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.
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.