Will 'Pay Freeze Or Sacking' Soon Be The Norm?

The result of the ballot at Holden this week had workers agreeing to a wages freeze and taking a cut in conditions to preserve their jobs and potentially the very presence of Holden in Australia. Given the signs that the domestic economy is weakening it is only natural to ponder whether such deals might become commonplace in a post-mining boom Australia -- in the manufacturing sector and beyond.

Australian currency picture from Shutterstock

In some ways the Holden case poses a conundrum: Is it an exceptional situation -- a deal brokered in a sector that attracts disproportionate political attention and heavy public subsidisation? Or is it a portent of what workers face as economic conditions soften?

Saul Eslake, chief economist at the Bank of America Merrill Lynch, argues for the exceptionalism of this case. He says the Holden case should not be viewed as a precedent but rather a product of the "unusual circumstances" that characterise the Australian car manufacturing sector.

While there is little doubt car manufacturing is unique in terms of the industry support it has been able to attract for its size, it could also be argued the situation confronted by the Holden workers is a muted version of what could face workers in other sectors if the economy falters.

Earlier this year, facing pressure from General Motors HQ in Detroit, Holden proposed to cut the wages of its workers by 10per cent -- a proposition that was strongly opposed by the Australian Manufacturing Workers Union and its members.

It is this opposition by the union -- indeed, the very presence of a union -- that is the real hallmark of exceptionalism in this case. If the union had not been involved then the workers would have faced an even worse outcome -- a devil's choice in fact -- between taking a substantial wage cut or losing their jobs.

Such a choice may well be on the cards for workers in sectors that decline as the economy cools. With just 13per cent of workers in the private sector in unions, the reality is that many workers, faced with the proposition of an employer cutting their wages, would have little capacity to refuse, especially if the alternative were couched in terms of job loss.

This is particularly the case at the low-paid end of the labour market, where strong employment figures belie the reality for those working in jobs with low skill requirements, low levels of security and minimal bargaining power.

Another obvious and general issue prompted by the Holden situation is what happens after a deal like this? What can be expected by a workforce that has responsibly engaged with a company for their joint benefit? If and when a business recovers from the circumstances that precipitated such concession seeking, will the workforce be invited to share the gains?

A quick review of the aggregate data would suggest otherwise. From a peak of 63per cent in the mid-1970s, the wages share of total factor income (the income measure of gross domestic product) has dropped to just over 52 per cent. At the same time, the profits share has nearly doubled to be close to 28 per cent in 2012.

This change has coincided with a shifting of risk from business to workers. A report by the University of Sydney's Workplace Research Centre in 2010 comprehensively chronicled this phenomenon.

It quoted observations made by International Labour Organisation researchers, as the impacts of the global financial crisis were felt, that have a disconcerting resonance in the Holden case:

Firms have used downward adjustments to wages and working conditions as alternative or complementary strategies to lay-offs to cut costs in order to cope with the global economic recession … Thus, workers have borne the brunt … either in the form of lost jobs or impaired wages and working conditions.

So is the Holden case exceptional? Yes, but not for the reasons Eslake and others might suggest. It is exceptional because workers still had a channel to constrain the more extreme measures suggested by management.

It is exceptional because it allowed unions to be part of a difficult change process that ultimately demonstrated an alignment of management and worker goals -- showing that collective representation at the workplace need not always be marred by conflict born of intractable ideological positions, but might also be the conduit for a more collaborative relationship that could benefit businesses in tough times.

Sarah Kaine is an academic at the University of Technology, Sydney. She does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The ConversationThis article was originally published at The Conversation. Read the original article.


Comments

    I work at a bank and we have had pay freezes and large layoffs over multiple years - and we have had record profits at the same time.
    It doesn't matter what industry you're in and how well the business is doing - if you are working for a public company, shareholders expect return whatever the weather, and in many businesses, people are the biggest cost. With everyone "doing it tough", even those who are billion dollar profitable can put on a squeeze at no risk of attrition!

    There's a number of ways to tackle these issues. I work for a sizable organisation that saw costs increasing and profits falling during the GFC and requested staff to purchase an additional two weeks leave for the financial year. It was entirely voluntary but the benefits were heavily pushed. I can't remember the percentages but well over half of staff took the offer up - they got an extra 2 weeks of leave and the business made substantial savings on wages. Many now continue to purchase extra leave on an annual basis.

    I do feel sorry for the guys working in these factories but I have to say, if those companies had moved with the times they probably wouldn't be in such dire straits. They kept building muscle cars when the trend they should have been shaping was smaller more fuel efficient and electric cars. I don't think the Government should be bailing them out time after time. It's time they stood on their own or died, simple as that..!

      I agree, if they are not making a profit then they should fold. Something else will open in its place and the world lives on. Why should we be wasting tax money keeping the company open? I don't own there shares or a car by them yet I am still paying to keep a failed company running.

      Local manufacturers have consistently ranked amongst the top sellers in Australia.
      Fact is it costs too much to build a car here and we cannot compete with the flood of overseas manufacturers bringing their product here. The government decided to make it an open market so in they came (it's not as open for us to send cars back btw).

        Local manufacturers have consistently ranked amongst the top sellers in AustraliaI won't dispute this claim but I would like to see some figures to back it up. Toyota, from what I've heard have consistently outsold the Australian cars and by a significant margin. I still think they should have moved with the times and dropped the big petrol guzzlers aimed at the bogan end of the market a long time ago. Smaller cars with better fuel efficiency and electric cars are the way they should have gone. Plus how many more times will the government have to bail them out...? :)

        Last edited 17/08/13 8:45 am

      The article is about workers' pay but Holden and Ford in Australia are just another example of Australia being the blonde bimbo of the world. They obviously hadn't taken business 101, adapting to a changing marketplace. If they had simply done that, like any company should if it wants be around in a few years, none of these painful IR issues would have nearly the amount of air time that they do.

        the blonde bimbo of the world:) works for me...
        I realise I took a bit of a sideways step from the headline, but if the factories close, there is no work and hence no pay... :)

    From a peak of 63per cent in the mid-1970s, the wages share of total factor income (the income measure of gross domestic product) has dropped to just over 52 per cent. At the same time, the profits share has nearly doubled to be close to 28 per cent in 2012.

    I think that reflects the biggest issue with the 'pay freeze' approach. Over time, the freeze results in a loss of wages in real terms (when the economy isn't in recession), but there's no similar restraint on prices. If the goal is to make the business more competitive, there should be a corresponding freeze on the price of the goods produced, so that the competitivesness of the product matches the real reduction in costs. That way, the product is both relatively cheaper to make, and is equally relatively cheaper to buy, increasing the attractiveness to cosumers. If the restraint can be demonstrated by all parties (such as during the Accord years in the 80's and early 90's, although the reasons were a bit different), you can get productivity and profit increases that benefit workers and investors.

    All that being said, maintaining a car manufacturing base in Australia has more than an economic consideration, as it is also has implications for our defence capability, so the arrangements there are always going to be a bit weird.

    "disproportionate political attention" ... there are plenty of topics that receive disproportionate political attention (assylum seekers??). Topics like this actually deserve the attention they receive.

    I'm glad I work for not for profit, government, essential service where 99% of us our in the union. My pays gone up 8k in the last 3 years.

    Last edited 18/08/13 10:16 am

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