Australia – Unprecedented Wage Growth In Victorian construction Industry Calls For Change In Bargaining strategy.

9 September 2015

 

In brief 

 

According to a Deloitte Access Economics report recently released by the Master Builders Association of Victoria1, wages payable to labourers engaged on an enterprise bargaining agreement (EBA) in the Victorian construction industry exceed those paid to professional engineers, emergency services workers, health professionals and teachers.

According to this report:

 

• whilst the Australian economy has embraced wage restraint in the face of challenging global conditions, rates of pay in the Victorian construction sector have grown exponentially, and have exceeded those paid in the construction industry in Western Australia and Queensland at the peak of the mining boom, and 
• the ongoing wage growth is not referable to levels of demand, productivity improvements, or other structural factors such as price increases and is unsustainable in the long term.2

 

This article provides an overview of Deloitte Access Economics’ findings and suggests ways in which businesses might best position themselves to seek meaningful change in their EBAs in future enterprise bargaining rounds.

 

Wage growth in the Victorian construction industry unsustainable

 

Research conducted by Deloitte Access Economics (and as set out in Deloitte's report, titled 'Victorian Construction – Labour Costs and Productivity') (Report), paints a picture of unsustainable wage growth in Victorian construction enterprise agreements. The Report suggests that this growth is not supported by productivity improvements or linked to levels of demand.

 

The Report finds that the average annual earnings of a full-time ‘unskilled’ construction labourer, and a carpenter, employed under an EBA (calculated on the basis of a 51 hour work week) in 2012 were $130,859 and $141,224 respectively. This is in comparison to the average annual earnings of:

 

• engineering professionals – $93,673,
• defence force members, firefighters and police – $91,021,
• midwifery and nursing professionals – $79,492, and
• school teachers – $77,797.

 

Carpenters under a CFMEU EBA earned more than double the average earnings of a section of non-managerial occupations in Victoria in 2012, with unskilled construction labourers under a CFMEU EBA earning slightly less than double.3 Of the occupations sampled in the Report, only medical practitioners earned more than unskilled construction labourers. Engineers, police, teachers and nurses earned significantly less.4

 

The Report indicates that wage rates in the Victorian construction industry have been increasing by 4.4% year on year, despite construction prices rising by only 1.8% per year and labour productivity in the industry by only 1% per year.5

 

The data provided in the Report also shows that the construction industry in Australia operates in an environment of particularly low profit margins (only slightly more than the failing manufacturing sector), and low returns on assets.5 The Report notes that construction firms are also over-represented in the share of companies entering external administration.7

 

The Report suggests that the existing wage momentum in the Victorian construction industry is unsustainable in the long term.8

 

Achieving meaningful change in agreement making

 

The data in the Report indicates a need for the construction industry to re-define bargaining outcomes going forward. Whilst historically employers may have been prepared to agree to large wage increases and inflexible/non-productive work practices, the Report suggests that continued wage growth at current levels has the capacity to threaten the long term viability of the construction industry in Victoria.

 

In this context, it is expected that employers will consider exploring opportunities to wind back unsustainable EBAs, push for productivity offsets and adjust labour costs so that they fit comfortably in the industry.

 

Employers can best position themselves to negotiate more favourable EBAs where they:

 

• give meaningful consideration to their bargaining strategy as a whole (including managing bargaining representatives) prior to negotiations commencing,
• where possible, focus the bargaining agenda on productivity gains,
• invest appropriately in the bargaining process, including allocating sufficient resources and developing an industrial action mitigation plan,
• enlist third party assistance in the bargaining campaign where appropriate (in particular, from the Fair Work Commission),
• are prepared to call out any unlawful or improper tactics and seek appropriate redress,
• lead the communications agenda with targeted, timely messaging (this process should start early and well prior to the commencement of bargaining), and
• are mindful of obligations under applicable legislation and the Federal Construction Codes.

 

Endnotes

1. Deloitte Access Economics: ‘Victorian Construction – Labour costs and productivity Master Builders Association of Victoria’ Final report, 4 December 2014, released by the Master Builders Association of Victoria on 30 August 2015. See also Master Builders Association Victoria’s Media Release: ‘Excessive Construction EBA wage rises hinder Victorian Jobs and Infrastructure’ dated 31 August 2015 accessible at the Master Builders Association of Victoria website.
2. See chapter 4 of the Report.
3. See the Report at page 25.
4. See the Report at page 25. 
5. See the Report at page 55. 
6. See the Report at page 58. 
7. See the Report at page 60. 
8. See chapter 4 of the Report.

 

For further information, please contact:

 

Nicholas Ogilvie, Partner, Herbert Smith Freehills 

nicholas.ogilvie@hsf.com