A record number of jobs were created last year, but wages growth remains at a near record low of 2.1 per cent. Tellingly, participation rates have increased as the “encouraged” worker kicks in. This should draw out some of the hidden slack in the labour market. Internationally, the evidence is that jobless rates are needing to fall well below their previous levels before wages start to pick up. Australia’s jobless rate – at about 5.5 per cent - remains above the level at which economists expect to see price and wages pressures increase, which they estimate as somewhere a bit south of 5 per cent. Should the jobless rate fall below 5 per cent, economist remain quite confident that wages will pick up. But it’s taking some time. And on their darker days, they are not beyond wondering if something more sinister is at play in Australia’s low-wage story.

Unions have begun arguing loudly that a lack of worker bargaining power is to blame for the weak wages story. Bosses, they argue, have seized the upper hand in an increasingly globalised world, where domestic workers can be replaced by either foreigners or computers. Meanwhile, lower union membership, limitations on union members' rights to take ‘protected’ strike action and increased rights for employers to end an enterprise agreement – and force workers back to an award – have all fuelled a decline in the collective power of workers to push for higher wages. To understand the resurgent debate over industrial relations, it helps to remember a bit of history. It is true that the general direction of reform over the past few decades has been away from a centralised system of wage-fixing towards more enterprise-based and individual agreements.

Former prime minister Kevin Rudd. Credit:Alex Ellinghausen Prior to the 1990s, most workers had their wages set through a complex system of awards, which set out their minimum pay and conditions for workers in a particular occupation or industry. In the 1990s, a series of court decisions at the state and federal level sought to push more workers towards individual agreements, negotiated either collectively -at the enterprise level - or between individuals and firms. In 1997 the Howard government introduced Australian Workplace Agreements and in March 2006 the Workchoices legislation made it easier for employers to collectively bargain with their workers without unions involved and enabled workers on individual contracts to trade away conditions to their disadvantage. Today there are three main methods of setting pay and conditions for workers: awards, collective agreements, and individual agreements. Awards directly determine pay for one in five workers.

Collective agreements, where workers band together within a firm to negotiate pay and conditions, cover roughly two in five employees. After reforms by the Rudd government, employees are still able to trade away particular conditions, so long as workers are “better off overall”. The remaining two in five workers are employed on individual agreements, between themselves and their employer. It is a hotly contested area of research as to whether wage rises are higher in collectively bargained environments versus individual workers. Union membership falling

A Treasury paper on the relationship between forms of pay setting and wages growth noted that while pay rises for awards have outstripped other forms, other evidence showed individual agreements were more likely to be structured to boost employee productivity and thus wages. Previous studies have failed to establish such a relationship between individual contracts and higher productivity. Overall, Treasury concluded: “Overall, the relationship between methods of setting pay and wage growth is complex, with causality potentially running in both directions, and no clear overall effect.” David Peetz, an industrial relations expert at Griffith University, is more certain that a decline in union density among Australian workers is keeping a lid on wages growth. He says union density is the better indicator for workers' collective power, rather than the proportion of workers on collective agreements.

And the proportion of Australian workers who are members of a union has indeed declined precipitously, from more than 60 per cent in the 1950s to around 15 per cent – and even lower in the private sector at 10 per cent. Peetz says the link between unionism and wages is clear. “Quite a bit of the current empirical research has been on the impact of union decline on inequality, rather than the impact of union decline on wages, as the link in the literature between unions and wages (ie unionism raises wages) is well-established and top journals aren’t going to publish studies that repeat that old story.” Loading Peetz says it is telling that the governor of the Reserve Bank, Philip Lowe, recently encouraged workers to push for higher pay – a sign that top policy makers are worried something more structural is in play suppressing wages. Wages do appear to be at a crossroads. While industrial laws have remained largely unchanged for the past decade, today’s period is the first real test of how easily wages can pick up off the mat after decades of liberalisation.