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  • Wages growth improves but real wages fall at a record rate

    Wages growth improves but real wages fall at a record rate

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on November 17, 2022

    The latest wages price index figures show that for the first time since 2013 wages grew by more than 3% in the past year.

    This growth is very welcome. It highlights that far from wages driving inflation, wage growth is only now beginning to grow at a pace that would be expected given the low level of unemployment. But as Labour Market and Fiscal Policy Director, Greg Jericho notes in his Guardian Australia column, while the level of wage growth we are seeing remains well below what would have been expected in the past with a 3.5% unemployment rate.

    The strong growth came mostly from the private sector through a combination of new financial year individual contracts and the 5.2% minimum wage increase.

    But even this is not enough to prevent real wages from falling for the 9th straight quarter. For more than 2 years now prices have been rising faster the wages. It has seen real wages fall back to 2011 levels after a 4.6% fall since September 2020.

    The figures show that greater bargaining power is required for workers as they continue to lose out. The fastest wage growth for a decade should not see the biggest fall in real wages on record.

    We know that greater enterprise bargaining producers better wages growth. That business groups are so against the provision in the Fair Work Amendment Bill demonstrates how worried they are about the ability of workers to have increased ability to bargain.

    Profits have been growing faster than inflation, but wages are not.

    The latest wage growth figures are pleasing to see, but they also demonstrate the challenges ahead, and just how greatly workers’ living standards have been hit by price rises that they did nothing to cause.


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  • Going Nuclear: The Costs of Mid-Bargaining Termination of Enterprise Agreements

    Unions & Collective Bargaining

    Going Nuclear: The Costs of Mid-Bargaining Termination of Enterprise Agreements

    by Lily Raynes and Jim Stanford

    Authors

    Lily Raynes

    Anne Kantor Fellow

    Jim Stanford

    Media releases



    Deal on IR Reforms Sets Stage for Faster Wage Growth



    IR Reforms To Close Off The ‘Nuclear Option’ Will Protect Wages and Entitlements

    New research from the Centre for Future Work quantifies the dramatic risks faced by workers whose employers unilaterally terminate enterprise agreements during the course of renegotiations. This aggressive employer strategy, which became common after a precedent-setting 2015 court decision, would be curtailed by new industrial relations legislation proposed by the Commonwealth government.

    The paper reviews one dramatic example of this termination threat – dubbed the ‘nuclear option’ by labour law experts (because it ‘blows up’ years of collective bargaining embodied in existing enterprise agreements). Earlier this year, Qantas threatened termination of the EA covering its international cabin crew unless they accepted significant contract concessions.

    The new report confirms that losses from termination, if it had gone ahead, would have been enormous for the affected workers:

    • Hourly wage cuts between 25% and 70%.
    • Annual income losses up to $67,000 for the most senior staff.
    • Loss of superannuation contributions and investment income, totalling as much as $130,000 and dramatically reducing retirement incomes.
    • Painful retrenchment of many working conditions issues (including rest periods and accommodation).
    • From the company’s perspective, termination of the EA for just this group of its staff would save $63 million per year, and up to $1 billion over 15 years.

    This threat, backed up by an application for termination lodged with the Fair Work Commission, was sufficient to convince cabin crew staff to accept a new EA containing a two-year wage freeze, real wage cuts, and other compensation and conditions reductions. Staff had earlier voted 97% to reject that agreement. This reversal confirms the termination threat is a very powerful bargaining lever for employers.

    The report recommends reforms to the Fair Work Act to limit employers’ ability to apply for unilateral termination during renegotiations. Current legislation in Parliament (the Secure Jobs, Better Pay Bill) would put new restrictions on employers’ ability to terminate EAs during renegotiation.



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  • Restoring Collective Bargaining Coverage Would Boost Wage Growth: Research Report

    Restoring Collective Bargaining Coverage Would Boost Wage Growth: Research Report

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    Proposed reforms to Australia’s industrial relations laws are likely to support higher coverage for collective bargaining in the national labour market, and provide a boost to stagnant wage growth according to new research from the Centre for Future Work.

    The report reviews historical data on the erosion of collective bargaining in Australia, and its close correlation to the slowdown in wage growth visible after 2013. The authors find that the decline of collective bargaining coverage (which fell by almost half in the private sector since 2013) explains over 50% of the change in wage growth during that same time.

    “Restoring collective bargaining is vital to any strategy to get wages growing again in Australia,” said Dr. Jim Stanford, co-author of the report and Director of the Centre for Future Work.

    “International evidence indicates that requires the ability to undertake bargaining at a multi-employer level.”

    Key Points from Report:

    • Each one percentage point loss of bargaining coverage has been associated with a reduction in annual wage growth of 0.15 percentage points.
    • There is a clear and predictable relationship between countries which support broader multi-employer bargaining, and the level of bargaining coverage which they achieve.
    • The reforms contemplated in the Secure Jobs, Better Wages legislation would incrementally restore collective bargaining coverage in Australia: by relaxing current restrictions on multi-employer bargaining, and supporting bargaining through other measures (such as limitations on employer termination of enterprise agreements, stronger dispute settlement provisions, and streamlined processes for approving new agreements).
    • These reforms would elevate bargaining coverage in Australia toward a level typical of other countries where most bargaining still occurs at the enterprise level (as would be true under these reforms), but supplemented by some multi-employer bargaining and broader coordination. The OECD has identified a group of these countries, with an average bargaining coverage rate of 33%.
    • That would reverse most (but not all) of the loss in coverage experienced over the past decade.
    • Considering the observed correlation between bargaining coverage and wage growth, this would lead to an improvement in nominal wage growth of 1.6 percentage points per year.
    • Just one year of wage growth at this faster pace would boost annual earnings for a worker with average full-time wages by $1473. That increment would expand to $8300 by the fifth year of (compounded) faster wage growth. On a cumulative basis over the first five years alone, the average worker would receive additional income of almost $24,000.
    • The 1.6-percentage-point increment in annual wage growth would boost aggregate wage incomes by $15 billion in the first year, and $75 billion in the fifth year.

    Related research



    Collective Bargaining and Wage Growth in Australia



    Full report

  • Collective Bargaining and Wage Growth in Australia

    Unions & Collective Bargaining

    Collective Bargaining and Wage Growth in Australia

    by Jim Stanford, Fiona Macdonald and Lily Raynes

    Authors

    Jim Stanford

    Fiona Macdonald

    Acting Director, Centre for Future Work

    Lily Raynes

    Anne Kantor Fellow

    Media releases



    Deal on IR Reforms Sets Stage for Faster Wage Growth



    Restoring Collective Bargaining Coverage Would Boost Wage Growth: Research Report

    The reforms proposed in the Secure Jobs, Better Wages bill represent important but incremental steps in restoring a better balance of bargaining power between workers and employers, and lifting wage growth back toward a normal and healthier pace.

    The measures provided here will not suddenly transform Australia in the image of leading OECD countries, where centralised and coordinated collective bargaining covers most workers, and wage outcomes are much more equal as a result. But they would support a gradual restoration of collective bargaining coverage, consistent with practices in other countries where bargaining still occurs mostly at the enterprise level – but where some broader bargaining and coordination is possible. On that basis, and over several years, this should result in a partial restoration of bargaining coverage lost over the past decade, and a corresponding (but still incomplete) recovery in wage growth.



    Full report




    Factsheet
    Paying for Collective Bargaining

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  • Gas companies are profiting off of human misery – we need a windfall profits tax

    Gas companies are profiting off of human misery – we need a windfall profits tax

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on November 14, 2022

    Russia’s illegal invasion of Ukraine caused a massive surge in gas and LNG prices that have enabled gas companies around the world, including Australia to make record-level profits.

    But none of these profits have come from either management decisions or productive investments. The price rise has not come from any economic improvements. No, they have come only from an illegal invasion that is causing great human misery.

    Labour market and fiscal policy director Greg Jericho notes research suggests that the gas sector has accrued around $26bn in profits due to price rises affected by the Russian invasion. He argues that all of these profits should be garnered in taxation – a view that echoes that of former Treasurer Secretary Ken Henry.

    This revenue would be enough to cover the cost of rewiring the nation and greatly assist the tradition to renewables.

    But the problem of revenue are much deeper than the need for a windfall profits tax.

    Jericho’s analysis of industry data reveals that the industry pays much less company tax relative to production than it did in the past.

    Had the industry paid the same level of company tax relative to revenue that is had in the decade prior to the opening of the Gladstone port, in 2019-20 alone, an extra $9.1bn in tax revenue would have been raised.

    Oil and gas are Australia’s resources. Not only are their emissions causing climate change but the profits are largely headed overseas, and more than in the past not flowing through into taxation.

    As Australians demand better and wider government services, and the costs of dealing with climate change grow ever higher, we need to ensure the fossil fuel companies pay their rightful share.


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    Australia’s Gas Use On The Slide

    by Ketan Joshi

    The Federal Government has released a new report that includes projections of how much gas Australia is set to use over the coming decades. There is no ambiguity in its message: Australia reached peak gas years ago, and it’s all downhill from here:

  • Multi-Employer Bargaining Necessary for Fixing Wages Crisis

    Multi-Employer Bargaining Necessary for Fixing Wages Crisis

    by Fiona Macdonald in The Conversation

    Fiona Macdonald

    Acting Director, Centre for Future Work

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    Originally published in The Conversation on November 14, 2022

    Proposed reforms to Commonwealth industrial relations laws would create more opportunities for collective bargaining to occur on a multi-employer basis, rather than being limited solely to individual workplaces or enterprises. Business groups have attacked this proposal as a dramatic change that would supposedly spark widespread work stoppages and industrial chaos.

    But as our Policy Director Fiona Macdonald argues in this new commentary for The Conversation, multi-employer bargaining is already allowed under various existing provisions of the Fair Work Act. The problem is that those provisions do not work. For example, the low-paid bargaining stream in the Fair Work Act has yet to result in a single multi-employer agreement, due to its stringent conditions and inconsistent application by the Fair Work Commission.

    Dr Macdonald argues that reforming these multi-employer bargaining streams so they can actually work will be an important part of any strategy to revitalise stagnant wages in Australia.

    For more details on the failure of existing multi-employer bargaining streams, and core principles for a stronger bargaining system, please also see the Centre for Future Work’s submission to the Senate inquiry on the Secure Jobs, Better Wages reform package (co-authord by Dr Macdonald, Jim Stanford, and Lily Raynes).


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  • IR Reforms To Close Off The ‘Nuclear Option’ Will Protect Wages and Entitlements

    IR Reforms To Close Off The ‘Nuclear Option’ Will Protect Wages and Entitlements

    by Lily Raynes

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    New research from the Centre for Future Work quantifies the dramatic risks faced by workers whose employers unilaterally terminate enterprise agreements during the course of renegotiations. This aggressive employer strategy, which became common after a precedent-setting 2015 court decision, would be curtailed by new industrial relations legislation proposed by the Commonwealth Government.

    The paper reviews one dramatic example of this termination threat – dubbed the ‘nuclear option’ by labour law experts (because it ‘blows up’ years of collective bargaining embodied in existing enterprise agreements). Earlier this year, Qantas threatened termination of the EA covering its international cabin crew unless they accepted significant contract concessions.

    The new report confirms that losses from termination, if it had gone ahead, would have been enormous for the affected workers:

    • Hourly wage cuts between 25% and 70%
    • Annual income losses up to $67,000 for the most senior staff
    • Loss of superannuation contributions and investment income, totalling as much as $130,000 and dramatically reducing retirement incomes
    • Painful retrenchment of many working conditions issues (including rest periods and accommodation)

    From the company’s perspective, termination of the EA for just this group of its staff would save $63 million per year, and up to $1 billion over 15 years.

    This threat, backed up by an application for termination lodged with the Fair Work Commission, was sufficient to convince cabin crew staff to accept a new EA containing a two-year wage freeze, real wage cuts, and other compensation and conditions reductions. Staff had earlier voted 97% to reject that agreement. This reversal confirms the termination threat is a very powerful bargaining lever for employers.

    “The scale of the losses experienced by Qantas staff as a result of termination would have been catastrophic,” said Lily Raynes of the Centre for Future Work, co-author of the report.

    “It would undermine their quality of life for the rest of their careers, and indeed right through their retirement,” Ms Raynes said.

    “The ability to credibly threaten termination, even as workers are trying to negotiate a replacement EA, provides a powerful advantage to employers,” said Jim Stanford, Director of the Centre for Future Work and the other co-author. 

    “It shifts the playing field decisively in employers’ favour and has been a major factor in the rapid erosion of collective agreement coverage over the past decade,” Dr Stanford said.

    “Qantas ruthlessly took advantage of this loophole in labour law to threaten cabin crew staff and impose terms and conditions that are blatantly unfair, given this company’s power and profits,” said Teri O’Toole, Federal Secretary of the Flight Attendants’ Association of Australia (one of the unions representing cabin crew at the airline). 

    “Qantas, and other greedy companies, will keep doing this unless the legislation is changed,” Ms O’Toole said.

    The report recommends reforms to the Fair Work Act to limit employers’ ability to apply for unilateral termination during renegotiations. Current legislation in Parliament (the Secure Jobs, Better Pay Bill) would put new restrictions on employers’ ability to terminate EAs during renegotiation.


    Related research



    Going Nuclear: The Costs of Mid-Bargaining Termination of Enterprise Agreements



    Full report

  • With household incomes set to fall, we need to think about what matters in the economy

    With household incomes set to fall, we need to think about what matters in the economy

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on November 10, 2022

    The current tightening of monetary policy is undoubtedly having an impact. While it may take some time for the slowing of inflation to flow through to the official CPI figures – especially given the level of inflation that is being imported – the economy is set to slow drastically.

    As Labor Market and Fiscal Policy Director Greg Jericho notes in his Guardian Australia column the Reserve Bank in last week’s Statement on Monetary Policy, has forecast GDP growth to slow to levels normally associated with recessions – even if the RBA is not actually forecasting a recession.

    However, in one area the RBA is not hedging at all – that of real household disposable income. This measure, which essentially examines the living standards of the average household, is forecast to decline at a pace as bad as any experienced in the past 60 years.

    While a fall in household incomes was always expected given the abnormal level of stimulus that occurred during the pandemic, the fall is predicted to be much greater than just going back to where we were. The Reserve Bank predict incomes will fall well below the pre-pandemic trend level.

    That such a drastic fall has received little coverage highlights that the orthodox commentary and debate around the economy largely focuses on aspects that minimise workers and households in place of corporations and the “broader” economy of GDP.

    The cost of taming inflation is too often discussed in terms of whether it will send the economy into a recession, without examining if that measure misses the real-life experience of most people.

    If the RBA forecast comes true, inflation will have been brought back to the RBA target, GDP will have kept growing, but household living standards will have plunged.


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  • Would further interest rate rises do more harm than good?

    Would further interest rate rises do more harm than good?

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on November 3, 2022

    In the past 7 months, the Reserve Bank has increased the cash rate by 275 basis points. That is as fast as any time since the RBA became independent. Given the pace of inflation growth, the rises are not wholly without cause, but as policy director, Greg Jericho notes in his Guardian Australia column the main drivers of inflation are now easing, and wages are yet to take off. In that case, should the RBA continue to raise rates given it will only slow the economy further?

    Over the past year, the main driver of inflation has been house prices accounting for a quarter of the 7.3% rise in the CPI. And yet we know that house price growth is now either slowing dramatically or even falling in some areas. The RBA has also noted that commodity prices are falling and supply-side issues are being dealt with and that these aspects, which are not influenced by interest rates, will reduce inflation next year.

    At the same time, the Reserve Bank continues to sound warnings of a wage-price spiral despite any evidence of such a thing occurring. Indeed the latest CPI figures show that overwhelmingly inflation is driven by the price rises of goods rather than services. This is important because service prices and wages are strongly linked.

    More rate rises will certainly continue to reduce demand in the economy as the cost of servicing a mortgage rises. But to what end? The main factors driving inflation are easing, wages have not risen above 3% yet, let alone to a rate anywhere near inflation.

    Even if wages were to rise in line with the historical link with service prices, in September they would have risen 3.5% – a level very much consistent with inflation growth of between 2% and 3%. And yet we know that wages are unlikely to rise that fast. The most recent estimates have it closer to 2.8%.

    The great risk now is that further rate rises will only hurt the economy for little gain and see wages growth stunted before they even get to a level that would see real wages rising.


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    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • The Cumulative Costs of Wage Caps for Essential Service Workers in NSW

    Public Sector, Procurement & Privatisation, Wages & Entitlements

    The Cumulative Costs of Wage Caps for Essential Service Workers in NSW

    by Jim Stanford

    Author

    Jim Stanford

    Since 2012 the NSW government has arbitrarily suppressed pay gains for workers in state-funded public services (including health care, education, public administration, emergency services, and more). At first those pay caps were justified as a deficit-reduction measure, and then later as being supposedly tied to inflation trends. But both those arguments have been discarded, given state surpluses in most years since the cap was introduced, and now the dramatic acceleration in inflation (now running more than twice as fast as allowed compensation gains).

    In this new report, Centre for Future Work Economist and Director Jim Stanford adds up the enormous and growing cost of this decade-long wage suppression for nurses, midwives, and other public sector workers in NSW.

    In any given year, the state’s wage cap reduces compensation below what would have been determined under normal free collective bargaining processes. When sustained over many years, however, the wage caps have an exponential effect in suppressing compensation levels. That’s because each year’s continued wage cap is applied against a lower starting wage base. Over time, the gap between capped and negotiated pay widens dramatically.

    The report estimates that compared to long-run pre-cap compensation trends, experienced nurses and midwives made $335 less per week in 2021-22 (or $17,500 less for the year) compared to pre-cap trends. On a cumulative basis, they have already lost $80,000 in compensation since the caps were introduced.

    But that pay suppression will continue to get worse if the caps are maintained. By 2023-24, on the basis of the government’s stated plan to suppress compensation growth to 3% and 3.5% (and restrain wages even lower, after adjusting for superannuation), the loss in wages will grow to $390 per week (or over $20,000 for the year), and the cumulative loss for someone who has worked throughout the wage cap period will reach $120,000.

    Worse yet, for three consecutive years, the NSW pay caps have reduced wage growth well below inflation, resulting in a significant erosion of real wages for nurses, midwives and other public sector workers. Public sector workers will see real purchasing power decline by 7.5% by end 2023-24 (on the basis of RBA inflation forecasts and the NSW government’s stated cap). That is equivalent to a loss of $6750 for a full-time experienced nurse or midwife.

    The economic pain experienced by public sector workers will not even stop when they retire. Because superannuation contributions are tied automatically to wages, nurses, midwives, and other public sector workers have lost thousands of dollars in superannuation contributions from their employers — and thousands more in foregone investment income on those contributions. That will translate into reduced superannuation balances and pension income after retirement. Already, an experienced nurse or midwife has had their pension income reduced by $1000 per year, and those losses will get larger the longer the pay caps are maintained. And because of the sustained suppression of their wages (and hence their superannuation savings), the goal of a decent stable retirement is increasingly out of reach for many NSW workers — especially for women, and especially for those who do not own their home. The report indicates that under existing capped wages, a nurse or midwife who is single, female, and rents their accommodation will accumulate less than half of the superannuation savings required for them to meet the ASFA comfortable retirement income threshold.

    In summary, the NSW’s ongoing suppression of pay for public sector workers, whose commitment has been essential to helping NSW residents through the pandemic, is arbitrary, anti-democratic, and economically damaging. The report recommends that the government abandon this policy, and instead engage in normal pay negotiations with public sector workers and their unions, on the basis of normal wage determinants.



    Full report

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