Wage rises don't mean job losses

July 19, 2009

Almost immediately after the Rudd Labor government's Fair Work Australia came into effect on July 2, the Australian and other News Ltd newspapers launched a sustained attack on the Australian Manufacturing Workers Union's (AMWU) wage claim for the manufacturing industry.

Business associations, the government and corporate media have been running a concerted campaign for more than year to convince working people that they have to show wage restraint if they want to avoid losing their jobs.

This is part of a campaign to foist the brunt of the global economic crisis onto working people and protect the interests of big business. However, the historical lessons the Australian draws on to back up its claims do not show a necessary relationship between wage rises and job losses.

On July 2, the Australian featured front-page headlines reading: "Unions defy PM Kevin Rudd's restraint call as New IR Era Begins" and "Lost lessons of the 100,000 'dead men'".

These articles followed a statement by AMWU national secretary Julius Roe, reported in the July 1 Australian: "If companies are performing well, workers should get some share of those outcomes. In some cases, yes, we are achieving (6 per cent), and we will achieve that in the future.

"The fairest thing to say is where companies are performing well, we should be able to achieve real wage increases. Elsewhere, we want to at least maintain real wages. This year, it's probably around [a] 4 per cent [pay rise]."

Pattern bargaining

The articles raised fears of a return to pattern bargaining — under which unions lodge identical claims across industry and campaign for employers to provide minimum improvements in conditions by using sites of union strength to support workers in less well organised or less strategic workplaces.

It also raised the potential of a broader "wages breakout".

The Australian quoted former head of the Metal Trades Industry Association Bert Evans, saying that the AMWU's claim, if successful, would lead to jobs going overseas.

The articles further argued that the huge job losses in Australian manufacturing during the recession of the early 1980s were a result of the AMWU's (then the Amalgamated Metal Workers and Shipwrights Union — AMWSU) 1981 campaign for pay rises and a 35-hour week with no loss in pay.

The Australian's articles are part of a wider campaign to shatter the confidence of AMWU members in pursuing collective bargaining and undermine support for the AMWU. The campaign aims to build and reinforce the argument that wage rises during an economic downturn would result in job losses, and the AMWU, in pursuing its "unreasonable claim", is threatening the livelihood of all workers.

But did the AMWSU's 1981 wage campaign really cause the collapse in employment? And, more broadly, is there really a connection between wage levels and employment?

What happened in 1981

After its election victory in 1975, the Liberal Coalition government of Malcolm Fraser moved to "fight inflation" by, among other things, seeking to cut real wages by limiting the extent to which wages were indexed with inflation in the centralised national wage cases.

As a result, real wages fell through the late 1970s, but the government's policy was unsuccessful in reducing inflation.

In response to falling real wages, debates began to emerge at the 1979 Australian Council of Trade Unions (ACTU) congress to move away from centralised wage fixing. At the 1981 congress, the militant pace-setter unions, led by the AMWSU, won support for a partial break from centralised wage fixing.

In July 1981, the Conciliation and Arbitration Commission abandoned wage indexation entirely as unions began to win wage increases outside of indexation.

In 1980, the AMWSU launched its campaign to "defend and extend working and living standards, workers' rights and quality of life". This campaign included a push for a 35-hour week with no loss in pay. The AMWSU's claim was aimed at defending workers' buying power and creating jobs through the reduction in the working week.

It was also motivated by the Fraser government's predictions of a looming minerals boom. Employers and the government united to reject outright reducing ordinary working hours below 40 hours a week.

Despite this, the AMWSU led a wide-reaching campaign, which included a 48-hour strike in 1981 involving 400,000 manufacturing workers. As a result, the union won an increase of $20 a week and a 38-hour week. The agreement also allowed for a second increase of $14 in 1982, based on projected inflation for the next six months.

However, part the deal was that, in exchange for the improved conditions, the AMWSU agreed to a 12-month "no extra claims" clause, through which all future claims for increased wages or reduced hours were held back for 12 months.

One year after the AMWSU won its new agreements, the global economic downturn hit in full force, driving down demand for consumer and capital goods. This downturn had already begun to be felt in Australia before the wage campaign, but the AMWSU had been protected from it initially due to residual demand for skilled workers.

In response to the crisis, manufacturing employers started to rapidly shed jobs, and about 90,000 workers were sacked. In the face of this assault the AMWSU's leaders abided by the "no strike" agreements and did not take industrial action to try to protect jobs.

At some shops, workers tried to secure jobs by agreeing to reduce their hours to a four-day week at four days' wages.

While this experience would appear to support the Australian's claim that wage rises lead to job losses, it only indicates that a wage rise occurred at about the same time as large-scale job losses during an economic downturn.

To sustain the Australian's argument, there would need to be a consistent pattern that wage rises during recession result in job losses while wage restraint during recessions result in job creation.

No link

The pattern of wages and employment in manufacturing over the past 30 years does not indicate the direct link argued by the Australian and other supporters of a wage freeze in the current period.

Indeed, there are periods of significant job losses during the downturns of the late 1980s and early 1990s. During this period, real wages remained at best stagnant, and what wage rises were won were tied to productivity gains or loss of conditions, which limited the cost for capital for wage gains.

Moreover, if the decline in jobs was a result of wage gains and economic decline, as the economy recovers you would expect to see a significant recovery of jobs. However, such employment recovery has been more limited.

This reflects the extent to which capital has used periods of economic decline to restructure and force through increases in labour productivity at the cost of employment.

The Australian's articles are part of a broader offensive in Australia and internationally to ensure that workers bear the brunt of the current economic crisis and to ensure bosses are in a position to reap the greatest share of the next recovery.

With this in mind, workers and unions must struggle to maintain and extend wages and conditions, and they should be supported by all working people.

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