An election for the (w)ages

Just three years ago, the then ALP Leader, Bill Shorten, announced that the 2019 Election would be a “referendum on wages”. A raft of reforms were proposed by the Opposition, which were described to be key changes aimed at addressing flat wage growth. The “Change the Rules” campaign led by the union movement also called for significant reform for the same objective.

As is often the case with referendums over the course of Australian history, it was not successful. Voters did not embrace the case for change. And, for better or worse, although unemployment levels are historically low, enterprise bargaining has been withering on the vine over recent years and wages growth has been modest.

We have not yet heard any similar language from Anthony Albanese in the lead-up to this year’s election; nor do we expect to. The Industrial Relations policies announced by the ALP have, to date, been modest by comparison to 2019. Small targets are harder to hit.

Nevertheless, the issue of wage growth in Australia is as relevant as ever. The most recent ABS data shows that in 2021 wages increased by 2.3%, whilst inflation was 3.5% during the same period. In 2019, the economy had experienced multiple years of low growth in real wages but now, thanks to inflation, real wages are actually falling.

At the same time, the unemployment rate has dropped significantly (4%), leading to a tight labour market. This puts upward pressure on wages. Additionally, inflation and CPI are expected to surge, at least in the short term. Treasury’s forecasts which underpin the federal 2022/23 Budget assume unemployment will fall even lower (to 3.75%) while the CPI is predicted to rise by 4.25% — far outstripping wages growth.

In this context, the ACTU has recently announced it will seek a 5% increase to the national minimum wage and across all award rates at the forthcoming minimum wage review conducted by the Fair Work Commission. And many individual unions have already announced that their wage claims of circa 6% should no longer be simply dismissed as just an ambit claim — they don’t want their members’ real wages to go backwards.

But just as workers will demand higher wages, the RBA cautions that significant wage growth could lead to further inflationary pressures and interest rate rises.

Whichever party takes power in May, it will be conscious of its reputation with managing the economy this year. It will not want to be seen to be responsible for whopping inflation numbers.

As such, regardless of who wins government, we are not predicting any major policy changes this year. But it’s not surprising that Labor will be under more pressure than the Coalition to deliver real wages growth. For instance, it is possible if the ALP takes power, the current cap on public sector wage growth would be lifted, which could have a flow on effect on the private sector.

There will also be some other tinkering around the edges. Labor’s proposed Same Job, Same Pay legislation will aim to increase employee take-home pay either directly, by requiring certain labour hire providers to pay their workers more, or indirectly, by minimising the commercial benefits associated with using supplementary labour for host companies.

Labor’s proposal to introduce new restrictions on the termination of enterprise agreements and casual employment, along with a focus on pay equity in certain low paid industries, will not be insignificant by any stretch.

There are no plans to alter the Fair Work Commission’s role is setting minimum wages. Under a Labor government, the Tribunal may receive submissions to adjust minimum wages to align with the inflationary spiral. That aside, it is fair to assume that the battle for real wages growth will be left to individual workplaces — employers and employees will continue to duke it out and this will have consequences for enterprise bargaining that haven’t been evident for some years.

So, what might we expect to see at workplaces after the election? There are a few things that seem reasonably predictable:

• First, employers may refuse to commence bargaining for new agreements, as the cost of wages demands may be perceived to be too high. There has already been a decline in enterprise agreement coverage (currently less than 11% of the private sector is covered by an agreement, which is a near all-time low) and enterprise agreement making in recent years. Much of this can be attributed to the complexity of approval requirements and the lack of a perceived benefit of having an in-term agreement.
  
  If the cost of closing an agreement becomes potentially two to three times higher than what businesses have budgeted for, they may become even more reluctant to engage in bargaining at all.
• Second, any trend of refusing to bargain would inevitably lead to an increase in applications for majority support determinations, as it is the only mechanism available for compelling an employer to commence bargaining. Do unions have enough workplace clout to convince workers to trust them despite the continued decline in union membership over many decades?
• Third, it’s not difficult to speculate about a significant increase in protected industrial action. Employees will be less likely to accept a decline in their real wages, especially in industries where employers have thrived during the pandemic. Like the recent parcel delivery sector example, where unions were able to coordinate their actions to pressure employers into agreeing to wage increased based on CPI, industry-wide coordinated industrial campaigns may become more common.

Although the relevance of enterprise bargaining has declined over recent years, the coverage of essential services — such as transport, warehousing, construction, manufacturing, energy and resources — is still the domain of unionised workplaces. As such, industrial action in these sectors is both highly visible and consequential to the wider community.

Whilst we may not hear as much about workplace relations in the lead up to this year’s election, we will afterwards. All indications suggest that we will all be in for a ride.