Why multi-employer bonuses work better for everyone

When wages were set through a centralized process in the 1980s, employer groups led the charge for company-level bargaining. Their “light on the hill” was an American-style system that would allow companies and workers to negotiate terms best suited to their workplace to drive productivity growth.

It was a model for the time. Corporate bargaining has enabled companies to adapt their workplace practices to cope with the pressures exerted by a newly liberalized and globalized economy.

When the Fair Work Act was introduced by Julia Gillard, then Minister of Employment and Labor Relations, she placed “collective bargaining at company level at the heart of the labor relations system”.

The system no longer works

But the system no longer works for many companies and workers. Current laws make it too easy for companies to walk away from corporate bargaining and too difficult for workers to negotiate new agreements. The sharp drop in the proportion of workers covered by a company agreement testifies to this.

Employer groups’ vision of an American-style industrial relations system never fully materialized, although Australia came close under the Howard government’s Work Choices regime. It is difficult to find defenders of such a system today. The primacy of employer prerogative in the United States has driven down wages and led to in-work poverty for many workers. The social and political consequences of these results are all too obvious.

We don’t know what the employers’ groups want, apart from avoiding multi-employer bargaining. They claim that this will lead to a return to the era of mass industrial action of the 1970s and the rise of wage-induced price inflation. There is no evidence that this will happen. These problems were dealt with effectively at the time. Today, unions are too weak and the barriers to industrial action are too high to allow a return to anything resembling the 1970s.

The numerous international examples of multi-employer bargaining are more relevant references for the current debate. Most OECD countries use multi-employer bargaining to set wages. Many international proofs strong points that coordinated multi-employer bargaining systems perform better in terms of macroeconomic performance, employment outcomes and skills development than company-based bargaining systems such as Australia’s.

Multi-employer bargaining is very different from Australian awards, which are the product of the Fair Work Commission’s administrative review process, not bargaining. Basically, this gives workers, employers and their representatives far less influence over the terms of awards than over negotiated settlements. Although rewards provide a minimum safety net, workers on average receive a lot pay lower than rewards than negotiated agreements. And unlike bargaining, rewards cannot be used to negotiate compromises based on productivity.

Instead of outright opposition, employer groups should consider the opportunities that multi-employer bargaining would bring. Like my research with leading international scholars Russell Lansbury and Søren Kaj Andersen shows, Danish employers support multi-employer bargaining. Indeed, it offers wages that are both fair and affordable, gives them more reliable access to skilled workers, encourages them to compete on innovation rather than lowering labor costs, and eliminates administrative costs related to the negotiation of agreements for each company.

Multi-employer bargaining has recently been embraced in New Zealand and by the European Union through its new wage directive. The British Labor Party has pledged to introduce such a system if it wins the next general election.

The rest of the world is moving towards multi-employer bargaining because it benefits both companies and workers. This is a once-in-a-generation opportunity. Australia should adopt it.