What do AWAs really pay?

In introducing the “WorkChoices” reforms the federal government argued that they would encourage increased wages, particularly through Australian Workplace Agreements (AWAs) which it actively encourages. Indeed, we were told (and still are told) that AWAs pay higher wages than collective agreements and nearly double what awards pay.

We obtained unpublished data from the Australian Bureau of Statistics (ABS) Employee Earnings and Hours (EEH) Survey for May 2006 (released March 2007), to examine whether this was the case: in what circumstances and in what ways do AWAs affect earnings, particularly by comparison with collective agreements, which are actively discouraged by the WorkChoices legislation.

The EEH survey is the most reliable (indeed, the only) source of data on earnings of employees under AWAs. The most representative data in this survey are those concerning average total hourly cash earnings of non-managerial employees.

There are only limited quantitative data on changes in conditions under WorkChoices AWAs published by the Office of the Employment Advocate (OEA). However, data leaked to Mark Davis of the Sydney Morning Herald revealed that in May-September 2006, 68 per cent of AWAs abolished penalty rates (up 26 per cent on 2002-03), 52 per cent abolished overtime pay (up 107 per cent on 2002-03) and 76 per cent excluded shiftwork loading.

They also gave the first indication of the extent to which many conditions have been “modified” through AWAs. For most “protected” award conditions, even among those AWAs that do not abolish that condition, the majority will “modify”, that is reduce it. Hence around nine tenths of AWAs either abolished or reduced penalty rates. Similarly, 88 per cent of AWAs abolished or “modified” overtime rates; 89 per cent either abolished or “modified” shiftwork loading; 82 per cent abolished or “modified” public holiday payments; and 83 per cent abolished or “modified” rest breaks.

In the face of widespread public concern about the loss of conditions under WorkChoices, the federal government on May 4, 2007 announced amendments to WorkChoices, including a new “fairness test” on agreements. However, this test is weaker than the former “no disadvantage” test, covering fewer award conditions. The data in our report probably paint a more positive picture toward AWAs than if the survey had been undertaken in 2007.

One limitation was that most of the wage data are expressed as averages, which can be biased by the inclusion of a small number of observations with very high earnings. Some 69 per cent of AWA employees earn less than average AWA hourly earnings. A more representative indicator of the situation of the “typical” worker is provided by median earnings, and we used these data wherever available.

Some hypotheses

We decided to test some possible hypotheses explaining the use of AWAs.

If AWAs are used predominantly for flexibility to benefit both employees and employers, then they should pretty consistently provide for higher hourly pay than registered collective agreements, across different employer types.

Conversely, if AWAs are predominantly used for cutting labour costs and avoiding unions, we would expect to see wide variations in the relationship between AWA earnings and earnings under registered collective agreements. The highest AWA premiums would be in situations where union avoidance strategies are important, while there would be shortfalls for AWA employees where union avoidance strategies were not important. Where cost-minimisation strategies were preferred, we would expect shortfalls for AWA employees to be most severe among workers with low skills levels or in low demand, highly competitive areas.

At the same time, institutional and market arrangements in each industry and occupation will also influence outcomes. For example, particular occupations within an industry may be traditionally non-union. We had to take this into account in understanding the patterns of earnings by industry and occupation.

Overall patterns

We found the ABS data showed that median AWA earnings were only $20.50 per hour, some $4.00 per hour below median earnings for CA employees. That is, the typical (median) AWA worker earned 16.3 per cent less than the median CA worker.