Let’s be clear on what the aim is or at least should be: sustainable real wage increases that don’t lead to inflationary pressures or loss of jobs. There’s no point in achieving high nominal wage rises if the outcome is simply higher inflation – the classic dog chasing its tail – or workers lose their jobs.
Anthony Albanese’s assertion that anyone who opposed the rushed bill is against higher real wages is complete nonsense. The real issue is whether the new laws will actually achieve sustainable real wage increases. And if they do not, what will be the costs relative to the benefits of some workers (and the trade unions) doing well out of the new deal?
During the course of the year, various official indicators of wage growth will be released. We will need to watch out for the potentially misleading conflation of these figures with the impact of the legislation, something Burke may attempt to do. It was already evident last year that wages had started to move, at least in the private sector. A tight labour market has this effect, even if it was a long time coming.
By the same token, it’s also clear that ongoing government pay caps are affecting wage growth in the public sector. Finance Minister Katy Gallagher regards wage rises of 3 per cent a year as acceptable for federal public servants even though this will likely lead to quite steep falls in real wages for the affected workers. It’s also telling that the federal government is seeking to delay the pay rises for aged-care workers awarded by the Fair Work Commission last year.
Fiscal pressures on all levels of government will mean that wage growth in the public sector is likely to remain relatively subdued notwithstanding the occasional concession made to particular groups of workers.
What are the mechanisms that Burke is relying on to ensure that wages get moving? They are mainly focused on enterprise bargaining, although the government will be assuming that the Fair Work Commission will award a relatively generous increase in the national minimum wage and aligned wages in keeping with its practice last year. This will be assisted by the strong support of the government in its formal submission.
Recall here that last year the FWC granted increases of between 4.6 per cent and 5.2 per cent to those on award rates of pay. Given that about one-quarter of workers are paid award wages, increases of this magnitude can shift the dial when it comes to measured wage growth.
Across the past decade or so, there was a noticeable decline in the uptake of enterprise bargaining as the approach of the Fair Work Commission made the certification of agreements increasingly difficult. Think here the complex and convoluted interpretation of the better-off-overall test as well as pernickety procedural requirements.
It is estimated only 15 per cent of workers are now employed under current enterprise agreements. Indeed, most workers covered by enterprise agreements are now on expired agreements. It’s clearly a system on its knees.
But also bear in mind that enterprise agreements are essentially the domain of trade unions. Nearly three-quarters of all enterprise agreements are union-related, with these agreements covering 93 per cent of all employees on a current agreement. In other words, only union agreements with relatively large employers have lasted.
One principal aim of Labor’s legislation is to kickstart enterprise bargaining across a much wider spectrum of firms and industries, both single enterprise and multi-employer. The government’s expectation is that the vast majority of these agreements will be union-related and will contain wage increases and improvements to working conditions that have not been achievable.
A central feature of the legislative amendments is the incentive it gives for employers to quickly conclude enterprise agreements lest they be dragged into multi-employer bargaining. Both the minister and ACTU secretary Sally McManus have said as much. The scope for multi-employer bargaining doesn’t come into effect until the middle of this year.
Some unions already are taking advantage of a wrinkle in the new laws to restart enterprise bargaining where agreements have lapsed. There is no need to seek the permission of workers and unions will use the backdrop of end-point arbitration to push for large wage increases. A recent example is the unions requesting that Coles enter into bargaining given that the current agreement lapsed three years ago.
In other cases, unions will wait for multi-employer bargaining to begin and use the easy device of roping in employers who meet the comparability test. This will avoid the resource-intensive slog of bargaining on an enterprise-by-enterprise basis.
Burke’s confidence that wages will get moving, at least in a sustainable sense, incorporates an implicit assumption that there are currently “economic rents” within firms that can be costlessly reallocated to workers in the form of higher wages. That is, higher wages are possible without adverse effects on employment and absent any productivity trade-offs.
Whether there really are these economic rents in competitive industries that can be redistributed to workers is a moot point. Are there really large numbers of private sector firms currently earning supernormal profits, leaving aside mining where wages are already very high? Do the profit margins in retail or hospitality indicate that the owners of these firms are so flush with funds, particularly in the context of rising energy bills, that paying higher wages without any productivity or efficiency offsets can occur without any adverse commercial effects?
It is obvious why the unions are so keen on multi-employer bargaining because it will be much easier for wage increases to be passed on to higher prices as competitor firms are roped into the same pay and conditions for their workers. Technically speaking, the demand for labour is less elastic (responsive to changes in wages) at the industry level relative to the firm level.
The danger is that some firms will be forced out of business and inflation will accelerate.
For those who understand how labour markets work and the role that business plays, claiming better wage outcomes are possible without some trade-offs is simply naive. Until there is a focus on productivity, sustainable real wage gains will continue to elude us.
While it is possible that enterprise agreements can foster productivity growth, there are many examples of the reverse – restrictions on the right of managers to manage, the use of certain types of workers and compulsory consultation with unions. The recent NSW rail dispute is a perfect example of the potentially chilling impact of bargaining on the introduction of new technology.
In the meantime, the Reserve Bank will be watching carefully what happens to wages. Any signs that nominal wages are growing at a pace inconsistent with the bank’s inflation target will likely be met with tighter monetary policy.
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When the Secure Jobs, Better Pay bill passed parliament late last year, Employment and Workplace Relations Minister Tony Burke declared that “today we get wages moving”. It’s an easy political sell, particularly as cost-of-living pressures are affecting many households. But achieving this outcome is very different from simply announcing it.