What do AWAs really pay?

Implications

There are two reasons why we have found the AWA shortfall to be worse than in previous research. First, previous estimates have relied on data concerning registered individual contracts and have included state registered individual agreements, which pay nearly double the average in AWAs. Second, data on hourly earnings of the typical (median) employee have not previously been available. Average earnings data significantly overstate the earnings of the typical AWA employee.

Overall, our findings support the hypothesis that AWAs are frequently used for cost cutting or union avoidance. Very large firms and federal government departments face the real prospect of unionisation and have the resources and sophistication to mount concerted union avoidance strategies. They can use AWAs as part of that, offering wage premiums to induce workers to sign AWAs and/or financially penalising those who seek to remain on collective agreements by refusing to promote them unless they sign an AWA.

Smaller firms are not likely to follow this approach, as unions find them logistically difficult to organise anyway. So smaller firms are more likely to use AWAs as a cost minimisation tool, presumably through cutting penalty rates, overtime pay and other “protected” award conditions.

The industry pattern was also consistent with this proposition, with AWAs generally paying above CAs in industries where union avoidance strategies are important and below CAs in industries where labour cost minimisation is important. Structural factors within industries also played a role in explaining some industry patterns.

Had AWAs been used as a device for promoting flexibility for the mutual benefit of employees and employers, we would have expected that employees in small and medium firms would have gained in roughly similar proportions to those in large firms, and AWA gains would have been seen across all or at least most industries. This clearly is not the case.

The pattern of earnings by occupation was consistent with the hypothesis that workers with low bargaining power in the labour market arising from low skill levels are most adversely affected by individual bargaining through AWAs, while occupations with high skill and short demand appear able to maintain high wages under AWAs and possibly attract a union avoidance premium in some cases.

The effects of AWAs will vary according to the reason for their introduction and the labour markets in which employees are working. The overall AWA (median) shortfall of 16.3 per cent suggests that cost-minimisation is an important element in AWA strategising, and any “flexibility” benefits that exist are not enough to offset the cost-minimisation effects on wages.

Given the known loss of conditions under WorkChoices AWAs, outcomes for WorkChoices AWAs would very likely be worse, even with the operation of the “fairness test”. The data here understate the gap between AWAs and union CAs, as the CA data include non-union CAs (which have, on average, lower wage increases than union CAs) and are also depressed by the impact of free riders on bargaining power of unionised workers negotiating new CAs.

We have mainly spoken about AWAs and collective agreements, and said little about awards. For most industries and occupations, comparisons between award-reliant workers and workers on agreements are of little value in telling us about the effects of agreements on pay. This is because the award-reliant group is not representative of award rates, being in most industries disproportionately concentrated at the lower end of the award pay structure.

For example, we know that award rates of pay for tradespersons are by definition higher than those for unskilled workers, yet the average earnings of award-reliant tradespersons were lower than the average earnings of award-reliant labourers and unskilled workers, because most tradespersons (except some on the lowest classifications) received over-award payments that took them outside the ABS definition of being “award-reliant”. Hence our interest was principally in comparing employees on AWAs with employees on registered collective agreements.

Still, two related groups of workers (in which a large proportion of workers are award-reliant) give us an insight into the effect of AWAs compared to awards. In hospitality, AWA workers receive an average of 2 per cent less than average award wages. Female casual workers on AWAs received average earnings some 7.5 per cent below average award earnings. These figures suggest that AWAs can often lead to earnings falling below the award average. They also reinforce that individual “bargaining”, through AWAs, is especially detrimental for women, particularly when they lack labour market power.

Overall, AWAs are commonly associated with poorer outcomes for typical employees than registered collective agreements. While AWAs sometimes attract wage premiums, associated with union avoidance strategies, these mainly affect a small number of industries and some very large organisations. Where union avoidance is not a common issue, for example in small organisations, the negative impact of AWAs on earnings becomes very stark. The impact of AWAs is worst for those people without unique skills, who do not have strong bargaining power in the labour market.