Subdued Wages – Missing The Point

Written by:
9 March 2019
Subdued Wages – Missing The Point - Featured image

The ACTU has claimed Australia is facing an “incomes recession.”  Ms McManus, ACTU Secretary says that working people “are ready to take action to restore our living standards.” She plans worker protests before the federal election. 

Economic forecasters are puzzled by the behaviour of wages.  We are approaching full employment.  Bosses and recruitment firms complain about labour shortages.  The economy continues to grow. In these circumstances the price of labour i.e. wages should be increasing.

I find the commentary about wages frustrating.  It is misconceived in two important respects.

First, real wages have not declined according to ABS data.  A comparison of wages and prices over 5 and 10 year periods show that wages have more than kept pace with prices.  Real wages have risen.

An array of data measuring living standards exists and it may be that a few of these measures has moved into negative territory.  But living standards measures, especially over short time periods, should be treated with caution.

The second and more important misconception is a mis-reading of the dynamic of Australian workplaces in 2019.  This may hold the secret as to why wages are not behaving as theory predicts. 

Australian workplaces are now heavily regulated.  Decisions about employing, retaining and remunerating staff take into account for a number of considerations.  This contrasts with the past when such decisions relied more heavily on the question of the adequacy of wages.

The considerations impinging on wage decisions are numerous and complex.  They signify that our labour market governance is too complex.  The considerations arise both from the relevant enterprise agreement or award and extraneous factors impacting on employment relationships.  The considerations moderate the link between labour demand and supply and wages growth.

An enterprise agreement prescribes much more than a wage rate.  It establishes the terms and conditions of employment.  Entitlements such as allowances, the various types of leave sometimes numbering 15 or more, penalties for shift and overtime work and work on weekends and public holidays, rostered days off, terms of engagement, consultation about change and termination.  The list goes well beyond these items.

The scope and cost of non-wage conditions continue to grow.  Some significantly constrain management prerogative and while others boost union influence in the workplace while reducing individual employee rights.  An examination of recent agreements highlights these trends.

The Westpac Group agreement introduces innovative leave types.  An employee can take one paid day of lifestyle and wellbeing leave.  Grandparents can allowed one year of unpaid leave to care for a grandchild.  Transgender employees in transition are entitled to four days paid leave and one year’s unpaid leave.

Butler Freight Services a waterfront transport firm had an agreement with the TWU approved this month. The employer superannuation contribution is 12.5 per cent to the TWU Superannuation Fund.  An employee who has not used all of their annual personal leave entitlement gains an attendance incentive.  The maximum is a $1,000 incentive for 10 days unused entitlement.  An employee achieving 12 months service with the company receives a $5 per week loyalty bonus for every year of service up to 10 years.

Trade union delegates working for Butler are provided 10 days paid leave to attend union training, conferences or to engage in union campaign activity. Union delegates have a right to induct all new employees. The inductions must contain no more than 15 workers and last at least 30 minutes.

The Victorian Government Schools agreement entitles a parent to be absent from duty for up to 7 years after the birth or otherwise becoming a legal parent of one or more children.

Road travel in Tasmania must be particularly arduous. The Tasmanian Symphony Orchestra when travelling by road must be given a 15 minutes rest break after each two hours of the journey.

The cost of an employee to the business is much more than the wage rate contained in the enterprise agreement.  Employers now take on more social responsibility for employees well beyond the traditional employment relationship.  An agreement’s conditions and other legislated employer obligations such as superannuation, workers’ compensation and payroll tax can add 90 per cent costs above the prescribed wage rate. The scope and generosity of the conditions continues to grow.

There is more.  In Australia we have introduced various regulatory regimes that influence employment and remuneration settings.

Human rights and anti-discrimination regulators, at both the federal and state levels, intrude on employment decisions.  Some ALP states have relished the opportunity to introduce labour hire and independent contracting regulators.  Rules regulations and penalties about workplace bullying and harassment have been enlarged.  The federal workplace relations legislation has an expansive section on protecting workplace rights and allowing employees to invoke adverse action claims on a variety of grounds.  Then we cannot forget the prescriptive protections against unfair and unlawful dismissals.  These provisions operate with a problematic reputation and are often used by poor performers and malingerers to screw money from the employer.

This all means that many employers set the dial to caution when engaging and paying staff.   Competition in most industries is relentless and firms are vulnerable if placed at a cost disadvantage.  Small firms know that a litigious disaffected employee can seriously affect the bottom line through, for example, a drawn out discrimination or unfair dismissal case. 

Employers and employees operate most effectively when there is a shared understanding of the business and its challenges.   A successful business needs motivated employees who are well remunerated and enjoy attractive conditions.  This translates into a mutual trust.  The frustration about today’s industrial landscape are the numerous legislative and regulatory impediments to engendering a shared understanding and trust.  Also, trade unions, when active in a workplace, often work to destroy mutual trust between an employer and employees.

I believe these workplace dynamics in today’s complex workplace relations system are contributing significantly to a reluctance to raise nominal wage rates above the inflation rate of about 2 per cent.

The ACTU and ALP plan to make the federal system more complex by adding regulation under the banner of rebalancing the system.  If this transpires the next recession should be feared because its unemployment effects will be brutal.

Support the IPA

If you liked what you read, consider supporting the IPA. We are entirely funded by individual supporters like you. You can become an IPA member and/or make a tax-deductible donation.