Despite high hopes, multi-employer bargaining is unlikely to ‘move wages’
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.
Currently, most workers have their wages adjusted by negotiating with individual employers, known as “corporate bargaining”.
Others rely on rewards and minimum wages, set by the Fair Work Commission.
Multi-employer agreements would allow workers in certain occupations to bargain with their employers as a group, rather than on an employer-by-employer basis.
If multi-employer agreements were clearly a good way to move real wages, we would expect to see real wages rise more strongly in countries that allow multi-employer bargaining than in those that do not.
Which system raises wages the most?
To find out, I looked at the measure of average annual earnings per full-time and full-year equivalent employee assembled by the Organization for Economic Co-operation and Development, available at OECD.stat.
The OECD measure is derived from national accounts data, which differentiates it from the commonly quoted wage price index in Australia, which is derived from a survey of employers and currently shows negative real wage growth.
The measure I used has the advantage of including the effect of salary increases from promotions, annual raises, and job changes, making it a better guide to worker experience than the wage price index, which merely records the rate at which wages attached to particular positions grows.
17 countries compared
Less useful, because the OECD data is an average of all wages paid, it can be affected by changes in the composition of the workforce. For example, rapid job growth concentrated in low-income jobs may make wage growth appear to be slowing when it is not.
The OECD classifies countries into one of two groups:
those in which bargaining takes place primarily at the enterprise level
those where collective bargaining takes place with several employers, usually from the same sector, but sometimes from companies in the same region.
Not all countries fit neatly into these categories. Australia is one such exception, relying on centrally set rewards and a minimum wage in addition to employer-by-employer (and sometimes occupation-by-occupation) bargaining.
Read more: Are real wages falling? here is the proof
After omitting countries without comparable wage data, I found 14 countries where multi-employer bargaining dominates and 12 where company-level bargaining dominates.
Looking at the period 2011-2021, I found that in multi-employer bargaining countries, real wage growth averaged only 0.6% per year.
By contrast, among those in the company’s bargaining group, average real wage growth was about four times higher, at 2.3% per year.
Read more: Real wages are falling, these figures put it beyond doubt
But the corporate bargaining group included many Eastern European countries that have more room for productivity growth and therefore wage increases.
Excluding them from both groups, I found that in 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, together with Luxembourg, does not belong to any of these categories, recorded real wage growth of 0.4%.
These calculations are not consistent with the claim that multi-employer bargaining stimulates real wage growth. If anything, they suggest the opposite.
We’ll have to try other things
But that’s not to say that Australia’s corporate trading system can’t be improved. The post-summit bipartisan commitment to reform the global Better Off test that is applied to company agreements has potential.
Researchers at the E61 Institute have identified another problem that deserves our attention: an apparent decoupling of wages from company performance.
Multi-employer bargaining is unlikely to solve this problem; indeed, it could make it worse.
Read more: If the PM wants pay rises, he should start with the 1.6 million people on the state payroll
We must also recognize that in an economy increasingly dominated by services, it becomes difficult to obtain real wage gains from productivity gains.
Nowhere is this clearer than in the public sector, where teachers and nurses face salaries set by government employers, and in sectors such as elderly care and childcare where governments help pay and actually set wages.
The main obstacle to higher wage growth in these sectors is not corporate bargaining, but simply an unwillingness on the part of governments (on behalf of taxpayers) to hand over the money.