Union wages push must be backed with productivity

Wages growth is shaping as an important election issue, with major unions vowing to pursue significant annual pay rises of at least 3 per cent this year. After years of wages flatlining, their desire for workers to get ahead is understandable. But their case would be far more credible if it came with worthwhile proposals for productivity growth at the level of individual enterprises and across industries. The threat by national union leaders that frustrated workers are “itching” to strike for higher pay puts their cause on the back foot. Just as recovery is delicately poised, with absenteeism undermining supply lines, nothing could damage the national economic interest, including employment, more than an aggressive campaign of strikes, especially in essential industries. National union leaders are pitching for an “overdue big wage correction”, Ewin Hannan reports. But the Morrison government and the opposition, which is closer to the unions, must both make it clear that above-inflation pay rises not backed by productivity improvements are unacceptable and irresponsible.

Just as the Covid-19 pandemic was taking hold two years ago, Productivity Commission chairman Michael Brennan pointed out that “overwhelmingly, it’s labour productivity that drives wages’’, and that sluggish productivity was driving Australia’s “disappointing’’ wages growth. In a three-part series, the commission noted that labour productivity had fallen in 2018-19 and had been growing weakly for years. Little has changed. In December, ABS figures showed that on the basis of hours worked, multifactor productivity (the efficiency with which labour and capital inputs are used in the production process) rose 0.2 per cent overall in 2020-21.

While it grew in some industries, especially agriculture, forestry and fisheries, with smaller increases in wholesale trade and professional services, the largest productivity declines were in transport, postal and warehousing, with smaller reductions in electricity, gas and water, arts and recreation, and administration. The overall picture points to the need for workers and employers to negotiate and agree on strategies for improving performance, industry by industry, to lift profits and wages in a way that is sustainable, especially after the ravages of the pandemic. The wages breakouts and strikes of the 1970s taught Australians a hard lesson. Unless pay rises are affordable, they cost jobs, hurting the unemployed, their families, taxpayers who support them, and the budget.

Some growth over the coming year is inevitable given labour and skills shortages. In its quarterly forecast in November, the Reserve Bank said wages could grow by 3 per cent by the end of 2023, which would be the fastest rate of growth in a decade. The push for higher wages will extend across the private and public sectors, with ACTU secretary Sally McManus declaring in October that unions would be “turning up the heat” on employers. The campaign will be a challenge for Scott Morrison and Anthony Albanese. Industrial relations reform has been virtually a no-go area for the Coalition since WorkChoices. But flat wages growth, rising costs and prices, and the need to lift productivity all point to the need to revisit it in some form.

Enterprise bargaining and flexibility within companies produce the best outcomes for workers as well as employers and shareholders. The opposition has made higher wages a goal. It needs to show it can deliver, without costing profitability and jobs, when the economy is recovering.