Individual contracts, collective bargaining, wages and power

Abstract

Over the past decade or more, employer use of individual contracts to determine pay and conditions for employees increased in Australia and elsewhere, in no small part due to encouragement by governments, including through legislation promoting Australian Workplace Agreements (AWAs). This paper considers the evidence on the impact of individual contacts and collective bargaining on outcomes such as pay and conditions for employees and the implications for the distribution of power. Employees on AWAs receive higher pay on average than other employees, due to the overrepresentation of managerial and senior specialised skilled staff amongst AWA employees. For other employees, however, individual contracts appear to be more likely to be associated with lower wage increases and/or a reduction in other conditions of employment. This in turn reflects the impact that individual contracting, compared to collective bargaining, has on the power of employees. Collective bargaining increases the bargaining power of employees, is the mechanism by which unions achieve most gains for their members, and is strengthened when union density is high. However, not all employees receive lower wages if they shift from collective bargaining to AWAs: some receive a non-union premium, by which employers in effect purchase a transfer of power from employees. While the impact of individual contracting, by comparison with collective bargaining, on pay and conditions may vary, it is unambiguously associated with a transfer of power from employees to employers.