Can a lack of industrial action be tied to wage stagnation?


A lack of industrial action can be linked to wage stagnation, a new report suggests. But is it possible to put aside politics and get to the root cause?

The causes of Australia’s continuing wage stagnation are not simple to discern. But any particular answer you might read or hear probably says a lot about the politics of your source.

So you can imagine the reaction from business groups when a recent analysis by the Australia Institute’s Centre for Future Work suggested the lack of industrial action (such as strikes) are a cause of low wages.

The research made bigger headlines than it might otherwise have done because of the recent Fair Work Commission decision to prevent the proposed 24-hour rail strike by Sydney Transport.

It ruled the action unlawful after two applications were put through by the NSW government claiming the strike posed a threat to the economy, and public health. Deputy Commissioner Jonathan Hamberger also quashed the overtime ban, citing “the threat to cause significant damage to the Australian economy or an important part of it.”

Not surprisingly the ACTU chief, Sally McManus, was quick to suggest that the Commission unfairly favours employers, and that things need to change if workers hope to see healthier wage growth any time soon.

“When working people and their union go through every possible hoop and hurdle and are still denied these basic rights, it is no secret why so many workers haven’t had a pay rise,” says McManus.

So do strikes mean greater wage growth?

Although the new research cannot prove a direct correlation between reduced industrial action and slow wage growth, research lead Jim Stanford says it’s no coincidence that the two things have occurred simultaneously.

“The evidence is overwhelming that losing the effective ability to take collective action has been one of the key factors explaining the decline in wage growth which has now reached a record post-war low,” Stanford told the Sydney Morning Herald.

“If workers do not have the capacity to impose a cost of disagreement on employers in the form of some kind of collective action whether that is a work to rule, an overtime ban or an actual strike, then employers don’t take bargaining as seriously.”

In other words, correlation is not causation but it’s logical that taking away a bargaining chip makes it harder for the affected party to secure a better bargain.

The counter-argument

In the same SMH article the chief executive of peak employer organisation Australia Industry Group (Ai Group), Innes Willox, hit back. He said that industrial action has remained steady since 2006, yet wages have gone up and down since then.

He continued: “More industrial action will be damaging to the economy. The last thing that the community needs is for the unions to be given even more power to take industrial action.”

It should be noted that Willox doesn’t just have a vested interest in seeing minimal industrial action, he has a vested interest in wages staying low. In last week’s CEO report, he expressed a great deal of optimism for 2018’s outlook, and said specifically:

“If wage outcomes continue to be moderate; if progress can be made on reducing energy costs; and if the proposal to improve the competitiveness of our business tax system are enacted, 2018 could well be a stellar year.”

Calling wage growth that’s hit record lows “moderate” is a bad look for Willox, but the sentiment behind it is clear and uncontroversial. Of course low wage rises suit employers.

Other causes

More factors influence wage stagnation than just industrial relations. Traditionally the rate of unemployment is a key indicator, so the fact that its currently quite low has led to other explanations.

In a paper, the Reserve Bank of Australia (RBA) has said it’s possible a high underutilisation rate – that is the combined unemployment and underemployment rate – could have an impact. It’s possible that companies are giving more hours to part-time or casual employees who want them, rather than raising wages.

Other factors that have been pointed to include the declining terms of trade after the mining boom, and low inflation (though the RBA doesn’t consider this last one a significant factor).

Industrial relations is often referred to as a balance between workers and employers. If it shifts too far one way or the other, the economy and society suffer. Unfortunately there’s not enough evidence to tie the hard data point of low wages to that balance.

The theory proposed last year by RBA chief Philip Lowe is that the perception of an imbalance could be the problem. Australians are too scared of losing their jobs – to foreigners or automation – to ask for a wage rise, he argued. This fear means that employers can more easily dictate terms.

“People value security and one way you can get a bit more security is not to demand a wage rise,” he said. In the same address, he called on workers to get the confidence to insist on higher wages.

But if perception really is the problem, how many individual workers would risk going against the grain and asking for things they believe their fellow employees aren’t?

For more on how wage stagnation and other IR concerns will affect HR, read this HRM article from earlier this year.

Get ahead in your career with HR certification. Find the best certification pathway for you and start your certification journey today.

Leave a reply

10 Comments On "Can a lack of industrial action be tied to wage stagnation?"

avatar
  Subscribe to receive comments  
Notify me of
Greg Reiffel

The “unfortunate truth” is that employers are treating labour as something they can get easily – especially with ongoing employment being scarce. In my 30 years of experience representing business, I could count on one hand the number of employers who were willing to unilaterally provide pay increases. I despair for Australia which I fear will be like America where people work for “tips”.

Greg Reiffel. CAHRI

Tasman McManis
For perhaps the last 20 years or even longer major remuneration surveys have shown that a majority of organisations have set their salary budgets at level of 1% to 1.5% above the current inflation level. A review of these surveys indicates that the majority of the current salary budgets are in the range 2.5% to 3.5% which is consistent with past years. When budgets are distributed at annual salary review time the range of increases are most likely in the 0% to 8% range for individuals down from highs of 13% to 15% when budgets were 4% to 5% in… Read more »
Tina

Doesn’t Australia already have the highest minimum wages in the developed world?? Look around and see how many shops are closed in your local community now, how can any struggling business afford wages in Australia now. We have gone way to far on this one.

Thalia

Well said. exactly what I was going to comment.

Mark

Totally agree with David’s comment.
Also how about the role of increased productivity to off set wage increases? Consider ideas such as agreeing to work smarter; introduce better use of technology; or streamline business systems. Wage growth linked to productivity increases is a sound business model.

David

How disgusting that you have built up, a beat up story with the half truths in this research, this is simply reckless! You however did name the author but you failed to name who funded the research and just what the terms of reference were for the research which are very key to all readers for context and perspective.

Girard, HRMonline

Hi David,

Thanks for reading. We’re sorry you didn’t find the piece to be balanced. I will however point out that we named the think tank who funded the research in the second paragraph.

Kind regards,

Girard

More on HRM

Can a lack of industrial action be tied to wage stagnation?


A lack of industrial action can be linked to wage stagnation, a new report suggests. But is it possible to put aside politics and get to the root cause?

The causes of Australia’s continuing wage stagnation are not simple to discern. But any particular answer you might read or hear probably says a lot about the politics of your source.

So you can imagine the reaction from business groups when a recent analysis by the Australia Institute’s Centre for Future Work suggested the lack of industrial action (such as strikes) are a cause of low wages.

The research made bigger headlines than it might otherwise have done because of the recent Fair Work Commission decision to prevent the proposed 24-hour rail strike by Sydney Transport.

It ruled the action unlawful after two applications were put through by the NSW government claiming the strike posed a threat to the economy, and public health. Deputy Commissioner Jonathan Hamberger also quashed the overtime ban, citing “the threat to cause significant damage to the Australian economy or an important part of it.”

Not surprisingly the ACTU chief, Sally McManus, was quick to suggest that the Commission unfairly favours employers, and that things need to change if workers hope to see healthier wage growth any time soon.

“When working people and their union go through every possible hoop and hurdle and are still denied these basic rights, it is no secret why so many workers haven’t had a pay rise,” says McManus.

So do strikes mean greater wage growth?

Although the new research cannot prove a direct correlation between reduced industrial action and slow wage growth, research lead Jim Stanford says it’s no coincidence that the two things have occurred simultaneously.

“The evidence is overwhelming that losing the effective ability to take collective action has been one of the key factors explaining the decline in wage growth which has now reached a record post-war low,” Stanford told the Sydney Morning Herald.

“If workers do not have the capacity to impose a cost of disagreement on employers in the form of some kind of collective action whether that is a work to rule, an overtime ban or an actual strike, then employers don’t take bargaining as seriously.”

In other words, correlation is not causation but it’s logical that taking away a bargaining chip makes it harder for the affected party to secure a better bargain.

The counter-argument

In the same SMH article the chief executive of peak employer organisation Australia Industry Group (Ai Group), Innes Willox, hit back. He said that industrial action has remained steady since 2006, yet wages have gone up and down since then.

He continued: “More industrial action will be damaging to the economy. The last thing that the community needs is for the unions to be given even more power to take industrial action.”

It should be noted that Willox doesn’t just have a vested interest in seeing minimal industrial action, he has a vested interest in wages staying low. In last week’s CEO report, he expressed a great deal of optimism for 2018’s outlook, and said specifically:

“If wage outcomes continue to be moderate; if progress can be made on reducing energy costs; and if the proposal to improve the competitiveness of our business tax system are enacted, 2018 could well be a stellar year.”

Calling wage growth that’s hit record lows “moderate” is a bad look for Willox, but the sentiment behind it is clear and uncontroversial. Of course low wage rises suit employers.

Other causes

More factors influence wage stagnation than just industrial relations. Traditionally the rate of unemployment is a key indicator, so the fact that its currently quite low has led to other explanations.

In a paper, the Reserve Bank of Australia (RBA) has said it’s possible a high underutilisation rate – that is the combined unemployment and underemployment rate – could have an impact. It’s possible that companies are giving more hours to part-time or casual employees who want them, rather than raising wages.

Other factors that have been pointed to include the declining terms of trade after the mining boom, and low inflation (though the RBA doesn’t consider this last one a significant factor).

Industrial relations is often referred to as a balance between workers and employers. If it shifts too far one way or the other, the economy and society suffer. Unfortunately there’s not enough evidence to tie the hard data point of low wages to that balance.

The theory proposed last year by RBA chief Philip Lowe is that the perception of an imbalance could be the problem. Australians are too scared of losing their jobs – to foreigners or automation – to ask for a wage rise, he argued. This fear means that employers can more easily dictate terms.

“People value security and one way you can get a bit more security is not to demand a wage rise,” he said. In the same address, he called on workers to get the confidence to insist on higher wages.

But if perception really is the problem, how many individual workers would risk going against the grain and asking for things they believe their fellow employees aren’t?

For more on how wage stagnation and other IR concerns will affect HR, read this HRM article from earlier this year.

Get ahead in your career with HR certification. Find the best certification pathway for you and start your certification journey today.

Leave a reply

10 Comments On "Can a lack of industrial action be tied to wage stagnation?"

avatar
  Subscribe to receive comments  
Notify me of
Greg Reiffel

The “unfortunate truth” is that employers are treating labour as something they can get easily – especially with ongoing employment being scarce. In my 30 years of experience representing business, I could count on one hand the number of employers who were willing to unilaterally provide pay increases. I despair for Australia which I fear will be like America where people work for “tips”.

Greg Reiffel. CAHRI

Tasman McManis
For perhaps the last 20 years or even longer major remuneration surveys have shown that a majority of organisations have set their salary budgets at level of 1% to 1.5% above the current inflation level. A review of these surveys indicates that the majority of the current salary budgets are in the range 2.5% to 3.5% which is consistent with past years. When budgets are distributed at annual salary review time the range of increases are most likely in the 0% to 8% range for individuals down from highs of 13% to 15% when budgets were 4% to 5% in… Read more »
Tina

Doesn’t Australia already have the highest minimum wages in the developed world?? Look around and see how many shops are closed in your local community now, how can any struggling business afford wages in Australia now. We have gone way to far on this one.

Thalia

Well said. exactly what I was going to comment.

Mark

Totally agree with David’s comment.
Also how about the role of increased productivity to off set wage increases? Consider ideas such as agreeing to work smarter; introduce better use of technology; or streamline business systems. Wage growth linked to productivity increases is a sound business model.

David

How disgusting that you have built up, a beat up story with the half truths in this research, this is simply reckless! You however did name the author but you failed to name who funded the research and just what the terms of reference were for the research which are very key to all readers for context and perspective.

Girard, HRMonline

Hi David,

Thanks for reading. We’re sorry you didn’t find the piece to be balanced. I will however point out that we named the think tank who funded the research in the second paragraph.

Kind regards,

Girard

More on HRM