Queensland Economic Advocacy Solutions

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The most important union KPI: election results, members or wage outcomes?

As Queensland celebrates the Labor Day holiday and for many the role that unions play in today’s society, I thought I might examine some of the core roles that Unions play for their members.

When considering the role of unions many Queenslanders think of the efficiency and effectiveness of the Australian union movement in campaigning as part of the Federal Election. Indeed this is an integral part of what they do but it is largely in addition to the core role it has of maintaining and improving worker pay and conditions.  One can in theory lead to the other.

The achievements of the labour movement in securing the eight hour working day, collective bargaining, fair and safe working conditions, and decent and fair wages have long been recognised in Queensland by observing Labour Day on the first Monday in May.

Recently the Reserve Bank of Australia took a look at the role unions play in relation to wages growth and the results of this analysis are fascinating.  There are currently three methods of setting wages in Australia: awards, collective/enterprise agreements, and individual arrangements. It is possible for unions to influence the wage outcomes of employees covered by any of these methods, albeit to different degrees. The most direct channel of union influence is via collective bargaining.

Key findings of the RBA analysis included that union membership rates in Australia have declined steadily since the middle of the 20th century and as at 2018, around 15 per cent of wage earners were members of a union.   However despite declining union membership rates, the share of the workforce covered by enterprise agreements negotiated with union involvement has not changed materially over time.

Furthermore and more importantly unions are just as effective in extracting larger wage increases from firms in wage negotiations as they were in the past. The RBA has estimated a ‘union wage growth premium’ of around a one third percentage point per year among private sector enterprise agreements and the size of this ‘union wage growth premium’’ has remained stable despite changes to the industrial relations framework.

Accordingly it can be argued that a more appropriate measure of union influence is the number of workers covered by a union-negotiated enterprise agreement and the level of premium that they yield in negotiating wage outcomes than actual membership rates.  This is unquestionably what unions should be focusing on in highlighting value proposition to potential members.

The fact that the share of the Australian workforce covered by a union-negotiated agreement has remained unchanged but at the same time as the union membership rate has declined suggests that an increasing share of employees in the Australian workforce find it optimal to ‘free ride’ on the union membership of other employees.  Many employees benefit from the work of unions and do not feel compelled to join one.  This is arguably the union movement’s greatest challenge at present.

In conclusion today’s Labour Day holiday falls in the middle of a Federal Election and putting aside the significant role unions are playing in campaigning for the Australian Labor Party their raison d'être of delivering for workers appears to be just as strong today as it did in the past.

The full RBA report is available here.

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