There's one big reason wages are stagnating: the enterprise bargaining system is broken, and in terminal decline

Real wages in Australia have been stagnating for the better part of a decade. Now, with higher inflation, they’re declining. So what can the new Albanese government, having campaigned hard on the previous government’s failures, do about it?

Making a submission to Australia’s industrial relations umpire, the Fair Work Commission, to lift the minimum hourly wage from A$20.33 to A$21.36, is one thing. If that push is successful, it would help the 2% of workers paid the minimum wage, as well as the 23% (about 2.2 million workers) on awards, whose rates would also lift.

Read more: Lifting the minimum wage is anything but reckless – it's what low earners need

But there’s a bigger systemic problem the Albanese government needs to address – a flaw designed and implemented by a previous Labor government. Enterprise bargaining, the mechanism introduced 30 years ago for workers to collectively negotiate better wages and conditions, is broken.

It’s failing low-paid workers lacking bargaining power in particular, and is a big part of the reason for such poor wages in female-dominated professions such as aged care and child care.

Origin of enterprise bargaining agreements

Enterprise bargaining was introduced during the Hawke-Keating Labor era in the early 1990s, in partnership with the Australian Council of Trade Unions and the support of employer groups.

The Business Council of Australia had lobbied strongly for an enterprise focus for negotiating employment conditions, on the basis it`was the best way to tie wage claims to gains in productivity.

After 30 years, though, enterprise bargaining is in terminal decline, with ten years of shrinking agreement coverage in line with stagnant wages growth.

Research by labour law and policy experts Andrew Stewart, Jim Stanford and Tess Hardy published in May shows the total number of enterprise agreements fell by more than half between 2013 and 2021 (from 23,500 agreements to 10,000).

Worse, the share of employees covered by a current enterprise agreement declined from an average of 27% in 2012 to just 15% by late 2021. This is shown in the following graph.

Australia Institute, The Wages Crisis Revisited, CC BY-ND The Australian Industry Group and other business representatives blame this on the Fair Work Commission’s strict approach to the “better off overall test” and other statutory protections of employees’ interests in agreement-making. Unions see it differently. In their view, the reason enterprise bargaining is in free-fall is because of design flaws in the current laws, meaning workers have very limited negotiating power and employers can “game” the system to avoid their obligation to bargain. The main problem: enterprise bargaining was designed for an economy that no longer exists. Read more: Cabinet papers 1992-93: the rise and fall of enterprise bargaining agreements Workplaces have changed Allowing employees and unions to only bargain and take industrial action for an agreement with a single business, or part of a business, works fine with large worksites, such as factories, with hundreds or thousands of workers with the same employer. But these types of workplaces are increasingly rare. Now, many employers in sectors such as food production, logistics, warehousing, building management and “big box” retail stores have hived off large parts of their operations, and workers, to other entities. They’ve used labour hire, independent contracting and outsourcing to distance themselves from responsibility for minimum employment standards – and collective bargaining. To lift wages, workers need the boost to bargaining power that comes from being able to negotiate – and strike – across entire industries. Labour hire workers must be able to bargain not just with the agency that technically employs them, but with the business for whom they are working – such as Amazon, which has relied heavily on outsourced labour in its Australian operations. Workers who clean and provide security services in commercial buildings need to have the capacity to pursue pay increases from the lead firms that ultimately control labour’s share of profits. What Labor has promised to do Federal Labor’s 2021 national policy platform contains a commitment to “improve access to collective bargaining, including where appropriate through multi-employer collective bargaining”. It notes this access is a particular issue for low-paid employees lacking industrial power, and that the Fair Work Act does not adequately facilitate it. These points, however, were not mentioned in the run-up to the election. Nor did the Australian Council of Trade Unions make an issue of it, in contrast to its “Change the Rules” campaign between 2017 and 2019.