Unions key to work­ers’ wage growth.

The Saturday Paper - - Contents | The Week - Andrew Leigh

For much of hu­man his­tory, eco­nomic growth put­tered along slowly – so slowly, in fact, that shops would some­times carve prices into their stone walls. Then, in the late 1700s, one of the most dra­matic trans­for­ma­tions in world eco­nomic his­tory took place. Start­ing in Bri­tain, the In­dus­trial Rev­o­lu­tion saw pro­duc­tion move from hand work to mech­a­ni­sa­tion. Steam-pow­ered fac­to­ries mas­sively in­creased the out­put of tex­tiles. Out­put per worker be­gan to surge.

How­ever, for the first half-cen­tury af­ter the In­dus­trial Rev­o­lu­tion be­gan, most of the benefits did not flow to work­ers. Pro­duc­tiv­ity rose – as work­ers used the new tech­nol­ogy to produce more out­put – but real wages barely budged.

There are var­i­ous the­o­ries as to why this changed, but it is dif­fi­cult to es­cape the con­clu­sion that it had some­thing to do with col­lec­tive ac­tion. In 1833, six agri­cul­tural labour­ers in Dorset swore an oath to stand to­gether against at­tempts to cut their pay from seven shillings a week to six. The Tolpud­dle Mar­tyrs were ar­rested, con­victed of swear­ing a se­cret oath and trans­ported to Aus­tralia. Af­ter a mass pub­lic out­cry, they were par­doned. From the fac­tory to the farm, work­ers kept push­ing for the right to or­gan­ise and strike. Even­tu­ally, they be­gan to get a fair share of the pro­duc­tiv­ity gains, and the In­dus­trial Rev­o­lu­tion be­came a ma­jor driver of bet­ter liv­ing stan­dards across the world.

In 2017, 184 years af­ter the Tolpud­dle Mar­tyrs swore their oath, Mar­garet Pea­cock and her fel­low work­ers went on strike in Pre­ston, just out­side Mel­bourne. Mar­garet worked at Aus­tralian Pa­per, the na­tion’s largest en­ve­lope man­u­fac­tur­ing plant. She earned $21 an hour. Her union, the Aus­tralian Man­u­fac­tur­ing Work­ers Union, had gone to the Fair Work Com­mis­sion three times, ask­ing for a pay rise of 2.5 per cent a year over three years – what works out to be zero real wage growth. The com­pany was of­fer­ing a deal that av­er­aged 1.6 per cent – a real pay cut. Only af­ter an eight-week strike did Aus­tralian Pa­per agree to the work­ers’ pay claim.

Dur­ing the past six years, real wage growth has all but ground to a halt in Aus­tralia. Just as in the first 50 years of the In­dus­trial Rev­o­lu­tion, pro­duc­tiv­ity is grow­ing at a solid rate. But em­ploy­ees’ share of the na­tional pie has been shrink­ing.

Part of the ex­pla­na­tion lies in the fact that just 13 per cent of Aus­tralian work­ers are in unions, down from half the work­force in the early 1980s. Trade union mem­ber­ship is low­est among pri­vate-sec­tor work­ers (9 per cent), 20-some­things (9 per cent), re­cent mi­grants (5 per cent) and peo­ple who have been work­ing for less than a year (5 per cent).

Re­search­ing my book, Bat­tlers and Bil­lion­aires, the ev­i­dence I found sug­gests we have to go back to 1904 to find a time when the union mem­ber­ship rate in Aus­tralia was lower than it is to­day. In the past few decades, the share of Aus­tralians who say unions have too much power has fallen from 82 per cent in 1979 to 47 per cent in 2016. At the same time, the pro­por­tion who are con­cerned about the power of big busi­ness has risen.

We tend to think of the United States as hav­ing a fa­mously low union mem­ber­ship rate. But in 2017, the US union mem­ber­ship rate was 11 per cent, only 2 per­cent­age points be­low ours. Twelve US states have a higher union mem­ber­ship rate than Aus­tralia. In Cal­i­for­nia, New York, Con­necti­cut or Hawaii, you’re more likely to bump into a union mem­ber than you are in Aus­tralia.

What caused union mem­ber­ship to fall? Part of the an­swer lies in chang­ing laws: the abo­li­tion of closed shop laws in the early 1990s, the anti-union WorkChoices leg­is­la­tion of 2006 and myr­iad small tweaks by con­ser­va­tive gov­ern­ments that made it harder for unions to or­gan­ise. The struc­ture of the econ­omy has also tilted the scales against or­gan­ised labour. Union mem­ber­ship is typ­i­cally higher among full-time work­ers, in man­u­fac­tur­ing and in the pub­lic sec­tor. Anal­y­sis by Grif­fith Univer­sity’s David Peetz sug­gests changes in the econ­omy ex­plain a sig­nif­i­cant por­tion of the drop in union mem­ber­ship, es­pe­cially dur­ing the early pe­riod of the de­cline. There is also a feed­back loop problem – work­ers ap­pear less in­clined to join a union in highly un­equal work­places.

To see why this mat­ters for Aus­tralia, it’s worth re­view­ing the achieve­ments of the union move­ment. Sick leave in the 1920s. An­nual leave in the 1930s. The eighthour day in the 1940s. Unfair dis­missal pro­tec­tion in the 1970s. Ban­ning as­bestos in the 1980s. The week­end. Paid pub­lic hol­i­days. Long-ser­vice leave. Unions have of­ten found them­selves on the right side of his­tory. Mar­itime unions re­fused to load “pig iron” onto Ja­panese ships in the late 1930s be­cause they fore­saw the risk that it would come back in bombs. If you’ve ever en­joyed Cen­ten­nial Park and Syd­ney’s Royal Botanic Gar­den, then you might thank the union mem­bers who stopped them be­ing de­stroyed in the 1970s.

And that’s be­fore we get to inequal­ity.

From 1975 to 2016, real wages rose by 74 per cent for the top tenth of earn­ers, but just 24 per cent for the bot­tom tenth. If low wage earn­ers had en­joyed the same per­cent­age gains as those at the top, they would be $16,000 a year bet­ter off. Since the early 1980s, house­hold in­come inequal­ity, wealth inequal­ity and top in­come inequal­ity mea­sures have all risen. The num­ber of bil­lion­aires on the Aus­tralian Fi­nan­cial Re­view’s Rich List grew from 60 to 76 last year, and the com­bined wealth of the top 200 rose by a whop­ping 21 per cent.

Across the world, unions are one of the most pow­er­ful forces for boost­ing equal­ity. Unions have a long his­tory of lend­ing their strong­est voice to their low­est­paid mem­bers; iden­ti­fy­ing those most in need and mak­ing their case. We can think of rais­ing earn­ings of the low­est-paid as “flow-up” eco­nom­ics – a the­ory that has a good deal more em­pir­i­cal sup­port than the dis­cred­ited no­tion of “trickle-down”.

To­day, we take for granted that em­ploy­ers should not be legally al­lowed to pay peo­ple less be­cause of their race or gen­der. But it took unions to fight for that change. Unions filed claims in the mid 1960s to re­move racially dis­crim­i­na­tory clauses from the pas­toral in­dus­try and sta­tion hands’ awards. It was the Aus­tralian Coun­cil of Trade Union’s equal pay cases of 1969 and 1972 that led to the re­moval of in­sti­tu­tion­alised gen­der pay dis­crim­i­na­tion from in­dus­trial agree­ments.

To­day, wage stag­na­tion is hurt­ing the econ­omy. As the Re­serve Bank’s most re­cent State­ment on Mon­e­tary Pol­icy ob­serves, “Weak growth in house­hold in­come has posed a risk to the con­sump­tion out­look for some time. Con­sump­tion could be par­tic­u­larly sen­si­tive to un­ex­pected weak­ness in in­come given the con­text of high house­hold debt.”

Short-sighted busi­nesses want low-paid work­ers and high-paid cus­tomers. Far-sighted busi­nesses recog­nise that work­ers and cus­tomers are the same peo­ple. If you want to boost re­tail sales, putting cash in the hands of the low­est-paid work­ers is the best strat­egy.

You don’t need to march un­der the Eureka flag to see there’s a problem. The Bank of Eng­land’s chief econ­o­mist, Andy Hal­dane, has noted that Bri­tain has seen a growth in self-em­ploy­ment, tem­po­rary work, zero-hours con­tracts and non-union jobs. Hal­dane ar­gues that this makes work more “di­vis­i­ble” than in the past and has re­duced work­ers’ bar­gain­ing power.

One re­cent study found that unions in­crease wages by 5 to 10 per cent. That sug­gests that if Aus­tralia to­day had the same union mem­ber­ship rate as in the early 1980s, av­er­age wages could be up to 4 per cent higher.

Econ­o­mist Saul Es­lake con­trasts the sit­u­a­tion now with the eco­nomic cir­cum­stances Aus­tralia faced in the late 1970s. Back then, real wages were ac­cel­er­at­ing faster than pro­duc­tiv­ity. Economists dubbed the sit­u­a­tion the “real-wage over­hang”. The so­lu­tion was the Ac­cord: an agree­ment that promised wage mod­er­a­tion in ex­change for im­prove­ments in the so­cial wage.

Now, the problem is re­versed. Aus­tralia is ex­pe­ri­enc­ing a “real wage un­der­hang”. Work­ers have failed to get their share of pro­duc­tiv­ity growth. If unions are rel­e­gated to the mar­gins, and the safety net is eroded, then not only will low-paid work­ers suf­fer, but so too will our econ­omy as a whole.

Part of the an­swer to boost­ing wages must lie in im­prov­ing our in­dus­trial laws. Col­lec­tive ac­tion has been be­hind many of the sig­nif­i­cant im­prove­ments in pay and con­di­tions for Aus­tralian work­ers. To­day, there are straight­for­ward mea­sures we can fol­low. Re­vers­ing the cut to Sun­day penalty rates for 700,000 work­ers. Tack­ling sham con­tract­ing and dodgy phoenix­ing. End­ing the oxy­moron of “per­ma­nent ca­su­als”. Pre­vent­ing labour hire be­ing used to erode earn­ings by leg­is­lat­ing the sim­ple prin­ci­ple: same job, same pay.

Recog­nis­ing that firms serve so­ci­ety as a whole isn’t just more eq­ui­table, it’s more sus­tain­able. And in the long run, it’s likely to leave us less vul­ner­a­ble to the boom-and-bust cy­cle. Stronger unions, bet­ter wage growth and fairer firms are the recipe for a more pros­per­ous so­ci­ety. •


This ar­ti­cle draws on a speech de­liv­ered at Per Capita, Mel­bourne.

ANDREW LEIGH is the fed­eral shadow as­sis­tant trea­surer, and a for­mer pro­fes­sor of eco­nom­ics at the Aus­tralian Na­tional Univer­sity.

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