After five years of stagnating incomes — with Australians experiencing record low or near record low wages growth and decades without a wage breakout — it's hard to credit how different things once were, and not so long ago in the sweep of history.

Key points: On some measures wage growth is at the lowest point since the Great Depression and the Second World War

On some measures wage growth is at the lowest point since the Great Depression and the Second World War Economy-wide wage breakouts have disappeared and union-driven collective bargaining weakened

Economy-wide wage breakouts have disappeared and union-driven collective bargaining weakened Casualisation and contract-based work appear to have contributed to wage stagnation

In the 1970s and '80s, the headlines screamed "Strikes Strikes Strikes!".

Soaring inflation plagued the economy, fuelled by a damaging spiral of rising prices and rising wages chasing the cost of living.

Most workers were unionised, militant workers and strong unions won big pay rises, and gains were passed on to all employees by industrial tribunals through a centralised wage fixing system.

"The real wage overhang" — a phrase invented to describe wages outstripping productivity growth — was a standard concept taught in economics classes, and the share of national income going to profits was dwarfed by the share going to wages.

In short, high wages growth was an economic problem. Today, Australia has the opposite problem.

Even the Reserve Bank, once the wages cop looking to curtail pay rises, is advocating for higher pay.

"The underlying issue is the lack of income growth," Reserve Bank governor Philip Lowe told the House of Representatives Economics Committee last month.

"Many people borrowed, I think, assuming incomes would grow at the old rate and they haven't, they're having more difficulty, they've got less free cash and so they can't spend in a way.

"This is why I put so much emphasis on the need for a pick-up in wage growth."

A world away from the days of double-digit inflation, wages growth has almost halved this century — from already contained levels.

The most cited measure — the wage price index — grew 2.3 per cent last year.

That's up from a record low of 1.9 per cent in 2017, but still less than two-thirds of the average wage growth of 3.5 per cent-plus that was seen during the decade-and-a-half to 2013.

The wage price index is only just up from its record lows and barely above the rising cost of living. ( ABC News: Alistair Kroie )

The news for workers gets even worse when you look at broader measures such as average weekly earnings.

"Wage growth above 4 per cent year-on-year, comfortably above 4 per cent, is where you look for the average," BIS Oxford Economics Sarah Hunter said.

Yet the annual increase in average weekly earnings has frequently been below 2 per cent during the past five years.

On some measures, it's the lowest wages growth since the Great Depression and the Second World War.

Average weekly earnings growth has slipped below 2 per cent per annum for much of the past five years. ( ABC News: Alistair Kroie )

How did we get here?

In part, low wages growth is a symptom of systematic action by business to cut labour costs.

It is also the outcome of deliberate policies aimed at curtailing employee bargaining power and stopping the wage inflation problems of the past.

The centrepiece of the changes — initiated by Labor and continued by the Coalition — was the shift from centralised wage fixing to workplace-level pay setting through "enterprise bargaining".

For the best part of a century in Australia, industrial tribunals had set down detailed schedules of pay and conditions for employment that applied to employees and employers in an industry.

These legally-binding, comprehensive "awards" were gradually reduced to a safety net of minimum pay rates and standards — with responsibility for pay-setting shifted to individual "enterprises" or workplaces, though collective bargaining between workers and employers.

From a macro-economic point of view, the shift had clear and significant benefits.

Alongside giving central banks independence to set benchmark interest rates without political interference, the changes to labour market regulation have played a key role in helping contain inflation.

No longer do pay gains won by the strong flow on to the weak, or substantial wage rises in booming sectors of the economy flow on to areas where demand and profits are not as strong.

Last decade, during the biggest resources boom in Australia's history, soaring pay rates for employees in resources and construction sat alongside sub-inflation pay rises for workers in sectors such as hospitality and retail.

Economy-wide wages breakouts have disappeared

The resulting price stability has coincided with a record period of 27 years without a recession.

It's also likely that the labour market changes helped to boost productivity.

During the early years of enterprise bargaining, there were often restrictive work practices to trade away and employees could gain decent pay rises in return for delivering greater flexibility and efficiency without losing core benefits — a win-win.

However, two decades on, enterprise bargaining has all-but collapsed.

A study last year by The Australia Institute's Centre for Future Work reviewed official data and found that, in 2017, just 12 per cent of the private sector workforce was covered by current enterprise agreements — some 600,000 fewer workers than five years earlier.

And the latest official data on enterprise bargaining shows a further, small decline.

The share of employees reliant on the basic award safety net had almost doubled since 2013 to more than 25 per cent.

"Most workers have to fend for themselves," Alison Pennington, an economist with the Centre for Future Work, said.

This means in practice that employers will unilaterally set wages in most cases; the right of workers to collectively bargain for pay and conditions is recognised by international law — and policymakers around the world — on the understanding that few individuals have the power to negotiate on equal terms with the employer.

"If you are going to have proper wage rises in any economy, you need a system where collective bargaining can flourish," said Josh Bornstein, who heads the employment law practice at Maurice Blackburn, and analyses the links between wage stagnation and declining employee bargaining power in the current Journal of Industrial Relations.

"The system we have is, in fact, killing off collective bargaining and wages are stagnating as a result."

Why is collective bargaining in free fall?

One of the reasons is that union membership has fallen dramatically — just 10 per cent of private sector workers are now covered by unions — diminishing the capacity of employees to collectively bargain.

Australia also has some of the toughest laws against industrial action in the developed world.

In theory, employees have a right to strike during a limited window while negotiating for an enterprise agreement but the "red tape" circumscribing that right is mind-boggling, says Mr Bornstein.

"The legislative prerequisites for taking protected industrial action operate as regulatory quicksand," he says, with "a series of technical requirements which must be strictly adhered to serving to delay, hinder and sometimes defeat the exercise of the right to strike."

The result, according to Mr Bornstein, is that, "The right to strike is more notional than real for Australian workers who do not work in large enterprises or enjoy secure employment."

Large workplaces and secure employment are also in decline — in part, because of a shift in the industry base away from factories and mass employment, in part because of strategies increasingly used by business to cut labour costs.

"The biggest cost to most companies is their wage bill," said Warren Hogan, a professor at the University of Technology, Sydney Business School and formerly chief economist at ANZ.

"So, when they look at how to increase profitability, keep themselves in business, wages are absolutely front and centre."

The profit share of GDP has increased since the mid 1970s, while the share of national income going to wages has fallen. ( ABC News: Alistair Kroie )

Corporate efforts to cut labour costs have spawned a new lexicon: casualisation, outsourcing, offshoring, franchising, independent contracting, labour hire, gig work.

The aim of these strategies is to increase flexibility and reduce risk: fewer workers in secure, full-time jobs allows a business to better meet peaks and troughs in demand and not be stuck with fixed labour on the books when hard times come.

Employees who once would have enjoyed permanent tenure are now on short-term contracts. Core parts of a business that once would have been done by directly employed staff are now competitively tendered.

Often the effect is to shift risk to workers and reduce labour bargaining power.

Professor David Weil of Brandeis University has coined the term "the fissured workplace" to describe this phenomenon of shedding direct employment and outsourcing more and more work, which has spread from peripheral areas to core parts of businesses.

"Because each level of the fissured workplace requires a financial return for their work, the further one goes down, the slimmer the remaining profit margins," he writes.

"As you move downward, labour typically represents a larger share of overall costs … that means that incentives to cut corners [on labour standards] rise."

Wage theft

"Wage theft" scandals in Australia at franchise businesses such as 7-Eleven are another example: the head company, which essentially owns the brand, franchising out the actual business on contractual terms that critics argue lead the franchisors to undercut legal wages and violate labour laws to make a return.

Even employees seemingly employed full-time in secure jobs can have their bargaining power diminished in the "fissured workplace", Josh Bornstein argues.

Employees at major companies live with the threat of having their roles contracted out. And if workers at the company that "contracts in" win pay rises, it may no longer be able to bid competitively, and the contract may not be renewed.

These trends are global, but in Australia the resulting level of job insecurity seems pronounced.

Casual workers make up more than 25 per cent of all employees in Australia — a level of casualisation that has ebbed and flowed around that mark since the mid-1990s when employers responded to the Australia's last recession by shedding permanent jobs — but that's only one measure of precarious work.

About one-in-12 Australian workers is classed as an "independent" contractor, according to the latest ABS estimate, though a substantial minority of these people — who are supposedly self-employed — in fact say they have no control over how they perform work.

One-in-25 employees work for a labour hire company

Warren Hogan says efforts to cut labour costs through casualisation, contract-based work and outsourcing are a significant contributor to wages stagnation.

"It's not just semi-skilled or low-skilled work, this is right through to these big professional services and financial services type industries which are high paying," he says.

"It's now pervasive across the whole economy, this casualisation and contract-based work."

In advance of the federal election, the Australian Council of Trade Unions has mounted a campaign to "change the rules" in ways aimed at curbing some of these trends and increasing labour bargaining power.

The ACTU wants new laws mandating:

a "same job, same pay" requirement that would ensure labour hire workers receive the same work as direct employees;

a "same job, same pay" requirement that would ensure labour hire workers receive the same work as direct employees; a reduced ability of employers to hire people as casuals for ongoing work;

a reduced ability of employers to hire people as casuals for ongoing work; the ability to make "multi-employer" bargaining agreements in industries with a myriad of small workplaces;

the ability to make "multi-employer" bargaining agreements in industries with a myriad of small workplaces; and to stop companies engaging people as "independent" or self-employed contractors who are to all intents and purposes employees.

Labor, if it wins the upcoming election, has agreed to act on these issues but has released little detail.

Business and employer groups are worried

They argue that limiting the flexibility of business will cruel competitiveness leading to job losses, while pay rises that are not matched by productivity gains will ultimately also cost jobs, cut living standards, and hurt the economy.

Australian Industry Group chief executive Innes Willox does not see a wages growth problem in Australia.

"We've had a reasonable level of wages growth … what we have is a cost of living problem and a confidence problem, and both of those are playing on people's minds," Mr Willox said.

Weak wages growth is the outcome of low inflation and low productivity growth, according to the AiGroup.

"The fundamental thing we need to do is lift productivity — that doesn't mean people work for less. It's creating the conditions for businesses to work more efficiently and for people to work effectively."

A concern for productivity growth is well-placed.

As the Nobel laureate economist Paul Krugman said: "Productivity isn't everything, but, in the long run, it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker."

But if low wages growth becomes entrenched, it will also pose a threat to productivity and risks locking Australia into a low-wage, low-productivity spiral.

Low wages growth is putting a cap on future productivity increases, says Alison Pennington, because cheap wages crowd out productivity raising investments.

"If you were an employer who had access to an abundant supply of cheap, skilled labour, why would you choose to invest in new technologies, or new software, or invest in upskilling the workforce when all the firms in your industry are all competing on labour costs?" she said.

And there is a lot of evidence that is what the Australian economy looks like right now.