Dirty deals by trade unions and minimum wages in Australia

The headline this morning in the Fairfax press yesterday (June 1, 2016) – Sacked for having a cup of coffee on the job – was about a low-wage cleaner in Australia won a case in the Fair Work Commission (a judicial body that sets wages and conditions) for unfair dismissal because she had a cup of coffee just before her shift began in the kitchen of the offices she was cleaning. The boss called it theft despite a convention allowing the workers to use the kitchen. Then there was the single worker who won a landmark case on Tuesday (May 31, 2015) against Coles (supermarket monolith) and his union who had conspired to finalise an enterprise bargaining agreement that violated our industrial laws and made the workers (not the union bosses) worse off. Then there was the minimum wage case decision handed down Tuesday (May 31, 2015) by the Fair Work Commission which provides a little real wage growth for the lowest paid workers but only a little! Life for low-wage workers in Australia is tough and would be much tougher if there were not enforced regulations to stop the capitalists from taking more and dishing out capricious treatment to the workers.

Dirty deals by unions

The Coles Decision was significant.

As background, there has been a recent – Royal Commission into Trade Union Governance and Corruption – in Australia, which is reported on December 28, 2015.

There is no doubt that the creation of this Commission by the conservative government was a political ploy to garner votes in the upcoming national election (July 2, 2016). The panel was largely stacked with anti-worker types and the terms of reference were narrow to avoid too many embarrassments to capital.

But the evidence that emerged in the hearings was interesting and pointed to a range of problems within the union movement in Australia.

1. “Financial misconduct” – including purchase of expensive cars and personal benefits. Some union bosses admitted they had received “secret payments from employers”, “free work” on homes” etc. Some union bosses have already been convicted of criminality in relation to these issues.

2. “numerous actions favouring the interests of the union over the members”.

3. taking “payments from employers” to advance personal interests at the expense of the members.

4. ALl sorts of allegations of “blackmail”, “death threats”, “bribes”, “abuse of process” etc.

5. If the government thought they would only collar the unions, they were wrong. The Commission concluded that “Adverse recommendations have been made about numerous executives from large commercial organisations”. Bosses made illegal payments, committed perjury, destroyed evidence, etc.

One shocking revelation was that the Australian Workers Union bosses:

… and a large cleaning company agreed to extend a WorkChoices enterprise agreement, thereby saving the company some $2,000,000 per year it would otherwise have had to pay its casual workers in penalty rates under the relevant Award. In exchange, the cleaning company paid the AWU $25,000 per year and provided lists of 100 bogus ‘members’ – the great majority of whom were unaware that they had been included in these lists …

So the union bosses did okay out of the deal but their workers were damaged.

The evidence showed that the arrangements the union made with Cleanevent were “highly disadvantageous … for members.”

Essentially:

In exchange for payments of $25,000 per year, the Victorian Branch of the AWU in substance agreed for three years not to seek better terms and conditions for those of its members employed by Cleanevent. It would not have been difficult to obtain better terms and conditions. But the Victorian Branch of the AWU preferred to take the fairly paltry sum of money for itself. For workers employed by Cleanevent the outcome was appalling. The members of the Cleanevent management team involved in the deal described it as saving the company amounts ranging from $1 million to $2 million. All involved benefited from the deal except the people the union was supposed to be representing.

There are other, not isolated cases of union bosses doing deals with capital that disadvantage their workers but bolster their own position.

The Coles case that was finalised yesterday is an example.

Interestingly, yesterday there was a Joint Address at the National Press Club in Canberra on the “Future of Employment” where the head of the Australian Chamber of Commerce and Industry and the Secretary of the Australian Council of Trade Unions secretary, Dave Oliver appeared.

You can see the video of the whole session – HERE.

To cut to the chase, go to the 37 minute mark where a question is asked about the Coles Decision. Watch the responses, particularly that of the Trade Union leader (which starts at 29.56). You might wonder why the trade union boss didn’t just come out and say the deal was a shocker and the union in question should be ashamed of itself!

You can read a news report here – Coles could be forced to renegotiate pay deal with thousands of workers after Fair Work ruling.

And the – Judicial decision .

Australia has a system where there are minimum award conditions set out for each occupation/industry. These are legal requirements that have to be met.

In addition, unions can negotiate enterprise bargains with bosses on top of those minimum requirements that become legally binding as long as they pass what is known as the BOOT.

The BOOT stands for – Better Off Overall Test – and requires any voluntary agreements between workers and firms make the workers better off than they would be if they remained on the ‘award’, the legal minimum requirements for that sector.

The Shop Distributive and Allied Employees’ Association (SDA) is the largest private sector union and represents workers under the General Retail Industry Award 2010. They are typically low-wage workers, casual, precarious and working non-standard hours.

This union did a deal with one of the big supermarket chains (Coles etc) which:

In essence, … provides for a higher hourly rate than the relevant award rate, but applies lower penalty payments for evenings, weekends and public holidays.

In adition, there were some other so-called benefits (for example, Natural disaster leave) granted to workers although the Fair Work Commission found in relation to these ‘extras’ that “There was no evidence before us of the actual incidence of use of these provisions by Coles employees.”

A single casual worker – one Duncan Hart – took the matter to the Fair Work Commission because he concluded that the deal made workers worse off – something the union should have done in the first place.

The Fair Work Commission found that despite the complexity of the deal they were “not satisfied that the Agreement passes the BOOT” and:

For some employees, particularly those who work primarily at times which attract lower penalty rates under the Agreement when compared to the Award, the loss in monetary terms is potentially significant. The potential loss is likely to be of significance for part-time and casual employees. We have considered whether or not the other benefits of the Agreement when compared to the Award can make up for this deficit. We are not satisfied that a consideration of all benefits and detriments under the Agreement results in each employee and each prospective employee being better off overall under the Agreement compared to the Award.

Ben Schneiders wrote in his Fairfax piece yesterday – Workers deserve better than shameful Coles deal with shop union that:

Tens of thousands of workers are worse off as a consequence.

It defies belief that Coles and the SDA didn’t know that they were agreeing to a deal that left some low paid workers as much as $3500 a year short of their entitlements.

The SDA have a history of “questionable deal” making.

This Fairfax story (May 19, 2016) – Hamburgled McDonalds, Coles, Woolworths workers lose in union pay deals – revealed that:

Burger giant McDonald’s is underpaying its Australian workers tens of millions of dollars a year under a cosy deal struck with Labor’s largest union affiliate that excludes weekend penalty rates …

… the Shop, Distributive and Allied Employees Association (SDA) negotiated a 2013 agreement under which some McDonald’s employees are paid nearly one-third less than the award – the minimum pay and conditions safety net.

The union boss responded to the story saying “McDonald’s workers are among the best paid fast food workers in the world”, which says it all really.

Race to the bottom as long as you stay at the back of the race!

Ben Schneiders provides the clue as to why the SDA would undermine their workers:

Working conditions in Australia for low paid vulnerable workers, particularly temporary foreign workers, are getting worse. In nearly all cases there is no union representing them.

When the union is the SDA, sadly, vulnerable workers are probably better off with no union at all.

The benefit for the SDA in striking these deals is that the big employers are happy to have their representatives on site, signing up members.

That gives it influence in Labor, where the Catholic-dominated SDA uses its numbers to try block social policy change such as marriage equality. On the back of young workers, this union bolsters its conservative social agenda.

And we wonder why trade union membership is falling and now at historic low levels. Why pay out your hard-earned (low) wages to join an organisation that works to undermine your wages and working conditions to advance the interests of the elites in the organisation?

The same could be said, by the way, about the so-called union representing academics! But that is another story.

Now to minimum wages in Australia

On Tuesday (May 31, 2016), The Fair Work Commission, the Australian Federal body entrusted with the task of determining Australia’s minimum wage among other wages and conditions handed down its – Annual Wage Review 2015-16 Decision.

The decision meant that more than 1.86 million of our lowest paid workers (out of some 11.9 million) received an extra $15.80 per week from July 1, 2016.

This amounted to an increase of 2.4 per cent (down from last year’s rise of 2.5 per cent).

The Federal Minimum Wage (FMW) is now $672.70 per week or $17.70 per hour based on a 38 hour week for a full-time employee.

The hourly rise amounts to just 41 cents. Not much at all for vulnerable workers under relentless attack from capricious employers (as above).

For the low-paid workers in the retail sector, personal care services, hospitality, cleaning services and unskilled labouring sectors, who already earn a pittance and endure poor working conditions, there was thus little cause for celebration.

The pay rise provides for a small real minimum wage increase – 0.90 per cent – in the context of a very low inflation rate.

The rise, however, denies this cohort significant access to the national productivity growth that has occurred over the last two years.

The decision also largely maintains the gap between the low paid workers and other wage and salary recipients, who themselves are suffering a major wages squeeze as corporate profits rise.

The Minimum Wage Decision

The employer groups generally argued that a small wage rise at best would be acceptable. They always claim that minimum wage rises will damage employment prospects, despite no empirical evidence to support that claim.

They are just greedy and hide behind defunct textbook economic theory that even the IMF is starting to reject.

Their submissions represent a triumph of ideology over fact.

The Australian Council of Trade Unions (the peak body) sought an increase of $30 per week to ensure that the lowest paid workers participated in the productivity growth over the last year.

In between, the inflation eroded away the real living standards of minimum wage workers.

It also failed to give the minimum wage workers any share of the increase in labour productivity, which the Fair Work Commission noted “rose by 1.6 per cent over the year to the December quarter 2014, following growth over each of the preceding three years.”

More general wage earners are also not participating in the productivity growth which is being largely pocketed by profits (capital).

In delivering the decision, the President of the FWC, Justice Iain Ross said that:

1. “that increases in minimum wages are more likely to stimulate productivity measures by some employers directly affected by minimum wage increases, rather than inhibit productivity.”

2. “There is no suggestion in the unit labour cost data of cost pressures from the labour market”.

3. In parrying the complaint from employers that this would cause inflation and/or unemployment to rise, the FWC said: “Whilst there is diversity in outcomes between the award-reliant industries, the data does not suggest that they have faced a relatively difficult economic environment over the past year or that recent minimum wage increases have adversely impacted on their relative economic performance.”

4. “The survey results included in the submissions of the Australian Government do not suggest recent circumstances are abnormally difficult for small business.”

5. “The relatively strong economy and labour market are factors supporting a higher increase to the NMW and award wages.”

6. The “data as a whole shows a gradual increase in income inequality over the past two decades.”

7. “Whilst volatile from year to year, the minimum wage has fallen relative to measures of median and average earnings over the past decade”.

8. “Around two-thirds of low-paid employees are found within the bottom half of the distribution of employee households and have lower living standards than other employees. Many low-paid workers live in households with low or very low disposable incomes. Single low-wage earners are particularly concentrated in the lower deciles of employee household income distribution and this group receives little help from the transfer system.”

9. “we have been given no sound empirical support” for “the belief” that higher minimum wages will reduce the demand for labour.

10. “We remain of the view that modest and regular increases in minimum wages have a small or even zero impact on employment. We have been given no evidence that the longer term and cumulative effects of increases in the NMW and award rates has had other than a small or zero disemployment effect, or that they have significantly diminished new employment opportunities for the low skilled”.

Minimum wage principles

I regularly write analytical reports for trade unions who are defending industrial matters on behalf of the members in the Fair Work Commission in Australia. That often requires me to appear as an expert witness in the relevant matter. I am currently working on several matters for the unions, particularly with regard to low paid workers.

There is a growing trend among employers to try their hand in the FWC to revise the legal award determinations for particular sectors and eliminate job protection, penalty rates, etc. It is a sort of spray gun approach – attack everything just in case you get something.

The claim is always the same – we cannot pay the conditions we agreed. It says more about their management skill and sense of business ethics than anything else.

Yet the FWC has repeatedly found that the wage determinations over many years across many sectors have not undermined the profitability of the firms.

However, I do not consider minimum wages should be set on private sector capacity to pay principles. The employers should adjust not the workers.

The principle that the FWC should follow is clear.

The minimum wage as a statement of how sophisticated you consider your nation to be or aspire to be. Minimum wages define the lowest material standard of wage income that you want to tolerate.

Accordingly, it should be a wage that allows a person (and family) to participate in society in a meaningful way and not suffer social exclusion or alienation through lack of income.

It is a statement of national aspiration.

In any country it should be the lowest wage that society considers acceptable for business to operate at. Capacity to pay considerations then have to be conditioned by these social objectives.

If small businesses or any businesses for that matter consider they do not have the ‘capacity to pay’ that wage, then a sophisticated society will say that these businesses are not suitable to operate in their economy.

Such firms would have to restructure by investment to raise their productivity levels sufficient to have the capacity to pay or disappear.

This approach establishes a dynamic efficiency whereby the economy is continually pushing productivity growth forward and allowing material standards of living to rise.

I consider that no worker should be paid below what is considered the lowest tolerable material standard of living just because some low wage-low productivity operator wants to produce in a country and make ‘cheap’ profits.

I don’t consider that the private ‘market’ is an arbiter of the values that a society should aspire to or maintain. That is where I differ significantly from my profession.

The employers always want the wages system to be totally deregulated so that the ‘market can work’ without fetters. This will apparently tell us what workers are ‘worth’.

The problem is that the so-called ‘market” in its pure conceptual form is an amoral, ahistorical construct and cannot project the societal values that bind communities and peoples to higher order considerations.

The minimum wage is a values-based concept and should not be determined by a market.

All of that is in addition to the usual disclaimers that the pure ‘competitive market, cannot exist for labour given the imbalances between workers and employers and the fact that the use value of the labour power is derived within the transaction (that is, the worker has to be forced to work). This is unlike other exchanges where the parties make the deal and go their separate ways to enjoy the fruits of their trade.

Anyway, those principles govern the way I operate as a professional and make me a ‘martian’ relative to my professional colleagues.

Staggered wage decisions and real wages

The annual minimum wage adjustment cycle that exists in Australia means that minimum wage workers have to endure systematic cuts in their real wages more than they would if the adjustments were indexed through the year after an annual review decision.

With inflation being a continuous process (more or less), the annual adjustments by the Fair Work Commission hand employers huge gains and deprive the workers of real income in between decisions. The following discussion and diagram explain why.

Assume that at the time of policy implementation, the real Federal Minimum Wage (FMW) wage was w₁ and there was no inflation. The wage setting authority manipulates a nominal minimum wage (the $ weekly value) and the real wage equivalent of this nominal wage is found by dividing the nominal wage by movements in the price level. Assume that inflation assumes a positive constant rate at Point 0 onwards.

The nominal wage is the $-value of your weekly wage whereas the real wage equivalent is the quantity of real goods and services that you can purchase with that nominal wage. For a given nominal wage, if prices rise then the real wage equivalent falls because goods and services are becoming more expensive.

The following diagram depicts the real income losses that arise when wage adjustment is not indexed to the price level on a continuous basis – as is the case when the Fair Work Commission makes an annual adjustment in the FMW:

Over the period O-D1 the rising price level continuously erodes the real value of the nominal wage and immediately before the next indexation decision, the real wage equivalent of the fixed nominal FMW is w₂. The real income loss is computed as the area A, which is half the distance (0-D1) times distance (w₁-w₂).

At point D1 the wage setting authority increases the nominal wage to match the current inflation rate which restores the real wage to w₁, but the workers do not recoup the deadweight real income losses equivalent to area A.

The same process occurs in the period between the D1 and the next decision D2, resulting in further real income losses equivalent to area B.

These losses are cumulative and are greater: (a) the higher is the inflation rate; (b) the longer is the period between decisions; and (c) the higher is the real interest rate (reflecting the opportunity cost over time).

Clearly, the patterns of real income loss are different if the wage setting authority adopts a decision rule other than full indexation (that is, real wage maintenance). For example, say it decides not to adjust nominal wages fully at the time of its decision (or in fact at the implementation date of its decision) to the current inflation rate then the real income losses increase, other things equal.

So at time D1 the authority decides to discount the real wage (less than full indexation) and increases the nominal wage rate such that the real wage at that point is equal to w₃.

Over the next period to D3, the real wage falls to w4 and at the time of the next decision (implementation time D3) the real income losses would be equal to the triangle D (reflecting the inflation effect over the period D2- D3, plus the rectangle C, which reflects the losses arising from the decision to partially index at D2.

Similarly, one can imagine that the adjustment at a particular time might involve a real wage increase (more than full compensation for the current inflation rate) which would then partially offset some of the real income loss borne in the previous period when nominal wages were unadjusted but inflation was positive.

So if you understand the saw tooth pattern of indexation shown here you will see that the triangles A and B represent real losses for the workers between wage setting points even if real wage maintenance is the preferred policy.

These losses are worse (areas C and D) if there is only partial adjustment. These losses occur because inflation is a more continuous process than the adjustments in FMW and accrue to the employer. The employers are pocketing these wage losses every day because their revenue is geared to the price rises and they are paying constant nominal wages to the workers.

The other problem is that the usual source of growth in real wages for workers is to share in the productivity growth of the nation. Workers not reliant on the annual Federal minimum wage adjustment achieve that through their enterprise bargains although over the last twenty years even those workers have been mostly unsuccessful in achieving a proportionate increase in real wage relative to productivity growth as sequential federal governments have legislated against trade unions and undermined the capacity of workers to bargain on a reasonable basis.

Wage Parity

In terms of parities with other wage earners, the following graph shows the ratio of the Federal minimum wage to the Full Time Adult Ordinary time earnings series provided by the ABS (the latest being for the December-quarter 2015). This series in now bi-annual (previously quarterly). I have interpolated on the basis of the most recent growth.

I simulated this series out to September-quarter 2016 (the quarter in which the latest FWC Annual Wage decision will start impacting) based on a constant growth in earnings (assessed over the last 12 months).

The new FWC applies from July 1, 2016 so will be constant over the rest of the 2016-17 financial year.

The logic of the neo-liberal period which encompasses the data sample shown was to at least achieve cuts at the bottom of the labour market, given that workers with more bargaining power would put up resistance against generalised cuts.

Successive minimum wage decisions have forced workers at the bottom of the wage distribution to fall further behind in relative terms.

In the December-quarter 1993, minimum wage workers earned around 55 per cent of the Full Time Adult Ordinary time earnings. By June 2016, this ratio will have fallen to around 44 per cent. There has been a serious erosion of parity over the last 18 years.

The ratio has stabilised in recent years as the pay of non-minimum wage workers stagnates.

Another way of looking at this dismal outcome is to compare the movement in the Federal Minimum Wage with growth in GDP per hour worked (which is taken from the National Accounts). GDP per hour worked is a measure of labour productivity and tells us about the contribution by workers to production.

Labour productivity growth provides the scope for non-inflationary real wages growth and historically workers have been able to enjoy rising material standards of living because the wage tribunals have awarded growth in nominal wages in proportion with labour productivity growth.

That relationship has been severely disrupted by the neo-liberal attacks on unions, wage fixing tribunals and other legislative initiatives that have eroded the capacity of workers to share in labour productivity growth.

The widening gap between wages growth and labour productivity growth has been a world trend (especially in Anglo countries) and I document the consequences of it in this blog – The origins of the economic crisis.

But the attack on living standards has been accentuated at the bottom end of the labour market.

The following graph shows the evolution of the real Federal Minimum Wage (red line), GDP per hour worked (blue line), and the Real Wage Price Index (green line), the latter is a measure of general wage movements in the economy. Th graph is from June 2005 up until June 2016 (indexed at 100 in June 2005).

By June 2015, the respective index numbers were 117.4 (GDP per hour worked), 107.1 (Real WPI), and 104.1 (real FMW). This tells us that all workers have failed to enjoy a fair share of the national productivity growth, and that minimum wage workers in Australia have been largely excluded from sharing in any of the productivity growth.

The wage tribunals have only allowed the most modest growth in the real standard of living that the minimum wage workers over the last 10 years.

Of-course, like all graphs the picture is sensitive to the sample used. If I had taken the starting point back to the 1980s you would see a very large gap between productivity growth and wages growth, which has been associated with the massive redistribution of real income to profits over the last three decades. Please read my blog – The origins of the economic crisis – for more discussion on this point.

Staggered adjustments in the real world

The following graph shows the evolution of the real Federal Minimum Wage (FMW) since June 2005 extrapolated out to September 2016 (the quarter in which today’s decision will start impacting) based on a constant (current) inflation rate. You can see the saw-tooth pattern that the theoretical discussion above describes.

Each period that curve heads downwards the real value of the FMW is being eroded. Each of the peaks represents a formal wage decision by the Fair Work Commission. If the trough in the saw-tooth lies below the 100 line on the vertical axis then the real wage falls by the end of the period.

If the trough lies above the 100 point then the inflation during the year after the last wage decision has not fully eroded the real wage increase and so there is some modest net real wage increase for Federal minimum wage workers over the period.

The decisions since 2012 have provided for some modest real income retention by these workers although it depends on how inflation is measured.

You can also see the troughs are shallower in recent years than in the past because the inflation rate has moderated as a result of the GFC and the austerity since that has kept economic activity at moderate levels.

So while each adjustment provides some immediate real wage gain for workers, those gains are ephemeral and the inflation process systematically cuts the purchasing power of the FMW significantly by the time the next decision is due – these are permanent losses.

Conclusion

It is not easy being a minimum wage worker in Australia.

Paperback version of my Eurozone book now available

My current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – carries an on-line price of £99.00.

It is now available in much cheaper paperback form for £32.00.

Also the eBook is available 36.27 US dollars from Google Play or 61.45 Australian dollars from eBooks.com.

That is enough for today!

(c) Copyright 2016 William Mitchell. All Rights Reserved.