False premise for AWA analysis

Letter

Australian Financial Review

17th July 2007

Steven Scott reports ("AWAs can cut pay - and union influence", July 16 ) an analysis by David Peetz and Alison Preston, commissioned by the Victorian government, showing that last year employees on Australian workplace agreements (AWAs) earned 16.3 per cent less than those on collective agreements.

However, this comparison is for the median earning level and, like all average-type comparisons, it raises a question as to its significance.

The analysis reportedly shows that, though employees in large businesses receive higher median earnings when on AWAs than when on collective agreements, employees in smaller businesses receive lower median earnings when on AWAs.

The authors apparently argue that, where employees earn higher median earnings on AWAs their employers may be trying to "avoid unions", but where employees earn lower earnings on AWAs, their employers are saving costs by reducing wages.

No evidence is adduced to support the latter assertion and the analysis is seemingly based on the false premise that employee earnings differences between individual and collective agreements are necessarily a "bad thing", reflecting some form of exploitative behaviour by employers in the case of individual agreements.

However, any assumption of such behaviour would wrongly reflect the outdated belief that employers have the dominant bargaining power.

How could that be the case when there are over 800,000 businesses actively competing with each other for labour in a labour market with low unemployment?

The reality is that earnings differences are justifiable by differences in the skill requirements of individual businesses, by differences in the relative skills of individual employees, and by variations in skill requirements of industries. Individual agreements are more likely to accurately reflect those differences than collective agreements and thus desirably reflect productivity differences.