labour standards and to take enforcement action to recover unpaid wages and superannuation.

A prime ministerial press conference to announce The Turnbull Plan To Restore Wage Growth, against a backdrop of Australian flags, is not imminent. A beleaguered, divided federal government full of politicians hostile to unions will not make these reforms. If the government proceeds with ramping up intern programs in the labour market, the low wages crisis will further deteriorate.

This article originally appeared in The Sydney Morning Herald.