The Centre for Future Work at the Australia Institute has released a new report showing the proportion of workers in the private sector that are covered by enterprise agreement has fallen from 19% in 2013 to 12% in 2017. It also shows that the number of private-sector employees who are covered by enterprise agreements has declined by more than 660,000 since 2013, and concludes that if the current trend continues, fewer than 2% of private sector employees could be covered by enterprise agreements by 2030. And this will further lower wages:
The number of current enterprise agreements (EAs) in operation across Australian workplaces has been noticeably declining since 2014. The WAD includes agreements within their formal periods of operation. In practice, the terms and conditions of employment reached in an EA can ‘roll over’ after their formal expiry date (although expired EAs do not usually specify ongoing wage increases); however, the WAD data only records non-expired, current EAs.
Figure 3 presents quarterly data on the total number of EAs current since the introduction of enterprise bargaining in 1991. EA-making rose consistently from the early 1990s, declining in 2005 with the introduction of the WorkChoices reforms8, before increasing again in 2009 and 2010. After almost two decades of growth, the number of current EAs then stagnated until 2013 at around 23,000 EAs, and then began to drop sharply. The number of current EAs in Australia plummeted after 2013, with total current agreements now at their lowest point since 1999. As of June quarter 2018 there were 12,832 current EAs in effect.
The marked decline in the number of EAs has naturally resulted in a decline in the number of employees covered by EAs (Figure 4). As more agreements were made throughout the 1990s, employee coverage under EAs rose consistently to 2009; coverage then spiked with the introduction of the FW Act in 2009, when around 800,000 more employees entered EA coverage. Total employee coverage plateaued at around 2.6 million from around 2010 to early 2014, and then began to steeply decline. Total employee EA coverage is now lower than it was when the FW Act was introduced, at around 2 million covered workers.
The rapid increase in coverage during the early years of the FW Act took place alongside the transferral of the majority of industrial relations powers by the States to the Commonwealth in 2009 (with the exception of Western Australia), and the creation of a single national industrial relations system. At this point, many Statebased EAs were recorded in the WAD for the first time. However, it is not only a change in definition of what constitutes a ‘federal’ EA that explains the increasing number of employees covered by EAs at that time: new statutory mechanisms introduced in the FW Act also clearly improved unions’ ability to access bargaining, convince resistant employers to participate in bargaining, and hence increase EA coverage. However, any momentum built in those early years was short-lived; total employee EA coverage plateaued by 2010, and then declined substantially beginning in 2014…
Figure 9 presents EA coverage as a proportion of the total workforce by the private sector were covered by a current EA in 2017. For the public sector, we estimate that the percentage of employees covered by current EAs has declined by 5 percentage points, although from a much higher starting point: from 38 per cent coverage in 2013 to 33 per cent coverage in 2017…
The decline in the replacement of EAs, the virtual disappearance of new EAs and the dramatic increase in EA terminations each serve to reduce the number of current EAs in effect. Together, however, their combined impact on private sector collective bargaining is dramatic and daunting…
Consequences of the Decline in EA Coverage
One obvious consequence of the decline in EA coverage has been a slowdown in the growth of wages…
Since 2013, the wage growth premium enjoyed by workers covered by private sector EAs has widened substantially. While wage growth has decelerated for both the WPI and the AAWI, the slowdown in wages was markedly less severe for workers covered by an EA. Since 2014 annual wage increases specified in EAs have exceeded private sector wage growth measured by the WPI by about 1 percent per year; this translates into billions of dollars of additional income for private sector workers who still enjoy EA coverage. However, due to the dramatic decline in private sector EA coverage, this wage growth premium can only exert a smaller impact on overall wage trends. Hence, the erosion of private sector EA coverage since 2013 has contributed importantly to the overall slowdown in wage growth since then…
So basically, workers on enterprise agreements tend to have higher pay and stronger wage growth than those on awards. Thus, the declining coverage of enterprise agreements helps to explain the decline in Australian wages growth.
Moreover, the Centre for Future Work projects that enterprise agreement coverage will continue to shrink in the future, thus further dragging down wages.
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In other words: more bad news for Australian workers.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
