Why Labor’s multi-employer bargaining risks causing stagflation where unemployment, inflation are both high

Anthony Albanese’s workplace laws and a trade union push for wages to surpass the consumer price index risks sparking stagflation where unemployment and inflation are both high at the same time, a leading economics professor warns. The revival of multi-employer bargaining, during the Labor Prime Minister’s first term in 2023, also means wage rises can be replicated across a sector, like they were during the early 1980s when industry-wide pattern bargaining saw broad-based pay rises passed on automatically. The Australian Council of Trade Unions is also pushing to give three million workers, on the minimum wage or awards, a 5 per cent pay rise from July 1, while Treasurer Jim Chalmers has called for the Fair Work Commission to provide a real wage rise beyond the existing 3.7 per cent inflation rate. Should the ACTU succeed, in pushing the annual, full-time minimum wage to $51,761, other trade unions would be emboldened to exploit Labor’s multi-employer bargaining, University of New South Wales economics professor Richard Holden told The Nightly. “Over the course of this year and into next, we’ll see how the unions are going to try and do that multi-employer and indeed pattern bargaining,” he said. “It pushes up back uncomfortably in the direction of what we saw in the late seventies and early eighties.” The Reserve Bank and Treasury are bracing for inflation to go above 5 per cent this year for the first time since 2023, during the last rate hiking cycle, as a result of the Middle East conflict keeping fuel prices elevated. This would occur as unemployment, now at 4.3 per cent, potentially climbed to 5 per cent for the first time since the COVID lockdowns in late 2021. In that context, Australia would be suffering from stagflation, Professor Holden said, because they would both be above the Reserve Bank’s inflation and labour force targets at the same time, which didn’t occur during the pandemic or the Global Financial Crisis. “We are headed towards the possibility of uncomfortably high inflation and uncomfortably high unemployment and that’s a very bad combination to try and deal with,” Professor Holden said. “You could see both of them with a ‘five’ in front of them sometime this year. I’d call it modern stagflation.” Multi-employer bargaining also risked leading to bigger pay rises across more workplaces during a time of weak productivity and soaring inflation, Monash University economics lecturer Zac Gross said. “It might mean that you see more substantive increases across the board,” he told The Nightly. “They’ll be strong pressure for any increase in prices to be reflected in at least higher wages, even if not all of them end up keeping up with inflation.” But shadow treasurer Tim Wilson said wage rises would still be lagging behind inflation because of high government spending. “So long as Jim Chalmers keeps pouring debt petrol on the inflation fire, every wage rise will quickly be outstripped by inflation,” he told The Nightly. “The Treasurer likes to pretend he’s helping lower-income Australians, but he’s the reason low-paid Australians are living declining standards of living.” The Reserve Bank’s dual mandate requires it to maintain full employment, considered to be a jobless rate of 4.5 per cent or less, and aim to keep inflation in the middle of its 2-3 per cent target. Inflation targeting from the RBA, sparking rate hikes, means the consumer price index would be unlikely to reach double-digit figures, during a period of double-digit unemployment, as occurred in 1983 before the era of a Reserve Bank target cash rate. “We’ve got an inflation-targeting Reserve Bank,” Dr Gross said. “If price rises flow into wage rises, which cause another round of price rises, then they might need to step in.” But former workplace relations minister Tony Burke’s reintroduction of multi-employer bargaining, in June 2023, reversed reforms of previous Labor governments to deal with a wage-price spiral. Bob Hawke’s government introduced an Accord with unions to cap wage rises while his successor Paul Keating introduced enterprise bargaining to stop wage rises being automatically replicated across an entire industry.