Labour unions’ slump reason for low wages growth

After a record 26 years of uninterrupted economic growth, Australian workers should be sitting pretty. They aren’t. 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 well-being is at an all-time 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 part-time 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 per cent of the workforce now from more than 40 per cent 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, Melbourne-based 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 per cent 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 per cent last quarter, below the inflation rate of 1.9 per cent, as companies took a large slice of the income pie with operating profits surging 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 per cent last quarter.

To be sure, low wage growth is a global phenomenon but it was exacerbated in the United States and Europe by big job losses in the 2008/09 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 per cent of Australia’s GDP, and if people are feeling squeezed then it won’t 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 — says structural changes in the labour market driven by technology disruption, leading to the rise of the so called gig or sharing economy and increasing numbers of part-time and casual jobs — may be critical factors.

Australia’s labour productivity has not been improving either, he noted in a speech last week.

But even Lowe says he is perplexed about the causes of low wage growth in economies like the United States where the jobless rate has 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 per cent of the workforce now, down from 37 per cent in 1991.

A report jointly produced last month by Credit Suisse and the University of Queensland’s Australian Institute for Business and Economics suggested that 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 non-unionised employees,” according to the study.

For instance, from 1998 to 2008 collective wage agreements averaged an annual increase of almost 4 per cent while the total labour market only managed 3.6 per cent. The spread was even larger for the next ten years when the unionised workforce gained 3.4 per cent versus 2.9 per cent for the total pool.

UNIONISATION HAS COLLAPSED FAR MORE VIOLENTLY IN AUSTRALIA THAN VIRTUALLY ANYWHERE IN OTHER DEVELOPED, RICH COUNTRIES. UNIONS HAVE BEEN DISEMPOWERED AND THAT IS BAD FOR WAGE OUTCOMES