My Blog

Blog

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

    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.

    The post Wages growth improves but real wages fall at a record rate appeared first on The Australia Institute's Centre for Future Work.

  • Public Services in the Hunter (NSW)

    State-funded programs account for the lion’s share of public service jobs in the Hunter region: over 80% in total (in health care, education, state government, transport, first responders, social services, and more). That means a strong and stable commitment by state government to funding these services will be essential for the Hunter to continue reaping these economic and social benefits.

    Major findings of the report include:

    • Four sectors in which public provision is especially important (including health care, education, public administration and safety, and transportation) account for 35% of total Hunter region employment, and 85% of net job growth, in the last 5 years.
    • State-funded services alone account for almost 30,000 direct full-time equivalent (FTE) positions in the Hunter region, making this sector the largest single employer in the region. Those services add over $3 billion per year to regional GDP.
    • Combined wages and salaries for state public sector workers in the Hunter total $2.65 billion per year – constituting an enormous injection of household income and spending power into the regional economy.
    • State-funded service providers in the Hunter (including hospitals and schools) purchase some $1.3 billion worth of “upstream” inputs, materials, supplies, and services from private businesses in the public sector supply chain.
    • Consumer spending by state public service workers in the Hunter (and those in the supply chain) adds $1.75 billion to the sales of consumer goods and services businesses, most of them located right in this region.
    • For every 10 direct jobs in state-funded public services, there are another 5 indirect jobs in upstream supply chain and downstream consumer industries. In total, 45,000 regional jobs (public and private) depend on continued provision of high-quality state public services.
    • Public sector jobs are an especially important source of work and income for women. Women account for 64% of jobs in major Hunter public sector industries. The gender wage gap in public services is much smaller (12% for full-time ordinary earnings) than in the private sector.
    • Public services are especially important in regional areas, due to dispersed and older populations; greater distances between communities; and limited alternative employment opportunities. State service jobs (FTEs) make up 11.4% of all employment in the Hunter, 2 percentage points more than in Sydney.

    There is an unfortunate tendency in politics to view public services as merely a cost item on a government budget. But in fact they are a vital driver of economic growth and job-creation.

    State-funded public services also support tens of thousands of private sector jobs in the Hunter, both upstream in the supply chain and downstream through consumer goods and service sectors. It is vital to the prosperity of the whole region that these services are supported and well-funded.

    International evidence indicates that quality of life considerations (including community safety, housing, transportation, and culture and recreation) are increasingly vital in attracting new business investment to a region. This requires continued public fiscal support for top-quality public services.

    Please see the full set of fact sheets, Public Services in the Hunter: An Engine of Economics and Social Prosperity, prepared by Jim Stanford below. The fact sheets were commissioned by Hunter Workers.

    The post Public Services in the Hunter appeared first on The Australia Institute's Centre for Future Work.

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

    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.

    The post Restoring Collective Bargaining Coverage Would Boost Wage Growth: Research Report appeared first on The Australia Institute's Centre for Future Work.

  • Multi-Employer Bargaining Necessary for Fixing Wages Crisis

    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).

    The post Multi-Employer Bargaining Necessary for Fixing Wages Crisis appeared first on The Australia Institute's Centre for Future Work.

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

    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.

    The post Gas companies are profiting off of human misery – we need a windfall profits tax appeared first on The Australia Institute's Centre for Future Work.

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

    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.

    The post IR Reforms To Close Off The ‘Nuclear Option’ Will Protect Wages and Entitlements appeared first on The Australia Institute's Centre for Future Work.

  • Going Nuclear: Costs of Mid-Bargaining EA Termination

    Research on the ‘nuclear option’ of enterprise agreement termination.

    Authors: Raynes, Stanford

    Download the full report.

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

    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.

    The post With household incomes set to fall, we need to think about what matters in the economy appeared first on The Australia Institute's Centre for Future Work.

  • Collective Bargaining and Wage Growth in Australia

    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.

    The post Collective Bargaining and Wage Growth in Australia appeared first on The Australia Institute's Centre for Future Work.

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

    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.

    The post The Cumulative Costs of Wage Caps for Essential Service Workers in NSW appeared first on The Australia Institute's Centre for Future Work.