Sustained wages growth not mirrored by productivity increases across most sectors

THE ‘staff wanted’ signs may not yet be in every shop window as they were at the peak of the mining boom in 2007-08, but the wages that drew employees to the mines and forced other businesses to follow suit remain historically high.

In Western Australia, labour costs have gone from among lowest in the country to the second highest, after the ACT, in less than a decade. Even the GFC failed to significantly dent the cost of employing people as businesses, wary of the skills shortages at the boom’s peak, elected to hang on to their staff.

While some in the mining and related services sectors may have found this a smart move as business picked up after a relatively short downturn, many others are wondering about the long-term cost of retaining highly paid, underworked employees while they await for ‘boom II’ to materialise.

According to the Australian Bureau of Statistics ‘2009-10 Survey of Income and Housing’, the average weekly household income in WA was more than 13 per cent above the national average.

Between 2005 and 2009, WA and Queensland’s private sector wages growth had left the other states for dead. Also, depending on the source, during that period WA’s growth rate had doubled or tripled that of Queensland, the other boom state, while NSW and Victoria were below the national average.

With that in mind, it should not be surprising that 88 per cent of 159 WA businesses responding to a survey undertaken by the Chamber of Commerce and Industry WA and WA Business News have highlighted wages as a key driver of cost pressures. 

The respondents reported a 26 per cent increase in their wages bill over the past five years, close to the 41 per cent documented by the ABS.

It is generally agreed that WA’s high wages have been driven by the insatiable demand from the resources sector, which has required a significant amount of skills and labour during a rapid expansion phase that started in about 2004 and has continued almost without respite.

The nature of the work for employees (and the high profits on offer for employers) has made once-inconceivable wages the norm. That has flowed on to Perth and other regions with less reliance on resources, particularly hitting sectors that have not had the growth in prices to justify the wages paid by project developers.

The anecdotes in the report reveal how widespread and damaging this can be.

“We are paying our staff far more than we are able to pay ourselves,” said a small manufacturer based in regional WA.

“We have not taken leave for over two years and have not contributed any money to our superannuation funds for the past five years.”

Here is another familiar refrain from a medium-sized employer in the cultural, recreational and personal services sector: “Staff expect more money but the quality of applicants is poor, and I don’t like paying more money, but there is no-one else to employ.”

Productivity 

One of the biggest issues arising from the wages explosion in WA is the fact that productivity has stood still. 

With talent scarce, there is little incentive for people to work harder or smarter, and with overseas recruitment restricted and interstate employment drives producing lacklustre results, employers have to make do with paying high wages to inexperienced or below-standard workers.

While training may seem like one answer, this is also seen as a negative. It takes too long, is expensive, and workers often leave after gaining the skills.

Speaking at a CCI event last week, Reserve Bank of Australia chairman Glenn Stevens noted that improving productivity is a national phenomenon, although WA’s high wages would exacerbate that issue.

“The desire for more productivity is not a call for working harder,” Mr Stevens said.

“Australians already work pretty long hours by international standards.

“Productivity per hour, which is what counts, is not improved by adding more hours, but by finding ways of making the hours that are already being contributed more effective.”

CCI chief executive officer James Pearson said productivity was an issue that stood out in the CCI-WA Business News survey.

“Workers are chasing bigger and bigger salaries but there is no change in their output,” he said. “Essentially employers are having to pay more and more for the same.

“For some of them it gets worse; because of turnover as a result of competition for labour, training costs are going up and getting more and more inexperienced individuals filling positions.

“That is a double whammy.”

Industrial relations

Productivity is also affected by the industrial relations landscape created by Fair Work Australia, which has had its own double whammy – giving unions clout to push up wages in the already well-paid resources sector while non-resources sector businesses have found the restrictions of awards difficult.

Take, for example, the problem highlighted by the comment from this medium-sized regional tourism operator.

“Labour costs have meant that we have to work much harder and longer hours ourselves. Our kids work every public holiday to try and reduce costs.

“We are forced to work in the business and our family lives are negatively impacted. Our tourism business now closes on many public holidays.” 

Australian Industry Group chief executive Heather Ridout has also questioned the industrial relations system and recently urged the federal Labor government to allow companies and workers to strike more flexible workplace deals.

This is seen a part of a growing call to swing the industrial relations pendulum back a little after Labor jettisoned the individual agreements championed by former Liberal prime minister John Howard. 

Industrial relations is shaping to become part of the electoral battleground again as the conservatives feel emboldened by Labor’s weakness, especially in the economy where weak productivity and unemployment have been linked to the workplace laws.

In WA, however, industrial relations is at its worst where unemployment is almost non-existent – in the resources-rich Pilbara and off its coast.

DLA Piper managing partner Alan Drake Brockman is one who has seen this issue first hand, particularly in the offshore sector where some of the wages and conditions are unparalleled in almost any global workplace.

“In terms of our WA resources sector, offshore and increasingly onshore, rates being paid are incredible,” Mr Drake-Brockman said.

“They are doing nothing to address the shortage of labour or skills.

“Look at it from the point of view of a metals fabrication worker working in a workshop, let’s say on $80,000, and someone doing a lesser skilled job offshore is getting $300,000; that is a two-speed economy.”

OH&S

Of all the major issues around the cost of labour, the regulatory burden of occupational health and safety laws was the biggest issue to respondents in the CCI-WABN ‘Cost of Doing Business Survey’.

More than 50 per cent identified it as a major compliance cost pressure.

With harmonisation of OH&S rules due to take place at the start of 2012, it is hoped that the regulatory burden for companies that operate across more than one state will be reduced, even though most states will retain some unique elements of their own regulations.

The report from the CCI-WA Business News survey recommends that a review of the harmonised regulations should be undertaken to assess its need, including the likelihood of it achieving a successful outcome.

It also recommends assessment of non-regulatory initiatives that have a proven track record of reducing workplace injuries.

That is just one of many sweeping recommendations the report has raised to deal with the potential for wages to stunt economic growth in WA.