Jeff Lawrence address to Australian Mines and Minerals Association 2011 National Conference

Copy of the Fair Work Act sitting on table
Myth-busting about industrial relations
Address by ACTU Secretary Jeff Lawrence
Australian Mines and Minerals Association 2011 National Conference
Royal Pines Resort, Gold Coast
Friday, 27 May 2011



Thank you for the invitation to speak at your conference today.

The ACTU and AMMA are old sparring partners – unions welcome a robust and informed debate about our national industrial relations system. But it must be a debate based on facts, not fiction.

So today I want to do some myth-busting – with a little less theatre, and hopefully less explosions than the TV show.  

The reality is that there are a number of industrial relations myths being circulated by commentators and some in the business community that distort the debate and raise the risk of poor policy outcomes, and they need to be addressed:

-    Myth 1: the “wages breakout”;

-    Myth 2: the Fair Work Act is “destroying the economy”;

-    Myth 3: Australia is “grinding” to a halt with skills shortages and only large-scale temporary migration can fix it;

-    And finally, Myth 4: unions are not prepared to engage constructively with business.

 
MYTH 1: “the wages breakout”
I have lost track of the number of times recently that media commentators and employer groups have repeatedly claimed that Australia is experiencing, or is about to experience, an unsustainable wage-price spiral. I don’t wish to embarrass any of the media representatives who may be here today, but to select a random example, the Financial Review ran a page one headline last week “Wage claims to swamp business”.

But this story – like so many others about the so-called “wages breakout” – simply wasn’t supported by the evidence.

Instead, ABS data shows that the pace of wages growth is around its long term average, or below average on some measures.

In the year to the February quarter, average earnings for full time workers showed the slowest growth in over four years (at 3.8%).  Well below the average wage (AWOTE) growth over the last decade.  In fact, a full percentage point lower (4.8%).

Or if we look at the Wage Price Index, by this measure too there’s no indication of a wage breakout.   Wage growth in the year to the March quarter (at 3.8%) was on par with the decade long average (3.7%).

Or maybe, the mythical “wage breakout” is only evident in collective agreements?  But again, this is not the case.  While collective agreements continue to deliver better outcomes for workers, the wage growth is moderate, sustainable and responsible.   The latest statistics of agreements (September quarter 2010) show that the average wage increase pretty much matched the decade-long average [4.2% to 4.1%]).

Every quarter, the data shows that wages growth has been solid, but sustainable, yet this doesn’t seem to stop the claims of a wages breakout. Whichever figures you look at, wages growth has been moderate.

The RBA has stated that the most relevant concept for assessing inflationary pressures from the labour market is unit labour costs, which are the total wages bill per unit of output.  Real Unit Labour Costs fell 1.6% in 2010, to be down 3.4% over the past five years.


Strong profit growth
Wage growth has been moderate – the real breakout has been profits.  

In the first eighteen months of the Fair Work Act, profits grew more than twice as fast as the total wages bill in the market sector.

This is the continuation of a long-term trend that has seen the profits share of national income rise at the expense of the wages share. The wages share is now at its lowest since 1964, while the profits share is near the all-time high it reached in 2008.

The data tells a clear story: wages growth across the economy has been moderate, and if anything has lagged behind the growth in profits.  


Wages and profits in the mining sector
There are some commentators who may argue that what I’ve just outlined is a picture of wages across the whole economy.  That it is different in mining.  

However, the concept of a wages ‘breakout’ or an unsustainable wage-price spiral only makes sense at the level of the overall economy. If nominal wages rise significantly faster than the price level, plus productivity growth, for an extended period, then inflation could result.

If wages grow strongly in one sector, while overall wages growth remains moderate, that is merely the operation of the price signal in a competitive market for labour.

This is what we’ve seen in mining in recent years. The commodity price boom has resulted in an increased demand for labour in the sector, which in turn has led to increases in the price of labour, the wages paid to mining workers.

This is how a decentralised system of industrial relations is supposed to work.

Employer groups have long called for more ‘flexibility’ in the labour market. If this means anything more than WorkChoices-style attacks on workers’ rights and the safety net then surely flexibility means that where demand for labour is greatest, wages will increase more rapidly than across the overall economy.

Indeed, given the size of the current terms of trade boom, the overall wage increases in the mining sector as measured by the ABS have appeared quite moderate.

  • The Wage Price Index for the mining sector increased by less than 5% (i.e. 4.6%) in the year to the March 2011 quarter.
  • Average weekly ordinary time earnings (AWOTE) for full time adults in mining increased by 6% (i.e. 5.9%) in the year to the February 2011 quarter.

  • Profits in mining have increased much more rapidly than wages. In the first 18 months of the Fair Work Act: profits have risen by 50%, but total wage bills have only increased by 20%.    

    Profits have increased at well over double the rate of wages. And if we look at the ranks of the BRW Rich List that was announced this week, it’s interesting to note that the list includes Gina Rinehart, Andrew Forrest and Clive Palmer (collectively worth more than $20 billion), the three most vocal opponents of a Resources Super Profits Tax, claiming it would “ruin” their industry. Yet another example of myths being perpetrated in place of facts.


    Cost of living
    Far from a wages breakout – working Australians are struggling to keep pace with the fast moving Australian economy.

    If you look at the ordinary working households basket of goods – measured by the ABS’ Analytical Living Cost Index – their living costs  are rising faster than any other group.  We’re talking about non-discretionary expenses like rent, electricity, and petrol.  

    Workers are under real cost of living pressures – but yet, the myth of a wage breakout continues to circulate.  Without facts.  


    MYTH 2: the Fair Work Act is “destroying” the economy
    Another myth that has arisen about the Fair Work Act, is that it is increasing industrial unrest and decreasing productivity and that this is damaging our economy.  

    What is it about high economic growth, low unemployment, low interest rates, historic terms of trade that point to a damaged economy?

    Another myth that needs to be busted is that under the Fair Work Act, there has been an increase in industrial action.

    Here are the facts: in the 18 months since the Act was introduced, 3.4 days per 1000 employees have been lost ot industrial action; that compares to 4.5 days in the 18 months before the Act began.

    Now, I know there has been a lot of focus this week on industrial issues, particularly around Qantas and Patrick Stevedoring – but let me repeat this fact: fewer days have been lost to industrial action since the Fair Work Act was introduced than before it.

    In fact, there were fewer days lost to disputes in 2010 than in 11 of the Howard Government's 12 years in office.

    What we are seeing is the usual rounds of bargaining that occur as agreements come up for renewal.

    With the Australian economy and company profits performing strongly, employees rightly feel they deserve their just reward and share of the prosperity they are helping to generate.

    I’ve already referred to the real facts that wages in Australia are in line with long-term averages, and workers are struggling to keep pace with ever-rising costs.

    Unions will always bargain hard on behalf of their members, but industrial action is always a last resort.

    And let’s not forget that in any industrial dispute, it is not all one-way traffic. The dispute at Patrick has dragged on because of the employer’s unwillingness to engage in genuine negotiations with workers who are concerned not only to maintain living standards, but also job security.

    Indeed, following this week’s revelations that Patrick has been planning for some time to lock out the workforce and shut down the business for a month, you have to ask who really is trying to sabotage the national economy.

    In any event, there is no doubt that agreement will be reached through negotiation in good faith by the employers and the workforce.

    Sadly, your own chief executive, Steve Knott, is one of the leading proponents of this “the sky is going to fall in” misrepresentation of the Fair Work Act and the current industrial environment. Earlier this year, and again this week, Steve has claimed that workers engaging in lawful and legitimate industrial action are “crippling” employers, and taking advantage of “flawed” workplace laws.

    I’d be over-optimistic to expect that rhetoric to change soon, but at the very least, it’s time some employer groups began to refer to facts rather than myths.


    Productivity
    The facts about wages growth and disputes don’t support the alarmist claims made by opponents of the Fair Work laws, and neither do the facts about productivity growth.

    It’s true that Australia’s productivity growth has slowed down over the past decade. This needs to be put in perspective. Productivity growth peaked in the mid-1990s and has been slowing ever since. It would be fundamentally dishonest to blame the Fair Work Act, an Act which has been in operation for less than two years, for this long-term slowdown.

    It would also not accord with the facts.

  • In the first 18 months of the Fair Work Act’s operation, productivity in the market sector (as measured by GDP per hour worked) increased by 1.8%.
  • In the 18 months before the Fair Work Act took effect, productivity in the market sector also increased by 1.8%.
  • In the last 18 months that the Howard Government was in office, a period in which WorkChoices was in operation, productivity in the market sector increased by 1.7%.
  • The data is clear: the pace of productivity growth has not been impaired by the Fair Work Act.

    Why, then, has productivity growth slowed down over the past decade and a half? To answer this question in a complete way, we have to look beyond Australia’s shores. Our productivity performance follows, to some extent, the performance of other developed economies. In the 1990s, productivity growth surged in much of the OECD, before slowing down in the 2000s.   

    The slowdown in productivity growth that Australia has experienced over the past decade has actually been less severe than in many other developed economies.

    Saul Eslake and Marcus Walsh of the Grattan Institute note:

    Australia is not unique in experiencing a decline in labour productivity growth over the past decade. Indeed, across the OECD area as a whole, labour productivity growth averaged just 0.4% pa over the five years to 2010, less than half the Australian rate, and down from an average of 1.5% pa over the first half of the decade.  

    Any claims that the slowdown in the rate of productivity growth should be attributed to solely domestic causes, much less workplace relations, are not based on an honest assessment of the evidence.

    The slowdown in the rate of productivity growth is a significant policy challenge, but it is important to acknowledge the facts in this debate. The facts do not support assertions that the decade-long decline in productivity growth, common to much of the developed world, can be attributed to the enactment of the Fair Work Act in 2009.  


    Improving productivity
    There is more to the productivity debate than working out how to make workers work harder for less.  

    We should be looking at how do we do things better.

    I have noted a “survey” AMMA conducted earlier this year with a few businesses – while not large enough to be statistically valid – which showed that 91 per cent felt productivity levels were acceptable or higher.

    But perhaps more telling, nearly half of the respondents had no formal measure of productivity in the workplace (with a further 13 % not knowing either way).

    The purpose of the question was no doubt to blame the Fair Work Act and/or unions for every possible inefficiency – after all the only options your members had to choose from as productivity issues were: administration of the IR system; unfair dismissal laws; industrial action; union visits; and attitude of workers.

    Despite the clear agenda, the report included members’ comments that point to a wider set of issues – management practices, skills and competency.  

    Members noted issues of ‘high turnover’, ‘new employees coming on board’ and the ‘impact of skills shortage and labour turnover’.

    Which point to a need to manage better and to engage more constructively with workers through their unions.

    And if your members are having issues retaining staff perhaps they should have a look at efficiencies that can be made through well-trained managers, who understand workplace issues.  Who might stop wasting time by trying to bust unions or lock them out, but that deals respectfully and lawfully with unions and workers.  

    Because we know that unions can help drive genuine productivity improvements in the workplace through enterprise bargaining.

    Productivity improvements flow from workplace bargaining because of the improvements in workplace culture that flow from making the agreement.

    If a good agreement is made, with guaranteed pay increases, a strong dispute resolution mechanism, and a legitimate voice for workers and unions in the business, then employees have a tangible demonstration of trust from their employer, which in turn they can be confident to reciprocate.

    They know that their employer cares about them; that their union will look after them; and that they will have a share in the reward of their own hard work.

    That’s the way bargaining drives productivity improvements – not through cutting costs, or extracting ‘offsets’ for every extra dollar paid out in wages — but in the employer making a demonstrable commitment to fairness at the workplace.


    MYTH 3: Australia is “grinding” to a halt with skills shortage and only temporary migration can fix it
    The issue of training brings me to the third big myth – that Australia is crumbling to a halt with skills shortage and that only temporary migration can fix it.

    You may have noticed some claims in the media this week that  there would be a skills shortage of 2.5 million in the next four years.

    Two and a half  million in the next four years: that is a quarter of Australia’s workforce – where does that figure come from?  

    I think we need to approach these numbers with caution, as there are widely varying estimates.  For example trusted sources such as the Department of Employment, Education and Workplace Relations predict employment growth in mining of 69,000 jobs over the next five years.

    There is more softness in the labour market than the headlines would have us believe.  While some economists may believe that 5 per cent unemployment levels are ‘full employment’: most Australians would disagree.  To say we have ‘full employment’ would be to ignore the hundreds of thousands of Australians who are still looking for work.

    In addition to this, the labour force underutilisation rate – that is the amount of workers who would like to work more hours – is high at 12.4 per cent.

    But what about mining?

    There are some areas of shortage in occupations common to the resources sector, but on a range of labour market indicators such as vacancy levels and unemployment, employers are experiencing less difficult recruiting skilled workers than they were pre-GFC.

    The National Centre for Vocation Education Research found that insufficient infrastructure was much more likely to hamper the resource sector than any lack of skills.   The research found that the sector should have no trouble getting the required skills – as long as the wages and conditions were sufficient to attract them.


    Planning now for the skills for the future
    Once we take a breath and look at these figures rationally we still need a plan to make sure that we have a properly skilled workforce for Australia’s future growth.  And that any of the skills gaps are met.

    Short term fixes such as temporary migration – 457 visa workers, or the new Enterprise Migration Agreements – are not the answer.

    Before temporary migration is used, we believe companies must demonstrate:

  • that they could not find workers locally;
  • that they are contributing to training workers in Australia; and,
  • that they have programs to improve the participation of women, indigenous peoples and disabled Australians, many who desperately would like a job.

  • For year after year we have heard the resource sector call for more 457 visa workers.  I’ve even heard threats that the mining boom will stall to a halt if the issue is not addressed.

    Yet what are the big mining companies doing about this?

    In skills and training the resource sector is not pulling its weight.

    Other sectors are training twice as many apprentices as the resource sector (the resource sector trains 3.6% of Australia’s apprentices but employs 5.6% of the nation’s tradespeople).  

    The National Resource Sector Taskforce has recommended that the sector significantly increases the number of apprentices it employs – but this needs to be done not just in terms of overall numbers but in relation to overall employment growth in the sector and the share of trade employment.

    The report also found that the capacity to offer high wages and ready access to temporary migration has allowed companies to meet their skill needs with little thought to investment in skills development.

    The culture of poaching ‘job ready’ workers is all too prevalent.

    Workplace Relations Minister Chris Evans has acknowledged the problem of poaching in a speech to the John Curtin Institute of Public Policy in mid-March:
     
    “Many small and medium-sized businesses will tell you they carried the investment of training skilled workers, only to have them stolen by big companies offering high salaries which they could simply not match”

    To address this problem unions support industry training levies.  They would be  based on a simple user-pays type proposition – that is,  if you don’t make your own contribution to the future supply of skilled workers by training your fair share of apprentices and trainees, then you make a contribution to a fund that supports industry training.   That’s only fair.


    MYTH 4: unions are not prepared to engage constructively with business
    There are things unique to the resource sector that need to be addressed, and while the skills shortage has been exaggerated – there do need to be more efforts to draw skilled workers to mining regions and encourage women, indigenous and disabled Australians to participate.

    Unions have a shared interest in building the resource sector and skills in Australia.  There is a lot of ground where industry – business and unions – can and should work together with government.

    Because I not only believe this is a way forward, but that it is the only way forward:
    Today, I call for the formation of an ongoing tripartite planning body for the resource sector.

    Such a body is essential to provide the necessary oversight and co-ordination for the sector to respond to the skills and workforce challenges that lie ahead.  

    As I have discussed and the Resource Taskforce report itself noted, companies have generally resolved their labour needs by outbidding each other but where there are shortages strategic workforce planning and co-operation are required.

    As a practical example, a tripartite body could help plan the transfer of workers from project to project across the sector as different projects – or phases within projects – start and finish. It could also provide a forum to better coordinate industrial relations across the sector, and provide support for local content and procurement.

    Without actually addressing the realities of the workforce – that workers want to be represented by their union and deserve a say in how they work – the resource sector will continue to complain that they don’t have the workforce they need.

    Without working with industry and the government, the sector will always be a step behind their infrastructure needs.


    Conclusion
    I wonder what is stopping the development of a tripartite body – when the model works so well in other sectors: in health, or the car industry.  Or with the gains business and unions have made through forging tripartite cooperation to address skills and OHS across industries.

    But then I look back at the myths I have discussed one thing becomes apparent: These myths are manufactured by an ideological blindness.

    For those businesses whose eyes are open, the industrial relation system and working cooperatively with unions provides opportunities to harness productivity gains, build a skilled workforce, and meet their business needs for the future.

    For those with their eyes closed: they’re fighting a mythical battle.   

    Australia’s natural resources belong to all Australians in common, and it’s important that we receive a return on these resources that reflects their market price.

    The misleading campaign by multinational mining companies on the super-profit tax has meant every year billions of dollars will be saved by big mining companies and Australian people will miss out.

    I believe the resource sector has an obligation to give back – and it begins with an honest dialogue.

    The time for whingeing and whining about the Fair Work Act has passed.  

    I call on AMMA to move on and stop re-fighting the fights of the last decade.

    To engage with workers and unions.  And to start the process of working together to meet the challenges that face the resource sector now and into the future.

    Unions will always welcome the opportunity to be part of a genuine national discussion about productivity and economic growth, including in the resources sector.

    But if we are going to have discussion about these issues, let us do it maturely and based on facts.

    Let us work towards an open and honest dialogue and a spirit of co-operation.

    Thank you.