AWA system saw real wage rises

STATUTORY individual employment agreements: it is probably the issue that induces the greatest antipathy, verging on hysteria, on the part of trade union leaders. Of all the innovations in Work Choices, the loudest criticism was reserved for the scope for a worker to enter into an enforceable individual agreement with their employer.

This was notwithstanding the fact Australian Workplace Agreements had been permitted under the previous legislation, the Workplace Relations Act 1996.

Typical of the grumblings is a comment made in 2001 by Richard Marles, then an ACTU officer, now a parliamentary secretary. "The real reason for AWAs is not only to individualise the workplace but in fact to undermine collective structures. Indeed, they are there to be used by employers to exploit the very fact that they are negotiating with people that have no bargaining power."

After the success of the Your Rights at Work campaign and the assistance the trade unions provided in securing the election of the Rudd Labor government, there was a real determination to put the matter beyond doubt by abolishing AWAs once and for all. The Labor government obliged by closing down AWAs in 2008, although existing agreements were allowed to run.

But do individual contracts actually lead to lower pay? What is the evidence of the effect of individual contracts on wages growth? How is it that individual contracts are seen as perfectly acceptable for some workers, albeit unregistered ones, but not for others?

It is worth reviewing what has happened to real wages through time. As part and parcel of the Accord between the Labor government and the ACTU, real wages grew by a mere 2.8 per cent in the period 1985-95 (as measured by adult male ordinary time earnings). In the next decade, real wages grew by 21 per cent. Between 2006 and last year, which covers both Work Choices and the global financial crisis, real wages grew by 10 per cent.

A period of deliberate suppression of real wages - offset by a number of social policy initiatives - has been followed by many years of rising real wages. On the basis of these figures, at least, there is nothing to suggest the scope for AWAs under the Workplace Relations Act or Work Choices made any difference to real wage growth.

It is of course useful to have a more detailed look at how wages behaved during the period when Work Choices was effective. Now the full-blown version was operational for only a brief period - March 2006 to May 2007 - before a fairness test (a form of no-disadvantage rule) was introduced. So taking the average weekly ordinary time earnings figures for this period, we find wages did not decline for either male or female workers. Indeed, male earnings went from $1083 a week to $1144 a week, an increase of 5.3 per cent, and female earnings went from $910 a week to $960 a week, an increase of 5.2 per cent. Notwithstanding the common claim that AWAs were particularly damaging to female workers, this data simply does not bear out this proposition.

How prevalent were AWAs? While the figures are not completely reliable, by 2007 it would seem about 5 per cent of employees were working under AWAs. The percentage was much higher in mining - close to a third - and, of course, much higher in Western Australia, where about half of workers were AWA-covered.

The most recent figures point to an almost complete collapse in AWA coverage, as the few remaining agreements limp to their expiry. While the most common method of pay setting is by registered collective agreements (43 per cent), about 15 per cent are paid strictly according to the award. Interestingly, a further 37 per cent of employees have their pay set by unregistered individual arrangements.

Is it true AWAs stripped away award conditions without providing offsetting compensation? Certainly the limited information available suggests most AWAs did do away with at least one award condition; for example, annual leave loading, penalty rates, shift allowances or public holiday loadings. This is hardly surprising given the purpose of AWAs was to individualise employment contracts, rather than accept the one-size-fits-all of awards or collective agreements. The extent of compensation seems to have varied by industry and through time. Mining workers on AWAs were more than adequately compensated and the large number of public servants on AWAs, including those in the senior executive service, were never disadvantaged by their method of setting pay.

According to Australian Bureau of Statistics figures published in early 2005, the hourly wages of workers on AWAs was 2 per cent lower than workers on collective agreements. The figure for women was 11 per cent. But without adequate controls for the many factors that affect pay beyond method of setting pay, these figures are not very informative.

A fair assessment of the Work Choices period is that some AWAs did strip away award conditions without full compensation. This occurred particularly in the award-reliant industries of hospitality and retailing. At the same time, there were many AWAs that provided for very generous packages for workers, more than offsetting any loss of conditions. This was particularly the case in mining.

The real objection of the union movement to individual contracts has less to do with how workers fare on these contracts and more to do with the threat to "collective structures" (Marles's term) and the incentive for workers to join unions. After all, at their peak, AWAs covered only 5 per cent of employees, although there is no doubt the option of individual contracts affected the context in which collective agreements were negotiated. As long as there is a no-disadvantage rule in place, there really can be little objection to individual contracts. As jobs become more differentiated and knowledge-based and the workforce more diverse, any rationale for standardised collective agreements becomes weaker.

Judith Sloan, a former productivity commissioner, speaks today at the National Press Club on industrial relations.