ACTU Research Officer, Tim Harcourt on the Wages Outlook 1996-97, economic environment, living wage claim and the role of the ACTU and developments in enterprise bargaining.

1. Introduction

1.1 The New Environment

The election of the Federal Liberal/National Government in March 1996 ended the thirteen year Price and Incomes Accord agreement between the union movement and the Hawke and Keating Labor Governments. Workers, their unions, employers and governments have been working in a post-Accord environment since March this year. The years of co-operation assisted the Australian economy in terms of lower inflation, strong economic and employment growth, restructuring of industry, reduced industrial disputes and real unit labour costs, and improved international competitiveness.

 

The workers and their unions made a major contribution to the Australian economy’s improvement over that period. However, for their efforts the union movement has received a major piece of retribution in the form of the Liberal/National Government’s Workplace Relations Legislation that has just passed Parliament. The Federal Government has eschewed tripartism, consensus and co-operation. The Government has also rejected wages policy as an instrument to achieve macroeconomic objectives. Instead the Government has kept fiscal policy tight in terms of the 1996/97 Budget cuts, but has tried to use monetary policy to ensure that the economy continues to grow through lower interest rates.

 

In this new environment the Government has no wages policy to speak of, apart from relying on the occasional warnings from the Reserve Bank about “acceptable” wages growth.

 

In this event, with a hostile Government, the ACTU and the trade unions play a new role in the labour market. Firstly, unions are making claims based on market conditions and community movements (there is no wages policy – or collective “no extra claims” commitment via an Accord-consensus type arrangement). The claims are made, not only on bargaining strength, but also on community movements elsewhere in the economy. For example the restraint showed by workers in the early Accord years was not always accompanied by restraint in executive salaries. For instance executive salaries of senior management has increased by 32% over the past five years, compared to 20% for average weekly ordinary time earnings (AWOTE). For the past ten years executive salaries increased by 121% compared to 68% for AWOTE (Source ABS Cat. 6302.0 and Cullen, Egan and Dell, and the Hay Group). Unions have also continued to monitor movements in remuneration tribunal increases for politicians, judges and the senior public service at state and federal level.

1.2 Current Claims

Current wage claims in the market reflect economic adjustments, including consumer price adjustments, current and past productivity and profitability, and companies capacity to pay.

 

Current claims in the market place include:

 

 

• Mining (CFMEU) – 15% for two years;
• Metals (Metal Trades Federation) – 15% for two years;
• Construction (CFMEU) – 15% by October 1997;
• Storage and Warehousing (NUW) – 15% for two years;
• Retail (SDA) – 12-14% over three years;
• Hospitality (LHMU) – 5% for 12 months (various agreements);
• Finance (FSU) – Settlements at the four major banks:

 

 

– ANZ – 13% (January 1996 to December 1997)

– CBA – 11% (July 1995 to June 1997)

– NAB – 10.5% (January 1996 to June 1997)

– Westpac – 15% (12% in wages) – June 1997 for two and a quarter years.

 

 

• Education (AEU) – Total increase is 15% for the end of 1991 to the end of 1996.

 

 

These claims are currently being made in the market and the relative outcomes in terms of enterprise bargaining are shown in Section 3 of the paper.

1.3 The Role of the ACTU

The role for the ACTU in this environment is to protect the low paid and those unable to make gains through enterprise bargaining. This is being done through the Living Wage Case, currently underway in the Industrial Relations Commission, which includes a minimum award rate adjustment, and a safety net for those unable to receive outcomes through enterprise bargaining. This is outlined below in the section 2.

2. What Is The ‘Living Wage Claim’?

2.1 Background to the Claim

The Australian Council of Trade Unions (ACTU) has made an application for the new ‘Living Wage’ which is currently being heard by the Australian Industrial Relations Commission (AIRC) in the ‘Living Wage Case’. The case is the first major national wage case proceeding since the election of the Howard Liberal-National Government.

 

The Living Wage claim reflects the view that the fixing of fair and reasonable award rates of pay should be based on a standard which is sufficient for a worker to belong to and participate in the Australian community. The claim is based on the premise that all workers should be entitled to a decent standard of living in a civilised society as enunciated by Justice Higgins in the famous ‘Harvester Judgement’ in 1904 – a landmark in Australian industrial wage-fixing history. It is also based on the notion of an equitable distribution of economic growth as enunciated by Adam Smith at the beginning of this paper in the ‘Wealth of Nations’ quote: “…….that they who food, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged.”

 

It is perhaps ironic that Adam Smith has been championed by the critics of Australian labour market institutions who call for ‘deregulation’ of the labour market (whatever that means) whilst Justice Higgins has been so maligned. Both Smith, the economist and the moral philosopher, and Higgins, the lawyer, have in their writings expressed the need for fair and equitable wages for both economic and social reasons. [In fact, the ‘needs’ basis of wage fixing has always been part of the system – even Reith’s legislation includes it at section 88B(2)].

 

The Living Wage claim sets a minimum award rate (to be reached in three stages), based on established AIRC Award skill relativities, which meet the ‘needs’ basis of workers and their families, and is set on fair ‘market’ rates. Justice Higgins, in the Harvester Judgement, was concerned with both the ‘needs’ of workers and their families, and what the ‘market’ was paying. The Living Wage claim is concerned with both ‘needs’ and ‘market’ issue based on a broad range of social, industrial and economic criteria.

 

The objective of the Living Wage claim is to establish (in three stages) a minimum of $12 per hour for work within ordinary hours, and $456 per standard 38 hour week. The $12 per hour rate would be the minimum for the C14 classification in the Metal Industry Award. The claim comprises a schedule of minimum rates of pay, consistent with previous AIRC decisions in terms of relativities (ie. $12 per hour for a C14 classification, $15.15 per hour for a C10 – Tradesperson’s level etc). The objective is to achieve three annual safety net adjustments of $20 per week for those employees who have not received enterprise bargaining increases.

2.2 First Stage

The first stage of the claim is currently being arbitrated in the AIRC, and is comprised of:

 

(a) A minimum of $10 per week for work within ordinary hours.

 

(b) A minimum of $380 per standard 38 hour week (at C14 level).

 

(c) A schedule of minimum rates consistent with previous AIRC decisions.

 

(d) A minimum of $20 per week wage increase for workers who have not received enterprise bargaining adjustments.

 

The ACTU is also asking, in the first stage, for the AIRC to make a statement on the issue of part-time work. The statement is necessary to ensure that part-time workers are not discriminated against in terms of overaward payments, superannuation and other benefits of employment.

2.3 Second Stage

The second stage of the claim will have special regard to the changing patterns of work – including issues of working hours. The IR legislative environment (under the Howard Government legislative package with the Australian Democrats) will be particularly relevant to the final consideration of the claim.

 

The ACTU intends to lodge a claim for:

 

(a) A minimum of $11 per hour for work within ordinary hours of employment.

 

(b) A minimum of $418 per standard 38 hour week.

 

(c) A schedule of minimum rates consistent with previous AIRC decisions.

 

(d) A further minimum $20 per week increase for those workers who have not received enterprise bargaining increases.

 

At this stage the ACTU and unions will consider provisions which will:

 

(a) Ensure protection for workers who are called upon to work occasional hours and a few hours per week.

 

(b) Provide an incentive to employers and to workers to achieve more certain income and higher weekly incomes.

2.4 Third Stage

The third stage of the claim will be to consider the final adjustment in the context of producing a variety of work sharing and voluntary additional leave options including a reduction in the standard hours of work.

 

The claim will seek:

 

(a) A minimum of $12 per hour for work within ordinary hours.

 

(b) A minimum of $456 per standard 38 hour week (which could be reviewed subject to any applications for a reduction in standard hours).

 

(c) A schedule of minimum rates of pay consistent with previous AIRC decisions.

 

(d) A further minimum $20 per week for those employees who have not received enterprise bargaining increases.

 

The attachments A, B and C show how each stage of the claim would apply to the Metal Industry Award. The ratio would also apply to other key awards included in the Living Wage Case applications (according to each awards’ own set of skill relativities established by the AIRC).

2.5 The Criteria

The Living Wage claim is based on a broad range of economic, social and industrial criteria. These include:

 

 

• Fair Market Rates – at the conclusion of these stages the minimum rate will be no higher than the average rate for a Tradesperson as at May 1995.

 

 

 

• Integrity and consistency of skill based classification structures in awards – the skill relativities established by the Industrial Relations Commission in 1989 will be maintained in the new rates.

 

 

 

• Adequacy of minimum award rates having regard to Australian living standards.

 

 

 

• The “needs” of various household types (couples, singles, with or without dependent children etc.) over the working life cycle, compared to the adequacy of their wages and income. The “needs” of workers will be identified by reference, for example, to ABS Household Expenditure Surveys.

 

 

 

• Other benchmarks of income adequacy such as poverty line estimates and various government benefit cut-off incomes.

 

 

 

• Labour market changes including shifts in the occupational and industry composition of the workforce, as well as the mode of employment. The major change in the mode of employment is the rapid growth in part-time and casual work on the one hand, on the other hand, the growth in hours worked in excess of the standard 38 hour week.

 

 

 

• Objectives of shared family opportunities and responsibilities and the desirability of viable, flexible work arrangements.

 

 

 

• Equity and equality in labour market opportunities and remuneration, including facilitating equal remuneration for work of equal value.

 

 

 

• Objective of equitable distribution of growth.

 

 

 

• Dispersion of earnings (in real and money terms) between low-wage workers and other earnings groups.

 

 

 

• Decline in the real value of award rates of pay and the dispersion between minimum award rates and earnings since the introduction of enterprise bargaining.

 

 

 

• Other community movements such as executive salaries.

 

 

 

• Desirability of simple and enforceable minimum rates.

 

 

 

• Economic criteria such as movements in cost of living, productivity and profit levels.

 

2.6 The Cost Impact of the Claim

The impact of the claim on actual wages paid has been misunderstood and (deliberately) exaggerated by some commentators. It must be understood that the cost impact of the claim will be reduced through:

 

 

• absorption of the new minimum rate into actual rates;

 

 

 

• [unions have made written commitments to absorb the monetary adjustments proposed and the Living Wage claim and provided evidence that when commitments to absorption have been given they have been met, notwithstanding the rhetoric of employers, at the time, that there would be no absorption].

 

 

 

• safety net adjustments are limited to workers who have not benefited from enterprise bargaining;

 

 

 

• [there should be no double counting].

 

 

 

• phasing-in of the effective minimum rate and safety net adjustments;

 

 

 

• [hence, the three stage approach of the ACTU – consistent with past practice of phasing-in wage adjustments to provide certainty to employers and investors];

 

 

 

• the impact will affect federal award workers only – the cost impact may vary if the same claim is eventually taken to the State jurisdictions..

 

 

The cost impact for the economy as a whole is estimated in the range of 1.3% to 1.9% (1.5% being most likely). The claim is consistent with low inflationary growth in output and employment. The claim’s first two stages will also apply when the overall outlook for the economy (1997-98) is for low inflationary growth and when employers have no statutory obligation to increase their obligations under the Superannuation Guarantee Schedule. The economic environment enables the claim to be both moderate and sustainable. [How the claim applies – with absorption of overawards and no double counting for enterprise bargaining increases is outlined in attachment D].

2.7 The Macroeconomic Context

A brief examination of the relevant macroeconomic data (in Attachment E) support the ACTU submission that the current economic environment supports the grounds of the Living Wage Claim. This is because:

 

 

• the economy is growing steadily- albeit at a slightly slower pace than 1993-94 and 1994-95, (see Table 1 and Chart 1.1 in Attachment E);
• economic growth has been strong by OECD standards, (see Table 2);

 

 

 

• the labour market is showing steady growth in employment (Table 3 and Chart 3.1);

 

 

 

• employment growth has been strong relative to the OECD, (see Table 4);

 

 

 

• inflation is low and has fallen, and is well within Reserve Bank parameters and is comparable to our major trading partners and the OECD, (Tables 5, 6 & 7 and Charts 5.1, 6.1 & & 7.1);

 

 

 

• wages are growing steadily though below the rate of growth of executive salaries, (Tables 8 & 9);

 

 

 

• productivity growth is high, (Table 10);

 

 

 

• Company profits are at an all-time high as is the profit share of national income, (Tables 11 & 12);

 

 

 

• the external accounts (although not generally affected by the claim one way or another have improved);

 

 

 

• real unit labour costs have fallen and the index of competitiveness has improved, (Tables 13 & 14);

 

 

 

• the Terms of Trade are more favourable (see Table 15 and Chart 15.1);

 

 

 

• the economy is benefiting from the structural change of the 1980s and early 1990s.

 

 

The claim is supported by the medium term developments in the economy. It is apparent from an examination of data in the 1980s and early 1990s that:

 

 

• the workforce assisted the economy in terms of low inflation, falling real unit labour costs, improving international competitiveness;

 

 

 

• Australia has had a growing economy over the period with strong results in GDP, Employment, and Labour Force growth compared to the rest of the OECD whilst generating a low inflation environment.

 

 

 

• the economic conditions are more favourable in the mid 1990s than they were at an equivalent time ten years ago in terms of:

 

 

 

• inflation is lower;

 

 

 

• the exchange rate is stronger;

 

 

 

• the profit share is at an all time high;

 

 

 

• productivity is stronger;

 

 

 

• the economy has experienced restructuring across sectors, and in terms of public sector efficiencies.

 

 

The economy in essence experienced a period of restraint, a period of restructuring, and now a period of return. The period of restraint occurred in the mid 1980s with real wage restraint, the realignment of wages/profit shares, and strong economic growth.

 

Following the devaluation and terms of trade crisis in 1985-86, the economy went through a period of restructuring in terms of industry, the public sector, award restructuring, and enterprise bargaining.

 

These two periods saw the economy recover from one recession in 1982-83 and enter another in 1990-91 to 1991-92. Since the recession the Australian economy has experienced the ‘return’ phase with the benefits of the 1980s restraint and restructuring coming through in terms of international competitiveness, low inflation, low real unit labour costs, high profits and high productivity.

 

Some in the recovery have received their share of the ‘return’ in terms of dividends and capital gain, executive salaries and other forms of remuneration. Some have received it via productivity generated enterprise bargaining. However, the low paid in the labour market – those without overawards and enterprise agreements have not received their return. This Living Wage application is the vehicle by which they can fairly receive their return from their contribution to the improvements in the Australian economy that have been outlined in this section. The Living Wage application is a means by which the low paid receive their return in an economically responsible claim.

3. Developments In Enterprise Bargaining

3.1 The Number of Agreements

The spread of enterprise bargaining continues with over 8700 agreements registered to July 1996. Labour Information Network ( LIN) data shows that in the 6 quarters from the beginning of 1995 to mid-1996 an average of 620 agreements have been registered per quarter. The LIN data is shown in Attachment F. This data under-estimates the total number per quarter as LIN has approx 800 more agreements to enter to its database for that period. Chart 1.1 (Attachment F) shows the number of agreements certified or approved by the AIRC over time.

3.2 Number of Workers Covered

According to DIR, some 1.61 million workers were covered by a federally registered agreement at the end of 1995. The DIR data is the only data published data on coverage of employees under agreements.

 

LIN data shows that 74% of agreements registered in the first half of 1996 have no discernible previously registered agreement, indicating that they are probably first generation federally registered agreements. If the DIR average coverage data holds at 198 people covered per agreement then (conservatively) another 100,000 workers are being covered by an agreement every 6 months. In fact DIR estimates 260,000 workers were covered by the first half of 1996.

3.3 Wages Growth

Table 1 (Attachment F) shows the annual average wage increase in federally registered enterprise agreements over time. LIN has coded 7546 agreements. The figure for the third quarter of 1996 and the fourth quarter of 1995 will alter as approximately another 800 agreements from these quarters are added to the database. Nonetheless LIN does not anticipate significant variation to the outcome as a result of uncoded agreements being included in the data.

 

The method of calculation takes account of the duration of agreements, hence presenting a more accurate picture than the raw wage movement in agreements. Like DIR, LIN assumes that only one wages agreement will be negotiated at any workplace in 12 months. Therefore where the agreement is of less than 12 months duration it is treated as being a 12 month agreement.

 

There are considerable variations across industries. As Table 2 (Attachment F) shows Construction and Manufacturing have seen several quarters of above average outcomes, while Wholesale Trade, Retail Trade And Utilities have tended to lag the average over the past four-six quarters.

3.4 Comparison with Other Sources

When compared to other data sources, the LIN data shows wage outcomes in agreements which are higher than both ACIRRT and DIR.

 

ACIRRT estimates the average annual wage increase for the June quarter at 6.1% compared to LIN at 6.5%. When ACIRRT takes into account expired agreements, the estimate is reduced to 5.7%. (ACIRRT ADAM Report No. 10). The variation may be explained by the different samples used by the two databases, particularly as ACIRRT contains state agreements.

 

DIR estimated wage outcomes at 5.6% for the June quarter of 1996, and 4.7% for the March quarter compared to LIN at 7% (June) and 6.3% (March). (Wage Trends in Enterprise Bargaining, DIR).

 

These significant variations are largely due to the weighting for the number of employees covered by the agreement applied by the Department. The DIR figures which more correctly correspond to the LIN data are its estimates of Average Annual Wage Increase per agreement at 5.9% (June) and 5.4% (March).

 

The difference of around 1% in each of the quarters is not able to be explained. It is suggested that the DIR data, which includes all agreements, should be relied upon.

3.5 Hours of Work and Type of Wage Increases

The LIN data on agreements with standard hours of more than 38 hours indicates that the average annual wage increase per agreement for agreements with more than 38 hours standard week was higher in each of the last four quarters than the all agreements average. (See Table 3 at Attachment F).

 

Similarly LIN data reveals that agreements with a conditional component of the increase or agreements with annualised component of the increase have, since the beginning of 1995, contained higher average annual wage increases than simple single or stepped increases. (See Table 4 at Attachment F).

 

These findings are based on a relatively small number of agreements which contain all the variables and therefore do not allow anything but tentative conclusions. However it does add support to the DIR conclusion that “workplaces had indeed realised their intention of improving efficiency”. (DIR Report, page 136). It also points to a trade of between hours and wages, although is not conclusive.

3.6 Minimum And Maximum Wage Rates in Agreements

Tables 5 and 6 in Attachment F, show the average minimum adult weekly wage rate and average maximum adult weekly wage rate by industry sectors in agreements over time. The actual weekly rate of pay is not included in all agreements. LIN considers that the number of agreements in Construction, Manufacturing, Education, and Transport and Storage are significant enough to draw conclusions from. In other industry sectors, the disaggregation by quarter means that there are too few agreements and care should be taken in relying on the average minimum and maximum wage outcomes.

 

Subject to this reservation, the tables show the enterprise agreement market rates of pay, and highlight the gap between award rates and the market rates. The rates also indicate that an increase in minimum award wages at the lowest end of the adult rates will not overtake the rates of pay paid to workers under enterprise agreements.

3.7 Where Bargaining is Not Taking Place

The DIR report considered factors in the workplace which were likely to correspond to bargaining; these being size of firm, union presence, and jurisdictional coverage. (DIR Report Chapter 2).

 

The Department’s report doesn’t analyse where bargaining is not taking place. Chart 1.2 attempts to show the workplaces and employees not covered by Agreements. (See Attachment F).

 

Chart 1.2 at Attachment F looks at where bargaining is not taking place. The chart is drawn from DIR 1995, which outlines the percentage of employees in each industry sector covered by some form of collective agreement, including overawards. The retail trade sector, which is characterised by small workplaces, casual and part time employment overwhelmingly accounts for the largest group of workers who are missing out on bargaining. The AWIRS result, upon which the graph is based, showed 26% of retail employees covered by agreements. This figure is probably an over-estimate, given the practice in the retail sector of varying awards to reflect bargaining outcomes.

3.8 Summary

The pace of bargaining in the federal arena continues to grow. A high proportion of agreements cover employees for the first time.

 

There is a gap between market rates in agreements and award rates. The minimum adult rates in agreements is significantly higher than the ACTU Living Wage claim, therefore awarding the claim will not act as a disincentive to productivity based bargaining.

 

The gap between the minimum agreement rates and the Living Wage claim justifies an adjustment in award minimum rates in the form of a safety net adjustment of the amount claimed.

4. Conclusion

The end of the Accord and the end of a consensus based wages policy provides a new environment for both unions and the ACTU. Decent employers will continue to work well with workers and their unions whatever the legislative framework that occurs in the country. The ACTU is sure that even with this new legislation that a large number of employers will work well with unions. In fact, over a thousand major national companies that have signed commitments to this effect, agreeing to abide by awards and enterprise agreements, and using collective bargaining as the main form of industrial relations and wage setting. However, there will always be some employers who will try to impose individual contracts and/or reduce pay and conditions by taking advantage of legislative change.

 

The ACTU will have to work with the new legislative changes. The ACTU played a key role in trying to resist some of the nastier elements of the legislation but the main focus of our campaign will be in the workplace. Unions will make claims in the market according to their bargaining strength, economic adjustments, productivity, profits and a capacity to pay. In some of the bargaining data it is clear that unions have been very effective in getting wage gains for their members, taking advantage of a stronger economy than three to four years ago. The main focus of unions will be to win gains in the field.

 

The ACTU will, for its part, protect the low paid and those in weak bargaining positions through our Living Wage claim that is being heard in the Commission. The ACTU is doing so in order to avoid a growing number of working poor, poverty and inequality, and related social problems that occur in other industrialised countries. This is in keeping with the Australian tradition of fairness and equity, as well as making gains that will improve Australia’s economic performance in the world economy.

 

Tim Harcourt, Research Officer, ACTU. November 1996