Low wage growth has held the Australian economy back. Contrary to the employer’s scare campaign, the Government’s proposal to facilitate multi-employer bargaining offers the prospect of some improvement, especially for those employees whose bargaining position is weakest.

The major employer organisations are united in opposing the Government’s changes to the Work Place Relations Act to facilitate multi-employer bargaining.

According to the employer bureaucrats in the Chamber of Commerce and Industry, multi-employer bargaining will result in many more strikes. While the National Farmers Association alleges that it will lead to increased grocery prices. Others worry that multi-employer bargaining will represent a return to the 1970s and damage the economy by setting off a wage-price spiral.

On the other hand, the Government and the unions argue that wage growth has been too low, especially in industries and occupations often dominated by women and/or insecure employment conditions where the workers lack industrial power. Their expectation is that by allowing multi-employer bargaining, unions will be better able to bargain on behalf of these dispersed labour forces and get better wages.

This article will examine these various arguments in turn, before concluding that allowing employees to choose in favour of multi-employer bargaining is likely to result in improved wages without any real risk to the economy.

The risks of a wage-price spiral

Despite the claims of employers, the reality is that it is most unlikely that increased access to multi-employer bargaining will accelerate a wage-price spiral, like we experienced in the 1970s and early 1980s. The labour market today is not the same as it was back then with centralised wage fixation. Nor would the Reserve Bank accommodate an inflationary surge as the authorities did in that earlier era.

Most importantly, expectations about future wage increases are very different. In fact, wages have tended to lag price growth over most of the last decade, and that is a key reason why the Reserve Bank got its inflation forecasts so wrong. Indeed, as the Government has highlighted, the problem has been wage stagnation not excessive wage growth.

Consequently, the share of wages in national income has fallen and earnings inequality has increased. Although these changes were mainly brought about by the impact of technological change and globalisation on the labour market, the changes in the legislation governing wage determination and the decline in trade union membership also played a part.

The first major change away from the centralised system of wage determination was actually initiated by the Keating Labor Government when enterprise bargaining was introduced in 1993 with the active support of the ACTU. At that time both the Government and the union movement were focused on improving productivity as the best way to increase wages while maintaining national competitiveness.

And this change to enterprise bargaining did work as intended for a while, helping to lift productivity a little over the next ten years or so, mainly through agreements on how the work could be better organised. But those improvements on work organisation were typically one-offs and cannot be repeated. So, it is doubtful that stepping back from wage fixation for individual enterprises will lead to less productivity growth in future.

Furthermore, as the Government sees it, the enterprise bargaining system is now broken. According to the Minister, Tony Burke, “only 14 per cent of the Australian workforce is covered by an agreement that’s in date”. While ABS data show that only another 23 per cent of employees were covered by awards. As the Minister therefore concluded, “Without changing the law we won’t get wages moving.”

Burke also maintains that multi-employer bargaining is not new to the Act. It is just that the present system is too complex for people to use it, and this is what the Government is seeking to change. In addition, multi-employer bargaining will only apply where the employer and a majority of employees agree to use it.

And there are quite a few exclusions from the coverage of the new multi-employer bargaining system. For example, the construction division of the CFMEU will not be able to introduce multi-employer bargaining from site to site, as they are excised from the Bill. Similarly, if a business already has an enterprise agreement, which for example, is true for the enterprises in the East Coast mining industry, then they too are excluded from multi-employer bargaining agreements.

In a spirit of compromise the Government has proposed a minimum of 25 employees as the minimum size of the enterprise which can access the multi-employer bargaining system. In response, some employer organisations still want a minimum of as many as 100 employees.

But even 25 employees is quite a lot. Most farms, cafes and restaurants, and many aged and child care establishments, and shops would have less than 25 employees. As these are the sort of industries where workers’ bargaining power has been very weak, they are the ones that will most likely benefit from multi-employer bargaining. The Government should therefore be cautious about limiting the size of the enterprise where multi-employer bargaining can apply.

In sum, the legislation to extend multi-employer bargaining to low paid industries and occupations where their bargaining power is weak will help lift wage growth in these industries but is most unlikely to set off a new wage-price spiral.

Higher grocery prices

Of course, this lack of bargaining power may well have led to cheaper prices for some agricultural products, and in hospitality. Similarly, the care industries have made it plain that while they support higher pay for their staff, they will need extra funding, from either the client or more likely from government.

Many of us accept, however, that we should be prepared to pay a reasonable wage, rather than profit from the exploitation of workers and their insecurity by under-paying them. Also the labour shortages in these industries/occupations suggests that the imbalance in market power between employers and their employees means that the market is not working properly.

In some cases, this power imbalance is allowing employers to engage in what is really wage theft. The authorities are not able to police adequately the adherence to award conditions and enterprise agreements. In the old days, the authorities relied on the unions to alert them to possible breaches, but union coverage has now fallen so far, that they cannot play their former role of industrial watchman.

Increased strikes but how much damage

According to the employer representatives, there will be more strikes with multi-employer bargaining, with the implication that this will do major damage to the economy. I agree that strikes can be inconvenient, but their economic significance is often exaggerated. In fact, the total number of working days lost to industrial disputes in each of the last two financial years was only a very small fraction of the time lost in a single public holiday.

Furthermore, employers have been threatening lockouts of maritime workers. The new legislation would, however, give the umpire - the Fair Work Commission – more power to intervene early and thus reduce the chance of a breakdown leading to either strikes or lock-outs.

Conclusion

Australia has faced a significant problem of low wage growth for at least a decade or more. The introduction of legislation to increase the access to multi-employer bargaining is an important step towards addressing the imbalance in power between employers and the workers in many low-paid and insecure jobs.

Despite the distorted scare campaign from employers, the Government should be very cautious about offering further compromises to its legislation.