Wage weakness deepens as EBAs slide, locking in low pay rises for years

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Australia's slow wage growth is becoming more deeply entrenched, with the latest batch of enterprise bargaining agreements falling across the board.

Key points: EBAs delivered annual rises of just 2.7pc in the first quarter, down from the recent peak of 3.2pc last year

EBAs tend to hold for three years and are often seen as a forward indicator of wage growth

Public sector EBAs were generally lower than private sector gains, affected by wage caps and tighter budgetary measures

The average annual wage increase (AAWI) granted in new EBAs in the first quarter this year was 2.7 per cent.

This is a sharp decline from the 3.2 per cent AAWI increase in the third quarter of 2018 — the strongest negotiated wage growth reported over the past two years.

Analysis of data released by the Attorney-General's Department on newly approved deals shows wage rises weakened in both the public and private sectors.

Private sector EBA pay rises slipped from 3 to 2.9 per cent over the March quarter, with the public sector experiencing a larger 0.3 percentage point drop from 2.7 to 2.4 per cent.

It's far from the 3.5 per cent outcome the Reserve Bank has said it is aiming for in its agitation to drive wages and inflation higher.

Weakness going forward

ANZ economist Catherine Birch said EBAs tend to be forward-looking and give an idea where wages are heading.

"With EBA's standard practice being three-year agreements, new ones locking in lower outcomes point to slowing wage growth," Ms Birch said.

Ms Birch noted the average annual wage rise in new enterprise bargaining agreements taken over the past two quarters had slowed to 2.7 per cent.

"This suggests that the gradual improvement we have seen in wages since 2017 may falter, particularly given the recent rise in underutilisation, supporting the need for another rate cut in 2019," she said.

"The reversal in the direction of wage growth across the EBA and GDP measures suggests that the gradual improvement we have seen in the wage price index could fade."

Public/private divide

Jim Stanford, director of the Australia Institute's Centre for Future Work, said the report confirms that the wage slowdown in Australia is getting worse, not better.

"The gap between negotiated wage increases in the public and private sectors continues to grow, as the wage caps imposed by governments in many jurisdictions — including the Commonwealth, with its 2 per cent cap — continue to bite," Dr Stanford said.

At the state government level, budgets are increasingly under pressure — particularly in New South Wales and Victoria — as stamp duty revenues dwindle, eroded by the property market grinding lower.

Results across the sectors were mixed.

Agricultural workers and those in the media had the worst outcomes, with AAWIs of just 2.2 per cent.

While construction workers had the strongest outcome with an annual wage increase of 3.7 per cent for EBAs signed over the March quarter.

On the flip side, they also experienced the sharpest deterioration, down from the 6 per cent result in the December quarter.

Ms Birch said the construction sector was "a bit of a puzzle".

"While construction EBAs had been quite strong until now, the wage price index [for construction] has been the slowest across the sectors over the past year," she said.

"The contraction on the residential side is part of the story, but infrastructure should be coming through and there still appears to be skill shortages."

Union power eroded

Dr Stanford said the report also points to the unions' weakening grasp on driving wage growth.

"This report confirms that the power of unions to win higher wage increases continues to erode, in the face of employer and government opposition to unions and collective bargaining, and a very hostile legal and regulatory environment," he said.

Dr Stanford said almost half of all workers covered by newly approved enterprise agreements in the March quarter had "non-quantifiable" wage increases.

"What that means is their wage gains are not specified in the deal, but rather are tied to things like future increases in the minimum wage, or changes in award wages," he said.

"That's an unusually high proportion [45.5 per cent] of workers whose EAs don't directly specify a wage increase — the highest in years.

"Even when unions can get EAs renewed — and thousands of EAs have not been renewed in recent years — their ability to directly lift wages has been undercut by restrictions on industrial action, low membership density, and other barriers."

Topics: industrial-relations, economic-trends, business-economics-and-finance, unions, australia