Multi-employer bargaining threatens less productive firms

Multi-employer bargaining could result in the demise of less productive firms.

AMWU national secretary Steve Murphy, right. Picture: Facebook

Higher wages resulting from multi-employer bargaining could result in the demise of less productive firms, reducing competition between industry players, analysis of Labor’s new bargaining stream says.

With multi-employer bargaining laws to kick off in June, economic research institute e61 has analysed firms in the airconditioning manufacturing industry where employers and unions are seeking to strike a multi-employer agreement.

The research raises questions about the capacity of lower performing firms to pay higher wages and the potential impact on market competition if they were drawn into the enterprise agreement of a higher performing firm.

According to the research, highly productive “market leading” firms were 30 per cent more productive than “mid-tier” firms and 67 per cent more productive than “laggard” firms.

It says a “cadre” of highly profitable firms co-exist with a large number of loss-making firms across the sector – the top 10 per cent have profit margins of more than 12 per cent, while nearly a quarter have negative profits.

Market leading firms paid average wages that were 13 per cent higher than mid-tier firms.

“The new multi-employer bargaining laws could allow workers from lower-productivity, lower-paying firms to access the same wages and working conditions as workers at higher-productivity, higher-paying firms,” it says.

“But if market leaders pay higher wages because they employ more productive technologies, or more talented workers, then the capacity of other firms to pay higher wages comes into question.”

This has potentially serious implications for industry dynamics, it says.

“Initially, market leading firms may negotiate a multi-employer agreement. If unions were then to draw in mid-tier firms, the competitive threat that such firms pose to market leaders may fall,” the research says.

If mid-tier firms were to raise their wages to the level of the firm at the 80th percentile, they would see their profit margins fall from an average of 2.8 per cent to negative 2.1 per cent.

“In response, mid-tier firms may adjust their operations, potentially by using more capital inputs or outsourcing. If laggard firms were drawn into the multi-employer agreement, higher wage costs could force less productive firms to exit, increasing aggregate productivity.

“This stronger market selection could lift employment standards if firms using unqualified or poorly trained workers are forced to exit. But firm exits could also reduce competition and entail job displacement costs.”

The researchers said the threat of multi-employer bargaining could incentivise firms to enter into new single-enterprise agreements, which could boost wages.

Heating, ventilation and airconditioning manufacturers wanted to use the multi-employer agreement to link higher annual pay rises to workers gaining new skills rather than increases being entirely automatic.

The Australian Manufacturing Workers’ Union is pressing to reinstate every clause banned under the Howard government’s building code.

In abolishing the Australian Building and Construction Commission, the Albanese government scrapped the Coalition’s code, which prevented employers from agreeing to insert different clauses into agreements if they wanted to remain eligible for commonwealth building work.

The AMWU is seeking the insertion of clauses that require employers to convert casuals to permanent employment, limit use of labour hire and engage more apprentices.