RDP 2019-02: Is Declining Union Membership Contributing to Low Wages Growth? 6. Conclusion: What Has Been the Overall Effect on Wages Growth?

We have shown that trends in unionisation are unlikely to have contributed to low wages growth in recent years, at least via their influence on collective agreements. Unlike previous research – which largely ignores the unique institutional aspects of wage setting in Australia – we account for these institutional features in our empirical strategy. We are also the first study to use a rich dataset of all federally registered enterprise agreements to provide three key insights on union wage effects.

Our first finding is that the share of the Australian workforce covered by enterprise agreements negotiated with union involvement has not fallen, even as membership rates have declined. This implies that the number of free riders who choose not to join a union has risen.

Second, we find that, despite declining membership, unions are just as effective in extracting larger wage increases from firms in wage negotiations as they were in the past. We estimate a ‘union wage growth premium’ of around ⅓ percentage point per year among private sector agreements (and no evidence of a wage growth premium for public sector wage agreements). We find no evidence that this premium has declined in the period since enterprise bargaining was introduced in Australia. This conclusion is also robust to an alternative identification strategy that exploits an exogenous policy change to the level of union involvement, and a range of other robustness checks.

Our final insight is that spillover effects of unions onto the wage outcome of other enterprise agreements are fairly modest. And crucially, the size of these spillover effects have remained broadly unchanged over time.

Our research is another step toward answering the question of why aggregate wages growth outcomes continue to be so low in Australia. The findings in our paper suggest that we can rule out one key channel through which a decline in employee bargaining power might be dragging on wages growth. However, our analysis does not rule out the possibility that other shifts in labour bargaining power – such as that due to rising competition from automation or a move towards global supply chains – are at work, or that the role of unions in other forms of wage setting (e.g. awards) has changed.