Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 2002 17

WAGES AND WAGE DETERMINATION
IN 2001
MARTIN J. WATTS*

T

he number of employees covered by certified agreements increased during 2001, but
wage determination remained fragmented. The inflationary impact of higher oil
prices and the depreciation of the Australian dollar in the second half of 2000, when the
economy was also absorbing the impact of the GST, threatened the wage targets of the
Reserve Bank. Contrary to expectations, wage growth remained modest. The Commission
again adopted a compromise Safety Net Decision in May.
The review concludes that, notwithstanding the improvement in the conditions of
employment of some non-standard employees following successful cases brought to Federal
and State Commissions, the balance of forces between employers and employees has fundamentally shifted over the last decade and this has impacted on wage outcomes. This
reflects a combination of workplace reform, in particular the Workplace Relations Act,
and the associated structural change in the labour market.
Wages in 2001 continued to be determined in a fragmented manner via the award
safety net, union and non-union certified agreements and individual contracts.
Wage growth was modest and within the Reserve Bank’s target range, so that,
despite the impact of the introduction of the GST in July 2000, high oil prices

and the low value of the Australian dollar, inflationary pressures remained relatively weak throughout 2001. Consequently the Reserve Bank’s main concern
was maintaining the momentum of economic growth through interest rate cuts
at a time when the growth rate across the OECD countries was declining (OECD
2002), accentuated by the uncertainty created by the terrorist attacks in early
September. Australia’s growth rate proved more resilient, although there were a
number of important corporate collapses during the year, including HIH, OneTel and Ansett Airlines.
The equity of the wages system was again under the spotlight in the annual
Safety Net Case in May 2001 with many of the same economic and social arguments being mounted as in 2000. The Commission again found the middle
ground between the claims of the ACTU and the Joint Coalition Governments
(the Federal Government and the Governments of the Northern Territory and
South Australia). In a difficult market environment, a number of companies,
including Qantas, attempted to freeze or, in the case of the Kilcoy Pastoral
Company, even reduce the nominal wages of their employees, thereby cutting
their real wages.

* Centre of Full Employment and Equity, The University of Newcastle, Callaghan, NSW 2308, Australia.
Email: ecmjw@alinga.newcastle.edu.au

THE JOURNAL OF INDUSTRIAL RELATIONS, VOL. 44, NO. 2, JUNE 2002, 228–246

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During 2001 a series of decisions made by the Federal and State Industrial
Relations Commissions (IRCs) improved the conditions of employment of nonstandard employees, despite the opposition of the Federal Government. Federal
Government legislation, including the Workplace Relations Act (1996), however,
along with structural changes in the labour market, some of which have
accelerated since the introduction of enterprise bargaining, appear to have
fundamentally shifted the balance of power, with unions unable to provide real
protections to their members (Long 2001). In the following sections I shall
examine the trends in wage outcomes in the context of the macroeconomic

environment and also examine some of the industrial relations developments in
more detail.

THE

MACROECONOMIC BACKGROUND

The growth prospects of the world economy deteriorated during 2001, with
the USA entering recession after a long period of boom conditions, and low
unemployment rates. The annual OECD growth rate fell from 3.8% to September 2000, down to 0.8% over the following year (OECD 2002). The
Australian economy proved to be more resilient with the corresponding growth
rates being 3.04% and 2.45% in the 12 months to September 2001 (RBA 2002).
Wage growth of 3.5%–4.5% during the year was at the lower end of the Reserve
Bank’s acceptable range (RBA 2001).
The wage outcomes in 2001, which are outlined in the next section, should
be understood in the context of the underlying institutional arrangements, reflecting legislative changes and AIRC and Federal Court decisions, and against a backdrop of the underlying macroeconomic conditions.
Monetary policy
The annual rate of inflation for 2000 was 5.8%. The underlying rate was just
above 2%, if the GST effect was excluded, which was lower than expected. Despite
high oil prices, the weak Australian dollar and the possible flow through of higher

import prices, price inflation remained low, because the capacity of firms to pass
on rising costs was inhibited by the weakening in demand. Thus the Reserve Bank
was not confronting a stagflationary environment that would have posed greater
problems for policy making.
In contrast to the previous calendar year, when the Reserve Bank imposed four
interest rate increases in response to the fast growing domestic economy, the Bank
implemented a series of six cuts over calendar year 2001, bringing the cash rate
down from 6.25% to 4.25%. This relaxation of monetary policy largely reflected
the slump in GDP in the December quarter of 2000 and the projections of slower
economic growth, mainly reflecting the impact of the previous interest rate
increases, the transitional impact of the GST on the timing of expenditures and
the slowing of the international economy. The timing and size of the rate cuts
in Australia reflected in part the ten cuts in interest rates by the US Federal
Reserve from 6.50% to 2% over the year and falling confidence following the
terrorist attacks.

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Analysts noted that policy makers showed a greater willingness to make substantial and swift shifts in monetary policy than was the case until the mid-1990s.
This could merely reflect the more stable inflationary environment and the
reduced likelihood of a sharp change in international projections of growth.
The inflation rate was 2.5% to the September quarter 2001, but the Reserve
Bank estimates that it had increased to 3.0% by November, following cost pressures, reflecting the decline in the exchange rate since 1999 and higher oil prices
(RBA 2001: 66). The inflation outlook remains uncertain, but there is no
evidence of wage pressures. Import prices have declined, possibly due to weakening global demand, but reductions in oil production may force oil prices up
again. On the other hand, commercial insurance premiums have increased significantly since the events of September, and wholesale electricity prices have also
risen (RBA 2001: 66–67). Projected annual growth to June 2002 was 3%, despite
the reduced growth of the international economy.

WAGE

DETERMINATION IN

2001

In this section we examine the coverage of different forms of wage determination and the associated rates of money wage growth, along with the institutional
and legislative developments during the year which have impacted on the process
of wage determination.
The coverage of agreements
The first comprehensive ABS data set on the distribution of employees across
different types of Federal and State agreements and the associated rates of pay
was released in March 2001 (ABS 2000). It revealed that in May 2000, the most
common form of wage setting was unregistered individual agreements (38.2%)
which included over-awards, followed by registered collective agreements
(35.2%) and awards only (23.2%). Wooden (2001a) argues that workers who
receive pay over and above that specified in a registered collective agreement
would be classified as being subject to an unregistered agreement, so the extent
of registered collective agreements may be understated. Registered individual
agreements (1.8%) and unregistered collective agreements (1.5%) were the least
common pay setting methods (ABS 2000: 44).
Carlson et al. (2001) note that unregistered agreements are essentially common law contracts. The Workplace Relations Act (WRA) was designed to shift
labour relations away from specialised tribunals into the common law domain.

Golden (2000) argues that the non-registration of agreements could make their
enforcement difficult if challenged.
Registered individual agreements in the public sector (3.0%) covered twice the
share of employees as compared to the private sector (1.5%). Registered collective agreements dominate public sector wage setting (83.2%), while unregistered
individual agreements are most significant in the private sector (54.2% of males,
and 40.9% of females). Also awards covered nearly 30% of females compared to
17% of males.

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Male and female part-time employees were more likely to be subject to awards
(39.9% in total) and less likely to be operating under unregistered individual
agreements than their full-time colleagues (ABS 2000: 45 and unpublished data).
This disparity is reflected in a significantly higher percentage of male and female
full-time workers who were subject to individual registered and unregistered
agreements.
Individual agreements, both registered and unregistered, predominated in firms
with less than 100 employees, whereas collective agreements, both registered and
unregistered, covered the highest percentage of employees in larger firms.
For all employees, individual agreements are associated with the highest mean
average weekly total earnings (AWTE). Using the shares of total employment
by occupation in May 2000 as uniform occupational weights in the calculation
of the AWTE for all employees across different types of agreement shows that
collective agreements yield the highest mean wages. Thus the incidence of different bargaining streams across occupations is a major influence on the overall
wage relativities between individual and collective agreements.
The ABS data, while a good source of detailed cross-sectional information
across both State and Federal registered agreements, as well as unregistered agreements, do not provide an indication of trends in the types of agreement being
negotiated and these data are only generated every two years. These data from
May 2000 would be a good guide, however, to the pattern of coverage in 2001.
On the other hand, more recent data on coverage by different types of agreement are fragmented. The Department of Employment, Workplace Relations

and Small Business (DEWRSB) collects data on registered Federal agreements
and the Australian Centre for Industrial Relations Research and Training
(ACIRRT) collects data on registered State and Federal agreements.
New Federal enterprise agreements in the September quarter represented 2.1%
of total employees, whereas employees covered by all existing Federal agreements
represented 17.9% of all employees (DEWRSB 2001). This compared with an
estimated 37% of all employees covered by agreements registered by both
Federal and State Industrial tribunals in May 2000 (ABS 2000). There were
11 755 Federal wage agreements current at 30 September 2001, covering an estimated 1 362 100 employees. ACIRRT (2001: 6) report that 3504 employers had
AWAs approved to the end of August 2001. Next year will be challenging because
over 6300 private and public sector Federal agreements will be expiring
(DEWRSB 2001).
Money wage growth
Since the advent of enterprise bargaining it has become very difficult to interpret aggregate wage data. Many employees have unregistered agreements, wage
increases may be granted in exchange for trade-offs in other conditions and there
are major compositional changes occurring in the workforce (Burgess 1995).
During 2001, wage growth was modest with the annual growth rate to
September 2001, as measured by the Wage Cost Index, being 3.6% (ABS 2001a).
This rate was at the bottom end of the Reserve Bank’s target band of 3.5%–4.5%
and confirms that, over the year, wage increases have not created excessive

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inflationary pressure, which could have led to a tightening of monetary policy.
The index measures hourly wages net of bonuses and, in contrast to measures of
average weekly ordinary time earnings (AWOTE), is independent of compositional changes, because it is based on a fixed basket of jobs, which, however,
includes part-time jobs. As noted above, wage determination for part-time
employees differs markedly from that of full-time employees. Annual increases
in the index ranged from 4.5% for Electricity Gas and Water to 2.3% for Retail
Trade. The other ANZSIC industries each averaged in excess of 3% growth.
DEWRSB (2001) also reported that there was no evidence of an acceleration
of wage growth during 2001, with Federal wage agreements formalised in the

September quarter paying an average annualised wage increase (AAWI) of 3.9%,
the same rate as in the June quarter. The AAWI per public sector employee in
the September quarter 2001 was 4.0%, as compared to the private sector increase
of 3.8%. The AAWI per employee to the September quarter for all existing agreements was slightly lower at 3.7%. In September 2000, the AAWI for new Federal
agreements exceeded 4.0%, based on the DEWRSB (2000) survey, but otherwise the implementation of the GST in July 2000 appears to have had little residual impact on wage settlements in the subsequent quarters.
Figure 1 shows quarterly AAWIs for agreements formalised in the corresponding quarter across industry groups from March 1998 to September 2001.

Figure 1. AAWI per Employee of Federal Agreements formalised within the
Quarter by Industry Group, March 1998–September 2001

Notes: Manufacturing and construction are equivalent to the ANZSIC industries. Commercial services:
wholesale; retail; accommodation, cafes, restaurants; transport; communications; electricity, gas and
water; finance and insurance; property and business; cultural and recreation; and personal and other. Noncommercial services: education and health, government administration and defence and community
services.
The AAWIs are calculated as a weighted sum of the AAWIs per employee per ANZSIC industry with
the weights given by the corresponding employment shares.
Source: DEWRSB (2001, various issues), author’s calculations.

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Construction and manufacturing consistently yield the highest AAWIs. Noncommercial services have exhibited major fluctuations over this period, which is
surprising given that this industry group consists of public sector employment.
Commercial services have generally exhibited the lowest AAWI, but this group
comprises somewhat heterogeneous industries, ranging from Wholesale and
Retail Trade to Finance and Insurance.
ABS trend estimates reveal that full-time adult AWOTE for males and females
rose by 5.1% and 5.8% respectively in the 12 months to August 2001, whereas
full-time adult total earnings for males and females rose by 4.7% and 5.2% respectively (ABS 2001b). There have been fluctuations in the gender AWOTE ratio
for full-time adults over the last decade, but it has remained between 83 and 85%,
based on a four quarter moving average (Preston 2001b). In August 2001 the
ratio for the quarter was 84.7% (ABS 2001b: 4). Full-time AWOTE for the private and public sectors rose by 5.6% and 5.1% respectively over the same period
(ABS 2001b). Thus there was a discrepancy between relative annual rates of
growth of wage costs and AWOTE growth. Full-time adult AWOTE of $837.60
in August 2001 were more than double the new Federal minimum wage of
$413.40.
The modest annual increase in the Wage Cost Index to September and the
similar increase for all Federal agreements over this period would imply that
State registered agreements and unregistered agreements have also exhibited a
modest increase over this period.
The September 2001 issue of the quarterly ACIRRT ADAM report was available at the time of writing. It provided data for agreements made in the June
2001 quarter. The report revealed that industry AAWI for all current collective
agreements at the end of June 2001 lay in the range of 3.3% (Agriculture,
Community Services, Recreational and Personal Services) and 4.5% (Mining/
Construction) (ACIRRT 2001: 5).
Disabled workers employed under the supported wage system were granted a
minimum $3 per week pay increase in May by the AIRC, following an application by the ACTU. This raised the minimum wage to $53 per week (Workforce
2001, 1304, May 18: 3).
Limited data are available for wage outcomes under AWAs. For currently operating AWAs approved to the end of 2000, based on a sample of 83 AWAs, the
average annual wage increase was 2.2%, with the public sector rate being 3.1%
and the private sector rate 1.9% (ACIRRT 2001: 6).
Mercer Cullen Egan Dell (2001) reported that the annual increase in office
workers’ wages to September was 4.4% and the growth in executive salaries
remained about 4.75%. The difference between the annual rates of growth of
public sector senior managers’ base salary and adult AWOTE has declined over
the last decade, but the absolute difference continues to increase. The effective
increase in the former would be understated due to share options and other
benefits. During 2001 there were cuts to performance bonuses which reduced
the packages of some high profile executives (Cave 2001).
The percentage of all employees covered by a current Federal agreement that
incorporated a CPI related clause continued to decline, being 11.8% in the

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September quarter 2001 after reaching a peak of over 13% in December 2000.
The percentage of agreements formalised in the quarter that included CPI related
clauses peaked at over 18% in December 2000. The decline in the percentage
of new agreements with CPI related clauses signifies less concern on the part of
employees about the future rate of inflation. It would also tend to reduce the
inertia in the prevailing inflation rate.
The living wage case
In November 2000 the ACTU filed its Living Wage Claim under the Workplace
Relations Act (1996). The peak body requested a $28 per week increase in award
rates of pay up to and including the equivalent of skill level classification C10 in
the Metal Industry Award and a 5.7% increase in the higher classifications (AIRC
2001: para 2). The Labor State Governments (LSGs) supported the ACTU’s
claim, but gave the Commission some latitude to reduce the adjustment to awards
(AIRC 2001: para 9).
The Joint Coalition Governments (JCGs) rejected the ACTU claim, arguing
that an increase of $10 should be available, on application, to minimum classification rates at or below the C10 classification, to be fully absorbed into overawards including those from enterprise agreements and informal overawards (JCG
2001: para 1.12). All industry groups favoured a more modest increase, with
increases confined to lower paid workers (AIRC 2001: para 5). It was observed
that the number of employees covered by awards had fallen from 68% 10 years
ago to less than 25% in May 2000 (JCG 2001: para 2.1).
An analysis of the arguments presented to the Commission is insightful because
it conveys the underlying beliefs of the major players about the functioning of
the wage system. However, they tend to embellish and repeat their arguments
from previous Safety Net Cases.
Some of the major issues addressed in the submissions were 1) the magnitude
of the ACTU’s demand, and its impact on the macroeconomy; 2) the economic
outcomes of low wage workers; 3) the identity of the workers who would
benefit from the Safety Net Adjustment (SNA); and 4) the appropriateness of
the wage system, rather than the social security system, in addressing the needs
of the low paid. We address each of these issues briefly below.
1. Macroeconomic conditions
The AIRC concluded that there was little dispute about the major factors contributing to the slowdown, namely: ‘the transitional effects of the GST, evident
most strongly in building and construction sector activity, the lagged effect of
tighter monetary policy of late 1999 and early 2000 and the impact on the
timing of economic activity related to the Sydney Olympic Games’ (AIRC 2001:
para 44), but the parties disagreed over the future macroeconomic prospects. The
AIRC also noted that with the exception of the 3rd quarter of 2000, the AAWIs
of all current Federal agreements were less than 4% (AIRC 2001: para 52).
The JCGs and industry groups emphasised the sectoral impact of the ACTU’s
claim which would reflect the incidence of enterprise bargaining and over-awards,
as well as the effect on the employment of employees receiving safety net increases.

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The JCG noted that only 1.2% of award recipients were employed in the four
highest productivity growth sectors, whereas 45% of recipients were employed
in three of the four lowest productivity growth sectors. On the other hand, drawing on a recent paper by Gruen (2000), the AIRC claimed that the sectors with
a high proportion of award-reliant employees made a significant contribution to
the increase in overall productivity growth (AIRC 2001: para 56). The AIRC
concluded that there has been a general increase in productivity growth in all
sectors1 with the low productivity sectors contributing the most to the growth
in productivity. Of key importance here is the margin between productivity per
worker and the corresponding award wage, along with fixed costs per worker.
This is not revealed by examining just the distribution of productivity and wage
increases across sectors.
In recent econometric work, Mitchell et al. (2002) found that productivity
growth across industries had only been partly passed on in the form of lower
prices and/or higher nominal wage outcomes in Australia over the period
1984–2001. Thus businesses had been using the productivity gains to expand their
margins. The share of the gross operating surplus out of national income remained
high, but profits growth over the 12 months had slowed prior to the Living Wage
Case (AIRC 2001: para 58) which would reflect the slower growth of output.
The JCG noted that the ACTU’s claim across the different job classifications
was much higher than the prevailing growth in the Wage Cost Index (JCG 2001:
Table 6.1). The SNA decision would flow on to 1.8 million employees directly
or indirectly via State cases. Partial wage increases would also occur where the
prevailing over-award was less than the SNA. A number of parties noted that
flow-on might occur to rates of pay under agreements and to over-award payments, due to strong bargaining by workers seeking to maintain intra-firm
relativities, particularly if individual firms operated more than one system of pay
determination (JCG 2001: para 6.5). Also Safety Net Adjustments were sometimes passed on by employers when they were not required to do so. On the
other hand, not all award recipients received SNAs.
Both the ACTU and the JCG arrived at estimates of less than 1% growth of
aggregate wage costs arising from the ACTU’s claim, but the Commission noted
that there was no completely reliable and accepted cost estimate (AIRC 2001:
para 82).
The AIRC (2001: para 65–66) concluded that the economic fundamentals were
sound but there were weaknesses in some sectors, as well as the international
economy, and continuing uncertainty about the effect on business confidence from
the decline in GDP. Thus caution was warranted in the determination of the
Safety Net Adjustment.
2. The level of wages and the extent of poverty
The ACTU and the JCG disagreed as to whether a group of working poor
had emerged. The JCG asserted that many low paid employees lived in
houses where resources could be shared. Award reliant employees could not be
clearly identified in the family income statistics, however, so such claims were
speculative.

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Buchanan and Watson (2000) found that there was a rise in the proportion of
workers on low hourly rates of pay in the 1980s and early 1990s, but that the
SNAs handed down in the late 1990s sustained a floor beneath working poor
and ‘protected workers from worst excesses of deregulation’. The Australian
Council of Social Service (ACOSS) quoted the latest National Centre for Social
and Economic Modelling model for the Smith Family which showed that in 1999,
5% of children and 3.9% of adults living in wage earning households lived in
poverty, but they represented 19% of all people living in poor households (AIRC
2001: para 118).
The Australian Industry Group claimed that low income workers had received
benefits from tax cuts and lower interest rates (AIRC 2001: para 110). This view
implies that award adjustment is an act of charity because it is not the outcome
of market processes, rather being the consequence of a structural flaw in the
current wages system (Watts 2001a). The ACTU pointed out that high wage
earners had not moderated their wage demands due to the tax cuts received from
the implementation of GST, which were heavily biased to the high paid anyway,
so tax cuts to the low paid should not impact on the size of the SNA (AIRC
2001: para 108). Given that the size of the SNA should broadly reflect wage and
productivity trends in the economy, the ACTU argument is justified.
The State Labor Governments (SLGs) and the JCG disagreed about the extent
of earnings mobility at the bottom of the labour market. The SLGs noted that,
with the growth of non-standard employment, low wages were more likely to be
entrenched (AIRC 2001: para 109). In their submission, ACOSS noted that an
adequate minimum wage and social security system were important for the growing cohort of casual and part-time workers, and that intermittent work was prevalent, which blurred the employed/unemployed distinction (AIRC 2001: para 118;
see also Preston 2001b: 169). Intermittent workers were unlikely to benefit from
industry or collective bargaining, given the tenuous nature of employment.
ACOSS argued that the minimum wage should be set above the poverty level
for a single person, to provide a fair reward for work and to preserve work incentives for the unemployed. They advocated a substantial rise in the minimum wage
to ensure it did not fall behind average earnings movements.
The AIRC acknowledged that there were people on low wage incomes who
faced difficulties and this would be taken into account. The exact number of
people in this category was unimportant (AIRC 2001: para 126).
3. The coverage of the SNA
The JCG and some industry bodies continued to argue that any safety net adjustment should be confined to low paid workers (equal to and less than the C10
classification in the case of the JCG), rather than being available to all award
reliant employees. This issue raised the broader question as to the role of the
award system within the broader structure of wage determination.
The AIRC noted that the JCG argument had been put before and rejected.
The reference in the WRA to the adjustment of the safety net requires that
SNA takes account of the needs of the low paid, but this does not displace the
obligation on the AIRC to maintain a safety net of fair minimum wages for all
employees. Also the classification of employees and skill based career paths are

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allowable award matters under the WRA, so they are relevant features of a fair
structure of minimum wages that the AIRC must maintain.
In addition, the system of awards plays an important role in the nodisadvantage test. Under the test, agreements for which certification is required
(under other divisions of the Act) are compared with appropriate safety net awards
to ensure that there has not been a reduction in an employee’s terms and conditions of employment (AIRC 2001: para 137). Waring and Lewer (2001: 2) argue
that, through successive rounds of legislation during the 1990s, the nodisadvantage test has been diluted. Also with award simplification and the growing disparity between award wages and agreement outcomes, the benchmark has
deteriorated, which has further weakened the effectiveness of the test.
The JCG (2001: para 5.21) argue that the structure of awards is, or should be,
irrelevant to most employees in higher job classifications. If an employee is
dissatisfied with her/his job s/he can leave and go to another employer. They
assert that most employees have bargaining power because turnover imposes
costs on employers. An employee who is paid the award lacks effective bargaining power if this represents less than her/his marginal product, and s/he is unable
to move to an employer where the true marginal product will be paid. The
JCG argue that this would be rare for employees who are paid the award
rate and earn more than C10 (para 5.23). This explains why no OECD country
has protection for skilled employees in the form of higher minimum wages
(para 5.22).
Orthodox economic theory underpins the JCG view. Labour is conceptualised
to be a factor of production, which is subject to the impersonal forces of
markets (Carlson et al. 2001). Under common law ‘the worker and employer
should basically be free to decide on the content of their relationship’ (Moore 2000:
140). Thus, following the WRA, the reduced role for tribunals and the decline
in union involvement in the bargaining process is designed to give primacy to
the influence of market forces in the determination of wages and conditions.
Equity and social justice issues are picked up by other legislation (Carlson et al.
2001).
Thus the labour market is alleged to work reasonably well, with the prevailing award structure reflecting the marginal product of most workers in their
corresponding job classifications above C10. If a worker’s value exceeds the award,
then an over-award would be paid, but there is no justification for absorbing the
over-award through a safety net adjustment of the award.2 Watts (2001a) challenges the primacy of market forces in determining wages and conditions in the
workplace and notes that efficiency and pay equity dictates that the principle of
equal work for equal value is fulfilled. This requires the presence of a strong,
centralised body, which is the antithesis of JCG’s views on wage determination.
Thus, in summary, the failure to adjust all awards through the Living Wage
Case would mean that relative awards would no longer reflect the skill, responsibilities and conditions of employment required in different jobs, and some
awards would become increasingly irrelevant to wage determination and no longer
a benchmark for the no-disadvantage test. The coherence of the whole structure
of awards remains important. Preston (2001a) argues that if relativities are misaligned then worker effort and industrial unrest are adversely affected.

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The AIRC reaffirmed its view from its May 2000 decision that the cut-off at
C10 would not better target the benefits of the SNA, but the SNA did assist in
meeting the needs of the low paid. The presence of two or more wage earners
in a family meant that there was no longer a simple relationship between the
employee’s income and household income (AIRC 2001: para 127).
4. Wages v. social security
The JCG argued that unemployment was the main cause of poverty, rather than
low wages, and that the ACTU claim could raise unemployment, particularly for
low wage employees for whom there is a high elasticity of demand. The Australian
Industry Group was quite explicit that any social problems of the low paid should
be addressed by the social security system (AIRC 2001: para 110).
If the problems of the low paid were to be resolved via social security benefits, indexed to average wage growth to allow for real growth, then higher paid
award reliant employees, who were unable to negotiate wage increases, would
still be neglected. Watts (2001a: 188) noted that, despite its resistance to significant wage increases for the low paid, the JCG had shown little interest in the
proposals of the Five Economists to freeze the awards of the low paid and provide tax credits for those in employment (Dawkins et al. 1998). Both Apps (2001)
and Inglis (2001) are unconvinced that the introduction of an income tax credit
system in Australia could be justified.
The decision
In its fifth Safety Net Adjustment since the Workplace Relations Act (1996), the
Commission awarded a $13.00 per week increase in award rates up to and including $490.00 per week; a $15.00 per week increase in award rates above $490.00
per week up to and including $590.00 per week; and a $17.00 per week increase
in award rates above $590.00 per week. The Federal minimum wage was increased
by $13 to $413.40 per week. The usual conditions applied, including the full
absorption of the award in over-awards. The AIRC concluded that given the
pipeline effect of the May 2000 SNA, their 2001 SNA decision would not
materially affect the aggregate rate of wages growth. In late October 2001 the
ACTU foreshadowed an application to the Commission to increase all award
workers’ pay by $25 per week. This claim will be heard at the next Safety Net
Review in 2002.
Wage inequality
JCG (2001: Table 4.7) document the long term increase in wage inequality with
increases in the decile ratios (D5/D1 and D9/D1) for Australian male and female
full-time adult non-managerial weekly earnings over the period 1975–2000 (see
also Watts 2001b and references therein). The ratios for the decade 1990–2000
increase more in absolute terms than those for the decade 1980–1990. Wooden
(2000: 145) found that there was a marked increase in dispersion after 1994, at
a time when enterprise bargaining was accelerating (see also Preston 2001b: 169).
Watts (2001b) argues that there is no evidence that a relative deterioration of
relative full-time adult earnings in the low wage occupations over the period
1986–96 contributed to the expansion of employment in those occupations.

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Figure 2.

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Distributions of AWTE for full-time adults, May 2000

Notes: C A/MENTS denotes registered and unregistered collective agreements; I A/MENTS denotes
registered and unregistered individual agreements; AWARDS denotes awards only.
Source: Carlson et al. (2001).

Figure 2 shows the Average Weekly Total Earnings distributions of full-time
adult employees in May 2000 under different forms of pay setting (see Carlson
et al. 2001). Given the predominance of registered collective agreements as a share
of total collective agreements and the high share of individual unregistered agreements, Fig. 2 largely represents a comparison of registered collective agreements
and unregistered individual agreements. Both distributions are positively skewed.
Carlson et al. (2001) find that collective agreements for males and females not
only yield higher median and mean wages but also lower Gini ratios than individual agreements for both total and non-managerial full-time adult employees.
These results do not provide clear insights as to the impact of different
methods of pay setting on overall wage inequality. The higher inequality associated with individual agreements may not translate into an increase in overall
inequality, because the distributions overlap. Also we only have a snapshot, so
that simple comparisons of wages across different forms of wage setting can be
misleading.
Real wage cuts
One outcome of the recent corporate collapses has been the attempt by some
companies to impose money wage freezes or even cuts on their employees.
Notable examples were at Hewlett-Packard, Qantas, the WA public service and
the Kilcoy Pastoral Company.
In mid-year the 1300 employees of Hewlett-Packard Australia along with the
remaining 86 000 employees worldwide were given the choice of a 10% pay cut
for 4 months, 8 days’ annual leave, a combination of both, a 5% pay cut and 4
days’ vacation, or to do nothing. Few employees accepted a pay cut. Hewlett-

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Packard had already announced it was sacking 1700 people from its global workforce. Despite the cost savings, another 6000 job cuts were announced.
In October, Qantas wanted to impose a wage freeze for 18 months. Ten unions,
representing more than three-quarters of the Qantas workforce, accepted the pay
freeze in principle, in an effort to avoid possible job cuts. In mid-November,
Qantas announced its plans to cut 2000 jobs. The Australian Manufacturing
Workers’ Union and Australian Workers’ Union agreed in January 2002 to a
12-month pay freeze through to June 2002, followed by modest pay increases,
subject to productivity improvements and cost reductions. The deal was rejected
by both Melbourne and Sydney union members, so the dispute remained unresolved at the time of writing.
State civil servants in Western Australia went on a 24-hour strike in November
2001. Union members wanted the public service benchmark set at the 1995 award
rate plus 30%, with 3% adjustments on 1 January 2002 and in 2003. The union
alleged that the Government’s proposal of the award plus 22%, with 3% increases
for the next three years, effectively amounted to a wage freeze. The Government’s
pay proposal aimed to eliminate the different rates of pay within the public
service caused by workplace agreements signed by the former Court government
(Ellul & Ruse 2001).
In mid-December workers employed at the Kilcoy Pastoral Company
abattoir voted in favour of the new work agreement, which entailed longer hours
and lower wages, despite the recommendation of the Australian Meat Industry
Employees Union to reject the agreement. The meatworks had been closed indefinitely in November following the rejection by employees of an earlier enterprise agreement. The new agreement has yet to be certified by the Queensland
Industrial Relations Commission. The union was to make submissions as to
whether the agreement should pass the no-disadvantage test (Green 2001).
In difficult economic circumstances some employers now consider the
redesign of pay policies, rather than simple quantity adjustments such as
redundancies or a reduced working week, but clearly pay cuts could fail the nodisadvantage test and do not guarantee that quantity adjustments do not also occur.
Such initiatives are symptomatic of a shift in the balance of power in industrial
relations over the past decade and the declining impact of the award structure
(see below).
Union bargaining fees
In February the AIRC approved the charging of a $500 service fee to non-union
members by the Electrical Trades Union in exchange for negotiating wage
increases. Most unions saw the fee as consistent with the user pays principle and
a tool to stimulate flagging membership, particularly with the fee often set above
annual union dues, but the fee still allowed non-unionists to contribute to the
cost of negotiations. The Federal Government claimed that the levying of bargaining fees was against the intention of the Workplace Relations Act.
Under the WRA, a union which is registered with the AIRC is the negotiating body for all workers who are eligible to be members of the union, so an
Enterprise Bargaining Agreement covers all workers, whether union members

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or not (Corbett 2001). Under the WRA it is illegal to discriminate against a worker
on the basis of membership or non-membership of a union. Corbett argues that
the non-union member could negotiate either an individual Australian Workplace
Agreement or a common-law contract, but the employer may be disinclined to
negotiate with members of its workforce under different processes.
Using the Australian Workplace and Industrial Relations Survey 1995 dataset,
Wooden (2001b) finds significant union wage differentials across workers from
different workplaces, where enterprise agreements prevail. The subsequent spread
of enterprise based agreements should have enhanced the benefits of union membership but also should encourage management to try to de-unionise their workforces (see also ACIRRT 2001: March).
Individual contracts
In mid-January, the Federal Court upheld the right of BHP Iron-Ore to offer
its Pilbara workforce individual contracts, ostensibly to raise productivity which
was alleged to be impossible if unions were involved. The decision enabled companies effectively to outlaw collective bargaining in favour of individual contracts,
by refusing to deal with unions (Counsel 2001). In November however, the
Western Australian Industrial Relations Commission awarded a 20% pay rise over
12 months to the 500 iron ore workers at BHP (Billiton) who had refused to sign
individual contracts and who had had their wages frozen since 1998. The Commission was dissatisfied, on grounds of equity, at the operation of two different
sets of pay scales after recent improvements to work practices (Norington 2001).3
In May the AIRC ruled that the award was still the appropriate safety net for
greenfield sites. This was in response to two mining companies who had argued
that classification structures in the awards were inconsistent with those developed through AWAs (Workforce 2001, 1303: 3).

INDUSTRIAL

RELATIONS REFORM AND WAGE INFLATION

Under the Accord there were wage targets and coordinating mechanisms which
reduced the degree of uncertainty about the macroeconomic wage outcome. Low
economy-wide wage inflation contributed to low price inflation and improved
international competitiveness. With the increased decentralisation of the wages
system, the timing and size of wage increases became less predictable, although
award reliant employees remained dependent on centralised wage targets.
Watts (2001a) speculated that the wages system would be put to the test in
2001, with the likelihood of increasing wage demands as a result of the inflationary pressures arising from the depreciation of the Australian dollar, the petrol
price increase and the introduction of the GST, in the context of a growing
economy and relatively low unemployment. As noted, the rate of wage increase
has remained relatively stable throughout the year. In this section we explore the
factors that could have contributed to the moderate wage growth in 2001.
Institutional and structural change
In an insightful article, Long (2001) identifies the profound structural and institutional changes in the labour market which have subdued wage growth but led

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to increased wage inequality, despite the long boom of the 1990s and the record
profit share. This was in stark contrast to the wages breakouts of the 1970s and
1980s, following sustained economic growth.
Fewer than 20% of private sector employees are now unionised. The decentralisation of industrial relations which commenced in 1991 was designed explicitly to quarantine enterprise wage agreements, thereby minimising the flow-on
through the network of industrial awards by the tribunals which had characterised
previous wage explosions, including the one at the beginning of the 1980s.
In 1997 the Commission rejected an application by the Transport Workers
Union for an 11% award wage increase for 35 000 truckers, to bring their pay
into line with the rates the union had won from big and medium-sized firms
through enterprise bargaining.
Long notes that, with pay now being set largely at the workplace level, this
nexus between the pay of the strong and of the weak has been destroyed. Thus,
there is a marked disparity in wage outcomes from enterprise agreements which
has led to rising intra-industrial as well as inter-industrial wage inequality, as
shown in Table 1, but even greater disparities were reported by ACIRRT in 1999.
Watts (2000) also found evidence of rising intra-occupational wage inequality
(polarisation) in the male dominated major occupations of Managers and
Administrators, Tradespersons and Plant and Machinery Operators over the
period 1986–95. In addition, the safety net increases for award reliant employ-

Table 1 High and low average annual wage increases (AAWI) in current operating
agreements, by industry
Lowest Wage
Deals

Highest Wage
Deals

11.0
10.5
6.1
14.1
10.6
7.2
7.5
11.3
9.0
8.7
9.0
9.0

1.0
0.7
0.3
0.7
0.7
1.4
1.0
0.8
0.7
0.3
0.5
0.5

Mining
Construction
Food, beverage & tobacco manufacturing
Metal manufacturing
Other manufacturing
Electricity, Gas and Water
Wholesale/retail
Transport/storage
Financial services
Public administration
Community services
Recreational & personal services

Note: Current agreements are all agreements that had not reached their stated nominal expiry date at
the end of September 2000.
Source: ADAM Database, 2000, ACIRRT, University of Sydney.

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ees have been below the level of average wage increases, with the May 2001 Living
Wage Case, for example, yielding 3.25% for workers on the minimum wage. The
absence of a relevant and meaningful set of awards facilitates a widening of the
intra-occupational and intra-industrial wage distributions.
Non-standard employment has grown as a share of total employment with,
for example, annual part-time employment growth of 4.4%, compared to fulltime growth of 1.2% between October 1978 and October 2001 (ABS: The Labour
Force). A much higher percentage of part-time employees are casual than fulltime. Casual employees have less security and lower rates of unionisation and
hence less bargaining power. Also increasing numbers of workers are being
employed on a contract basis. In responding to competitive pressures, employers have taken the low wage, low productivity option by culling their permanent
workforces to cut costs and maximise labour flexibility. Compulsory competitive
tendering has reduced labour costs by forcing public sector employees to bid for
their jobs against private-sector service providers. In the manufacturing industry, tradesperson jobs have been contracted out to labour-hire employees who
are required to work more flexibly and do not impose the fixed costs of permanent employment. These developments have led to a shift in power in favour of
management.4
Long notes that research by the Melbourne Institute reveals that the objective of downsizing appeared to be the implementation of a new business strategy to make companies lean and flexible, rather than being a response to falling
profits or declining market shares. Prime aged males are most likely to lose jobs,
and find it difficult to secure new jobs. Women have secured most of the new
jobs in low paid, casual jobs. Finally job insecurity and the prospect of losing
entitlements5 have also been a factor in the reduction of the growth in wages.
During 2001, there were a number of significant rulings by the Federal and
State Tribunals which, while not reversing the shift towards workplace bargaining, improved the rights of some marginal groups. These included decisions about
the status of casual employees and their access to unpaid leave and the status of
subcontractors. Also the granting of generous paid maternity leave provisions to
general staff at the Australian Catholic University (ACU) in August 2001 promoted an important debate as to whether parental leave provisions should be
negotiated workplace by workplace or legislated federally.
Following the Federal Election in November, the Coalition Government proposed to remove casuals’ access to unfair dismissal remedies to exempt small businesses from unfair dismissal claims, and to outlaw the $500 bargaining fee levied
by unions on non-union workers following the unsuccessful appeal by the
Employment Advocate against union bargaining fees in October (O’rourke 2001).
The Government will also help workers recover employee entitlements, including payment of unpaid wages and annual and long service leave, from insolvent
employers, but the scheme will not be funded by employers. O’rourke (2001)
quotes Callus who argues that it is proving more difficult for unions to provide
real protections, such as job security and entitlements, but unions are more successful in delivering on family friendly issues.

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CONCLUSION
Despite the presence of inflationary pressures, wage growth was moderate in 2001,
but there was evidence of increased inequality. The Federal wages system remains
fragmented, even though the incidence of enterprise agreements continued to
increase. The attempts of some employers to force workers to accept AWAs was
stymied by the AIRC and the Western Australian Tribunal. The structure of
awards became less relevant to wage setting with modest increases again granted
by the AIRC at the Living Wage Case.
The momentum of labour market reform slowed with the Federal Government
attempting to fix up loopholes in some of its regulations, including those relating to unfair dismissal and to small business. Some of their efforts were frustrated by the Federal political process and through decisions by the AIRC. In
addition, the predominance of Labor State Governments frustrated attempts to
achieve a unified industrial relations system. Indeed re-regulation of the
Victorian and Western Australian systems is occurring.
There is evidence of a profound shift in the balance of power in industrial relations at least at the Federal level, but further research is needed. The outlook
for an equitable wage d