A turning point for labour market policy in Australia

Abstract

Australian labour market and industrial relations policies are poised for fundamental change. A combination of political and macroeconomic factors has created a historic opportunity to turn away from the individualised, market-driven labour market policy that has prevailed since the 1980s, in favour of a more interventionist and egalitarian approach. Factors contributing to this moment include the breakdown of bipartisan consensus around key neoliberal precepts; growing public anger over inequality, insecure work and stagnant wages; and a weakening of macroeconomic conditions. Australia’s labour market is now marked by underutilisation of labour in various forms, a deterioration in job quality (especially the growth of insecure and precarious work) and unprecedented weakness in wages. The deterioration in job quality and distributional outcomes is the long-term legacy of the post-1980s shift away from Australia’s earlier tradition of equality-seeking institutional structures and regulatory practices. The current malaise in labour markets should be confronted with a comprehensive strategy to both increase the quantity of work available to Australian workers and improve its quality. The major components of such a strategy are identified, and their prospects considered, in light of the economic and political forces reshaping Australia’s labour market.

Introduction: A moment of flux

Australia is entering a fluid period in which its political and economic cycles are both approaching major turning points. In the political realm, a fractured Coalition government at the Commonwealth level seems to be nearing the end of its lifespan. Since coming to power in 2013, the government (under three different Prime Ministers) lost policy focus and proved incapable of responding to significant economic, social and environmental challenges. The government seems likely to lose power in the 2019 federal election, but it is not just the normal ‘revolving door’ of electoral politics that augurs an uncertain and dynamic political moment. Deeper changes in popular attitudes and consciousness are evident in other indicators, including the fragmentation of political preferences (with smaller parties eroding the base of the conventional major parties), palpable if unfocused anger over inequality and diminished economic opportunity, and disengagement from traditional channels for expressing discontent and effecting change.

Debates over wages, inequality and the future of work feature prominently in this current political ferment. The profile of labour issues has been raised by the activity of an impressive extra-parliamentary campaign, led by the Australian Council of Trade Unions (ACTU), to ‘Change the Rules’ of the job market; the campaign advances a multidimensional policy agenda calling for stronger labour protections and renewed collective bargaining.¹ This campaign by the union movement and its allies is reminiscent of the ‘Your Rights @ Work’ mobilisations that helped defeat the Howard government and its ‘Work Choices’ policies in 2007. And in the long run, it may prove to be even more influential.

Indeed, the current upsurge of labour activism has learned much from that earlier experience. Despite the importance of employment and inequality issues to its 2007 election victory, the Labor government at the time preserved many of the restrictive labour policy measures that had been implemented by the previous government.² Its 2009 Fair Work Act removed some especially contentious aspects of Work Choices, and established some new processes and institutions to purportedly protect workers and promote greater fairness. But the basic structure of industrial relations and labour law (rooted in enterprise-level bargaining, with strong restrictions on the scope of bargaining and union activity) was preserved. More recently, wages and job stability have been deteriorating for many workers, even under a labour policy regime (centred on the Fair Work Act 2009) that was nominally designed by a Labor government. This has instilled a greater determination by the current generation of activists to demand a more far-reaching and permanent shift in policy direction – and to be ready to push a future Labor government to go further than did its predecessors.

In the economic realm, meanwhile, important and potentially disruptive changes are also afoot. Australia’s economy has experienced 28 consecutive years without a recession, unprecedented among industrial economies. This success (founded on rapid population growth, strong global demand for Australia’s natural resources and effective policy intervention)³ has reinforced a certain complacency and inertia on the part of policymakers. It also reinforced the bipartisan consensus around basic neoliberal tenets that prevailed from the 1980s until recently, on the presupposition that those market- and business-friendly ‘reforms’ must explain Australia’s relative success.

However, Australia’s run of good economic times may be coming to an end. Business capital spending has declined markedly since the peak of the resource expansion in 2012, with no sign of recovery yet. For some years, the resulting economic slack was taken up by strong consumer spending (financed by a historic increase in household indebtedness, now equal to around 200% of disposable income)⁴ and a booming property sector. Households’ ability to monetise soaring property wealth powered consumer spending for a while, despite an unprecedented slowdown in wage growth that also became evident after 2012.⁵

Now, however, an accelerating downturn in property prices threatens to shatter this fragile expansionary logic. In the face of reduced foreign demand for property, tighter regulations on mortgage lending and rising interest rates, property prices are falling in several cities – most rapidly in Sydney and Melbourne.⁶ The macroeconomic fallout from the property downturn could be severe, experienced through various channels, including reduced consumer spending (via a negative wealth effect), reduced building construction and financial instability.

Meanwhile, non-residential business investment continues to languish. Higher public-sector spending (on both current programmes and capital projects) has partially offset weakness in private-sector demand in recent years,⁷ but its future trajectory is also uncertain – in large part due to a residual if inconsistent commitment to fiscal austerity by the Commonwealth government. Despite troubling macroeconomic signs, the Coalition government has made its top fiscal priorities the generation of fiscal surpluses and tax cuts (not expanded current or capital spending). Fallout from global economic uncertainty (including a slowdown in China, Australia’s major export customer) further clouds the outlook.

The conjuncture of these economic and political developments creates a dynamic and uncertain moment for labour policy reform in Australia. On one hand, sharpening public concern over inequality and a shortage of decent work have made labour policy a key political issue and increased the odds of a change in government. Popular activism around jobs and wages (such as the ‘Change the Rules’ campaign) will put extra pressure on a new government, if elected, to live up to ambitious reform promises – instead of continuing to accept the main pillars of neoliberal labour market policy (as did past Labor-led governments). A deteriorating macroeconomic outlook complicates the outlook for reform. Facing an overall slowdown, a new government might move ambitiously to empower new engines for growth and job creation (through expanded public services or infrastructure investments). Alternatively, it might respond cautiously to negative macroeconomic developments lest it be accused (by predictable enemies) of jeopardising economic and fiscal ‘stability’. The always-complex dynamics of Australia’s legislative system (in particular, the likelihood of a minority Senate) will also shape what a new government can, and cannot, do.

In any event, the coming years will certainly constitute an important moment in the history of Australian labour market policy. There is growing sentiment among many researchers, industrial relations practitioners and worker advocates that Australia’s current industrial relations and labour policy regime (with its reliance on an eroding enterprise bargaining system, its severe constraints on union membership and activity and its network of fraying statutory protections) are in need of fundamental and multidimensional change. Current negative outcomes in labour markets (including stagnant wages, growing inequality and ubiquitous job insecurity) will likely get worse, not better, as Australia’s macroeconomy navigates coming turbulence. We can expect a concerted battle of ideas, as business interests and their allies push back hard against the rising demand for reform; at the same time, the union movement is pushing its own ambitious agenda with more focus and confidence. The outcome will depend on which side marshals greater power in a major ideological conflict over the nature of work and employment.

The rest of this article will survey this fluid, unpredictable state of affairs in more detail. Part I reviews the major manifestations of present labour market dysfunction in Australia, including underutilisation of labour, growing insecurity of work and stagnant wages. Part II catalogues the key structural and institutional factors, which have contributed importantly to those negative trends. Part III describes a multidimensional agenda of reform measures, which would constitute a powerful and convincing response to these labour market failures – an agenda which is now being advanced determinedly by union activists, equality advocates and others. Finally, the conclusion evaluates the problems and prospects for this reform agenda, in light of contradictory economic and political pressures.

Part I: Australia’s dual labour market failure

Many observers might conclude that Australians have little to complain about in terms of labour market outcomes. The country has not experienced an official recession in almost three decades. The official unemployment rate hovers around 5%: relatively low by historic and international standards, and equivalent to what Australian agencies (including the Treasury Department and the Reserve Bank of Australia (RBA)) effectively define as ‘full employment’.⁸ On the surface, the pace of job creation seems to have been strong: net employment grew by 1.1 million positions between 2013 and 2018 – fulfilling a high-profile election promise to create a million jobs in 5 years made by former Prime Minister Tony Abbott before the 2013 election.⁹

Those conventional indicators, however, overstate the true state of Australia’s labour market. Other evidence points to underlying weakness and dysfunction in the world of work, including stagnant wages, significant underutilisation of labour (evident in a variety of measures) and major threats to the stability and quality of paid work. Those problems are contributing to financial stress in many Australian households, and eliciting widespread expressions of frustration and anger.

Australia’s labour market suffers from two related problems: quantity and quality. There is not enough work to productively employ all those who want and need to work. And those jobs that do exist are of insufficient quality for many to earn a decent, stable income.

The quantity of work

Claims that the absolute expansion of employment in Australia in recent years constitutes a historic economic achievement have been widely debunked.¹⁰ After all, the significance of any given absolute number of new jobs depends on the size of the economy within which those jobs are being created. Australia’s working-age population is large and growing rapidly. The creation of 1 million jobs over 5 years – an achievement invoked by the Coalition government as proof of its economic competence – is neither unprecedented nor extraordinary.¹¹ The rate of employment growth since 2013 has been relatively slow by historic standards – especially for a non-recessionary period. Moreover, the rapid increase in the share of part-time jobs (making up almost half of all jobs created over the period) inflated the absolute number of jobs created, by transforming a modest increase in hours worked into a larger proportional increase in jobs.¹²

Despite these ‘record’ employment totals, there are many indications that the labour market is in fact constrained on the demand side by a shortage of available work. This demand constraint cannot be described adequately by the conventional unemployment rate. To be included as ‘unemployed’ in official Australian Bureau of Statistics (ABS) counts, an individual cannot have worked at all during the week they were surveyed (not even a single hour). Moreover, they must be ‘actively’ seeking work (submitting applications, reaching out to potential employers and contacts and undertaking other search activities beyond passively scanning help-wanted notices). Given depressed job conditions in many regions, many individuals do not bother looking for work; they thus ‘disappear’ from official jobless data.

Hence, official unemployment statistics exclude several pools of disguised unemployment or underutilisation. First, close to 2 million employed workers say they want and need more hours of work: they may piece together some hours of work in a week, often from multiple jobs, but insufficient to provide a steady or adequate income. In the last 5 years, underemployment has averaged 8.4% of the labour force: the highest of any 5-year period since the ABS began gathering these data.¹³ This elevated underemployment reflects the large number of part-time workers who do not receive enough hours of work to meet their personal and financial needs.¹⁴

The ABS also reports a broader measure of combined labour underutilisation, defined as the sum of unemployment plus underemployment (both measured as a proportion of the labour force). Underutilisation over the last 5 years has also hovered at near-record levels, averaging over 14% of the labour force since 2013 – the highest in history other than the recession-wracked 1990s. This further attests to the inadequacy of recent employment growth in Australia, relative to the population that needs work.

There are still other forms of non-employment that further confirm the inadequacy of labour demand. For example, individuals who would like to work if jobs were available, but do not undertake a job search sufficiently active to qualify them (under ABS definitions) as ‘active’ participants, constitute an additional pool of disguised unemployment. One indicator of this hidden underutilisation can be gleaned from recent trends in labour force participation. The participation rate increased markedly through most of the past half-century, driven especially by the increasing formal work effort of women (and more recently by the rising proportion of older Australians working past normal retirement age). That trend reversed for several years following the global financial crisis (GFC), as many Australians left the labour force (owing to poor job prospects) and fewer joined it. Participation has recently regained some of this lost ground but was still below its 2009 peak at end-2018 – a full decade after the GFC.¹⁵ If the participation rate had continued growing at the same rate experienced in the decade before the GFC,¹⁶ it would be 3 percentage points higher today – representing the effective addition of around 600,000 more workers to Australia’s labour force. An even larger estimate of non-participation is provided directly by the ABS’s annual survey of participation and job search, which asks non-participating Australians why they are not presently in the labour force (i.e. neither working nor actively seeking work). According to this survey, almost 900,000 Australians wanted to work and were available for work in February 2018 (most recent survey) but did not ‘actively’ seek a job.¹⁷

Considering all these forms of explicit and disguised underutilisation – unemployment, underemployment and non-participation – well over 3 million Australians are un- or underemployed, representing over 15% of the potential total labour force.¹⁸ This large pool of unutilised labour confirms that job creation has been inadequate, relative to Australia’s growing population, and that the labour market is far from a state of ‘full employment’ in any concrete sense (notwithstanding the assertions of the NAIRU (non-accelerating inflation rate of unemployment) doctrine that 5% unemployment actually constitutes full employment).

The quality of work

Even when work is available, the quality of many jobs has deteriorated markedly in Australia in recent years. Instead of maintaining long-term, relatively stable employment relationships, employers today prefer to hire workers on a ‘just-in-time’ basis. They would like to pay for work exactly when and where it is needed – and otherwise seek to shed any cost, obligation or risk associated with the normal ups and downs of consumer demand and economic conditions. The inadequacy of labour demand (the ‘quantity’ problem) reinforces this downward pressure on job quality and compensation: facing a desperate challenge to find and keep adequate hours of work, workers are more willing to accept inferior terms and conditions and unreliable hours.

Employers’ profit motive, in these conditions of excess labour supply, has thus spurred the rapid spread of insecure or precarious work arrangements, in many different forms. Of course, precarious or contingent employment practices have a long historical pedigree in capitalism;¹⁹ its visible resurgence in recent years reflects a combination of slack labour market conditions, regulatory laxity and technological change. One commonly reported indication of insecurity is the use of ‘casual’ labour: workers who are hired on an indeterminate basis, and denied normal paid leave (like holidays and sick pay) and severance rights. Casual work has grown in recent years (see Table 1), and now accounts for one in four waged jobs.²⁰ Australia is reported by the Organisation for Economic Co-operation and Development (OECD) to have the highest rate of temporary employment of any industrial country.²¹ In theory, casual workers receive a 25% wage loading to compensate for their lack of paid leave and reduced job security. In practice that is not always the case, due to ubiquitous wage theft by employers and/or artificial reductions in the base rate against which the loading is calculated. Hence, many casual workers make less per hour, even with their 25% loading, than comparable permanent workers.²²

Table 1. Indicators of job quality (employment mode as % of total employment).

^a Casual work is measured as a share of waged employees (excluding owner-managers); the others are measured as share of total employment.

Source: Stanford et al. (2019).

But casualisation is just one dimension of the bigger phenomenon of insecure work. The traditional employment relationship, marked by stable and predictable hours and compensation, has been eroded on all sides by the expansion of other forms of insecure work. It is important to consider all of those dimensions, rather than focusing solely on the incidence of casual work. Indeed, Carney and Stanford (2018) report that due to the simultaneous expansion of all forms of insecure work, in 2017 non-standard employment in general (including part-time, casual and self-employment) for the first time accounted for over half of all employment. In other words, insecure work has become the ‘new normal’.

The rapid rise of part-time work is another crucial dimension of the erosion of job quality. It is possible for part-time work to offer decent compensation, security and quality – but this is not generally the case in Australia. Part-time work now accounts for almost one in three jobs in Australia (Table 1), the third highest part-time rate of any industrial economy.²³ Most part-time jobs are filled by women, they offer lower hourly compensation and most are filled on a casual basis (without normal entitlements to paid leave and other benefits).

The growth of independent contractors and small-scale self-employment is another dimension of growing job insecurity. This trend often results from the contracting-out of functions once performed in-house by major employers; it may also reflect the rise of new ‘gig’ jobs in the digital economy.²⁴ The overall rate of self-employment has been stable in Australia’s labour market in recent years, but small-scale part-time self-employment has grown notably (as indicated in Table 1). These self-employed workers are especially vulnerable; most have no employees, are not incorporated and their average incomes are far lower than for wage workers and full-time self-employed individuals (Carney and Stanford, 2018).

The crisis in wages

In light of these twin problems of inadequate quantity and deteriorating quality of work, it is not surprising that wage increases in Australia’s economy have been plumbing historic lows. From the 1990s through recently, average nominal wages typically increased around 4% – a bit faster in good years (such as the resource boom of the mid-2000s), a bit slower in bad (such as during the recession of the early 1990s). This rate of growth was consistent with the inflation-targeting regime followed since the early 1990s by the RBA. The sum of the target rate of inflation (2.5%) plus ongoing productivity growth (averaging 1%-2% per year) should allow for steady nominal wage growth in the order of 4%, with no ‘outbreak’ in inflation. Since 2015, however, nominal wage growth has fallen by half, to around 2% per year: the slowest sustained rate since the 1930s.²⁵

Figure 1 illustrates the deceleration in the ABS’s Wage Price Index (WPI) – the most commonly reported measure of wage inflation. It indicates a sharp but temporary deceleration in wages associated with the GFC in 2008–2009. Since 2012, the slowdown in wages has been deeper and longer-lasting. Moreover, if anything, the WPI overstates the true strength of wages. It is constructed on the basis of a representative ‘basket’ of jobs, held constant from one period to the next to provide a measure of ‘pure’ wage pressure; the WPI thus excludes the effect of changes in the composition of employment (and in particular the shift towards insecure, part-time and less well-paid jobs) that help to explain the erosion of security and prosperity for many Australian workers.

Figure 1. Annual growth, Wage Price Index, Australia 2000–2018.

Source: Author’s calculations from Australian Bureau of Statistics (ABS), Cat. No. 6345.0 (ABS, 2018j).

Even by the WPI measure, wages have barely kept up with average consumer prices in recent years – which have also grown at around 2% per year (slightly below the RBA target). Alternative measures of labour compensation suggest the deceleration in wages has been even worse.²⁶ For example, growth in average weekly wages has lagged behind average consumer price inflation since 2013,²⁷ producing a sustained decline in real weekly earnings. Weekly wages have grown more slowly than the hourly WPI because of shifts in the composition of jobs (towards lower wage positions) and reductions in average weekly hours of work (due mostly to the growing share of part-time jobs). Another approach to measuring wages utilises the ABS’s quarterly gross domestic product (GDP) accounts, which report an especially severe slowdown in labour compensation. Total nominal labour compensation (including wages, salaries and superannuation contributions) per employed Australian has grown at an average rate of just 1.3% per year since 2012 – lagging well behind both overall GDP growth and the rate of inflation.²⁸

The decline in real wages contrasts with continued improvements in labour productivity. Average real value-added per hour of work in Australia continues to advance by over 1% each year.²⁹ In conventional economic theory, the labour market should automatically reward workers for improved efficiency and productivity in the form of higher real wages. In practice, real wages have tended to lag behind productivity growth for decades; with real wages now actually declining, the gap between wages and productivity is doubly widened.

One implication of the apparent disconnection between real wages and productivity growth has been a long decline in workers’ share of total output (Figure 2). In 2017 and again in 2018, the share of Australian GDP paid out in labour compensation fell to just 47%: the lowest since the 1950s, and down by 11 percentage points since peaking in the mid-1970s.³⁰

Figure 2. Labour compensation as share GDP, Australia 1959–2018.

Source: Author’s calculations from Australian Bureau of Statistics (ABS), Cat. No. 5206.0 (ABS, 2018b: Table 7).

Another consequence of the stagnation in real wages, and the corresponding decline in the labour share of GDP, has been widening personal income inequality. This effect is felt through two distinct channels. First, the redistribution of income from labour to capital³¹ automatically increases income inequality at the personal level, since the ownership of business wealth (in the form of direct firm ownership, shares and other securities) is highly concentrated among higher income households. Second, the erosion of overall labour income reflects the weakening of institutions that once served to equalise labour incomes between workers (as well as boosting wages generally). The reduction in labour’s aggregate share of GDP has thus been associated with growing inequality within wage and salary earners. Some workers, possessing unique skills or other sources of bargaining power, have enjoyed increasing real incomes, but most labour incomes have stagnated.

Part II: The legacy of neoliberal labour market policy

Many different explanations have been advanced for these signs of labour market malaise: underutilisation of labour, declining job quality and decelerating wage growth. Much popular commentary blames the purported acceleration of technological change, especially labour-saving innovations such as robotics, machine learning and artificial intelligence.

While new technologies have certainly restructured work in some specific occupations and industries, there is little evidence of the impact of labour-saving technology at the macroeconomic level. In fact, curiously, the very slow pace of business capital investment in Australia in recent years (since the resource boom peaked in 2012) has resulted in a decline in the aggregate capital–labour ratio in Australian production; in other words, production is becoming more labour-intensive, not capital-intensive – contrary to predictions of a robot-dominated future. Moreover, productivity growth, while consistently positive, has not accelerated as would be implied by the greater use of labour-saving technology. Neither of these outcomes is consistent with the hypothesis of mass technological unemployment.³² New technologies will certainly pose challenges of adjustment and transition for workers in specific industries and occupations; but it is not convincing to blame technological change for the overall weakness of employment and other aggregate labour market outcomes.

Another common explanation for labour market malaise is rooted in the intensification of global competition – which is held to have reduced the overall demand for labour in Australia, and undermined the ability of workers here to negotiate better jobs and compensation. It is certainly true that pressures of globalisation have negatively affected employment and compensation in some highly exposed tradeable sectors (especially in several manufacturing industries). These pressures were exacerbated when the Australian dollar was badly overvalued (pushed up by unusually high global commodity prices and strong capital inflows from 2002 through 2014). On the other hand, certain other Australian industries have clearly benefitted from global interactions during this period, including resource industries, some tradeable services (like finance and higher education) and tourism. In recent years, Australia has enjoyed both a surplus on overall international trade in goods and services, and a net inflow of direct investment. While acknowledging the negative labour market effects of unrestrained global commerce in particular sectors, it is hard to argue that the labor market in general has been substantially undercut by global forces.

In contrast to the ‘technology’ and ‘globalisation’ hypotheses, a more convincing explanation for the erosion of labour incomes in Australia and the related growth of income inequality is rooted in the thorough reorientation of labour market and industrial relations policy that has occurred since the 1980s. Australia was once known for its interventionist, equality-seeking labour market policies. Since the 1980s, however (and under the leadership of both Coalition and Labor governments), labour market and industrial relations policies followed a very different path. Policy was motivated by the general belief, commonplace after the 1970s, that wages were too high and unions too powerful.³³ In response, labour market policies began to prioritise efforts to reduce labour costs, first by moderating workers’ wage demands through the Price and Income Accords. The Accords deliberately restrained wage growth (in return for the expansion of social benefits like Medicare and superannuation); real wages declined for several years, and the share of profits in GDP rebounded. Later, in the 1990s, the previously centralised system of wage regulation – founded on sector-wide negotiation and arbitration – was replaced by enterprise-based bargaining. In theory, this allowed for more flexibility in wage setting to reflect the specific conditions of individual firms or industries. Previous industry-wide arbitration structures were downgraded to serve as a safety net of minimum standards (represented today in the Modern Awards), rather than a mechanism for advancing wages and conditions more generally. Union membership and power began declining rapidly after this change. After 1996, Coalition governments implemented further employer-friendly changes in industrial relations laws and labour standards: further constraining union activity (including rights of entry, rights to strike, and union security and dues-collection systems), reducing minimum wages (measured as a proportion of median earnings) and rolling back other labour protections (including protections against dismissal). These labour market initiatives were implemented in the context of other business-friendly economic and social policies, including liberalisation of international trade, exchange rates and financial flows, reductions in government programme spending and taxes, retrenchment of income security policies (especially for working-age Australians) and deregulation of the banking and financial industries.

In sum, the history of Australian labour market policy since the 1980s reflects a sustained and multidimensional strategy to enhance employers’ control in workplaces, discipline workers and their unions, individualise employment relations, and restore and support profits. This strategy, in turn, was just one important component of a broader neoliberal strategy to restore business power in all areas of life. It should not be surprising, in retrospect, that the strategy worked: wages have been constrained, the labour share of total national income has declined markedly and inequality has grown. Business profits have expanded as a share of GDP – although there is little evidence that those profits ‘trickled down’ through the rest of the economy (especially given the failure of business capital spending to respond positively to higher profitability). This sea change in the direction of labour market and industrial relations policy engineered over the past generation provides an obvious and compelling explanation for the negative trends in employment, job quality and wages described in Part I of this article.

The reorientation of labour market and industrial relations policy is starkly visible in several indicators, summarised in Table 2. By every measure listed there, the process for determining wages and working conditions has become less subject to direct regulation by either government or collective bargaining, and more subject to unilateral determination by employers. In conditions of generalised excess labour supply as have prevailed in Australia in recent years, this permits employers to organise a lower cost, precarious, ‘just-in-time’ workforce. The downside for workers has been an erosion of living standards, growing inequality and the crumbling of the traditional vision of inclusive prosperity once symbolised by the Australian notion of a ‘fair go’.

Table 2. Indicators of labour market and industrial relations policy, Australia, 1980 versus 2018.

GDP: gross domestic product.

Source: Author’s calculations from Australian Bureau of Statistics (ABS), Cat. No. 1301.0 (ABS, 1982: Chapter 8); ABS Cat. No. 5206.0 (ABS, 2018b: Table 7); ABS Cat. No. 6321.0.55.001 (ABS, 2018g: Table 2b); ABS Cat. No. 6306.0 (ABS, 2018f: data cube 9, Table 1); ABS Cat. No. 6333.0 (ABS, 2018e: Table 12); Bray (2013: Appendix A); Organisation for Economic Co-operation and Development (OECD, 2019); and World Inequality Database (n.d.).

^a Excluding owner-managers of small businesses. 2018 figure includes many agreements that have expired.

^b 2018 first three-quarters.

^c 2015 data (most recent).

^d 1982 data (earliest available).

^e 2016 data (most recent).

One key measure of the shift in labour market regulation has been the erosion of the minimum wage, which has declined notably since the 1980s as a proportion of prevailing wages. A common measure of the ‘bite’ of minimum wages is its value relative to average wages in the overall labour market;³⁴ by this measure, Australia’s minimum wage has declined by about one-quarter since 1980. Another dramatic indicator of the shift in labour market regulation has been the erosion of trade union membership – falling from close to 50% of total employment in the early 1980s, to below 15% in most recent data. Deunionisation reflects the decline of membership among traditional permanent paid employees, as well as the growth of non-standard employment (including self-employment, casual work and independent contractors) for which union membership is rare. The fall in union density since the 1980s has been more dramatic in Australia than almost any other OECD country.³⁵

The erosion of collective bargaining coverage is a related indicator of the deregulation of wage determination in Australia’s labour market. Curiously, ABS data indicate that many more Australian workers are covered under enterprise agreements (EAs) than are members of unions: it reports that close to 40% of workers are at least nominally covered by the terms of an EA, nearly three times the proportion of workers who belong to a union. This gap reflects the legally protected practice of ‘free riding’, whereby workers can attain the benefits of a union-negotiated agreement without belonging to the union or contributing to negotiating and maintaining that agreement (Haynes et al., 2008); it also reflects Australia’s unusual practice of allowing collective agreements to be negotiated without involvement by a union. However, that ABS estimate of collective agreement coverage overstates the true extent of collective bargaining; it includes many workplaces where a collective agreement may nominally exist but has expired and no longer determines wage increases. Other data from the Commonwealth Department of Jobs and Small Business suggest that the share of workers in the economy covered by a current EA has plunged dramatically since 2013, especially in the private sector – where thousands of EAs have not been renewed, or terminated altogether. Pennington (2018) estimates the EA coverage rate for private-sector workers has fallen to just 12%.

Since union membership has declined, it is not surprising that other activities of unions have also declined, along with the erosion of collective bargaining. Notably, industrial action has become very rare in Australia, declining precipitously after the intense industrial conflict of the 1970s and 1980s. Moreover, a growing share of days lost to disputes now results from employer-led lockouts, rather than traditional strikes. The almost complete disappearance of strike activity reflects declining union membership, restrictions on industrial action and fear among workers that striking could jeopardise their jobs. Meanwhile, the restructuring of the awards system has eliminated the former process by which general wage levels were steadily lifted through industry-wide arbitration. Instead, the awards now function solely as a minimum safety net, covering only the lowest paid workers (in about one-quarter of total employment).

In sum, all the major instruments of egalitarian labour market intervention have been deliberately and considerably weakened since the advent of neoliberal policies in the 1980s. Minimum wages, collective bargaining, union activity and industrial action have all diminished dramatically, and the industry-wide arbitration system has been transformed and scaled back. In this regard, the significant shift in the distribution of national income (from labour towards businesses, and the high-wealth individuals who have the greatest stake in business ownership – also summarised in Table 2) can be understood as the deliberate outcome of the far-reaching reorientation of labour market and industrial relations policies since the 1980s.

Part III: Elements of a reform agenda

It is clear, therefore, that neoliberal labour policy in Australia has fundamentally shifted the balance of power in employment relations in favour of employers. This has produced a redistribution of income from labour to capital, and from working households to those with significant accumulations of financial wealth. It has also produced an erosion in the quality, stability and compensation of work. Australia has consequently descended from one of the most egalitarian countries in the advanced capitalist world, to a country with relatively severe and worsening inequality – and where the terms of employment are determined overwhelmingly by private relations between individual workers and their employers. For a time, the impacts of this about-face in labour policy may have been less visible, as a result of the very strong labour demand conditions which prevailed in Australia during the resource boom of the 2000s. As that temporary surge of activity faded, however, labour demand conditions weakened considerably. Since 2012, Australian workers are now confronting the full impact of a strongly pro-employer labour policy regime, in a context of unfavourable aggregate demand conditions. Thus, the dual failure of Australia’s labour market – inadequate quantity of work and declining quality of work – is now starkly evident.

To be fair, it is important to note that regulatory instruments wielded directly by the state (including minimum wages, national employment standards and what remains of the awards system) continue to exert an important positive influence in shaping employment norms and moderating income inequality. However, the power of those instruments has been curtailed over the neoliberal era, and they remain under sustained attack by employers (as witnessed by the successful effort of retail and hospitality employers in 2017 to roll back penalty rates for Sunday and holiday work).³⁶ It is unlikely that those statutory instruments alone can protect wages and working conditions against continued erosion, in the absence of an empowered countervailing force to defend them – led, presumably, by unions. But Australian unions have been weakened by years of government harassment, declining membership and free riding.

Nevertheless, they continue to mobilise effectively (in both the political and economic arenas, as discussed by Wilson, 2018) against the worst features of the current labour policy regime, as evidenced by the ‘Change the Rules’ campaign. It has successfully linked the ongoing attacks against unions and labour standards to the rise in inequality and the stagnation of wages and opportunity. Given the lack of economic progress experienced by most Australian workers in the past decade, and the loss in living standards experienced by many, these demands could resonate powerfully.

Given the long-term, comprehensive reorientation of labour market and industrial relations policy that has been engineered over the past generation, reversing current employment, wage and job quality trends will require an equally ambitious and multidimensional revitalisation of Australia’s entire approach to regulating labour markets. A powerful, all-encompassing change in policy direction is needed to put Australia back on a path towards an economy that offers decent work, to everyone who wants it. This holistic approach must address both the inadequate quantity of work and its deteriorating quality – invoking coordinated, consistent use of multiple policy levers. What follows are some of the primary themes that should be addressed in a strategy to create more jobs and better jobs.

• • As discussed above, underutilisation (broadly defined to include underemployment and non-participation) has become worse in recent years, not better. The demand constraint on employment directly reduces the income opportunities of workers but also indirectly contributes to the erosion of job quality and the stagnation of wages (by compelling desperate workers to accept whatever terms are on offer). A commitment to sustained job creation, with the ultimate goal of achieving genuine full employment (not the NAIRU), should be a core element in a progressive labour market policy vision. A significant shift in macroeconomic policy will be required to guide the labour market closer to genuine full employment. This means coordinated and sustained efforts to boost purchasing power in all its forms, including private consumption, public consumption, investment and exports. Reversing wage stagnation, and distributing incomes more fairly, would provide a powerful and equitable stimulus for growth. Business investment and exports could be strengthened through success in building a portfolio of high-performance ‘anchor’ industries, expanded innovation and more effective investment policies (discussed further below). The government sector, of course, must shift from its recent emphasis on austerity to a sustained commitment to expansion, rooted in lasting growth in public service provision and infrastructure investment. The RBA would need to support the movement towards full employment, through compatible interest rate and exchange rate policies.

• • New jobs in public and caring services can play an important role in enhancing the quantity of work available to Australians. Instead of seeing the public sector as a ‘drain’ on the economy, public-sector work can be a source of growth and opportunity in its own right. Ramping up support for public services would contribute to hundreds of thousands of direct and indirect jobs through public service delivery. Australians’ need for human and caring services continues to expand; hence, it is no accident that public-sector activities have accounted for close to half of all new job creation in recent years and are expected to account for a similar share in the future.³⁷ A historic, sustained expansion of investments in public infrastructure (including transportation, utilities, health care and education facilities, affordable housing, environmental projects, cultural spaces and facilities, and more) would provide another powerful stimulus to both immediate job creation, and long-run productivity and quality of life. Removing restraints on public-sector compensation (such as the artificial wage caps imposed in recent years in many jurisdictions)³⁸ and establishing funding and regulatory systems for publicly supported service delivery (such as disability services, child care and vocational education) that are compatible with strong job quality and compensation would further enhance the positive impact of public service employment on overall labour market outcomes.

• • An economy-wide full-employment strategy can be supported with a special focus on nurturing high-technology, high-productivity, export-oriented sectors (producing both goods and tradeable services). These ‘anchor’ industries play a strategic role in overall labour market performance, out of proportion to their share of direct employment. They strengthen net exports (thus relaxing the balance-of-payments constraint on growth), they are critical to innovation and productivity growth and they support far-reaching supply chains. Nurturing a more diverse and dynamic portfolio of these strategic high-value industries is especially important given the economic and environmental constraints facing Australia’s traditional resource industries – which have traditionally constituted the bulk of the country’s tradeable industrial ‘base’. Ambitious efforts to identify other advanced sectors with desirable characteristics (technology-intensive, high-productivity, export-oriented industries, with strong domestic supply chains, and sustainable environmental footprints), and support their growth with targeted development plans, access to capital, procurement opportunities and export promotion, would attain a stronger and more sustainable sectoral mix.³⁹ A more effective and concrete national innovation strategy is also important to the success of strategic, technology-intensive sectors. In contrast to political jargon about a brave new ‘age of innovation’, Australia’s concrete research and development (R&D) effort has flagged badly in recent years: R&D spending is declining, funding for the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and other public innovation has been cut and Australian businesses lag further behind global leaders in innovation, patenting and commercialisation. Measures to strengthen innovation could include a national agency to coordinate and align government actions across departments, targeted public investments in the growth of promising innovation-intensive firms and more public support for direct, ‘mission-oriented’ innovation programmes (Mazzucato, 2015).

• • One theme demanding particular attention in the effort to attain a better sectoral balance in the economy is the essential task of reducing carbon pollution and shifting energy and transportation systems towards more sustainable practices. While some business and political leaders raise alarms about the costs of addressing climate change, the potential benefits for employment and innovation of ambitious and reliable carbon-reduction policies are increasingly evident and appealing. Major investments in renewable energy, public transit and energy conservation hold great potential to stimulate job creation and create technological spillovers. And a commitment to planning, redeployment and reskilling by governments and employers could ensure that these transitions occur with minimal negative impact on workers in climate-affected industries (Sheldon et al., 2018).

• • Job quality is as important as quantity in restoring prosperity and security to Australia’s labour market, and the stance of labour market regulation plays a critical role in this dimension. Minimum wage policies are a particularly direct and effective tool for lifting compensation among lower wage workers. There has been growing worldwide interest in more ambitious minimum wage policies to help address persistent wage stagnation since the GFC. Accumulating economic evidence indicates that higher minimum wages do not have significant negative employment effects (contrary to the traditional arguments of neoclassical economists), and this new research has further strengthened support for higher minimum wages.⁴⁰ Lifting the minimum wage so that a full-time, year-round worker would not experience poverty (as suggested by advocates of a ‘living wage’; see ACTU, 2017) would provide a helpful spur to wage growth, targeted at the bottom rungs of the income ladder.

• • Although they have been rolled back considerably over the past generation, Australia’s other minimum standards and statutory protections (including the National Employment Standards) continue to provide important support to wages and working conditions. Preserving, modernising and strengthening those statutory protections will thus be an important component of future labour policy reform. Labour standards need to address worrisome trends like the spread of casual work (through limits on casualisation and expanded rights for casual workers to convert to permanent jobs) and insecure employment practices in digital platform businesses. One important challenge is to resolve the current ambiguity in much labour regulation concerning its application to supposedly ‘independent’ workers in various forms; this could be achieved by broadening the definition of ‘employee’ to include any workers whose work arrangements and pay are clearly dependent on the decisions of a major firm. The practices of labour hire agencies also deserve attention, through compulsory licensing and imposition of joint liability (on both the employment agency and the ultimate employer) for employment and safety standards; recent policy initiatives in Queensland and Victoria can be evaluated and extended. Finally, a more ambitious and better-resourced commitment to enforcement of statutory minimums is also essential for ensuring their real relevance – including for vulnerable segments of the labour market (such as migrant workers and international students) who have experienced widespread non-enforcement of minimum wages and other basic protections.

• • The erosion of collective bargaining has been another key factor in wage stagnation and growing inequality in recent years. Industrial relations laws need to be reformed to provide for multi-employer or industry bargaining, so that workers have more ability to counter the lopsided economic power of employers. This seems especially crucial in private-sector industries and in smaller workplaces (where collective bargaining is almost non-existent, as analysed by Pennington, 2018). Limits should be placed on the increasingly common employer practice of terminating EAs during their renegotiation, thus threatening workers with dramatic reductions in compensation and conditions (which could potentially fall back to minimum award levels). Australia’s unique and unusual system of ‘non-union’ collective agreements should also be reformed, to ensure that any collective agreements have the genuine and democratically expressed approval of affected workers. Effective collective bargaining cannot take place without resourced, representative union representation on the workers’ side of the table: current restrictions on union activity (including rights of entry and to take industrial action) must be relaxed for meaningful collective bargaining to occur. Finally, a more timely and effective umpire system needs to be established to ensure that the terms of collective agreements, once agreed, are reliably implemented and respected in workplaces.

• • Contrary to the old slogan, a rising tide does not lift all boats. Years of systematic discrimination, inequality and marginalisation mean that millions of Australians are not positioned to automatically share in the prosperity of an expansionary jobs strategy. To the contrary, proactive measures must be taken to help systematically disadvantaged communities overcome economic and social barriers, and gain full access to their fair share of the decent work resulting from this plan. Specific, targeted measures are needed to support all of these communities with training, job search, recruitment and retention, and lifelong learning, including for workers with disabilities, Aboriginal and Torres Strait Islander communities, new immigrants, young workers, long-term unemployed and women. Attaining more equality in employment outcomes for these groups and others, with consequent benefits for individual, family and community well-being, is an essential part of building a future of decent work for all Australians.

Conclusion

The reform agenda outlined above is comprehensive and ambitious. It could not be legislatively enacted and practically achieved within the term of a single government. Indeed, since it aims to reverse the overarching thrust of an entire generation of neoliberal labour market policy, it would be folly to frame such an ambitious goal within the legislative constraints of a 3-year political cycle. The ACTU’s ‘Change the Rules’ campaign quite explicitly establishes a longer term time horizon, imagining that it will take many years to first shift the views of large numbers of Australians regarding what is fair and reasonable in the world of work – and then crystallising the resulting expectations and demands in the form of specific actionable, winnable policy reforms. The process has to start somewhere, and the widespread frustration that so many Australians rightly feel about their increasingly gloomy employment opportunities, and the apparent disappearance of the national promise of a ‘fair go’, provides fertile ground in which to plant the seeds for long-run, far-reaching change.

The goal is to build, over many years, the political, regulatory and economic foundation for a more interventionist and egalitarian vision of labour market and industrial relations policy.

By aligning all of the policy levers of government in a consistent, comprehensive effort to achieve high-quality, inclusive employment outcomes, the current pessimism and inequality which characterise today’s labour market could be thoroughly transformed.

The existing labour market and industrial relations policy regime has failed Australian workers, in terms of both the quantity of available work and the quality and compensation of jobs. This failure is becoming more visible and acute, as a once-ebullient macroeconomic environment starts to show major cracks. The conjuncture of political change and economic uncertainty creates a circumstance in which policy could change further, and faster, than until recently many believed was possible. It is truly an exciting time for labour market policy.