The Australian keeps taking little pot shots at the Fair Work Act, and occasionally at unions, blaming the industrial relations system for the productivity slowdown and alleged “inflexibility” in the labour market. Today’s editorial claims:
…the downsides of Labor’s rigid, centralised industrial relations regime are becoming increasingly apparent.
Are they? In what way? The editorial doesn’t say. So, what might those downsides be?
Could it be that wages growth is unsustainable and pushing up inflation?
Well, no. The Wage Price Index grew by 3.5% in the year to the latest quarter. Its long term average growth is 3.6%. The RBA has stated in the past that the WPI, which uses a fixed ‘basket of goods’ approach to measure changes in wage rates while controlling for compositional change in the labour market, is the preferred measure to ascertain the degree of true wages growth in the economy. Nevertheless, maybe The Australian prefers another measure?
Maybe the newspaper is looking at the Department of Employment, Education and Workplace Relations’ (DEEWR) series Trends in Federal Enterprise Bargaining, which is the area in which the dreaded unions presumably have their biggest effect. Well, on those figures, wages are growing at 4.1% per year (Average Annualised Wage Increase per employee). The long term average growth in the series is… 4.1%. So, no, The Australian can’t be looking at that series either.
What about a simpler measure, average weekly earnings? The most frequently used measure, average weekly ordinary time earnings (AWOTE) for full time adults, increased by 4.5% in the past year. The long term average is… 4.5%. Not exactly the calamitous, perilous “inflexibility” that the paper is so scared of.
Maybe wages are starting to crowd out profits? 
The wages share of national income is at its lowest since 1964.
The profits share is near the all-time record highs it reached in 2008. So, no, it doesn’t appear that the industrial relations system has somehow facilitated an earth-shattering shift in the balance of power between labour and capital.
So, if wages growth is ticking along around its long term average, and profits are more than healthy, what then could be the evidence on which the newspaper bases its claim about the readily apparent “downsides of Labor’s rigid, centralised industrial relations regime”? Maybe they’re referring to industrial disputes? Have the new IR laws unleashed a wave of industrial unrest, bringing the economy to a standstill?
In a word: no. Working days lost to industrial disputes remain near record lows.
So, in what way is this labour market rigidity manifesting itself? Could it be in productivity growth? That would be consistent with the view pushed by Michael Stutchbury.
In his column a few weeks ago (11 December) Stutchbury lamented the decline in Australia’s rate of productivity growth, and largely blamed it on the passage of the Fair Work Act.
Stutchbury, of course, ignores the inconvenient truth that productivity peaked in the 1990s, when the Keating-era industrial relations system was dominated by collective bargaining at the enterprise level underpinned by strong awards. The rate of productivity growth has been declining ever since: declining through the era of rottweilers on the wharves, declining through the era of near-compulsory AWAs in higher education, the public service, and Government-funded construction projects; declining through the era of a building tribunal with coercive powers; declining through the era of AWAs that could undermine award conditions; declining through an era in which minimum wage setting was given to a new body entirely unsympathetic to the idea of minimum wages’ very existence.
Our rate of productivity growth has been slowing for well over a decade; the Fair Work Act has been in effect for less than 18 months.
Here’s a graph from Treasury’s Intergenerational Report showing the rate of labour productivity growth over the past few decades.
It’s not exactly consistent with the idea that the Fair Work Act (which took effect from 1 July 2009) is responsible for our national productivity slowdown, is it?
So, what evidence might The Australian and its economics editor have in mind when they assert that the current industrial relations system is “inflexible” and “rigid” and that its “downsides” are “becoming apparent”? If there exists tangible evidence to support such claims, I have not come across it.
Note: where I refer to “long term averages”, I have calculated these as the year-ended average for the entire available series. Some series have longer histories than others. I have used seasonally adjusted figures where possible.
Great post. The Australian has gone mad.
thanks for doing the research that the lizards of oz obviously failed to do – or else, they deliberately ignored the evidence, in both cases, they have abrogated their right to call themselves journalists.
I am always fascinated by the call for increased productivity, more and more being produced by fewer and fewer. The ad absurdum result of this is all an economy’s output being generated by one person (yeah, i know, some of you already think you are that person).
I would prefer to see more people enjoying the dignity of and value from work – everyone contributing and being fairly/equitably remunerated – no obscene salaries!
Well done. The Australian newspaper has turned into the conservative cheerleaders largely thanks to the editors. I remember 5 years ago they had more quality to their reporting. Now, you might as well be reading the young liberals gazette. A lot of partisan gibberish not based in reality comes from that newspaper.
Brilliant, careful now the OZ might seek to take you down.
Of course the evidence has never been important to people who know they are right.
The wage/profit distribution has been the most revealing statistic for the last two decades and show no signs of reversing.
I wonder how much of the disquiet with the Government comes down to those graphs of wages and profits as percentages of the National Income when you look at the figures from 2007 onwards. Certainly seems more likely than some of the other explanations I’ve seen touted in recent times!
Great work here. Clear, concise and well argued. Thanks!
When we talk about productivity what we really should be talking about is output per available man hr. This is the measure that tells us how well we are using the available man power resource. (Available man hours are those people want to work – it includes the man hours that the unemployed and under employed would like to work.)
Much of the productivity gains in the eighties and nineties came from redesigning jobs in a way that converted people of limited physical and mental strength from employable to unemployable.
Changing the definition of productivity would help change government priorites.
Well, if you were a reporter in the Australian, you could:
a) Just regurgitate what the boss wants to hear and go home early, or
b) Spend some time doing research, develop a coherent argument and go home late having displeased your paymaster.
No guesses as to which alternative the columnists at the Australian choose each time.
Thanks for all your comments
Matt, it is a good contribution. I have stopped reading the Australian some time ago, but nothing surprises me about them.
Thanks, Fred. I recently read your book Where To From Here, it’s very well argued.
Matt, Sorry I’m late on this, but this is just a brilliant post.
thanks Grog
[...] growth is a long term story. Growth peaked in the mid-1990s and has been falling ever since. As I put it in response to another ideological tirade against the Fair Work [...]
[...] The state of the labour market [...]