‘1930s Wage Growth’, As Enterprise Agreements Collapse Nationwide

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Australian workers are experiencing sustained low wages growth, the likes of which the country has not seen since the 1930s, writes Alison Pennington.

Commentators, economists, unions and mainstream institutions like the RBA lament the dire implications of low wages growth for rising inequality, the dream of inclusive prosperity, and economic stability. Meanwhile, since 2013, the Coalition government has overseen the most dramatic fall in the number of workers in the private sector covered by collective agreements (a key mechanism for facilitating wage increases) since the introduction of enterprise bargaining in the 1990s.

A report released in December 2018 by the Centre for Future Work (CFW) On the Brink: The Erosion of Enterprise Agreement Coverage in Australia’s Private Sector has uncovered the comprehensive collapse of enterprise bargaining in Australia’s private sector. The report finds that since 2013 to June quarter 2018, the number of enterprise agreements (EAs) in the private sector has almost halved, and the number of EA-covered employees has dropped by 34 per cent, or 662,461 employees.

Today only 12 per cent of private sector workers are under current EA coverage. Without urgent action to reverse the underlying factors driving EA coverage down – employers not renewing expired EAs, the near disappearance of new agreements, and a spectacular rise in employer terminations of EAs – coverage could fall to below 2 per cent of private sector workers by 2030.

Labor has responded to this worrying picture, with work, wages and inequality gaining prominence in their emerging election platform. At the ALP’s recent national conference, it committed to strengthening the minimum standards (restoring penalty rates and adding superannuation to the National Employment Standards) and taking steps to modernise our labour laws (through measures such as limitation on use of casual and temporary visa work). A range of measures to strengthen collective bargaining were also introduced including extending multi-employer bargaining to low-wage industries (such as in childcare and security), and in other industries, ‘where appropriate’.

Implicit in the ALP’s commitment to expand the scope of bargaining is an acknowledgement that the Fair Work Act is incompatible with the current labour market and that collective bargaining settings are not up to the task of lifting workers’ wages (including extending bargaining rights to workers in labour hire, gig and casual work, and in small businesses) – a key focus of the ACTU’s Change the Rules campaign.

However, while the ALP has committed to addressing the failure of enterprise bargaining in low-wage sectors, CFW research shows EA coverage decline is far from confined to low-wage industries.

In fact, almost all (90 per cent) industries in the private sector experienced a significant decline of between 25–82 per cent in the number of current EAs since 2013. For instance, the number of private sector EAs current in rental, hiring and real estate services declined from 519 to only 242 EAs in 2017 (53 per cent decline since 2013). Current EAs in financial and insurance services more than halved from 201 EAs to only 99 current in 2017, and there were around 45 per cent less private sector EAs current in education and training, construction and professional, scientific and technical services than at 2013.

Similarly, declines in the number of employees covered by EAs occurred across almost all industries. While large EA expiries in low-wage retail and fast food sectors (sparked by the Fair Work Commission’s decision to terminate the Coles Supermarkets EA for failing the Better off Overall Test) accounted for around half of the decline in the number of employees covered by EAs since 2013, there were still 350,000 fewer private sector employees under EA coverage in June quarter 2018.

Significant employee agreement coverage declines since 2013 include approximately 150,000 fewer employees in manufacturing; 49,000 in construction; 32,000 in transport, postal and warehousing; 27,000 in financial and insurance services and 21,000 in mining. While manufacturing coverage decline is consistent with a 10 per cent shrink in employment from 2013–15 (although there has been a recent rebound), total employment in construction, transport, finance and mining industries all increased over these years. This shows collective agreements are being displaced in growing industries.

A decline in collective agreement coverage across all industries marks employers ‘jumping ship’ from agreements in favour of other pay-setting methods like Awards and individual contracts. This is evidenced by a 5 percentage-point increase in the share of private sector employees receiving only the minimum ‘floor’ levels of pay in Awards in just two years (2014-16).

On the Brink finds the consequences of erosion of collective agreement coverage are profound for workers, employers and the overall economy. Erosion of collective agreement coverage has had a white-anting effect on wages – an ever-diminishing pool of workers with access to bargaining means less workers with access to secure above-inflation wage increases (and less access to our already strict industrial action provisions). This underlies Australia’s unprecedented deceleration of wages, and is most certainly because EA erosion is a cross-industry, economy-wide problem.

While details of the ALP’s collective bargaining proposal are yet to emerge, early signals of strengthening its reach to low-wage workers is a step in the right direction. But marked decline in EA coverage across almost all industries since 2013 shows that declining employee ability to use collective action to press for better wage increases is not a phenomenon isolated to low-wage sectors.

The evidence is overwhelming that Australia’s current system of collective bargaining is inadequate for representing workers and raising wages in our evolving economy with an increasingly fragmented labour market. Decentralised, enterprise-level bargaining is failing to extend collective bargaining access to most private sector workers.

A viable collective bargaining system is essential to rebuilding shared prosperity, but it will require far-reaching changes to the current rules to keep collective bargaining alive. As such, there is no reason why options to expand the bargaining scope through multi-employer agreements should not be available to all industries in Australia’s future industrial relations system.

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Alison Pennington

Alison Pennington is an economist at the Centre for Future Work, in the Australia Institute. Alison has written on public transit and flexible work arrangements and has a background in public finance, and public sector unions. She is currently researching the evolution of collective bargaining in Australia.

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