Labor’s workplace overhaul is a dead end for Australia

Philip Lowe has been around long enough to read the room — and the writing on the wall. The RBA governor calls it as he sees it.

Business Council of Australia chief Jennifer Westacott with RBA Governor Philip Lowe at the BCA’s annual dinner in Sydney in August. Picture: Adam Yip

Labor surfed into office on a longboard in one-foot waves. There was little momentum behind Anthony Albanese – one-third of the primary vote – but safe and steady got him to shore. A win is a win.

A decade of stagnant wage growth contributed to the sense of a “cost of living crisis” in the community, especially as inflation raced away from the world’s central banks earlier this year. “Everything is going up except your wages” was a loaded line from Labor, one that has given shape to its economic and social agenda.

Since May, the strain on households has intensified. Prices are rising for food, electricity and gas, and elevated mortgage costs still have a way to go, after seven consecutive hikes in official interest rates by the Reserve Bank.

According to the True Issues survey by JWS Research, six months after the poll and Labor’s first budget last month, cost of living has strengthened as the top-of-mind concern for Australians, ahead of health and ageing and the environment and climate change.

When asked to name up to three issues that personally interest or concern them the most, and that the Australian government should focus on, 44 per cent of those surveyed describe issues related to cost of living – up from 38 per cent in August and four times as many as last November (11 per cent). It’s the top concern for every age group and for 51 per cent of upper income households ($100,000-plus a year).

Labor is looking to limit the decline in purchasing power on families without inciting inflation, so rationed budget relief to campaign promises: childcare, medicines and education. Intervention in the energy market is imminent.

The Prime Minister has been hoarding his political capital. Picture: NCA NewsWire / Martin Ollman

Still, Albanese has to deliver on the income side, where the tools are limited. Treasury expects declines in real wages over the next two years. Then ahead of the 2025 election, inflation will be back to 3 per cent, while wages will likely be running a bit above that.

A historically tight labour market is generating decent income growth, but the gains are no match for headline inflation, which by next month is expected to hit 8 per cent. That’s the impetus for the government’s urgency to “get wages moving” via its Secure Jobs, Better Pay bill.

In our conflict-by-design industrial arena, of ambit claims and overwrought posturing to sectoral constituencies, change only comes with casualties and rancour. Accord is a throwback, a sepia age of giants, with big everything: egos and reforms.

Labor’s omnibus legislation doesn’t represent the end of the world, as business groups have ­argued, but it has deficiencies, ­especially the multi-employer aspects that seek to prop up pay for low-paid areas in the care economy and elsewhere.

In an interim report last month as part of its all-in five-year productivity inquiry, the Productivity Commission warned that “in the extreme, multi-employer agreements could morph into industry-wide agreements, undermining competition across industries, weakening the growth prospects of the most productive enterprises in any industry, and creating wage pressures that cascade into other industries”.

In any case, PC chair Michael Brennan concedes there is a role for multi-employer bargaining. “In fact, we have that at the moment,” he told a late-night session of Senate estimates this month.

“It can play a role in reducing the transaction costs of bargaining, particularly for small enterprises who are in the award system, but for whom the enterprise bargaining stream is perhaps not really feasible.

“So, there can be benefit to small and medium enterprises in having an alternative that they can take off the shelf and use as an ­alternative, perhaps, to the award. That has to be balanced against, however, how protected industrial action is treated, but also the prospects for productivity growth.” Brennan said there were studies out there to suggest systems that are focused on firm-level bargaining tend to drive better productivity outcomes than those that are purely based on centralised bargaining.

“But I would note that Australia overwhelmingly has a firm-level bargaining system, and I don’t think that’s likely to change, irrespective of current proposals.”

We’re unlikely to see a 1970s wage breakout due to these proposed changes. The Melbourne Institute’s Mark Wooden argues expanding multi-employer bargaining is no guarantee wages will increase. It’s a different world: fewer strikes and awards, a revamped industry structure and restricted rights of entry for unions.

“It’s a much harder one for unions to organise in,” Wooden told this month’s Outlook conference hosted by The Australian and Melbourne Institute. “They’ve got fewer members. They’ve got less power. So, I haven’t heard of any legislation that’s going to dramatically change that.”

Wooden noted much attention was devoted to the “supported bargaining stream”, which is going to replace what was the low-paid bargaining stream, but wondered why Labor would bother.

“Why do we need a bargaining stream for low-wage industries or sectors when we have awards,” asked Wooden, who is a member of the Fair Work Commission’s annual wage review expert panel.

“Awards are there to protect low-wage workers. Twenty five per cent are on awards, and awards are increased every year.

“Last year was 4.6 to 5.2 per cent, depending on exactly which award rate you’re on. And over the last decade, the rates of increase in awards, rates of pay, have been higher than inflation, higher than the cost-of-living indexes and higher than the wage price index, so higher than the level of the ­average worker. So, I don’t know what this is doing. If you want to have bargaining in the low-wage sectors, you’re going to have to get rid of awards because surely awards affect the likelihood that employers are going to be more interested in bargaining.”

To say Labor is invested in the current outcome, and passage of the bill before Christmas, is an understatement. It’s core business for the party of workers (hint: check the label, US spelling notwithstanding).

But it’s a stopgap measure, one that may nudge limited pay action in low-paid parts of the economy. Then what? Long-term, the only way to sustained pay rises and higher living standards is by boosting productivity.

Awards and industry-wide bargaining won’t provide the flexibility required in the labour market for businesses to invest, expand and innovate. Secure Jobs, Better Pay is a cul-de-sac, albeit a nice place to have a barbecue and let the kids play on the street.

But to get a material shift in productivity we need to be competitive on the fast-moving motorway. We need an economy, across-the-board, that is closer to the global frontier of productivity growth, not one that is a long way back and slipping.

A big part of the problem is business is also in that dead end, clipping tickets, taking oligopolistic profits, under-investing and operating same-same. Most productivity gains are going to profits, not workers. Over the past decade, labour productivity rose by 10 per cent, while real wages (average earnings per hour deflated by the headline consumer price index) rose by 3.3 per cent.

Our performance is dismal. If productivity had grown in the past decade at the average of the past 60 years, the PC calculates gross national income per person would have been $4600 higher in 2020.

We’re lacking in economic dynamism. The rates of new business start-ups and job switching are falling; it’s too easy for businesses to mark up prices. More competition is needed: to weed out the laggards, so more labour and capital flow to the stars.

Brennan was asked at estimates how significant industrial relations is in the reform matrix. The cautious PC chief declined to attribute a relative weight to IR, preferring to call it a “lever”.

“Workplace relations is an important policy lever because it affects firms and individuals across the economy,” Brennan said. “So, yes, having well-structured, flexible arrangements that have a robust safety net but provide a high degree of flexibility to achieve productivity gains is an important policy lever.”

Philip Lowe has been around long enough to read the room, including the writing on the wall. The Reserve Bank governor calls it as he sees it. As he must.

In a speech on Tuesday, Lowe described a new era of volatile inflation due to shocks from wars, pandemics and extreme weather events. “As a country, we need to do what we can to make sure that the supply side of our own economy is flexible,” he told a Committee for Economic Development of Australia dinner.

“In a world of more frequent supply shocks, we will be better off if there is flexibility in our labour and product markets so that we can respond quickly and effect­ively. This includes flexibility in terms of fiscal policy, which requires maintaining a strong underlying structural budget ­position.”

In the Q&A, Lowe warned of a risk, albeit slight, of a price-wage spiral and called on workers to take one for the team by limiting pay claims (he could have explicitly asked companies to pull their heads in as well). Lowe’s job is to destroy inflation; he’s neither talking “rubbish” nor to one side of the business-worker duality.

The Prime Minister has been hoarding his political capital. Again, against all expectations, he’s been accumulating more of it during a voter love-in from the glow of home and away summitry.

Albanese is in a good place to get warring tribes to each give up a little, to reach some kind of grand bargain that shores up the safety net and promotes flexibility in our workplaces. It’s something Labor has managed to do before. Does he have the wit to try?

In February, the PC will serve up a broad menu of options to Jim Chalmers, spanning all manner of reform paths: better regulation of the workplace and the digital sphere, as well as policies to improve education and innovation, stimulate competition, and ease the clean energy transition.

It’s a perfect opportunity at the end of summer to attempt to catch a bigger wave, to put some velocity behind a nation facing many perils as it seeks post-pandemic prosperity, security and sustainability.