The issue of industrial relations has for the most part been on the backburner in the past few election campaigns, but slow wages growth and a lack of increased income off the back of productivity growth might be enough to shake things up.

In politics, some policies seem set in stone, never to be altered. There was a time negative gearing was such a policy. But the house price boom brought about changes to the orthodoxy. Cares about housing affordability were no longer outweighed by worries that homeowners would rebel against anything that might reduce the value of their property.

Are workers right to be sceptical about productivity improvements? | Greg Jericho Read more

Similarly, we may be about to see a change to the orthodoxy of industrial relations policy.

While there has long been fighting around the fringes, for the most part the IR debate is within very set parameters: flexibility is counted as a necessary good, government is largely absent, and the chief outcome is less about employment and wages and more about productivity.

But the long run of awful wages growth may be enough to shake up the debate.

We have already seen the ALP proposing to have penalty rates protected by legislation, and Katharine Murphy reported on Friday that Bill Shorten and the ALP’s workplace relations spokesperson, Brendan O’Connor, have recently met with the ACTU executive to discuss IR policy. O’Connor also announced last week that the ALP would move to tighten laws to limit the ability for employers to terminate enterprise agreements.

This shift towards more interventionist IR policies may get some boost from research released last week by the OECD, which showed that while Australia has achieved some of the strongest productivity growth over the past five years, it has not led to similar growth in workers’ incomes.

The OECD’s latest “Compendium of Productivity Indicators” gave rather a big tick to Australia. Our productivity growth through 2010-2015 was among the best in the OECD:

But the figures show that productivity growth in Australia, like other nations, is slower than it was during the IT-driven productivity boom years of the late 1990s. Unlike most, however, productivity in Australia from 2010-15 grew as fast as it did in the five years prior to the GFC:

And while much of our increased productivity is off the back of “capital deepening” – which is the increase in investment per worker – the figures also show we are doing comparatively well on multifactor productivity, which essentially measures the ability to “work smarter”:

But while this would all seem to be good news, the report highlights why the issue of IR might become rather more contested than in previous years.

While changes to IR since the early 1990s have arguably led to improved productivity growth, that same IR system has not led to a similar improvements in workers’ income.

As in other nations, our more “flexible” IR system has seen a break between the previously linked productivity growth and worker income:

The gap between productivity growth and worker compensation since 1995 is actually worse in Australia than in the USA:

That’s a pretty damning indictment of our IR system – our workers are getting less reward for productivity benefits than the USA.

And the OECD also notes a major issue of work that is occurring in Australia – “higher employment rates but lower average hours per worker, which points to more part-time working, often in low productivity jobs”.

In April, while the unemployment rate stayed steady at 5.8% and total employment rose, the hours worked fell. Over the past two years, the growth of hours worked has lagged well behind employment, and after a small pickup, it now looks to have plateaued again:

It means that the hours worked per capita (ie the average hours worked by all people aged over 15) fell to its lowest level since 1994. In April, the per capita weekly hours worked was just 21:

This fall is just part of a long running disjoint since the global financial crisis between hours worked and the percentage of adults who are employed:

The current IR system in place since the early 1990s has certainly led to more people in the workforce, but it has also seen a big shift towards part-time work.

In 1994, when the average hours worked by all adults was at the level it is now, the unemployment rate was 10.1% and just 56.4% of adults were employed compared to 61% now.

It means to get the same hours worked per capita as in 1994, we now have the equivalent of 908,000 more people employed.

That is good for those who want to only work part-time, but as has been noted previously, it is also a reason why underemployment is now so high.

Yes, we need to improve productivity, but not by slashing penalty rates Read more

And that goes to the issue of our IR system.

It is no surprise that we have more part-time workers and more underemployed workers now than in the past. The framework of the current system that has been amended and adjusted since the early 1990s explicitly leads to such a situation.

The flexibility that allows situations where employers are able to reduce hours rather than dismiss workers is a benefit during downturns, but has also led to employers preferring part-time work more than in the past – even during good times.

It has meant Australia has produced comparatively good productivity growth since the GFC, but as we have seen, workers’ wages have continually grown by less during that period, and real wages have now been flat for over four years.

The report by the OECD also shows that Australian workers have received less benefit from their productivity growth than almost any workers in advanced economies:

Such a situation might be enough to shake up the IR debate. Workers may be less willing than in the past to swallow the line that greater flexibility will lead to greater productivity and then better pay.