Premium wages Australia: How ‘zombie’ deals have been hurting Australians for years and how new industrial relations laws could finally put an end to your wage woes

Imagine trying to design a system that restrains wages. They would design one pretty much like the one we have today.

That’s why the government wants to change that.

Those of us who have company agreements only get our raises every three years or so.

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If we didn’t agree enough in last year’s deal to cover this year’s inflation surge, there’s not much we can do about it over the next two or so years.

The government’s bold plan would make “zombie” wage deals a thing of the past. Recognition: SaintM photos/Getty Images/iStockphoto

It’s a built-in inertia that has been identified by financial services firm JP Morgan in its attempts to explain to foreign clients why Australian wage growth is so low.

Australian company agreements, JP Morgan says in a note to clients, are delaying both wage growth and its peaks.

Here’s how it came about – and how the Albanian government’s new Industrial Relations Act could finally end Australians’ wage freeze.

In the past, wages were usually determined by awards

For nearly a century, Australian wages were generally set by judges in state and federal labor relations courts. They had the power to step in and set a “premium wage” for any industry or profession where there was a dispute. And it was easy enough for unions and employers to create disputes.

Almost always intervening, the tribunals had to ensure that wages did not vary too much relative to each other, and they gained insight into the state of the economy from the submitting government.

From one perspective, the strength of this idiosyncratic Australian system of wage setting was that any employer affected by a decision was forced to match their competitors’ increase, meaning no one was disadvantaged.

From another angle, that strength became a weakness. Both the weak firms and the strong had to pay for the increases whether it was easy or not.

Company agreements unleashed productivity

In the early 1990s, perhaps in anticipation of the possibility that a new coalition government could make even greater changes, the Keating Labor government amended the law to include workers and employers in company negotiations at every workplace.

The tribunals would play a more limited role, verifying that each shop agreement passed an “overall better off” test, and continue to set bonuses that have become more of a reserve, slipping below what most workers can (usually through their unions ) could negotiate individual employers.

Workers and unions initially did well because they could sit down with employers and find ways to save money to pay for wage increases – something they had little incentive to do with central wage setting.

And it was something that could really only be done at the level of each company because each one was different and it was the workers on the ground who knew how to do it better.

Zombie deals and frozen wages

But productivity couldn’t be unleashed the same way forever. After a while, the easy wins were made. Workers got good raises in return for streamlining cumbersome processes to start with, and then had few cumbersome processes left to streamline.

Productivity increased sharply in the first decade through the early 2000s. Then employers became more cautious about granting pay rises and in the 2010s were good at extending negotiations or letting contracts expire, meaning that without a raise they are considered “zombie agreements”.

As the Business Council explained in a report on the status of company negotiations in 2019, agreements that had expired but were still in effect “acted like a wage freeze for some workers”.

With union membership falling from 40 percent of workers when the company began negotiations to just 14 percent in 2020, workers with frozen agreements could do little but resort to bonuses that, at least, usually rose with inflation.

It means that the system works in a way that hardly anyone intended. It is slowing wage increases while becoming more centralized.

The Reserve Bank says it sees some signs that wage growth is accelerating, even in new company agreements, but that it will take some time for it to spread to all agreements because of the “multi-year duration” of the agreements.

How the new law could break the wage freeze

What the Albanian government has proposed – and is finally making it through the Senate, with the help of the Greens and the independent David Pocock – is an attempt to break inertia.

The expansion of multi-employer collective bargaining will allow employers to bargain knowing that their competitors must pay what they pay.

Air conditioning manufacturers have already started talks with the Australian Manufacturing Workers Union to raise workplace standards and pay at a level that lower-priced competitors don’t undercut.

Allowing employers with genuine ongoing company agreements to avoid multi-employer negotiations encourages more genuine agreements.

And the relaxation of the overall better off test will make it easier to register agreements of all kinds.

“Assisted bargaining” will be particularly helpful, bringing the Fair Work Commission to the table with workers in areas such as childcare, who have traditionally found it difficult to negotiate. Where appropriate, the Commission will bring in external funders (eg the government for childcare) for discussions.

None of this will work miracles. But it should help. And it’s unlikely to hurt.

This article first appeared in The Conversation.

Peter Martin is a Visiting Fellow at the Australian National University’s Crawford School of Public Policy.

Fair Work Commission significantly raises minimum wage.

Fair Work Commission significantly raises minimum wage. Premium wages Australia: How ‘zombie’ deals have been hurting Australians for years and how new industrial relations laws could finally put an end to your wage woes

James Brien

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