Why are unions so unhappy? The relationship between trade union membership and real wage growth


Demonstrators at one of many ‘Change the Rules’ rallies in October, this one outside parliament house in Adelaide. Source: Kelly Barnes/AAP.

By Shirley Jackson, University of Melbourne and George Rennie, University of Melbourne

In October hundreds of thousands of workers took to the streets to campaign for better wages and conditions as part of the Australian Council of Trade Unions’ ‘Change The Rules’ campaign.

The response from critics of the movement, including the government, has been to decry the temporary loss of economic output and to blame the rallies on a mix of union anarchy and militancy.

But they’ve missed the point.

The evidence shows conditions for Australian workers have been getting worse as trade union membership has declined.

There are five ways to look at this.

Wage growth

The Australian Bureau of Statistics tally of average weekly earnings has grown impressively since 1995, from about $550 to $1,200.

But changes in the average wage don’t tell us much about changes in the typical wage.

That’s because, being an average, it is highly sensitive to changes in the composition of the workforce and to increases in the very high pay earned by Australia’s highest earners.

If low-income workers lose their jobs the average wage will go up.

If high-flying executives get paid even more it will also go up.

Real wage growth

A better measure of typical wages, the ABS wage price index, is also growing.

But it too is misleading.

Real wage growth — which is the amount wages have been growing over and above prices — tells us much more.

While the wage price index has grown by 65% over the past two decades, real wages have increased by only 12%.

For many young people, it’s even worse: their share of wage growth has been negligible or even negative.

This means for an increasing number of Australians, wages are failing to keep pace with the cost of living.

Share of gross domestic product

Another way to measure wages is to look at how much of what Australia produces is being paid out to workers.

The most common measure of what’s produced is gross domestic product.

That very basic measurement suggests the economy has been growing for 27 years — a fact The Economist newspaper celebrates when describing Australia as the most successful economy in the developed world.

But wage earners are sharing in the success less than others.

While GDP has certainly been rising every year, the percentage of it spent on wages has been falling.

Those who praise Australia’s economic growth sometimes mistake wood for trees.

Gross domestic product has indeed grown over the past 27 years, but in that same period the share of it paid to workers has fallen by four percentage points.

The pie has been growing, but the slices for workers have been getting thinner.


The most common measure of income inequality is the Gini coefficient.

A coefficient of one would mean all the income was all in one person’s hands. A coefficient of zero would mean it was evenly distributed.

Unfortunately, Australia’s Gini coefficient has been climbing further away from zero.

The International Monetary Fund has found there is a likely causal relationship between low trade union density and high income inequality.

In Australia, income inequality has grown as trade union membership has fallen.

Union militancy

The Minister for Jobs and Industrial Relations, Kelly O’Dwyer, says the union movement wants a return to the “dark days of mass union militancy”.

“It wants workplace division and disruption, it wants the ability to flagrantly break any industrial laws it doesn’t like, and it demands union officials be given the power to subject businesses up and down the country to their every demand, regardless of the capacity of those businesses to accede to those demands,” she has said.

It is certainly true more trade union activity leads to more days lost per year to industrial action.

However, there doesn’t seem to be much evidence to support O’Dwyer’s claim any increase in the days lost to strikes will wreak havoc on the economy.

For example, in 1988 Australia reached the height of “industrial militancy” and lost a total of 1,641 days to industrial action across all industries.

Yet in that year GDP grew by 3.4%.

Compare this to 2017, when only 148 days were lost to industrial action and GDP grew by only 2.3%.

In the past few months GDP growth has since bounced back to 3.4% with no noticeable change in the days lost to strikes.

While there doesn’t seem to be a link between declining industrial action and GDP, there does seem to be one between industrial action and the share of GDP paid out in wages.

The recent resurgence of the union movement is an attempt to get the share back up.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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The Patriot
The Patriot
2 years ago

I think the era of a militant union is at an end. Communication on a sensible level is the only way to go and the contractualisation of the workforce (if there is such a term) also weakens the collective bargaining. GDP is a poor comparative measure for most things as it lumps everything together. Rather, what does your research show when you look at specific industries affected by industrial action vs profitability of those industries? What does your research find about production going altogether or off-shoring in the those same industries post industrial action? Real wages have fallen way behind household spending and especially essential spending… part of the problem at a household level is a lack of financial literacy and a desire not be seen as a failure if I dont buy the trendy item.
Overall, I think we need to move back to a better ratio of managers/executives: workers. Too may of the former which drains the business of ability to give real wage rises without affecting profitability.
Small business is the mainstay of Australia and employs more people than big business.. .it is also the least flexible in terms of managing income/expenses as margins are very tight and cashflow surplus rare. how would a unionisation of these workers help the business? Yes, it might help the questions being raised yet if there were to be a major rise in wages, many small businesses will close shop or shrink the workforce. I know of one small business that has already said the new rules around wages will mean fewer employees… they do not make a cashflow profit (as opposed to a book profit) and in a highly competitive food business where price is dictated by the market.
Good luck in justifying industrial action to help the worker… it might just backfire as things are already too expensive for the consumer.
I have no answers, as you can see.