Mon Sep 19

Despite high hopes, multi-employer bargaining is unlikely to 'get wages moving'

Written by: Mark Wooden, Professorial Fellow, The University of Melbourne

One of the key measures announced to “get wages moving” in the wake of the federal government’s jobs summit was greater access to multi-employer agreements ^[1].

At the moment, most workers get their wages adjusted by bargaining with individual employers, so-called “enterprise bargaining ^[2]”.

Others rely on awards and the minimum wage, set by the Fair Work Commission ^[3].

Multi-employer agreements would allow workers in particular occupations to bargain with their employers as a group, rather than employer by employer.

If multi-employer agreements were clearly a good way to get real wages moving, we would expect to see real wages growing more strongly in countries that allow multi-employer bargaining than in those that don’t.

Which system lifts wages more?

To find out, I examined the measure of average annual wages per full-time and full-year-equivalent employee assembled by the Organisation for Economic Co-operation and Development, available at OECD.stat ^[4].

The OECD measure is derived from national accounts data, making it different to the wage price index ^[5] commonly quoted in Australia, which comes from a survey of employers and at the moment shows real wage growth negative ^[6].

The measure I used has the advantage of including the effect of wage increases from promotions, annual increments and job changes, making it a better guide to the experience of workers than the wage price index, which merely records the rate at which the wages attached to particular positions grows.

17 countries compared

Less helpfully, because the OECD data is an average of all wages paid it can be affected by changes in the composition of the workforce. As an example, a rapid growth in employment concentrated in low-income jobs can make it look as if wage growth is slowing when it isn’t.

The OECD assigns countries to one of two groups:

those in which bargaining occurs mainly at the company level
those in which collective bargaining takes place with multiple employers, most often from the same industry, but sometimes from firms in the same region.

Not all countries fit neatly into these categories. Australia is one such exception, relying on centrally-set awards and a minimum wages in addition to employer by employer (and sometimes occupation by occupation) negotiations.

After omitting countries without comparable wages data, I found 14 countries where multi-employer bargaining dominates, and 12 where company-level bargaining dominates.

Examining the period 2011-21, I found that across the multi-employer bargaining countries, real wages growth averaged only 0.6% per year.

In contrast, among those in the company bargaining group, average real wage growth was about four times a high, at 2.3% per annum.

But the company-bargaining group included many Eastern European countries which have greater room for productivity growth and thus wage increases.

Excluding these from both groups, I found that in the countries where multi-employer bargaining dominated, real wage growth averaged 0.7% per year.

Where company bargaining dominated, real wage growth averaged 1.1%.

Australia, which, along with Luxembourg, fits into neither category, had real wage growth of 0.4%.

These calculations are not consistent with the claim that multi-employer bargaining boosts real wages growth. If anything, they suggests the reverse.

We will need to try other things

But this isn’t to say Australia’s system of enterprise bargaining can’t be improved. The post-summit bipartisan commitment to reform the Better Off Overall Test ^[9] that is applied to enterprise agreements holds potential.

Researchers at the E61 Institute ^[10] have identified another problem ripe for attention: an apparent decoupling of wages from firm performance.

Multi-employer bargaining is unlikely to be able to address this; indeed it could make it worse.

We also need to recognise that in an economy increasingly dominated by services, getting real wage gains from productivity gains becomes difficult ^[12].

Nowhere is this clearer than in the public sector, where teachers and nurses face wages set by government employers and in sectors such as aged care and childcare where governments help pay and effectively set wages.

The main obstacle to higher wage growth in these sectors is not enterprise bargaining, but simply an unwillingness on the part of governments (on behalf of taxpayers) to stump up the cash.