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

wage stagnation
Chloe Hava
Girard Dorney

By and

written on January 31, 2018

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.

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Comment

10 thoughts on “Can a lack of industrial action be tied to wage stagnation?

  1. 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.

    1. 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

  2. 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.

  3. 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.

  4. 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 the late 90’s through the early 00’s.

    These changes have also meant that when hiring staff organisations need to offer salaries that are closer to their preferred market mid-point. Salary/budget review increases are not large enough to move employee salaries to the organisations mid-point. Not paying close to the market rate opens an organisation up to higher staff turnover and longer “job fill” times.

    To say low wage growth is due to low inflation and/or lack of strikes only is simplistic. There are many factors that impact on wages growth including Australia’s overall competitiveness in the world economy.

  5. 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

  6. Completely agree with David and Mark. Giving airtime to a hyperbolic extremist like McManus merely confirms that this is not a credible article. Everything she utters is absolute rubbish and it is time that the media stopped propagating her warped views. Her are a few inconvenient facts. The current IR regime is skewed heavily in favour of the unions. When Rudd was elected, he and his sidekicks didn’t just remove the Coalition’s WorkChoices program. They unwound over 20 years of IR reforms, including those introduced by Keating and Hawke. Now, that is not my opinion – I am just regurgitating the words of prominent ALP politicians and unionists like Graeme Richardson and Martin Ferguson. What we now have is an inflexible system in which Unions wield significant power at the EBA table, and which has led to unlawful pattern bargaining in various industries. The Unions have developed pattern EBA’s with unrealistic conditions and to which employers feel compelled to sign or they will not get the contract. It has also led to the grubby practices – such as payments to secret slush funds, secret union membership payments, etc – revealed during the recent Royal Commission. The escalating greed saw unions demanding more and more in EBA’s: significantly higher wages than provided for in Modern Awards, absurd annual pay increases of 6 to 8%, extra provision of all forms of leave (personal, Long Service, annual, etc) than provided under NES, outlandish Redundancy Provisions, employer superannuation contributions of 15%, payment for income protection insurance, payment of private health insurance, etc, etc. I can cite an example – without naming anyone – from 2012 when the Unions were demanding a marine company pay an upfront 37.5% increase to wages (despite the wages provided already being two and a half times that of the Modern Award), annual pay increases of 8%, and increases to all of the other items mentioned above. Their greed has cooked the goose that laid the golden egg. We have priced ourselves out of the market, and everyone now has a grossly exaggerated entitlement-syndrome from being too spoiled. Oh, and our country now has a ½ trillion dollar debt, which will never be fixed while you have Greens and ALP senators refusing to pass any legislation aimed at reducing welfare spending, and improving IR flexibility. The Unions have brought this upon themselves.

  7. This is an extremely important topic and Greg Reiffel nails it. I also have advised and represented large employers for over 30 years and I fear a continuation of the current trend of wage stagnation will see Australia rapidly descend into a spiral of third world employment conditions and rates of pay. This is occurring in circumstances where the most contemporary research into the productivity levels of OECD work places places Australia at the forefront of productivity improvement in the last 5 years- see OECD research http://www.oecd.org/std/oecd-compendium-of-productivity-indicators-22252126.htm

    There is mounting array of comment on the Australian IR system and enterprise bargaining in particular- media commentators like Judith Sloan and Grace Collier continue to encourage employers to abandon bargaining (including disgracefully advising foreign entrants like Amazon to flout Australian IR law), Shorten bemoans that it is on life support, Kate Carnell the small business and family enterprise ombudsman declares it broken and in need of immediate review as does Steve Knott of AMMA, echoing sentiments from the big end of town BCA, ACCI and AIG- so one might be forgiven for thinking that employee representative bodies might champion retention of the system.

    Not so- Sally Mc Manus says the right to strike has effectively been removed by Jonathon Hamberger’s decision to suspend the Sydney Trains protected action and bemoans the 2016 FWC decision to terminate all the Aurizon agreements, creating an unprecedented deluge of employer applications. In her view this significantly and unfairly skews the balance of bargaining power which Knott says is still skewed in exactly the opposite direction!! .

    Perhaps the most relevant authoritative research I can locate is that conducted in 2016 by the NTEU’s Ken McAlpine and Sarah Roberts, who highlighted what they believe is the significant role the Australian legislation has played in the dramatic decline not only of trade Union membership levels but also the erosion of employee’s rights and employment related benefits. They quite persuasively argue because “real bargaining, supported by industrial action” is only possible at the enterprise rather than industry level and even then only in the narrow confines of protected action, almost five million employees in smaller businesses are effectively excluded from it. So where Unions have power, albeit diminishing in the workplaces where it does exist, they have the most unenviable choice between either pursuing big gains in those firms risking rendering them uncompetitive and losing their members or alternatively being benign in the pursuit of any improved returns to labour, thereby failing to attract and retain members.

    The Fair Work Act has an object of establishing and maintaining the primacy of setting employment conditions and rates of pay at enterprise level because in the early 1990’s it was successfully argued that centralised wage fixing had had its day , the one size fits all approach was damaging the economy and could not continue. It should be remembered that the architects of the system (Keating/ Kelty et al) publicly stated at the time that the intention of the system was for Awards in the future to be only minimum benchmarks and have no role to play in setting actual conditions. Yet we now have commentators like Sloan and Collier actively promoting abandonment of it, a return to an Award system which of course , under the system of annual minimum wages review by FWC, constitutes the much maligned centralised wage fixing and establishing a system of individual wage imposition (as opposed to wage bargaining) by employers.

    The current level of wage stagnation is very concerning and a major (but not sole) contributor to it is very obvious- employers are largely not collectively bargaining as the FWC stats clearly demonstrate. Dont get me wrong , there are very justifiable reasons why employers have become disenchanted with the system and problems associated with the BOOT and other procedural issues must be amended. However, we now have a system gravitating rapidly towards wage imposition, not wage bargaining and it cant realistically be suggested that employers generally who aren’t bargaining, have had their agreement/s terminated or sit on long expired agreements will pass on all the associated labour savings to employees on either a collective or individual basis.

    The most notable beneficiaries of this of course are the labour hire suppliers who rarely bargain at all, and more often than not with a small number of captive employees to overcome some obstacles with some Award conditions. Following FWC approval their EBA is used to employ hundreds of other employees, with no intention of renewal, so that eventually the expired EBA fall below Award conditions and there is no realistic capacity for workers or competitors to terminate it- check submissions to the 2015 Productivity Commission from security employers for instant verification of the tactic.

    It is undeniable that we must continue to strive for improved productivity levels but if incommensurate wage increases continue, Australia will rapidly find itself with third world employment conditions and rates of pay- that will be a disaster for our society and our country will no longer be the greatest place in the world to live and work.

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