Workers are missing out on wage rises because the deregulation of job protections has gone too far, new International Monetary Fund research has found.
The IMF researchers found "a statistically significant, economically large and robust negative effect of deregulation on the labour share" of national income.
The IMF Working Paper: Employment Protection Deregulation and Labor Shares in the Advanced Economies estimated that job protection deregulation may have contributed about 15 per cent to the average labour share decline in advanced economies.
The researchers looked at 26 advanced economies including Australia and called for more research on the role of labour market deregulation along with technology and globalisation in declining labour share of the national economy.
Australian economist Saul Eslake said a number of influential mainstream economists around the world were now finding that job protection deregulation had gone too far and the evidence presented by IMF researchers was "difficult to ignore".
"These papers are perhaps the start of some serious evidence suggesting that one of the factors contributing to this persistently slow wages growth, even in countries where unemployment is unusually low, is the change in the relative bargaining power of employers and employees over the last two or three decades," he said.
The Australian Council of Trade Unions said the report represents the first time anyone from the IMF had acknowledged the impact of policies that take rights from working people on pay and wages. The Australian Industry Group said the report had little relevance to Australia.
Report authors Gabriele Ciminelli from the IMF, Romain Duval from the University of Amsterdam and Davide Furceri from the Tinbergen Institute said the views expressed in IMF Working Papers are theirs and do not necessarily represent the views of the IMF.
The IMF study authors had not claimed that deregulation of employment protection legislation accounted for most of the decline in labour shares of national income, but to “a little over a tenth” of the overall decline in labour shares of national income in advanced economies.
"That is, nonetheless, a statistically significant result and so it is an important contribution to the global debate about the reasons for the persistence of historically low wages growth," Mr Eslake said.
"I have some sympathy with the proposition that maybe the balance of power between employers and employees has swung too far in favour of employers, but I would not want to go back to the days when the trains or power would go off at the drop of a hat because some union wanted and was able to go on strike in order to get a 20 per cent pay rise."
It had been the orthodoxy among economists and policy makers since the 1980s that deregulation of the labour market, "not necessarily open slather, but the watering down of employment protection legislation, is a good thing". But this was changing.
"Just as findings by their researchers with regard to the impact of inequality on economic growth ultimately led to the IMF and the OECD to change their official views on that topic, it is possible that this does mark the beginning of a shift in these institutions’ views on this topic as well. Time will tell," Mr Eslake said.
Steve Mulley from Darlington, a forensic laboratory technician who has been working for Racing NSW in Sydney for 40 years in November, said he had not had a pay rise since 2015.
He is among workers locked in an enterprise bargaining dispute over pay and conditions.
"We've got very little power," he said. "You can take a one-day stop work meeting and the employer can go to the Fair Work Commission and get you locked out for two weeks.
"You can't go to the Fair Work Commission and get arbitration like you could in the old days."
Racing NSW said Australian Racing Forensic Laboratory employees have received cumulative annual pay increases totalling 34 per cent between July 1, 2006 to June 30, 2016. It said Racing NSW had agreed to pay rate increases requested by the employees' union subject to redundacy entitlements and notice periods being brought into line with the national employment standards.
"Mr Mulley has rejected that position and continues to seek redundancy and notice periods, which are in some instances (including in respect of Mr Mulley personally), more than double those contained in the national employment standards," Racing NSW said.
Melbourne security worker Nabil Shalash said he joined the union United Voice because of difficulties in bargaining for a pay rise in his industry. He said his salary had failed to keep up with inflation and the rising costs of living over the past four years.
"Everything is going up - housing affordability and energy," he said.
"People are struggling to get a decent wage rise in the security industry.
"Some companies on enterprise agreements are tendering for work against companies offering award wages because we don't have an industry-wide enterprise bargaining."
Alan B. Krueger, Professor of Economics at Princeton University, presented a paper to the distinguished Jackson Hole Economic Symposium last week which said that declining worker power can help explain the puzzle of relatively weak wage growth despite historically lower unemployment in the United States.
He said the go-to model of the labour market for economists is often one with perfect competition - where bargaining power is irrelevant. He said the labour market was "imperfectly competitive" and subject to collusive behaviour by firms and surpluses that are bargained over.
Earlier this month, workplace relations emeritus professor Joe Isaac from Monash University, flanked by University of Melbourne professor of economics Jeff Borland and David Peetz, a professor of employment relations at Griffith University, told a gathering that workers and unions need more power to address the growing problem of wages falling behind productivity growth.
Research released last month by the Australia Institute found the decline of the labour share of GDP since 1975 was costing working Australians $16,750 per year each, on average.
ACTU Secretary Sally McManus said electricity prices, housing, childcare, transport and health insurance premiums rising much faster than pay, which mean "working people need every cent of that $16,000 a year".
"Right now big business has too much power and corporate bosses and wealthy shareholders are taking more for themselves and leaving us struggling," she said.
“But there are clear solutions to restore the balance. We need to adopt the bargaining system that operates across most of the developed world.
“Working people need the ability to negotiate across sectors and industries and win the pay rises they need.”
Australian Industry Group chief executive Innes Willox said the IMF Working Paper was interesting but seemed to have little relevance to the Australian experience because it had been aggregated with a large number of countries.
"The analysis in this IMF Working Paper is based on OECD wide selection of changes to employment protection legislation between 1979 and 2012. As we have seen in previous studies that aggregate the experience across a large number of countries the particularities of the experience in any one country can get lost," he said.
"The two Australian “reform events” included in the analysis were the introduction of the Work Choices legislation which took effect in 2006 and the reversal of the Work Choices legislation in 2009 when the Fair Work Act took effect.
“The Productivity Commission report this week on income inequality makes the very good point that experiences of other developed countries over past 10-20 years were not necessarily replicated in Australia. Much of the hype is about trends elsewhere, not here.”
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.