Recession to curb workers' wage-bargaining power
By Garry Shilson-Josling, AAP Economist18 May 2009 4:47 PM
SYDNEY, May 18 AAP - Over the coming year or two, workers will increasingly find that one of the casualties of the recession is their bargaining power in the labour market.
Unemployment most directly affects the unemployed and their families.
It also affects those who might be financially enmeshed with them - including their creditors.
But it also affects their competitors - those scrambling for the dwindling number of jobs in the labour market.
The forecasts underpinning the budget handed down by Wayne Swan last Tuesday imply competition will become fierce indeed.
The forecasts for economic growth imply a virtual repeat of the early 1990s recession - its depth, its duration and its rate of recovery.
The latest measure of the ratio of the number unemployed to the number of job vacancies was in May last year, thanks to the decision by the Australian Bureau of Statistics (ABS) to suspend its vacancies survey after 30 years due to cost constraints.
At that stage, the ratio has fallen to 2.5, the lowest for at least 30 years.
Thanks to additional funding for the ABS in the federal budget the survey will start again, albeit with an unsightly gap, in November.
By that stage, the number of job seekers per vacancy will be significantly higher than 2.5.
We can get an idea of how much it will rise by looking to its behaviour in the previous recession, which pushed it up from a low point of five to over 15 just a year and a half later and kept it there for a further three and a half years.
That is consistent with the official budget forecast that unemployment will hit 8.5 per cent, meaning probably just under a million people out of work despite an assumed 200,000 or so labour market dropouts due to the scarcity of work.
Even then, those leaving the labour market will be ready to come flooding back in if things pick up, so they will still be part of the competition for those still toughing it out.
And that extra competition means what it always does in any market - downwards pressure on prices, in this case the price of labour.
The benchmark for wages growth is the wage price index (WPI) produced by the ABS.
It rose by 4.3 per cent in the year to December.
But it can be expected to rise less rapidly as demand for labour continues to wilt.
The official forecast in the budget says it will slow to 3.25 per cent through both 2009/10 and 2010/11, but the WPI has only been going for a decade - it was not around during the early 1990s recession.
The best measure at that time was average weekly earnings of adult full-time employees - AWOTE - from the ABS.
Annual growth in that measure fell to less than one per cent in early 1993 after peaking at eight per cent in late 1989.
Another measure, average compensation per employee from the quarterly national accounts, slowed from over nine per cent to just over one per cent between 1989 and 1993.
Of course with wages growth at a slower starting point this time, there is not as far to fall.
Even so, the experience of the previous recession suggests a one percentage point deceleration in wages growth is a conservative estimate and the chances are the slowdown will be more dramatic than that.
For employers it will mean less pressure to retrench existing staff, but those workers looking for a wage rise will find it distinctly tougher than during the past decade and a half.
