Lack of competition between employers contributes to weaker wages
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Lack of competition between employers contributes to weaker wages

A lack of competition among employers for workers has contributed to a reduction in bargaining power for higher wages, leading economists have found.

Jeff Borland, Professor of Economics at the University of Melbourne, said while it was likely that changes to labour market regulations have contributed to a reduction in workers' bargaining power and therefore to slow wages growth, the issue was more complex. IMF researchers have estimated that job protection deregulation may have contributed about 15 per cent to the average labour share decline in advanced economies including Australia.

Professor Jeff Borland Department of Economics, University of Melbourne.

Professor Jeff Borland Department of Economics, University of Melbourne. Credit:Jesse Marlow

“It does seem there has been a change in bargaining power in the last 20 to 25 years,” Professor Borland said. “It is also to do with there being less competition in many labour markets – such as the rise of large dominant employers.”

Professor of Economics Alan B. Krueger from Princeton University recently presented evidence to the Jackson Hole Economic Symposium in the U.S showing that the rise of dominant employers had reduced competition between employers, contributing to slow wage growth and a decreasing labour share of the national economy.

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Professor Borland said research in America had found evidence of large employers such as Amazon locating in a regional town where they became the dominant employer had a depressive impact on wages.

“Superstar” digital technology firms and platforms including Uber and Deliveroo could also become a dominant employer reducing the relative bargaining power of workers.

“With regard to Australia, we don’t have evidence on changes in the extent of competition in labour markets, but it would be surprising if the same influences of changes both to labour market institutions and the extent of competition in labour markets weren’t important in explaining developments here,” Professor Borland said.

“I think there are also other determinants of wages which are likely to matter. One is the norms of fairness in society. If those norms change – for example, if a view that all employees in a company should benefit from good performance change to a view that only the top employees deserve to benefit, then obviously that can also affect wages.”

Professor Borland said the US researchers found that for most workers there is a range of wages they could be paid for which they would be willing to work and which the employer would be willing to pay. Whether that wage was at the higher or lower end of that range depending on the relative bargaining power of each party.

A decrease in union density is among factors likely to lower the bargaining power of workers, pushing their wages into the lower end of the wages range. A worker who has to negotiate individually with an employer may have less expertise and resources to invest in negotiation and the absence of a union may lower the likelihood of strike action if workers object to an employer’s wage offer.

A federal government spokesman said the IMF analysis covered 26 advanced economies over the period 1970-2015 and while Australia was included in the analysis, the results were not specific to Australia. The government says changes in the labour share in Australia reflect cyclical factors including the volatility in commodity prices.

Minister for Jobs and Industrial Relations Kelly O’Dwyer with Prime Minister Scott Morrison.

Minister for Jobs and Industrial Relations Kelly O’Dwyer with Prime Minister Scott Morrison.Credit:AAP

Minister for Jobs and Industrial Relations Kelly O’Dwyer said the best way to increase wages, improve wellbeing and reduce disadvantage is to grow the economy and create more jobs.

"Our plan for a stronger economy is what will keep creating jobs and opportunities for all Australians and support sustainable wage growth," she said.

"Since the Coalition came to government in September 2013, more than one million new jobs have been created.

"The only thing that would put wage rises and jobs at risk would be a change in government at the next election."

Deputy opposition leader and acting spokeswoman for Employment, Tanya Plibersek.

Deputy opposition leader and acting spokeswoman for Employment, Tanya Plibersek.Credit:Alex Ellinghausen

Labor's acting spokeswoman for Employment Tanya Plibersek said the ALP had a plan for economic growth including investment in "productivity-enhancing infrastructure". The ALP has pledged to restore penalty rates and to restoring balance to industrial relations laws.

"We say, of course, there should be tax cuts, but they should go to low and middle income earners because we know that people on low and middle incomes will spend that extra money and generate extra economic activity," she said.

"We say that company tax cuts should be focused on smaller businesses, Australian businesses, and not repatriated overseas to overseas shareholders as profits.

“Labor has long been saying the shift of power away from workers towards employers has gone too far – it’s no surprise to us that it’s having a negative impact on wages growth and inequality."

Anna Patty is Workplace Editor for The Sydney Morning Herald. She is a former Education Editor, State Political Reporter and Health Reporter. Her reports on inequity in schools funding led to the Gonski reforms and won her national awards. Her coverage of health exposed unnecessary patient deaths at Campbelltown Hospital and led to judicial and parliamentary inquiries. At The Times of London, she exposed flaws in international medical trials.