[A]dopting an incomes policy was like jumping out of a second storey window: nobody in his right mind would do it unless the stairs were on fire… The stairs were aflame in Australia in 1983, when the Hawke Government won office.  –Peter Cook.

The Accord is back in fashion. The past few months have seen a lot of pining for the “Hawke-Keating model,” particularly the compact between the two wings of the labour movement. A lot of the discussion seems to me to lack a sense of what made the Accord necessary (in the eyes of the protagonists), what made the Accord possible, and the ways in which our current circumstances differ from those of 1983.

The unemployment rate in Australia

unemp

The month after the Hawke Government took office, the unemployment rate hit 10%. It was the first time the jobless rate had gone into double digits since the Great Depression.  The rate had been 5.4% just a year earlier. A widely held view among economists was that the jump in unemployment was at least partly caused by large real wage rises. Real wages were rising much faster than productivity. As a result, the share of national income paid to workers was rising and the profits share was falling.  In 1982, average earnings for full-time workers rose by 14.6%, with inflation up by 10.9%. Inflation and unemployment were both high and rising – the misery index was shooting off the charts. The “stairs were aflame,” as Peter Cook put it.

The chart below compares growth in hourly labour income (wages plus some non-wage benefits) with the change in productivity (real output per hour worked). You can see that in the 1960s and early 70s, real wages and productivity grew at more or less the same pace. Real wages then shot up, much more rapidly than productivity. This was dubbed the “real wage overhang”.

Decoupling

This was the economic context that made the Accord necessary, in the eyes of its creators.The union leaders of the day saw that their wage gains were pushing inflation ever higher, eroding a big chunk of the wage rises they’d won. Bill Kelty reflected on the 1970s experience at last year’s ACTU Congress – he said “when we totted up what we got at the end of a decade of fighting, we’d made but marginal gain.” Bill Hayden, Kelty and other labour movement leaders, like Bob Hawke, thought that wage restraint might help to reduce inflation and bring down unemployment. They didn’t pursue wage restraint because they thought that lower real wages were inherently preferable to higher real wages. The Accord was a response to very specific economic circumstances: unemployment and inflation rates that were high and rising, with a historically elevated labour share of income.

The Accord was possible due to two institutional features of the time. First, around half of all workers were members of a trade union. Second, the Australian system of wage fixation was quite centralised, with tribunals setting the wages of a large proportion of the workforce. These two facts meant that the decisions of unions about the size of the wage increases they would pursue through the tribunals and through direct bargaining were very important for overall wages growth

In 2013, we lack the economic circumstances that arguably made the Accord necessary. In my second chart, above, you might have noticed that the 2000s look quite different to the late-70s and early 80s. In the pre-Accord era, real wages had outpaced productivity growth, pushing up labour’s share of income. Since the turn of the century, the opposite has occurred. Real wages have lagged behind productivity growth, so labour’s share has fallen. We also have low and contained inflation, and relatively low unemployment.

We also lack the institutional features that made the Accord possible. Less than 20% of the workforce belongs to a union. Around 5 in 6 workers have their wages set through enterprise bargaining, either through a collective agreement or through an individual arrangement. When the industrial relations system moved away from centralised wage-setting towards enterprise bargaining in the early 1990s, the ability to pursue across-the-board wage restraint was lost.

We’re not in 1983 anymore. Our current economic circumstances are a far cry from those that of the pre-Accord era. Changes in the labour market mean that we couldn’t have an 80s-style Accord now even if one was wanted. A policy agenda for 2013 needs to come to grips with the ways in which the world has changed in the past thirty years, rather than replicating the policies of yesteryear.

Note: If you enjoyed this post, you may be interested in my recent ACTU paper, A Shrinking Slice of the Pie. The paper discussed the Accord period and the 2000s in a little more detail, and includes information about the sources and methods used in the second chart in this post.

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