A new Carmichael Centre report by David Peetz considers why wages growth has been so low, despite a tight labour market and a brief surge in inflation.

Asking why has there been no wages explosion, Peetz finds the answer lies in loss of power.

The report documents how workers have lost power in the past two decades, with almost every change in the economy taking away workers’ bargaining power.

From 2014 to 2022 most government policies took away workers’ bargaining power. The most recent industrial relations reforms in 2022-2024 shifted the pendulum back some way towards workers. These laws increased workers power and have also boosted wages growth.

The analysis shows that all workers have had their wages damaged by lack of power. And all workers have been able to recover some ground since the recent industrial relations laws have come into effect.

• Australian workers can no longer obtain the wage increases that they previously could from wage negotiations. Workers do not contribute to inflation.
• Changes in power have combined to normalise low wages growth, for both union and non-union workers, even in tight labour markets. Of 16 developments in the labour market and economy over the past 50 years, 14 signalled deterioration in worker power, one an improvement in power for female workers only, and one an improvement only from 2010 until 2023 (lower unemployment).
• The one countervailing force in recent times has been public policy which, since 2022, has led to some increases in workers’ power. Analysis of 34 policy events showed that the majority of those before 2022 further reduced workers’ bargaining power, while almost all of those since then have increased workers’ power.
• In March 2014 wages were 53.0% of national income, but by December 2022 they had fallen to just 50.3%, before recovering to 53.5% by September 2024.
• Wages grew at a little over 2% per year through most of the period from 2013-14.  After September 2022, they grew more quickly, to over 4% per annum throughout 2023-24.
• The wage gains associated with increased worker power are not just restricted to unionists, but they are likely greater for unionists than non-unionists.