Enterprise bargaining is broken. It’s time to upgrade to the industry level

We’re more than a month into the financial year but it’s already clear the new payroll sheets aren’t showing meaningful gains for Australian workers.

The long-term decline in workers’ share of national income has flummoxed classical economists averse to political considerations such as power and ideology. The Productivity Commission drew up a long list of possible contributors, including spare labour market capacity (for the non-wonks: not enough quality jobs on offer for workers to feel confident demanding a raise or quitting) and temporary migration.

But even as many of those conditions have abated — unemployment recently hit new lows and our borders are shut to foreign workers — business leaders remain intransigent. The Reserve Bank has recently made relatively rosy predictions for the broader economy but sees little good news on wages.

It is leading many to question whether corporate Australia has developed a cultural pathology of miserliness. They loudly bemoan “labour shortages”, but the real dearth of talent appears to lie in obstinate C-suites, whose post-GFC playbook is hurting their own organisations by subduing consumer demand.

We must then ask: is it time to take matters out of the bosses’ hands?

Unions hunting for a better bargain

Australian executives can exert such a drag on wages because our industrial relations system affords them a prominent role in wage setting.

Enterprise bargaining — the negotiation of wages between the workers and management of single organisations — was made the centrepiece of our IR system by the Keating government in 1993. This transition was supported by some unions at the time, who thought their members might be better off.

This was clearly a strategic error, as the pitfalls of the dispersed model have since become increasingly clear. The number of employees covered by EBAs is in terminal decline as union power has eroded and belligerent bosses increasingly low-ball their industrial adversaries. Even when reasonable conditions are enshrined in EBAs, managers have honed work-around tactics such as outsourcing labour to unprotected contractors.

Case in point: on Monday, the Fair Work Commission scrapped an EBA covering iron ore drivers at Gina Rinehart’s Roy Hill mine. The labour hire company Rinehart contracted, who employed approximately 50 workers for the site, created a separate entity employing only two staff. The duo was misinformed about entitlements and voted in favour of the agreement, after which the firm transferred the remaining staff to the new entity — a tactic used to avoid bargaining with their likely representatives from the CFMMEU. The company was found to have engaged in “corporate manipulation”.

Under a sectoral agreement, such shoddy shape-shifting wouldn’t reap benefits, as all organisations in the industry would be covered by the same conditions.

Sectoral agreements are theoretically lawful in very limited circumstances, but unions have never been able to secure one. This has led the ACTU to recently campaign for the reintroduction of industry-wide agreements.

NZ’s polite radicalism offers an idea

New Zealand will soon make such a move. Jacinda Ardern’s government recently announced its fair pay agreement (FPA) plan which will introduce sectoral bargaining in addition to individual and enterprise contracts.

The PM has undersold her proposal as an “Australian-style” system to allay corporate backlash. And in some ways, the new laws will move the Kiwi IR system — which has very few industry-wide safety nets — away from the deregulated, Americanised model it adopted three decades ago towards its neighbour’s somewhat-better “award” system.

But despite her consensual rhetoric, Ardern’s proposal goes much further than Australia. FPAs can be initiated by workers and, if they attain support from at least 10% of the workforce or 1000 workers, employer groups are compelled to bargain with the relevant union.

Conversely, our Fair Work commissioners sets award rates and conditions, accepting submissions only from relevant parties in a largely bureaucratised process which limits the number, scope and ambition of agreements. And where Australian businesses can force endless delays, NZ’s Employment Relations Authority will be able to determine outcomes for intractable disputes.

Ardern’s proposal is no utopia. Restrictions on the right to strike, for instance, still curtail union power. But FPAs present an opportunity for the Antipodean emulation of what has set many high pay-high productivity European nations apart.

With wage setting no longer in their control, managers’ path to growth relies on collaborating with their workforce to innovate, growing the pie for all instead of fighting over scraps. Such systems make for more productive and equal societies.

The next frontier in the IR wars?

There is little hope of Morrison returning to IR reform after his “omnibus” bill was gutted, let alone pulling an unexpected “Nixon goes to China” move.

This leaves Labor, who signalled support for expanding multi-employer bargaining provisions at the last election but deferred hashing out the details. Albanese has since committed to “change the IR system so there can be proper bargaining”, but again wouldn’t be drawn on the specifics.

Ardern has set her aspiring trans-Tasman counterpart a benchmark for IR ambition. Aspiring to best her example would represent a far more amenable form of global competition than the “race to the bottom” on workers’ rights over the past 30 years.