Threat of wages crisis looms as federal election issue

The BCA’s Jennifer Westacott agrees wages growth has been too weak for too long. Picture: AAP

Workers cannot be confident that their salaries will keep pace with inflation.

The latest Reserve Bank forecasts show wages falling behind inflation this year. The threat of a looming wages crisis is real. Government stimulus support is drying up, inflation is returning, interest rates on mortgages and other personal debts are rising and cost of living pressures like energy are starting to bite.

Yet wages are a sleeper issue, even with an election campaign already under way.

Consumer sentiment fell by 1.3 per cent in February. The Westpac-Melbourne Index survey noted pressure on family finances more than offset an improved economic outlook.

If rising stress on households makes wages a front-page issue, unions will be empowered, companies making billion-dollar profits for shareholders will be in the crosshairs and Labor’s campaign will change.

The ACTU’s 2021 Congress called for industrywide bargaining.

Industrial relations reform is off the agenda, with unions and big business unable to find common ground on enterprise bargaining, the system that for so many years delivered both higher wages and higher productivity.

Only one in eight workers are covered by a current enterprise agreement, according to the latest quarterly data from the Attorney-General’s office.

There was little focus on wages in three hours of questions for RBA governor Philip Lowe at a parliamentary hearing on Friday.

AWU secretary Dan Walton is stumped as to why the issue does not have more currency.

“It’s extraordinary. I don’t think there is an RBA governor in history that has so actively spoken about the need for wages to increase. But despite all of that encouragement, despite all the settings saying that wages should increase, they are not,” Walton says. “Everyone assumes that as inflation goes up, wages are meant to match.”

In the RBA’s upgraded forecasts, unemployment falls to a low 3.25 per cent by December. But all this year real wages are going backwards.

By December, the wage price index is 2.75 per cent and CPI is at 3.25 per cent. That situation is forecast to reverse next year, with inflation falling.

However, those forecasts can change, as Lowe admits. He now agrees the chance of an interest rate rise this year is plausible. Under that scenario, inflation would be rising faster than the bank’s current forecasts. Whether wage rises will be matching that increase is far from clear.

Walton says Lowe’s outspoken position on wages would be seen by business as more partisan, encouraging more profits to flow to workers.

The BCA’s Jennifer Westacott agrees wages growth has been too weak for too long. Delivering sustainable wage increases should be an economic priority, she says, but to lift real wages, productivity also needs to be lifted. And that, in turn, needs investment.

“Wage rises that simply reflect short-term supply pressures are unlikely to support sustained increases in real incomes but will contribute to inflationary pressures,” Westacott says.

The negotiation of wage rises for increased productivity is at the core of enterprise bargaining, created under Paul Keating and Bob Hawke. But Westacott says the slow death of the system has undermined the process.

“The first most pressing action is the rescue of the EBA process because people on EBAs get paid more. Non-managerial employees on EBAs earn an average $46 an hour, compared with $32 under awards,” she says.

There is little chance of that, according to Graeme Watson, a former Fair Work commissioner who now advises business clients at law firm Corrs.

“Unions want more power and more ability to force agreements. Companies want more relaxed rules and flexibility around making agreements and the content of agreements. And there is a disconnect between those different positions,” Watson says.

“It’s going to be really difficult for any government to build a consensus around reform, even though both business and unions want more bargaining and are not happy with the current rules.”

Watson says in the early days EBAs made huge progress on flexibility for businesses, like the change in penalty rates to allow seven-day trading. But the introduction of a strictly applied better-off-overall test, or BOOT, put EBAs in the too-hard basket.

“The changes that were made in the Fair Work Act by Julia Gillard and some by Bill Shorten require every employee covered by the agreement to be better off. That becomes very difficult for businesses operating near the award, like retailers,” Watson says.

Watson has an unlikely ally in Keating. Last year Keating described the Fair Work Act provisions as too technical, and moving away from the original idea of easy agreement.

“I’m on a unity ticket with Keating. The rules are too tight and if they were relaxed, there should be more bargaining,” Watson says.

Last year, a government attempt to relax the rules failed.

“It was very disappointing that reforms that would have revived the system were blocked in the Senate,” Westacott says.

“Businesses are extremely frustrated that the significant gains achieved in the 1990s and 2000s are now being lost.”

The AWU’s Walton stands by the BOOT, which he says rooted out dodgy agreements from the mining boom when two men and a dog were voting up an agreement. He says Keating is wrong.

“With all due respect to an amazing prime minister that he was, I don’t think he’s got an intimate knowledge of the current industrial relations working and the environment our members’ experience,” Walton says.

Watson says businesses like McDonald’s and Coles have chosen not to renew their EBAs. “What are businesses doing? They apply wage increases on top of expired agreements and they are moving into other arrangements which tend to be internal, applying wage increases in line with their business position,” he says.

However, wage growth remains weak. “In Australia we have seen wages flatline for a long time,” Walton says. “The reality is that a large amount of the returns are focused on going back to investors and shareholders.”

Watson warns of a rising militancy across resources, the waterfront, transport, distribution and logistics, reversing a multi-decade trend.

“You have a flashpoint where the level of unionisation has decreased, unions are having difficulty in forcing agreements and they want more help which they think a labour government can give them: the ability to industry bargain. They want that right and that is seen by business as a return to the bad old days,” he says.

Westacott says industry bargaining would be disastrous for the economy, but Walton throws cold water on Watson’s concerns. “I don’t think you’ll see anyone out calling for any crazy industrial relations changes, as much as the current government would absolutely love for someone to do it,” he says. “It certainly won’t be coming from me.”

Down on the shop floor, where then does this leave the average worker? Josh Frydenberg suggests switching jobs to get ahead.

At Friday’s parliamentary hearing, Lowe acknowledged job hopping was happening, but he does not see America’s Great Resignation happening here. Americans did not have JobKeeper, which kept the link between employer and worker.

Lowe did say the RBA would factor in work benefits such as job switching, compulsory super, ­bonuses and promotions, which are expected to pick up faster than the wage price index and influence inflation.

Walton asks where that leaves the low-paid worker. He also has no faith in a Great Resignation in Australia. “No, because what’s been the immediate response of business? Pushing for complete and utter opening of borders,” Walton says.

“The business community is championing to bring in tens if not hundreds of thousands of workers in industries where we are not even doing any market testing to work out whether there is a skills gap.”

Westacott cites multiple studies showing Australia’s migration intake does not depress local jobs or wages, saying: “The lack of skilled ­labour is currently a major constraint across the country. We need the skilled migrants to boost demand, increase productivity and workforce participation, and deliver talent and experience that complements local workers.”

A federal election is set for May at the latest. Walton has a message: “If you do speak to the average punter, the issues around job security, a decent pay rise, housing affordability, these issues are coming up all the time and any politician who taps into that will do very well at the next election.”