The Australian labour market in 2017

Abstract

Low wage growth consistently featured as the main underlying characteristic of the Australian labour market in 2017. Overall economic conditions remained weak, although unemployment was fairly static. All indicators of average wage growth declined: average weekly earnings, the wage price index and the average annual wage increase in enterprise agreements. Collective bargaining coverage continued to decline. Although the 3.3% minimum wage increase represents a modest increase in real wages for low-paid workers, the Fair Work Commission decision to reduce Sunday and public holiday penalty rates for some award-reliant workers would put further downward pressure on workers’ incomes. There were more successful applications to terminate expired enterprise agreements, including those where wage rates were thought to be uncompetitive and unsustainable. The underlying causes of low wage growth remain contested. Despite some agreement that the regulatory framework is a contributing factor, firm proposals for regulatory change are yet to emerge.

Keywords

Collective bargaining labour economics minimum wage underemployment unemployment wage bargaining

Introduction

This article reviews the state of the Australian labour market in 2017. The article begins with an overview of economic conditions, which were reflective of a slowdown in growth and productivity. However, the headline indicators of the labour market, reviewed in the following section, indicated that some of the labour market slack had begun to tighten. Unemployment (including long-term unemployment) and underemployment decreased overall and for most groups of workers. Next, we review the data on wages growth and provides the strongest evidence that the labour market is still yet to recover from the effects of the 2008 global financial crisis (GFC). In the final section before the conclusion, we review the continued low wage growth, seeking to position it within the debate about enterprise bargaining in Australia (especially with respect to termination of agreements) and global discussion of low wage growth and potential responses.

Macroeconomic conditions

The Australian economy grew 1.8% in the year to June 2017 (Table 1). This was driven predominantly by population growth, as gross domestic product (GDP) per capita growth, often used as a benchmark for changes in living standards, was close to zero. Overall however, lower international iron ore and coal prices, as well as mining investment, caused declines in Australian aggregate income, with GDP growth slowing significantly from a rate of 3.2% in 2016.

Table 1.

Selected macroeconomic indicators, 2014–2016.

Annual percentage change	2015	2016	2017
GDP^a	2.0	3.2	1.8
GDP per capita^a	0.6	1.8	0.2
GDP per hour worked^a	0.5	2.8	−0.5
Real unit non-farm labour costs^a	0.6	0.5	−5.5
Consumer price index^b	1.5	1.0	1.9
Retail sales^c	5.1	3.0	3.7
Business investment^d	−8.5	−16.2	−2.6

Sources: ^aAustralian Bureau of Statistics (ABS) (2017a), June 2017 (Table 1, seasonally adjusted data); ^bABS (2017b), June 2017 (Tables 1 and 2, original data); ^cABS (2017c), June 2017 (Table 1, seasonally adjusted data); ^dABS (2017d), June 2017 (Tables 1, original data). GDP: gross domestic product.

Changes in GDP per hour worked – commonly interpreted as the change in labour productivity – moved into negative territory. The index of non-farm labour costs fell by 5.5% in real terms, indicating a significant weakening in wages.

Despite the sluggishness of wages and headline GDP growth, indicators of domestic demand, retail sales and business investment turned more positive in 2017 following significant weakness in 2016. Retail sales grew by 3.7% despite subdued wages growth, and business investment growth – while still negative at minus 2.6% – recovered substantially from its low point in 2016, supported by low interest rates and a more positive economic outlook.

Labour market overview

Labour market conditions on the whole strengthened in 2017. As Table 2 shows, changes in employment conditions favoured female workers slightly, with the employment-to-population ratio¹ rising to 56.3% in 2017 (while staying constant at 66.6% for males). This reflects employment growth in traditionally female-dominated industries, including healthcare, social assistance and education. The male workforce participation rate² held steady at just over 70% in 2017, while the female participation rate continued its long-term rise, now at 59.7%. Having been steady at around 6% throughout 2014 and 2015, unemployment continued to drop slightly for both male and female workers from 2016 onwards, both now around 5.6%. These improvements are a result of stronger labour demand, as evidenced by stronger indicators of labour demand, such as job advertisements and surveys of hiring intentions (Reserve Bank of Australia (RBA), 2017).

Table 2.

Key labour market indicators.

	2015		2016		2017
	Males	Females	Males	Females	Males	Females
Employment-to-population ratio	66.6	55.3	66.5	55.9	66.6	56.3
Participation rate	70.9	58.8	70.4	59.5	70.5	59.7
Unemployment rate	6.1	6.0	5.5	6.0	5.6	5.7
Part-time share of employment	17.6	46.3	18.3	46.5	17.8	46.7
Underemployment rate	6.4	10.5	7.1	10.5	6.8	10.5

Source: ABS (2017e), June 2017 (Table 1, seasonally adjusted data).

Part-time employment increased its share of female employment in 2017 (rising to 46.7%) while falling back from its 2016 peak for males. There was no commensurate increase in the underemployment rate³ for females, which remained constant at 10.5%. Underemployment amongst males dropped slightly in line with the fall in part-time employment.

Table 3 shows that across most states and age groups, the unemployment and long-term unemployment rates were steady or fell in 2017, while the number of retrenchments also fell. The data suggest that the effects of declines in mining investment may have run their course in the exposed states of Western Australia and Queensland, although wages growth remains subdued. The notable exception was in the Australian Capital Territory (ACT), where long-term unemployment rose a remarkable 9.8 percentage points to 17.9%. Both young workers and those approaching retirement benefited from lower unemployment, although retrenchments amongst mature workers remained slightly positive.

Table 3.

Unemployment and long-term unemployment, by state and age.

	Total unemployment rate^a		Long-term unemployment^b		Retrenchments^c
	%	yoy	%	yoy	000s	yoy
Australia	5.5	−0.1	22.2	−1.9	115.1	−31.1
States and territories
New South Wales	4.7	−0.4	25.2	−1.8	32.2	−10.2
Victoria	5.6	0.2	18.7	−0.9	29.9	−7.7
Queensland	6.5	0.2	22.5	−0.3	22.5	−5.0
South Australia	6.4	−0.6	27.7	−0.5	6.5	−1.0
Western Australia	5.3	−0.3	18.4	−8.7	19.7	−6.5
Tasmania	5.6	−1.1	32.1	4.5	1.5	−1.7
Northern Territory	3.2	−0.5	10.6	−12.0	0.9	0.0
Australian Capital Territory	4.7	1.7	17.9	9.8	1.9	1.0
Age groups
15–24 years	12.5	0.0	18.5	−1.5	22.4	−8.7
25–34 years	5.2	0.2	23.1	−6.1	26.1	−6.3
35–44 years	3.8	−0.2	23.8	0.2	26.8	−8.3
45–54 years	3.8	−0.3	26.4	3.2	24.6	−7.0
55–64 years	4.0	−0.1	41.0	−3.9	14.2	1.2

Sources: ^aABS (2017f), June 2017 (Table 2, original data); ^bABS (2017g), August 2017 (UM2 and UM3, original data); ^cABS (2017g), August 2017 (Table 29a and 29b, original data).

Although Table 2 indicates that the underemployment rate has recently been stable, Figure 1 clearly shows a longer-term, upward trend. In particular, since 2012 the overall underemployment rate has risen from around 7% to 8.6% in August 2017. While this has affected all age groups, youth underemployment has risen most precipitously (up from 13.4% in 2012 to 18.5% in 2017). The data suggest that the effects of the GFC and the end of the mining boom can still be seen in persistent underemployment if not headline unemployment.

Figure 1.

Underemployment by age group, 1978–2017. Source: ABS (2017e), August 2017 (Table 22, seasonally adjusted data).

Industry conditions

Table 4 shows each industry’s contribution to GDP and employment growth. The data show that while the export-oriented mining and agriculture, forestry and fishing industries together with financial services and professional services made the strongest contributions to the economy’s overall size, these industries were not commensurately the largest areas for employment. Indeed, employment in professional, technical and scientific services recorded the largest decline. Productivity has therefore risen more in these industries than in the economy overall, due to a combination of investment in technology and change in the global price for the goods and services produced.

Table 4.

Key industry performance indicators by industry.

	Contribution to total growth^a	Employment growth^b
ANZSIC industry	% points	000s
Agriculture, forestry, and fishing	0.5	27.6
Mining	0.1	0.7
Manufacturing	0.0	0.9
Electricity, gas, water, waste services	0.0	6.9
Construction	−0.2	104.4
Wholesale trade	0.1	−1.5
Retail trade	0.1	37.9
Accommodation and food services	0.0	37.8
Transport, postal and warehousing	0.0	28.4
Information media and telecommunications	0.1	7.9
Financial and insurance services	0.4	−16.0
Rental, hiring and real estate services	0.0	−8.3
Professional, technical, scientific services	0.6	−45.7
Administrative and support services	0.0	−43.2
Public administration and safety	0.1	−27.8
Education and training	0.0	58.5
Healthcare and social assistance	0.3	130.6
Arts and recreation services	0.0	7.6
Other services	−0.1	12.4
All industries	1.8	328.5

Sources: ^aABS (2017a), June 2017 (Table 6, seasonally adjusted data), June 2016–June 2017. Figures do not sum to total for all industries because of rounding; ^bABS (2017g), August 2017 (Table 4, seasonally adjusted data), August 2016–August 2017. Figures do not sum to total because of rounding and seasonal adjustment.

Healthcare, construction and education generated the highest number of jobs, while there were declines in most white-collar service industries. Employment in healthcare in particular retains a robust outlook, with higher demands associated with the ageing population, the rising incidence of complex health needs, and the rollout of the National Disability Insurance Scheme. Employment in construction has been particularly supported by residential and infrastructure developments in the eastern states (RBA, 2017). Overall, the Australian economy added 328,500 jobs in 2017. Wages growth was similarly mixed, reaching almost 5% in some industries (healthcare, administrative services and rental services), while remaining flat or declining in most others (mining, manufacturing, retail, transport, financial services). Overall, Average Weekly Ordinary Time Earnings (AWOTE) wages rose by 1.8% in 2017. The low-paid industries (namely manufacturing, retail, accommodation and food services, and transport) mostly saw wages increases at or below this average benchmark.

Hours

The working time data in Table 5 shows that employment growth for males in 2017 was in the tails of the hours distribution, with a 4.9% increase in the number of males working extended hours of over 50 hours weekly, as well as a 6.1% increase in males working less than 20 hours weekly.

Table 5.

Changes in the number of employees working part-time, full-time and extended hours.

	Males			Females
	2015	2016	2017	2015	2016	2017
1–19 hours	−2.3	7.7	6.1	−3.3	5.6	−2.9
20–34 hours	4.1	8.9	−3.8	4.8	0.1	7.6
35–49 hours	1.4	0.0	1.9	0.5	1.3	4.1
50 or more hours	−1.1	−1.0	4.9	8.3	1.7	1.2

Source: ABS (2017f), August 2017 (Table 10, original data).

By contrast, employment growth in 2017 amongst females has taken place mostly in centre of the hours distribution, with significant growth in employees working between 20 and 49 hours. This is a positive change, given that the rate of underemployment has remained stubbornly above that of male workers. This reflects the relative growth areas of employment for females versus males, for example growth in full-time positions for nurses, teachers and care workers (traditionally female-dominated roles), versus project-constrained roles in construction (both trades workers and labourers, traditionally male-dominated).

These changes were a departure from working-time changes observed in 2016, where growth in part-time employment with fewer hours was highest, and there was little expansion in full-time employment. While these changes are favourable for female employees, for male full-time employees the high incidence of extended working hours – about one in five male employees – remains a concern.

Overall, labour market conditions in 2017 showed significant improvement, with falls in unemployment, long-term unemployment and retrenchments across most states and age groups. Notable exceptions included weaker employment conditions in the ACT, and sharp rises in youth underemployment. Female employees saw favourable changes in terms of a higher employment-to-population ratio and participation rate, growth in female-dominated industries such as healthcare and education, and changes in working time that favoured those working between 20 and 49 hours weekly. For male employees the story was more fragmented, with growth in some areas (e.g. construction) offsetting decline in others (e.g. manufacturing and mining). These changes were accompanied by a significant shift in working-time patterns for male workers, with increases in low-hours part-time employment as well as extended working hours for full-time workers.

Wages and wage setting

All indicators for wage growth showed continuing signs of weakness in 2017. AWOTE increased by 1.8% in the 12 months to June 2017 (see Figure 2). The Wage Price Index (WPI) continued to record historically low levels of wage growth. Overall, the WPI increased by 1.9 points between June quarter 2016 and June quarter 2017. While both the average weekly earnings (AWE, from which the AWOTE is derived) and WPI data collections estimate wages and salaries, the WPI data are designed to do so holding the quality and quantity of labour constant. Quality refers to job holder characteristics such as level of experience or qualifications; quantity refers to the number of employees and the hours employed. Consequently, the WPI index is a measure of pure price change, whereas the AWE is an accurate estimate of the current value of wages and salaries (Australian Bureau of Statistics (ABS), 2014b). We concentrate on the WPI as a measure of price change, rather than compositional change in the workforce. Growth in public sector wages (2.5%) was higher than in the private sector. By industry, the largest index increases over the same 12-month period were in the predominantly public sector-based healthcare and social assistance (2.5%) and education and training (2.4%). Mining recorded the lowest increase (1.1%), followed by rental, hiring and real estate services (1.2%).

Figure 2.

Comparison of change in AWOTE and WPI by industry, 2016–2017. Sources: Australian Bureau of Statistics (ABS) (2017h) Average Weekly Earnings, Australia, May 2017. Cat. no. 6302.0. Canberra: ABS. Australian Bureau of Statistics (ABS) (2017i) Wage Price Index, Australia, June 2017. Cat. no. 6345.0. Canberra: ABS.

Figure 2 plots the percentage change in each industry’s AWE result against the same for the WPI. The graph makes clear that the WPI, after holding the composition of the workforce constant, shows fairly consistent albeit modest wages growth across all industries. For most industries, the AWE result tracks fairly close to the WPI result, with outliers reporting significantly higher or lower AWE outcomes. The AWE series shows, for example, that in industries where there has been above average wage growth (construction, healthcare, etc.), these changes likely reflect increases in the quantity (hours, or full-time positions) or quality of employees (more qualified). The below average industries (manufacturing, mining) are areas where the quantity of labour deployed has certainly fallen. Mining is an industry where there have been considerable job losses (as well as some reductions in the price of labour – see later) and manufacturing has seen the loss of a number of unionised, high-skill, high-wage jobs, particularly in the automotive sector. Holden and Toyota ceased production in 2017, following Ford in 2016 (Clarke, 2017).

The RBA has attributed low wage growth partly to the persistently high levels of underemployment in the Australian labour market, notwithstanding the relatively low level of unemployment (Bishop and Cassidy, 2017). However, the RBA also cites a range of potential factors, including ‘a lower level of job mobility, concerns around job security, changes in relative bargaining power, trends in labour productivity and structural change in the economy associated with technological change and increased competitive pressures from the internationalisation of services trade’ (RBA, 2017). ABS Chief Economist Bruce Hockman attributed the low result for the WPI to persistent labour market slack in the form of high underemployment (ABS, 2017j). Economic commentators from the banking and finance sector mostly expressed concern that continued low wage growth would have negative flow-on effects on consumer spending and the ability of households to service debt levels once interest rates rise as anticipated (Janda, 2017). In the view of some economists, low wage growth was likely to continue in Australia as it was required to restore international competitiveness now that the terms of trade had declined to more usual levels, following the resources boom in the 2000s that led to sharp rises in unit labour costs.

National minimum wage decision

On 6 June 2017, the Fair Work Commission (FWC) determined to increase the national minimum wage to $694.90, a 3.3% increase on the 2016 rate. The decision marked the third successive year that the minimum wage increase was greater than changes in the consumer price index (CPI) over the same period, and the fourth successive year that the minimum wage increase outpaced increases in AWOTE and the WPI (see Table 6). Consequently, the national minimum wage now represents 45.0% of AWOTE. It was the first time that minimum wages increased by more than the average annual wage increase in enterprise agreements (discussed later). The minimum wage panel was confident that this gap would not, in aggregate, discourage collective bargaining (FWC, 2017a: 20). The panel emphasised the recent increases in labour productivity and noted that the lack of evidence that previous wage increases had led to increased unemployment had emboldened it to award a larger increase more in line with the increase in the value of labour to business (p. 21). The panel also maintained its view that the increase in the national minimum wage (NMW) should be passed on to other award classifications as a percentage rather than dollar amount, in order to avoid further compressing skill relativities (p. 22).

Table 6.

Change in minimum and average wages, 2013–2017.

	2013	2014	2015	2016	2017
NMW ($ per week)	622.20	640.90	656.90	672.70	694.90
NMW change on previous year (%)	2.6	3.0	2.5	2.4	3.3
CPI change on previous year (%)	2.4	3.0	1.5	1.0	1.0
AWOTE change on previous year (%)	5.0	2.4	2.0	2.1	1.8
WPI change on previous year (%)	2.9	2.6	2.3	2.1	1.9
AAWI for agreements approved (%)	3.3	3.4	3.2	3.0	2.6
NMW as % of AWOTE	43.8	44.0	44.2	44.4	45.0

Sources: ABS (2017b, 2017h, 2017i), FWC (2013, 2014, 2015a, 2016, 2017a), Department of Employment (DoE) (2017a).

Note: NMW: National Minimum Wage; CPI: Consumer Price Index; AWOTE: Average weekly ordinary- time earnings; WPI: Wage Price Index; AAWI: Average Annual Wage Increase. NMW rates take effect on 1 July each year. AAWI refers to the average annual wage increase for all wage agreements lodged in that quarter (where an AAWI can be calculated). The reference periods are as follows: CPI: June quarter; WPI: June quarter; AWOTE: May; AAWI: June quarter. AWOTE figures refer to trend data for all full-time adults.

The Commission rejected submissions from unions (referred to in the 2016 review article) to set a medium-range target for the minimum wage at 60% of median adult ordinary time earnings (FWC, 2017c). In the Commission’s view, such a target would elevate one statutory consideration (the needs of the low-paid) above other considerations and that the Commission could not bind itself in relation to future decisions. While the 3.3% increase awarded in 2017 is higher than the increases granted in earlier years, it was still well below the 6.5% increase that would be required, on an annual basis, in order to achieve the proposed union benchmark by 2020.

Penalty rates decision

Looming over the minimum wage case was the Commission’s February 2017 decision to reduce Sunday and public holiday penalty rates for award-reliant workers in retail, fast food, hospitality and community pharmacies (FWC, 2017b). Sunday penalty rates for retail, hospitality and pharmacy full-time and part-time employees were reduced to 150% (175% for casual employees, inclusive of the casual loading). Public holiday rates were reduced to 225% and 250%, respectively. This successful application by employers to reduce Sunday penalty rates was the result of protracted deliberations by the Commission, which determined that while the modern awards ‘need to provide additional remuneration for employees working on weekends or public holidays’ (FWC, 2017b: 14), the existing Sunday penalty rates no longer met the modern award objective of providing a ‘fair and relevant minimum safety net’ (p. 15). In particular, ‘relevance’ was regarded as needing to suit ‘contemporary circumstances’, which included consideration of the availability of labour, the preference of employees for working Sundays, consumer activity on weekends, workforce composition, industry trading hours, and the frequency of weekend and public holiday work (p. 199).⁴ By the end of 2017, there was little evidence of the purported economic benefits of the penalty rate reduction. Indeed, analysis produced by the McKell Institute noted that consumer spending had declined or was flat since the penalty rate reduction came into effect in July, particularly in the retail industry (Rajadurai and Cavanough, 2017).

Agreement making

Recently released data show that the decline in the proportion of employees covered by collective agreements has accelerated (Table 7), falling from 43.4% in 2010 to 36.4% in 2016. There has been a commensurate increase in the proportion of employees whose pay and conditions are set directly by their relevant award. Together, awards and collective agreements continue to be the wage-setting mechanism for around 59% of all employees. The remaining employees are covered by individual agreements, principally common law contracts underpinned by the National Employment Standards and modern awards, where they apply.

Table 7.

Award and collective agreement coverage, 2010–2016.

Year	Awards	Collective agreements	All employees	Awards	Collective agreements	Awards + CAs
	000s	000s	000s	%	%	%
2010	1361.2	3891.9	8967.7	15.2	43.4	58.6
2012	1544.1	4033.6	9605.9	16.1	42.0	58.1
2014	1860.7	4070.1	9898.9	18.8	41.1	59.9
2016	2307.3	3695.2	10147.0	22.7	36.4	59.2

Source: ABS (2010, 2012, 2014a, 2016).

Data from the Department of Employment (DoE)’s Workplace Agreement Database (WAD) confirm the ABS finding that enterprise bargaining has been in decline since 2010, both in terms of the number of agreements (which declined 30.8% between Q2 2014 and Q2 2016) and the number of employees covered (which declined by 13.1% over the same period) (Department of Employment (DoE), 2017b: 2). The number of employees covered by federal enterprise agreements peaked in March 2014. Since then, all industries have experienced declines in enterprise bargaining coverage. However, as Table 8 shows, the largest declines up to September 2017 have occurred in the retail trade (−87.4%) and accommodation and food services (−79.8%). The large declines are attributable to the expiry of agreements covering large employers (e.g. Coles, Woolworths, McDonald’s) (Department of Employment (DoE), 2017b: 7–8). Retail and hospitality employers have been reluctant to conclude enterprise agreements since the successful employee-initiated termination of the Coles enterprise agreement in 2016 on the basis that its penalty rate provisions did not meet the Better Off Overall Test (Sutherland and Riley, 2017: 346). That decision and the penalty rates case discussed earlier had created considerable uncertainty, leading Woolworths to describe the enterprise bargaining system as ‘unworkable’ (Marin-Guzman, 2017a). After these two industries, the largest declines have occurred in the traditionally blue-collar, unionised mining (−36.9%), manufacturing (−35.2%), construction (−32.2%), and electricity, gas, water and waste services (−30.5%) industries, alongside administrative and support services (−36.0%). Overall, these industries are not experiencing rapid jobs growth so the decline is a combination of existing agreements not being replaced and the decline in jobs in workplaces with collective agreements.

Table 8.

Change in enterprise agreement coverage, March 2014–September 2017.

ANZSIC division	Employees covered (000s)		% Change
ANZSIC division	Mar. 2014	Sept. 2017	% Change
Agriculture, forestry and fishing	12.5	12.1	−2.8
Mining	60.6	38.3	−36.9
Manufacturing	199.3	129.0	−35.2
Electricity, gas, water and waste services	55.5	38.5	−30.5
Construction	140.9	95.5	−32.2
Wholesale trade	32.3	30.2	−6.5
Retail trade	391.9	49.3	−87.4
Accommodation and food services	155.4	31.4	−79.8
Transport, postal and warehousing	189.2	157.6	−16.7
Information media and telecommunications	55.6	44.8	−19.4
Financial and insurance services	136.8	134.7	−1.5
Rental, hiring and real estate services	10.1	9.1	−9.8
Professional, scientific and technical services	37.8	34.6	−8.7
Administrative and support services	57.4	36.7	−36.0
Public administration and safety	334.7	250.8	−25.1
Education	297.7	247.4	−16.9
Health and community services	374.0	346.3	−7.4
Arts and recreation services	44.1	39.1	−11.2
Other services	41.0	36.7	−10.6
All industries	2626.7	1762.2	−32.9

Source: Department of Employment (DoE) (2017c).

Average annualised wage increases (AAWIs) within enterprise agreements are also in decline. In the June quarter 2017, the reportable AAWI for all sectors was 2.6%, a decline of 0.1 percentage points from the previous quarter and 0.4 percentage points lower than the June 2016 quarter (Department of Employment (DoE), 2017a: 12). Notwithstanding public sector austerity, private sector increases were lower than the public sector.

AAWI can only be reported for approximately 70% of agreements. The remainder of agreements use some other method to determine increases (such as tying them to FWC minimum wage decisions, changes in CPI, or performance-based pay). The Department of Employment (DoE) (2016) analysed a sample of agreements without quantifiable wage increases and estimated an AAWI where possible. It found that the estimated AAWIs were lower than the reported AAWIs – enough to have reduced the AAWI in the March 2015 quarter from 3.1% to 3.0% (Department of Employment (DoE), 2016: 12). The significance of this is twofold: first, the proportion of agreements for which an AAWI cannot be reported is increasing, suggesting that employees and unions are finding it more difficult to bargain for certain wage outcomes; second, these types of mechanisms (e.g. CPI movements, performance bonuses, minimum wage decisions) are also likely to be commonly used for the 41% of employees not covered by awards or enterprise agreements.

Wages and termination of agreements

Unions opposing terminations of agreement have highlighted the potential for large falls in wages once workers revert to the underlying award. The decoupling of bargaining outcomes from award rates of pay and the recasting of modern awards as residual instruments (Buchanan and Oliver, 2016) means that award rates of pay have stagnated, while enterprise bargaining rates in historically well-organised sectors have until recently experienced substantial growth. However, to date few terminated agreements have led to substantial reductions in wage rates for affected employees. Typically, employers have instead focused on redundancy provisions and other restrictive work arrangements that they claim inhibit their competitiveness. Indeed, employers have mostly given undertakings to the Commission that the wage rates of employees applicable under the agreement to be terminated would be maintained for a period after termination.

The current trend of employer-initiated termination applications began with the Commission’s decision in Aurizon Operations Ltd and Others (FWC, 2015b). Aurizon ultimately agreed with unions on the terms of three new enterprise agreements. The agreements removed the no forced redundancies provision (the main contentious objective for Aurizon management) but did not reduce wages (Aurizon, 2015). AMWU vs The Griffin Coal Company Pty Ltd (see Gahan et al., 2018) is one of the few examples where affected employees have experienced wage reductions. The terminated agreement included an hourly rate of approximately $60. After workers rejected a draft agreement that would have retained the lower $34.85 rate, the employer reverted to paying the award rate of $24.89 (Weber, 2017).

While the direct impact on wages of the recent wave of termination applications may be limited, there is unarguably a large indirect effect. The increased willingness of employers to apply for termination, the willingness of the Commission to grant the applications, and the degree to which award rates have been compressed toward the minimum wage have diminished unions’ bargaining power. It seems apparent that unions and union members have become more focused on defending existing conditions and therefore willing to accept lower annual wage increases in enterprise agreements than the economic fundamentals would suggest. For example, the termination of the Murdoch University enterprise agreement on 29 August 2017 (see Gahan et al., 2018) has not yet led to a reduction in wages for higher education workers, but does appear to have encouraged the National Tertiary Education Union (NTEU) to agree to lower wage outcomes. The union’s settlement with the University of Sydney, traditionally a trendsetter in the higher education sector, includes a 2.1% annual salary increase, substantially less than the 2.4% sought by the NTEU and lower than previous bargaining outcomes (Marin-Guzman, 2017b).

The recent examples of employer-initiated terminations have exposed the unsustainability of the enterprise bargaining framework and the extent that relativities between award rates and the national minimum wage have diminished (Buchanan and Oliver, 2016). Reductions in wage income, whether through reductions in wage rates or penalties, would have a carry-through effect on workers’ current and future standard of living. The Centre for Future Work estimated the impact could be as much as $270,000 in lost superannuation per worker (Stanford, 2017). Future policy proposals are likely to include provisions for substantial increases to award rates in order to at least partly restore pay relativities for award-reliant workers.

Low wage growth: Antecedents and responses

Low wage growth remains a preoccupation of the RBA. Wage growth (as measured by the WPI) has been consistently below RBA expectations for the last 5 years. The RBA attributes this to slack in the labour market, low inflation and an adjustment in Australian firms’ international competitiveness since the decline in the terms of trade (Bishop and Cassidy, 2017: 14). The most notable shift in recent years has been the decline in very large (i.e. more than 4%) wage increases, which had been particularly common in mining and mining-related industries (p. 17). Wage increases in individual agreements have declined the most, whereas industries dominated by enterprise bargaining have consistently reported more moderate wage outcomes (p. 19). RBA Governor Philip Lowe called on workers to demand higher pay rises. In spoken remarks, he suggested that workers’ timidity regarding pay increases was related to heightened fears about job security (Hutchens, 2017). Lowe’s remarks suggested he thought this timidity was unwarranted, implying that fears of job loss due to automation were overblown. RBA analysis also downplays the idea that workers perceive there has been any fundamental weakening of their bargaining power (Bishop and Cassidy, 2017: 16).

The RBA may be lagging behind the International Monetary Fund (IMF) in its analysis. In a significant report (IMF, 2017), the IMF acknowledges a global slowdown in wages growth, which it attributes mainly to persistent slack in the labour market (observed through unemployment and involuntary underemployment, which has risen sharply in many countries since the GFC). Low trend productivity growth and continued expectations of low inflation are also identified. As economies become more integrated (through global consumption and the increasing pace of relocating production), the IMF suggests that these factors are now spilling across borders. Low wage growth is driven by fundamental shifts across the economy, not compositional changes towards more flexible and low-wage industries (such as accommodation and other low-skill services). For countries such as Australia, where current unemployment is moderately higher than pre-GFC levels, the IMF analysis finds that higher unemployment explains about half the dropin wage growth, with high involuntary underemployment making a further contribution (IMF, 2017: 86). A decade on from the GFC, its effects are still evident in the Australian labour market.

As to the underlying drivers of low wage growth, the IMF report is less certain. It sees some evidence that automation is a contributing factor. The policy responses advocated by the IMF resonate with the current local debates. As has been long argued by the IMF and others, low- and medium-skilled workers trapped in part-time and temporary employment require stronger access to education and training to regularly upgrade their skills. However, the call to extend minimum wage protections to all categories of workers (including part-time and temporary) is more of a departure for the IMF. The IMF also suggests extending paid leave provisions (including annual leave, sick leave and carer’s leave) to casual workers. Such a change would represent a reversal of the flexibilities that have been introduced into the Australian labour market over the last 30 years and which drove the increases in income inequality to date (Watson, 2015).

However, the IMF analysis was more circumspect when it came to the contribution of regulatory change. Evidence that lower rates of unionisation are leading to lower wage growth was mixed. Changes to labour market regulation was not significantly associated with lower wage growth, but the indicator used by the IMF was limited (changes to individual and collective dismissal). Australia-specific evidence strongly points to this as a factor. As the Australian Council of Trade Unions (ACTU) (2017: 75) pointed out in its submission to the minimum wage review, there have been significant changes in the Australian regulatory framework that have eroded workers’ bargaining power and that are not captured by such a simple indicator, notably the sharp decline in enterprise agreement coverage and the increase in employer-initiated terminations already discussed. This could be a sign that, after 30 years, the age of flexible labour markets has run its course (Harcourt, 2012) and enterprise bargaining is no longer ‘a better way of working’ (Townsend et al., 2013). Yet to emerge are convincing proposals for a new system of wage setting that will promote wage growth at the same rate as economy-wide movements in productivity, rather than sub-optimal variation by industry (Harcourt, 2012: 119).

Conclusion

Even more so than in previous years, low wage growth was the dominant factor in the Australian labour market in 2017. Total employment held fairly constant despite weakening economic growth. However, mounting evidence (both in Australia and internationally) strongly suggests that this has been at the cost of historically low wage growth. Wage growth is low across all industries and irrespective of wage setting method.

The underlying drivers of low wage growth remain a matter for debate. Certainly low expectations of economic growth and inflation play a part, but this explanation is circular. An adjustment in response to Australia’s declining terms of trade accounts for some of the decline, but there is also an underlying international component. Automation may have spooked workers worldwide into moderating their wage demands. An equally important consideration is the institutional changes that have weakened workers bargaining power. This has been evident in Australia in 2017 through the decision to reduce penalty rates, the decline in collective bargaining coverage and the growing number of enterprise agreement terminations. As the next federal election nears, trade unions, employers and political parties are certain to focus on the political implications of low wage growth and the potential policy responses.

Footnotes

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship and/or publication of this article.

Notes

Biographical notes

Damian Oliver is Deputy Director of the Centre for Management and Organisation Studies at the University of Technology Sydney. His research examines the connections between education and training policy and industrial relations policy.

Serena Yu is a Senior Research Fellow in the Centre for Health Economics Research and Evaluation at the University of Technology Sydney. Previously, she was a Senior Research Analyst in the Workplace Research Centre at the University of Sydney. Her research interests include labour economics, health economics and public policy.

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