How Non-Union Agreements Suppress Wage Growth – And Why the Omnibus Bill Will Lead to More of Them

by Alison Pennington

The federal government’s omnibus Industrial Relations bill proposes sweeping changes to labour laws which will generally enhance the power of employers to hire workers on a just-in-time basis, and will put further downward pressure on Australian wages (already growing at a record-low rate). One outcome of the bill will be an acceleration of enterprise agreements (EAs) written unilaterally by employers, without negotiation with any union. These non-union EAs will be favoured for several reasons if the omnibus bill is passed: EAs will be exempted from the current Better Off Overall Test, employer-designed EAs will be subject to less scrutiny at the Fair Work Commission, and employers will have less stringent tests to ensure their proposed EAs are genuinely approved by affected workers. All of these changes will lead to a significant increase in employer-designed EAs that reduce compensation and conditions, rather than improving them – signalling a return to the WorkChoices pattern of EA-making.

In a new report, Centre for Future Work Senior Economist Alison Pennington assesses the major ways in which the IR bill will accelerate non-union EA-making, and considers three specific ways this in turn will undermine wage growth in Australia compared with existing collective bargaining laws.

Main findings of the report include:

  • The omnibus bill’s proposals to exempt agreements from the Better Off Overall Test (BOOT), reduce scrutiny by the Fair Work Commission (FWC) and weaken employer obligations to demonstrate that their staff have genuinely agreed to the EA will increase the number of non-union employer-designed EAs.
  • Wage increases under non-union EAs are consistently and significantly lower than in union EAs – on average 1-percentage-point lower than for union-covered EAs since 2010.
  • Alarmingly, the majority of non-union EAs approved 2006-19 did not specify any wage increases at all, instead linking wage increases to non-legislated measures like CPI, minimum wage decisions by the FWC, or entirely to employer discretion.
  • In addition to lower (or no) wage increases, the average duration of non-union EAs is longer than for union EAs, locking in their inferior wage outcomes for longer periods of time.
  • Australia’s experience under WorkChoices when similar policies were implemented demonstrates that if the proposed measures are introduced, both the number of non-union EAs will increase, and the share of EAs without any specified wage increases will grow.
  • Since the majority (66%) of the current EA stock consists of higher-wage union agreements, any increase in the number of lower-wage, non-union EAs would increase their proportion within the total EA stock, reducing rather than lifting wages and conditions delivered through EAs overall.
  • Importantly, non-union EAs delivered significantly worse wages outcomes even while the BOOT was in place. The government’s proposal to exempt EAs from the BOOT will open the floodgates for employers to rush the approval of EAs that undercut Award wages, further suppressing wages growth in 2021 and beyond.
  • The BOOT exemption is proposed for a period of two years, but in reality, the terms of EAs negotiated under the BOOT exemption could stay in effect for many years afterward. This is because EAs continue to apply after their formal expiry date unless they are renegotiated or terminated.
  • The overall share of workers covered by EAs will likely increase if the measures pass. But since more of those EAs will consist of sub-standard, lower-wage deals, Australia’s current record-low wage growth will get worse, not better.

Full report