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Is Holden’s wage freeze deal a sign of things to come?

Holden’s Elizabeth plant workers agreed to a three-year wage freeze, but this does not guarantee their future. AAP

This week’s agreement by 1700 Adelaide Holden workers to a three-year wage freeze may have put the brakes on management’s threats to take operations offshore in the interim, but it does not guarantee their future.

General Motors Holden’s ability to honour its agreement hinges on the next government providing further vital funding, allowing GMH to invest A$1 billion to build two models from 2016. These agreed variations will be void if Holden decides not to pursue manufacturing the new models and not to continue operations here.

Finger pointing at both political parties abounds. Labor’s changes to the Fringe Benefits Tax on motor vehicles and the Coalition’s repeated pledge to reduce automotive funding assistance by $500 million have caused major unease for our local car producers.

It seems Holden’s disproportionately higher state and federal assistance in the last 12 years compared to its competitors, Toyota and Ford, has not helped its manufacturing situation, hence the drastic option put to workers to save its operations - for now.

Wage freezes - noble or naïve?

The Reserve Bank of Australia has noted a softening wage growth trend that will lessen the inflation effect and predicted falling wages in some industries. Some experts have projected strong wage restraints in labour-intensive manufacturing industries as a consequence of exposure to global competition.

Questions at stake are: will this measure set a precedent that will sweep across industries in time to come? Are we seeing the dawn of wage declines? Commbank’s outlook is at best cautious, if not grim, and there is a sense of nervous consumer confidence about the economy over the next 12 months.

Ongoing labour market weakness has Treasury issuing warnings of possible rising unemployment to 6% by mid next year. The undercurrent of uncertainty has left our workers reluctant to seek wage rises in the face of possible jobs losses.

Given the future confronting Holden’s Elizabeth plant workers, if the vote had not been positive, would their action have been noble or naive? Action driven by fear could weaken their future bargaining power, but given that chances of landing another job at speed are low in the current climate, their undertaking to preserve the work environment was courageous.

On the flip side, this outcome displays encouraging flexibility between workers and management within the work agreement structures to deal with the present situation. Agreed changes would save the carmaker around A$15 million in labour costs, allowing them to remain viable.

General expert sentiment is this situation could be an isolated incident, since work skills are transferable, so wage changes and cuts would lead to an exodus to other jobs. However, let’s not forget that Qantas embarked on a “culture change” operation in 2011, replacing traditional Workplace Agreements with 16 Enterprise Bargaining Agreements. Australian entities are operating in an expensive labour market environment. Traditional agreements may inhibit management’s ability to take on organisational and structural changes.

Prime minister Kevin Rudd has defended the Fair Work Act by comparing its labour productivity to that under Work Choices. Daniel Mammone, Director of Workplace Policy at the Australian Chamber of Commerce and Industry, believes otherwise. He points to the Pre-Election Survey of 1700 businesses undertaken by the Australian Chamber of Commerce and Industry (ACCI), which indicates around half have concerns about limitations on wage setting and conditions.

Wage rises reflect an acknowledgement of the worker’s growing contribution to an entities’ operation. Stifling these rises across the board, even for the interim period, could impact on the confidence of consumers unused to such restraints, and thus dampen their buying power. A vicious circle may follow suit.

Faced with weak consumer demand, companies will cut costs to remain afloat and profitable. Labour productivity per hour is rising but with little or no balancing compensatory wage increase, workers will feel demotivated and performance wanes. The cost of potentially rising sick leave and attrition rates could prove counter-productive to the argument for suppressing wage rises.

Profits and productivity

Will there be compensation in return for wage restrictions? In GMH’s case, the new deal provides for performance payments of up to 3% based on productivity and targets. Tying wage outcomes to profitability measures could instil a culture of more worker involvement in the company’s performance and sharing profit. Productivity measures could play a more significant role in enterprise bargaining. Target conditions must be realistic. It is commonplace for staff to work overtime to keep up with targets that cannot be met during normal work hours. Demanding more from fewer staff lowers output quality and increases ancillary costs.

As for freezing wage rises to continue production, GMH’s threat of offshore production relocation carries the real possibility of a virtual extinction of Australia’s car manufacturing industry, following so closely on the heels of Ford’s decision to eventually shut down its operations. Not only are the jobs at the Elizabeth plant on hold, but so too are the plethora of industry manufacturing add-ons for such important parts as radiators and gear boxes, for example.

The loss of this industry will not only affect the 1700 workers at Elizabeth but more like 10 times that number in supply side businesses down the line. Would this arrangement work to save its onshore business - time will tell.

Co-author Anna Thomas is a Special Project Officer in the Faculty of Business and Economics at Macquarie University.

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