Wage growth stagnant as unionisation falls
SYDNEY: After a record 26 years of uninterrupted economic growth, Australian workers should be sitting pretty. They are not.
Their annual wage increases are, by some measures, lagging inflation, job security is an issue, and at least one survey shows their sense of overall wellbeing is at an alltime low.
Many policymakers and mainstream bank economists puzzle over the reasons for all this.
They point to Australia’s transition to more of a services economy, the impact of disruptive technologies, the lack of productivity growth, and the increase in the number of parttime and temporary jobs as among reasons.
But some labour experts have a better explanation: a plunge in trade union membership in Australia to less than 15% of the workforce now from more than 40% in 1991, much greater than declines in other industrialised countries.
They say that has allowed employers to dictate the size of wage rises without challenge.
‘‘Unionisation has collapsed far more violently in Australia than virtually anywhere in other developed, rich countries,’’ said Josh Bornstein, Melbournebased employment lawyer at Maurice Blackburn, who often represents workers in litigation.
‘‘Unions have been disempowered and that is bad for wage outcomes,’’ he added.
The contrast between stellar growth — the nation’s economy expanded at a 3.1% annual rate last quarter to outpace the United States, Europe and Japan — and the lot of ordinary Australians is a major concern for policymakers.
It poses a big political challenge for Prime Minister Malcolm Turnbull who has been flagging in polls for more than two years now, and who will probably hold a general election by next May.
Average annual compensation per employee crawled up by 1.6% last quarter, below the inflation rate of 1.9%, as companies took a large slice of the income pie and operating profits surged to a record. A separate measure released in May showed the wage price index, which follows price changes in a fixed basket of jobs, rose 2.1% last quarter.
To be sure, low wage growth is a global phenomenon that was exacerbated in the United States and Europe by big job losses in the 200809 financial crisis. By contrast, on the back of commodities demand from China, Australia grew through that period.
The weak wages growth could eventually undermine an economy that has done better than those of just about every other major nation in the Western world over the past quarter century.
Household spending contributes 57% of Australia’s GDP, and if people are feeling squeezed then it will not take much for them to postpone that purchase of a big ticket item, such as a washing machine or car, hurting retailers, distributors and manufacturers.
Philip Lowe, the governor of the nation’s central bank, the Reserve Bank of Australia, said structural changes in the labour market driven by technology disruption, leading to the rise of the so called gig or sharing economy and increasing num bers of parttime and casual jobs, might be critical factors.
Australia’s labour productivity had not been improving either, he noted in a speech last week.
But even Mr Lowe said he was perplexed as to the causes of low wage growth in economies such as the United States where the jobless rate had tumbled.
While the labour unions have also lost their mojo in other major industrialised countries, the extent of the fall is much worse in Australia. In Britain, for example, union membership sits at about 23% of the workforce now, down from 37% in 1991.
A report jointly produced last month by Credit Suisse and the University of Queensland’s Australian Institute for Business and Economics suggested unionisation and wage growth go hand in hand.
‘‘Collective wage agreements, organised on behalf of union members, have delivered increases in wages ahead of the nonunionised employees,’’ according to the study.
For instance, from 1998 to 2008 collective wage agreements averaged an annual increase of almost 4% while the total labour market only managed 3.6%. The spread was even larger for the next 10 years when the unionised workforce gained 3.4% versus 2.9% for the total pool.
Some economists think the impact of weaker unions on pay is modest.
Alicia Garcia Herrero, Hong Kongbased regional economist for French investment bank Natixis, said unions were more focused on retaining jobs than raising wages because of the hollowing out of key industries.
The share of national income going to employees is near the smallest since 1960 at about 47%, down from 56% at the end of last recession of 1991. The share going to companies has climbed to almost 27% from about 21%.
The Reserve Bank’s Mr Lowe recently said that workers were worried and therefore less likely to make a fuss about lowfigure wage deals.