For the past four years workers across Australia have for the first time outside of a recession seen their living standards stagnate. Where once it was taken for granted that you would be better off now than you were in the past, the average Australian household has less disposable income in real terms than when the Liberal/National Coalition took power in 2013. And the major reason is persistent low wages growth.

In a period where the cost of living for essential items such as energy and health have skyrocketed, workers’ wages have grown at record low levels that would have been considered implausible five years ago. For workers – especially those on low incomes such as Margaret Peacock at the Australian Paper factory in Preston – even the average growth figures seem implausibly high as they struggle in an industrial relations environment where negotiating a pay rise large enough to cover increases in cost of living is viewed as a luxury.

This is the terrain on which the next federal election will be fought.

A government that can go to the voters boasting of record levels of jobs growth, falling unemployment and rising workforce participation is also acutely aware that households are squeezed by a lack of income growth and rising non-discretionary household costs such as power, rent and housing. Being blasé about those trends risks looking out of touch.

Play Video 2:49 The answer is in the graph: unemployment and wages growth – video

The persistent low wages growth has opened up ideological and policy differences between the major parties with Labor favouring a more interventionist method while the Coalition puts its store in the fundamentals of demand and supply balancing out.

Margaret, and other workers like her across the private and public sector in Australia, live on the frontline of low wages growth in Australia, where workers are struggling not to go backwards.

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The issue is such a barbecue stopper the governor of the Reserve Bank has been urging Australians workers to demand larger wage rises.

It is an issue that now colours all debate – whether it be over the worth of a company tax cut, or the level of immigration.

It is an issue that sees households, despite living in a country in its 26th year without a recession, with a living standard no better than seven years ago.

It is the issue that has workers wondering: “Am I ever going to get another pay rise, and why is it so much harder to get one than it used to be?”

And in truth these are questions that have no easy answers – it is a mix of international and local factors, it is the product of coincidences in the economy that are happening right now and a consequence of policy over the past 30 years.

The Turnbull government and Bill Shorten’s opposition are coming at the problem from different standpoints, proffering different solutions. With voters fatigued by the circus out of Canberra, and looking to their leaders for answers on the policy debates that matter – this will be the issue on which the next federal election turns.

The view from the picket line

For Margaret Peacock it is about a lack of respect and goodwill. The 57-year-old packer at Australian Paper’s Preston factory in Victoria struggles to hide her exasperation as she talks about the pay dispute that has dragged on for almost a year, and has seen nearly 90% of the 100-strong workforce go on strike for the past five weeks.

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Margaret, who has worked at the factory for 33 years, has never seen anything like this. For her the factory is like a family – she met her husband when he started working there just over 20 years ago, she knows other couples at the plant, and their children. She speaks with pride of the work they do – including manufacturing the envelopes that were used in last year’s marriage equality postal survey.

Then we come back to the enervating wages dispute and the impact it is having on the workers.

Facebook Twitter Pinterest Margaret Peacock has worked for Australian Paper for 33 years – but now is involved in an industrial dispute over a meagre pay offer. Photograph: Meredith O'Shea/The Guardian

Never, she says, have wage negotiations hit such an impasse – not in the 1980s when strikes were much more commonplace than now, nor even during the time of WorkChoices.

In her 10 years as a union delegate for the Australian Manufacturing Workers’ Union Margaret says this has been the first time any ongoing industrial action has reached the point where, as she puts it, “we’re out on the grass”. In the past there were occasional half-day stop-work periods or overtime work bans, but nothing approaching the current strike, nor the combative bargaining process that has led to it.

All over a pay claim for a 2.5% annual wage rise over three years. The fact that a plant has been shut down by a fight over a pay claim no higher than inflation tells you something about how much industrial relations has changed over the past few years.

Facebook Twitter Pinterest Striking Australian Paper workers outside the factory in Preston. Photograph: Meredith O'Shea/The Guardian

The year wages stood still

Since the early 1990s saw a move from centralised wage fixing to enterprise bargaining under the Keating government, wages policy has been relatively straightforward. The Liberal party, the business lobby and conservative media would continually shout about the possibility of a wages breakout around the corner, or express fear of unions destroying our international competitiveness – but mostly it was pretty simple.

The formula was simple and time honoured. All you needed to do was have the economy grow sufficiently so that unemployment would fall and then wages growth would increase. If the economy slowed and unemployment rose, then wages growth would slow down.

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It was a nice, clean relationship and it saw wages in Australia grow from 1998 through to the end of 2012 – a period encompassing both the mining boom and the global financial crisis – at an average of around 3.5% each year.

This wasn’t too exorbitant – the Reserve Bank aims to keep inflation around 2.5% so in effect workers were seeing a 1% annual increase in real wages.

And then in the middle of 2012 something unexpected happened that most economists didn’t see coming, most politicians weren’t worried about, and which has both groups now scratching to explain what has happened, and to come up with solutions.

The unemployment rate at the time was 5.2% – just below the 5.4% it is now – and private sector wages were growing at 3.8% – up from 3.7% in March. There was nothing unusual about that. But then it all changed:

June 2012 was the last time the annual growth of private sector wages would rise for five years. The next time is rose, in June 2017, it went up from 1.8% to 1.9%:

It means we have now not seen that former average wages growth of 3.5% since September 2012 – and worse, no one thinks we will see it for a very long time yet.



Even the budget with its very optimistic wages growth figures suggests we won’t get back to that level of growth until June 2021 – by which time it will have been nine years. More than long enough to suggest a change has occurred.

The IMF, just to throw cold water on even that sad story, last week predicted that wages in Australia will not grow above 2.9% until beyond 2023.

‘We’re standing strong’

When Margaret talks of the impact of going out on strike, it is quickly obvious how easily economic data can blow past people’s experiences with barely a sidelong glance.



Talk of economic theory, of growing international competitiveness, of low levels of industrial disputation all run head first into the personal cost of bargaining for a higher wage.

For workers at the Australia Paper plant, the issue is threefold. The company rejected the union’s offer of 2.5% a year for three years, and offered instead a four-year agreement with no pay rise at all in the first year, followed by a 2% rise in the second and third years and 2.5% in the fourth. That would translate to an average wage rise of just 1.6% over four years – below the record low wages index growth set last year of 1.9%, and at a level which would almost certainly see the workers worse off in real terms.

Secondly the company sought to cut four rostered days off for workers on one shift, and yet Margaret notes that the workers suspect that if agreed to, the company would seek to move most workers onto that rostered shift. And thirdly, to grandfather in the pay rate for those earning the top amount in the factory – $28 an hour – until all other workers’ wages rose up to meet them.

Facebook Twitter Pinterest Striking Australian Paper workers. Photograph: Meredith O'Shea/The Guardian

Margaret estimates that would mean around 80% of workers – including her husband – could actually receive no pay rise over the course of the agreement, given they would need to wait until those like herself on $21 an hour had reached $28 an hour.

It is a negotiation tactic that seeks to divide the workers – offering some a pay rise, while denying it to others, offering some no change to rostered days off, while others lose four out of their current 16 a year.

Instead the workers – after going to the Fair Work Commission three times – have united, dug in and gone out on strike.

That kind of action carries great cost.

Margaret estimates the strike has thus far cost her and her husband around $7,000 in pay, and that most on the picket are “doing it tough”. She notes that a few of the workers have had to go back to work due the need for money, even while the union is trying to help through a hardship fund for people and donations from other worksites.

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Last year during for the marriage equality postal vote, the company was contracted to produce all the envelopes used to carry the survey to the 16 million voters across the country.

The work came in the middle of the wage negotiations, but rather than use the urgency of the postal vote as a negotiating tactic, workers instead did 12 hour shifts over two weeks to get the job done.

But this effort did not engender goodwill. Margaret noted soon after that the company reneged on what the workers believed was a deal not to cut RDOs.

Last year she and her husband had planned with friends to go on a cruise to celebrate the 20th anniversary of their own marriage and of their friends’ 30th. The deposit for the cruise needed to be paid by the end of the month, and the loss of pay during the strike has meant they have had to use their savings.

But she says they are the lucky ones because they at least own their house, whereas she knows of some who are “six weeks behind in their rent”.

And yet she is adamant that those on strike “are all standing strong ... because we know if we give up this time we won’t get anything ... and well, we might as well not have an EBA”.

How workers were thrown a curve ball

In September 2012 when wages growth started falling it was not too surprising – after all the unemployment rate was rising, so wages growth is supposed to fall.

The relationship between unemployment and wages is one economists have long held dear.

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Called the Phillips curve (after New Zealand economist, William Phillips), it operates on the assumption that when the unemployment falls it means employers are fighting over fewer available workers and thus they offer better wages to either entice people to work for them, or to stop their current employees from leaving.

Conversely when unemployment rises it means that more people are fighting over fewer jobs and thus employers do not have to offer better wages to attract workers, and similarly workers are not so eager to fight for higher wages as they are just happy to have work.

So when the unemployment rate falls, wage rises should increase (and vice versa).

And while it’s not a perfect relationship, from 1998 to mid-2012 it held up quite well.

But then wages growth over the following two years began to slow by more than you would expect even with the unemployment rate rising. By December 2014, wages were growing nearly a full percentage point slower than we would have expected.

That was worrying, but what happened next really sent things into a spin, because the unemployment rate started to fall ... and so did wages growth:

We are now so far from the old trend that wages are growing at nearly half the pace you would have expected them to given the current level of unemployment.

We are a long way from home as it were, and no one is particularly sure if we’ll ever get back there.

Even the RBA says workers must ask for more

One explanation for the departure from previous expected behaviour is underemployment, which occurs when workers want more hours. It is a good indicator of what is called “spare capacity” – because if you have an underemployed worker in your factory it means you have someone who is not being used to his or her full capacity.

All economies exhibit underemployment, but in the past it was not a big issue. Back before the 1990s, most people worked full-time so more hours wasn’t something they worried about. And even when part-time work began rising in the 1990s and into the 2000s, it still wasn’t a big issue because it moved in line with unemployment.

It meant that reducing unemployment would in turn reduce underemployment.

From the end of 2007 until the middle of 2014 the relationship was almost perfect. The unemployment rate rose 1.7% percentage points from 4.3% to 6.0%, while the underemployment rate rose 1.6% percentage points from 6.1% to 7.7%.

But then at the end of 2014 they parted ways. Unemployment began to fall but underemployment kept rising:

This is so much of an issue that the governor of the Reserve Bank, Phillip Lowe, last year suggested workers might be trapped into forgoing wage growth in place of getting more hours – when you are underemployed you are more likely to seek more hours than the same hours and a higher wage.

He argued workers needed to be bolder in their wage demands, because they were more concerned about the security of their job than getting a pay rise.

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“With a greater premium on security”, he suggested, “it’s plausible that workers are less inclined to take a risk by seeking larger wage increases”.

But underemployment does not explain all of the change in wages. By the time underemployment split from unemployment at the end of 2014, the link between wages growth and unemployment had been fractured for nearly two years.

What the split did do, however, was send wages growth downwards even while unemployment itself improved.

Profits are up, but wages are down

For many workers – including those like Margaret – the most exasperating thing about the lack of a wage rise is that the companies seem to be doing well.



Last year the sense that workers were losing out while companies profited reached a peak when company profits grew by 22% – the second fastest annual growth in the past 30 years, while total wages and salaries grew by just 1.4% – the slowest growth outside of a recession or the GFC.

Wages and salaries make up around 42% of Australia’s GDP, so when nominal GDP growth rises or falls, generally wages and salaries follow suit. But last year, yet again one of the wonderful long-held relationships in economic theory decided it was time for a trial separation:

In March last year, nominal GDP grew by 6.8%, off the back of soaring profits from the mining sector and booming iron ore and coal prices – the fastest annual growth for four years.

At the same time the annual growth of wages and salaries dropped to 1.7% in trend terms – the worst growth ever recorded outside of six months during the GFC and nine months during the 1991 recession.

It was enough to make workers feel the economy is not working for them.

And it is a feeling both sides of politics are vitally aware of.

Facebook Twitter Pinterest White collar workers at lunch in the Sydney CBD. Annual growth in wages dropped to 1.7% leaving many workers feeling undervalued. Photograph: Angela Brkic/AAP

Last year full-time employment grew by more in one calendar year than it ever has on record.

And yet the treasurer in September took great pains to make it clear he was listening to workers (ie voters) with a speech to the Business Council of Australia titled “More and better paid jobs”.

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He noted to the audience of business executives that “while the recent jobs growth has been great for those 800,000 Australians and their families, for eleven and a half million other Australian workers it has been a long time since most of them have had a decent pay rise”.

Indeed for the average worker it has been a very long time.

In the past wages and average earnings usually rose faster than inflation. This is good because it means you get a real wage increase, and thus improved living standards. But what has happened over the past few years is that inflation has risen faster or at the same pace as wages.

And because there has also been a shift towards more part-time employment over the past four years, which invariably pays less than full-time work, combined with low wage growth, the average real earnings of Australian workers has actually fallen in the past four years:

Among the solutions the treasurer proffered was improved productivity. And yet here again we find ourselves grasping for a solution using old relationships than no longer are as close as they once were.



Wages have long been linked with productivity. In essence productivity growth means workers are producing more in the same amount of time, and as a result they should be rewarded for such improvements.

And yet the evidence shows that falls in productivity are not to blame for the slowdown in wages growth – indeed since the GFC productivity has grown well ahead of real wages.

As Jim Stanford from the Centre for Future Work has noted, labour productivity on average has not significantly slowed compared to the pre-GFC years, and thus it doesn’t appear that the reasons workers are getting lower pay rises is because they are less productive.

And while the treasurer in his speech argued that “we can expect labour productivity to once again drive the growth in real wages”, the treasury’s own analysis notes that “weaker labour productivity growth seems unlikely to be a cause of the current period of slow wage growth” because “over the past five years, labour productivity in Australia has grown at around its 30-year average annual growth rate”.

And for workers at the coalface, talk of the need for productivity improvements doesn’t lead to higher wages.

For many workers, productivity improvements are code for loss of working hours – in the case of workers at Australia Paper, fewer RDOs – rather than any sense of them profiting from working more efficiently.

Is it all about the robots?

Workers in most developed economies are experiencing much the same issues.



Last year the IMF wrote a report called the “Disconnect between Unemployment and Wages”, which noted that while partly it is all just a cyclical issue due to the global economy still recovering from the GFC, there are two big structural shifts: robots and globalisation.

The issue of robots, or automation, is one that is probably more in the minds of workers than in actuality. But it is enough of an issue that workers are factoring it into their wage demands – the fear that you could be replaced by a robot is causing workers around the world not to ask for too big of a wage rise even if that fear is not yet likely to be realised.

Facebook Twitter Pinterest Robots making cars in Russia. Photograph: Peter Kovalev/TASS

But the other fear of workers around the globe is other workers around the globe. The IMF noted “sizeable common global factors” are behind the slowdown in wage growth. That is, weak wages growth in one country is having a spill-over effect in other countries, notably trading partners as workers feel the pressure of losing their job to a worker overseas.

Philip Lowe noted this concern last year when he argued that “workers feel there is more competition out there, sometimes from workers overseas and sometimes because of advances in technology”. And whereas in the past that fear was mostly limited to the manufacturing sector, it now includes services as well.

When you read articles about robots making hamburgers, the sense of what jobs could be replaced by new technology starts to widen considerably.

Businesses are also feeling this competition – think about the new entrants in the retail industry such as Amazon in Australia – and you get the sense that this isn’t just some temporary phase.

Globalisation is not going away, and neither is automation. So while the economy might pick up that might not lead to wages growing like they used to. Yes, the unemployment rate, or productivity, or underemployment or profits might all improve, but wages growth will not return to where it once was.

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And all of this has had a significant impact on our standard of living.

Wages and salaries account for the vast majority of household income, and thus low wage growth necessarily has a bigger impact on households than it does even on the whole economy – as we saw last year, if profits rise by enough they can overcome a lack of growth in wages to see the total economy grow strongly. The same cannot be said about household income.

The four years of low wages growth has had a damaging effect on household standard of living. Data from the quarterly GDP national accounts, shows that in real terms, household disposable incomes are now lower than they were in 2011. In effect, the amount the average household has to spend will now buy less than it did nearly seven years ago.

That is a horrid run, and one that would be understandable if we had suffered through a deep recession during that time, but we haven’t:

The workers at Australian Paper are being offered a wage rise over the next four years that would average just 1.6% per annum – at a time when the government is predicting the average prices of goods and services will rise 2.5%.

It is also an issue that public sector workers are dealing with. Earlier this month the Australian Public Service Commission announced that future EBA’s covering APS staff would be limited to a wage growth of 2% – meaning the government itself has signed off on delivering its own workers a real wage fall.

That hardly sits with the treasurer’s prediction that “consumers will start to see their real wages growing in line with their productivity again”.

The combination of all these factors – the breakdown of relationships between unemployment, profits and productivity with wages, and of the growth of competition and increased automation – leave workers, straggling to get a pay rise.

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But it is not only the change in the way the parts of the economy are working together. The way workers and employers within that economy interact has also changed.

Margaret Peacock knows from experience that things have changed – even if the IR legislation has not. She finds herself out on the grass, forgoing pay purely to receive a pay rise that will in all likelihood merely keep her standard of living flat.

The goodwill that was once present in the negotiations is gone. While the workers might feel the sense of family, management does not.

Last year Lowe also suggested the combination of all these factors meant that “many workers feel like they have less bargaining power than they once did”.

And as we shall see, even in cases with a strong union shopfloor presence as exists with Margaret and her fellow workers, it is not just a feeling of less bargaining power, but the reality.

• On Friday: in the second part of series on wage stagnation, Greg and Gareth look at the implications for industrial relations and the labour movement

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