Comments on the decline in strikes in Australia.

Abstract

This paper comments on the remarkable decline in strikes in Australia over the last couple of decades in the light of the recent analysis of the same subject matter offered in the Australian Bulletin of Labour by Healy (2002). In this paper a somewhat different perspective is offered on the main factors contributing to the decline in strikes in Australia to that offered by Healy (and others). The paper is structured as follows. Section 1 presents a brief review of the extent of the decline in strikes and a summary of Healy's perspective on principal reasons for the decline. Section 2 comments on the possible impact on strikes of changes in inflation, as well as a selection of other possible explanatory factors tested in the analyses of Morris and Wilson (1994, 1995, 1999, 2000) and Beggs and Chapman (1987a) but not discussed in Healy. Section 3 explores the issue of the impact of the Accord on strikes, and Section 4 comments on selected international aspects of the decline in strikes. Some concluding thoughts are offered in Section 5.

1. The Decline in Strikes

The number of working days lost through strikes reached a post-World War II annual peak in 1974 of over 1,200 per thousand employees. In the year 2003 the number was 57, which represents a decline of 95 percent compared to the 1974 peak. The number of working days lost through strikes over wages, hours and leave--historically the dominant cause of strikes--fell from a peak of near 1100 in 1974 to around 6 in 2003. Figure 1 charts the annual Australian strike rate as measured by working days lost per thousand employees for the period 1960 to 2003. The figure splits strikes into two categories: (i) strikes over all issues, and (ii) strikes over wages, hours and leave issues. These charts give a visual perspective on the pattern of strikes over the last four decades or so. Note the parallels in the total pattern of strikes and the pattern for wages, hours and leave. Clearly there has been a dramatic decline in strike activity in Australia over the last 30 years, particularly with respect to strikes over wages, hours and leave.

In a recent review of the decline in strike activity in Australia, Healy (2002) identified three reasons for the downturn. The first reason is the decline in union density (the proportion of employees in unions). He notes that: ... there are direct parallels between the drop in [the] rate of disputes and declining union density (itself a result of other factors, such as a shift from manufacturing to service work). [p. 81]

Figure 2 charts union density over the same time frame as Figure 1. The upper line is the older measure of union density and is essentially an estimate based on the ratio of total reported trade union members to the number in thousands of (employed) employees. Some union members may be unfinancial (i.e. in arrears), some may be retired and some may be members of more than one union. Nonetheless they are all counted in the old measure. The lower line is the newer measure of union density. It measures the proportion of employees who are financial members (as defined) of trade unions in their main job. (See the Data Appendix for more detailed discussion of these indices.) Regardless of which union density index is viewed, there has been a clear decline in union density in Australia over the last couple of decades, but in particular over the last decade. Thus Healy is correct to draw attention to the direct parallels between strikes and union density over the last couple of decades. However, the parallels between strikes and density prior to the 1980s and 1990s are not quite as unambiguous. Union density during the 1960s and 1970s does not, at least on the surface, seem to have a particularly strong parallel relation with strikes during this period.

[FIGURES 1-2 OMITTED]

The second reason Healy cites for the decline in strikes is the Accord, which involved an evolving series of agreements between the then Labor government and the union movement between 1983 and 1996. Healy notes that:

   Thirteen years of industrial restraint during the ... Accord
   accounts for much of the decline in dispute rates. [....]
   Successive years of neo-liberal economic and labour market
   policy had weakened the old system of arbitration and
   distributive justice and marginalised the former centralised and
   collective processes [p. 81].

We will explore role of the Accord in reducing strikes in more detail below. The final and most recent reason for the decline in strikes is the implementation of new domestic industrial relations legislation. This legislation ... has reinforced managerial prerogative, constraining industrial action directly or through provision through the Australian Industrial Relations Commission [p. 81]. Though Healy does not specifically identify any particular industrial relations legislation, we might reasonably assume that he is referring to the introduction of the Workplace Relations Act 1996, which encouraged and entrenched greater decentralisation in the determination of wages and conditions. The 1996 legislation ... allowed the development of individual worker agreements (Australian Workplace Agreements) as well as continuing collective worker agreements (Certified Agreements) and prohibited intervention in non-union awards (Australian Bureau of Statistics, 2001, p. 118).

Healy further notes that ... accepted 'rules' about the causes of disputes seem to have lost their predictive power. [p. 81]. Labour market conditions, as presumably reflected in the unemployment rate and long-run GDP growth, moved in the opposite direction to what might be expected for such a sustained decline in disputes.

2. Inflation, Growth, Profits, Inventories and Misinformation 

As noted above, Healy identifies declining union density, the Accord and legislative change as the principal sources of decline in strikes in Australia. These may not, however, constitute an adequate list of factors to account for the decline in strikes. The reason for this is that a number of econometric studies have identified other factors that may be of importance. Let us then briefly review some of these studies.

Over the decades, various studies of strike activity in Australia have tried to tease out the prime drivers of strikes over time (1). Here we will focus only on those studies that have sought to explain strike activity as measured by working days lost due to strikes as a ratio of total employees or some similar denominator. This measure is sometimes referred to as time lost; its advantage is that it is the broadest measure of general strike activity. (2) Bentley and Hughes (1970) found that the unemployment rate was a significant explanatory variable of quarterly strikes in the non-coal sector, but not for the coal sector. Perry (1980) found the unemployment rate, inflation and trade union density changes to be significant explanatory variables of annual strikes. And Beggs and Chapman (1987c), using annual strike data, found inflation and the unemployment rate to be significant explanatory variables. (3)

Morris and Wilson's four papers (1994, 1995, 1999 & 2000) built on the work of Beggs and Chapman (1987a). Theirs is the most recent collection of Australian studies to focus on local explanatory variables of local strikes. Their most recent work (1999) in many ways incorporates much of the thinking embodied in the earlier studies mentioned, both their thinking and the thinking of others. It may be worthwhile detailing some of their findings.

Morris and Wilson (1999) explained quarterly strike activity in terms of the following variables: inflation, changes in real GDP, changes in union density, past changes in real earnings (for 1973-83), profitability, inventories and a misinformation variable. All of these variables, with the exception of past changes in real earnings, were theorised to have a positive association with industrial disputes. Morris and Wilson also employ five dummy variables to control for one-off blips in strike activity attributable to political events, three seasonal dummies and a dummy variable for the period of the Accord and the period after the Accord.

Clearly the seven variables (which exclude seasonal and political strike dummy variables and historically-anchored changes in real earnings for 197383) employed by Morris and Wilson (1999) to account for variations in strike activity exceed the three identified by Healy (2002). What then are the similarities and differences?

Both allow for the decline in trade union density, though Morris and Wilson identify changes in trade union density, while Healy discusses the general decline in density. They also identify the Accord as a contributing factor; and there is probably an implicit recognition of Healy's view on legislative change in Morris and Wilson's argument that the Accord has had a sustained negative impact on strikes even after its demise.

The factors that Morris and Wilson identify, but Healy does not, are:

* inflation,

* Changes in real GDP,

* Profitability

* Inventories and

* A misinformation variable

Let us briefly touch on the above factors as possible explanatory factors for the recent decline in strike activity. First, consider inflation (4). Figures 1 and 3 chart the annual pattern of strike activity and inflation between 1960 and 2003 (5). The charts indicate a considerable degree of similarity in the long-term pattern of inflation and strike activity. (6) The association between strike activity and inflation has, of course, been confirmed in various econometric studies by Morris and Wilson (1995, 1999 and 2000), Beggs and Chapman (1987b) and Perry (1980). However, it is instructive to take a visual perspective on this long-term relationship, because the recent decline in strike activity correlates quite closely with the decline in inflation since the mid-1970s. In fact if it were not for the introduction of a goods and services tax in 2000, which in a sense artificially heightened inflation during 2000, the recent parallels between inflation and strikes would be more pronounced. Arguably, then, inflation has been an important explanatory factor; and if past relations continue into the future, it will continue to be an important factor affecting strikes in Australia. The policy implications are important as well, because some of the decline in strikes ascribed to legislative innovations may in fact be better ascribed to the success of policy makers in reducing inflation in general. Reducing strikes by controlling inflation is of course a much more indirect mechanism than changing industrial-relations legislation. If the inflation in the past has been an important factor triggering off strikes, then it makes some sense to direct our policy changes towards the prime trigger mechanism rather than elsewhere.

The second variable not identified by Healy is changes in real (non-farm) GDP: this variable has not displayed any remarkable changes over the last few decades that would be likely to make it a singularly dominant source of decline in strikes. There have, of course, been changes in the variable over time, with sharp declines for calendar years 1983 and 1991 and a milder decline during 2001. But these sorts of changes do not explain the long-term decline in strikes in Australia.

The third variable is profitability. If we proxy profitability as the ratio of (i) the non-wage share of gross domestic product at factor cost to (ii) the wage share, it is evident that, from around the late 1980s to the present, this measure of profits has been relatively stable, hovering around 0.85. (7) It is most unlikely that this factor could explain the general decline in strikes since the mid-1980s.

The fourth variable is inventories. If we proxy inventories by the increase in private non-farm stocks as a ratio of GDP, there is no evidence of any sustained changes over the last decade or two that might explain the long-term decline in strikes. If any trend can be discerned it is that the volatility of this index has declined over the post-war period, but this contributes nothing to an explanation of declining disputes.

The last variable is a misinformation variable. The misinformation variable is based on Beggs and Chapman's (1987a) proposition that, if overtime is relatively high while profits are relatively low, then unions may have a higher--though misinformed--proclivity to strike in the mistaken belief that high overtime is indicative of high profits. Since profits (as defined) have not been abnormally high during the 1990s and beyond, the misinformation variable has had no impact on strikes of late.

Thus, of the factors implied by the work of Morris and Wilson to be important in explaining the long-term decline in strikes, but not considered by Healy, inflation appears to be the most crucial.

3. More on the Accord

Healy (2002), like Morris and Wilson (1999), Beggs and Chapman (1987a, b & c) and Chapman and Gruen (1991), argues that the Accord contributed to the reduction in Australian strike activity.

Morris and Wilson (1999) find that the Accord had a significant negative effect on strikes--reducing them by an average of 38 per cent, a result much greater than the 16per cent suggested in their earlier (1995) paper. The 38 per cent reduction applies to the accord period [1983(3)-1996(1)] as well as to the post-Accord period [1996(2)-1997(4)]. They conclude that the Accord did, indeed, reduce strike activity ... and that its [the Accord's] longevity has brought about changes in strike behaviour which have persisted beyond the defeat of the Keating ALP government (1999, p.9).

Chapman (1998) takes this idea a little further in his review of the Morris and Wilson study by suggesting that ... the Accord could have been associated with a landscape or cultural transformation in Australian industrial relations, which would manifest itself in a structural change in disputation that lasts beyond its early influence. (1998, p. 636) This notion is further developed when he again canvasses the possibility that:

   ... it might be that there was a cultural change in Australian
   industrial relations related to some extent to the longevity of
   the Accord. If this is the case, it would be expected that the
   post-Accord period will look permanently different from the
   pre-Accord period in terms of aggregate variables considered; it
   is instructive that this seems to be the case for industrial
   disputation ... Chapman (1998, p.640)

The view that the Accord was important in reducing Australia's strike rate has been questioned in Perry and Wilson (2001). This study shows that Australia's strike experience is not all that different from aggregate overseas experience and that Australian strikes and a trade-weighted average measure of international strikes are cointegrated. Perry and Wilson find no evidence of a break point in the cointegrated relation during the period of the Accord, which suggests that the decline in strikes during the period of the Accord was largely comparable to what was experienced internationally. The results point to the possible importance of common international influences affecting strikes in Australia as well as overseas. In a later study (2003), an eight-country VAR model is explored in which Australian strikes and strikes in a selection of other OECD countries are linked to one another as well as to nominal OECD GDP changes and the OECD unemployment rate. These results underline the international dimensions of the decline in strikes and the considerable degree of dependence in a small open economy such as Australia on events outside of it.

Thus we have the following apparently mixed messages from the research. First, from Healy (2002), Morris and Wilson (1999), Beggs and Chapman (1987) and Chapman and Gruen (1991) among others: the view that the Accord was a seemingly unique Australian vehicle for managing the economy in general and the labour market in particular. Morris and Wilson, in particular, are able to show that the decline in strikes in Australia from around the mid-1980s is more powerful than can be explained by the usual round-up of explanatory variables. Secondly, from Perry and Wilson (2001) and earlier from Moore (1989: the view that the overall strike-rate decline overseas has been broadly comparable to the strike-rate decline in Australia and thus that the uniqueness of the Accord and/or the uniqueness of its impact on strikes is questionable.

Which view is right? For the sake of argument, let us assume that both sets of findings are independently correct. (8) If they are, how might these results be reconciled?

One possible interpretation might be that the general downward shift in strikes from the mid-1980s to (more or less) the present does not so much reflect such country-specific arrangements as the Accord, but rather reflects a worldwide decline in the propensity to strike due in turn to other, say, exogenous influences. These exogenous influences are, as the word implies, influences that are outside of the system of equations and relations that are normally employed to model strikes. We shall explore what these exogenous forces may be made up of below. But before doing so, what this perspective might suggest is that rather than the Accord itself being an exogenous or shift factor modifying the propensity to strike, it itself is largely a conduit for the expression of other pervasive worldwide influences on strikes.

What then might this worldwide exogenous influence be? The influence that is tentatively suggested in this paper is an interrelated mix of factors that might be collectively referred to as the abandonment of the left. The abandonment of the left refers to the relative decline in the intellectual credibility of leftwing thinking and sentiments. With this decline has come a relative rise in the prominence of rightwing (mainly laissez faire) thinking and sentiments. Thus over the last couple of decades there have been in many countries (including Australia) broad attitudinal changes that led to a shift away from collectivist approaches in favour of individualism, away from public ownership to private ownership, and away from protection and government patronage to greater competition. All in all, these changes have had the effect of reducing the proclivity to strike, both in Australia and, on average, overseas.

Wooden (2001) makes a number of somewhat similar observations when he seeks to explain what have been the driving forces behind the changes in Australia's industrial relations system. He argues that the sources of change have been ... overwhelmingly of an economic and social origin, adding that ... ultimately it is these broader socio-economic forces that are dictating the direction of reform. [p. 248]

Wooden contends that:

   Arguably the most important force driving the industrial
   relations transformation has been the shift in value systems that
   has taken place among the populace of most industrial
   economies, including Australia. In particular, the values and
   interests of wage earners have been shifting away from a
   collectivist orientation, with its emphasis on solidarity and
   equality, the common good, and the need for rational authority
   structures, towards a more individualist orientation, which
   places more emphasis on self interest and personal
   development [p. 248]

It can be contended, further, that contributing to the abandonment of the left have been the histories of apparent failure of leftwing political and economic systems--particularly Communist systems--to produce sustained economic benefits for their workers. The collapse of the Soviet Union, the abandonment of Maoism in China and the manifest failures of North Korea, Cuba, Vietnam and Laos to prosper have led to a heightened scepticism about the intellectual foundations upon which these systems have operated. But the perceived failures of the left have not been confined to Communist countries. Gentler left-leaning policies in, for example, India and many Western industrialised countries, have also been challenged. Often cultivating inefficient public sectors and/or questionable social welfare edifices, these economies performed, and in some cases continue to perform, below par. This has been particularly the case when their economic performances are compared to those of the market-oriented East-Asian tiger economies. (9)

The notion of the abandonment of the left has been recognised in one way or another in many quarters. Thus a recent editorial in Socialism Today (2003) commented as follows:

   The decline in strikes and other forms of industrial action was
   not due to the working class accepting the ideology of the
   market. Instead, it was the combination of the collapse of
   Stalinism in the Soviet Union and Eastern Europe, and the
   consequent world-wide capitalist ideological offensive which
   affected the outlook of some of the older layers of trade union
   activists; the defeat, in Britain, of the miners' strike in 1984-85;
   and the existence of the anti-trade union laws, the threat of
   which were used by the right-wing union leaders to hold back
   the movement and develop the ideas of partnership not
   confrontation with the bosses. (10)

To return to the Accord, it is argued here that the Accord represented a mechanism that facilitated the introduction of reform and changes in the Australian industrial relations system. However, with or without the Accord, these sorts of changes would probably have materialised, anyway. Had the various Labor ministries of the time not responded to the changing climate of opinion for reform and change, another government more responsive to the perceived need for reform would have eventually won office and implemented those reforms.

The reforms implemented under the banner of the Accord were, thus, in many ways a consequence of the underlying changes in attitude and perceptions about the work place, the economy and society in general. The fact that the Accord itself changed quite dramatically over the years is evidence that policy makers were responding to changing attitudes and perceptions on economic management.11 The Accord started life as a real wage maintenance mechanism with wages generally adjusting to price changes. It then changed its focus to productivity improvements and later to the development of enterprise bargaining. All in all, the changes ushered in during the period of the Accord were in the direction of deregulation, in much the same way that the government introduced deregulation to the financial sector. The intellectual climate of the times perhaps made the deregulatory initiatives inevitable.

4. International Influences

The general influence of the outside world on the Australian economy is well recognised. Its specific effect on the Australian strike rate is perhaps less well recognised. Moore (1989) emphasises the similarities in Australian strike activity and that of its trading partners. Chapman and Gruen (1991) also found worldwide similarities, but did not assign to them the same degree of influence as that assigned by Moore. Perry and Wilson (2001) found parallels in Australian strike activity and a trade-weighted average for the world, while Perry and Wilson (2003) found evidence of interdependence for an 8-country collection of OECD economies.

Healy (2002) reports on declining international disputes, but does not discuss any causal mechanisms that might link worldwide experience to that of Australia. This is understandable as the impact of international influences on domestic strikes is difficult to gauge precisely. This is because it may be misleading to assume that international influences are confined to, say, one catchall variable. Arguably, international influences have many subtle ways of shaping domestic events. It is no accident that Western industrialised countries have very similar political and social institutions. Superficial differences exist, of course. But the broad cultural and institutional similarities are everywhere, from the tone and structure of the legal systems and the architecture of the cities and suburbs down to such juvenile fashion statements as wearing baseball caps back-to-front.

Thus, although Morris and Wilson (1999) do not make explicit reference to any international variables and/or mechanisms in their explanation of Australian strikes, it may be wrong to assume that international influences are not present. The fact that explanatory variables, employed by Morris and Wilson and others, such as inflation, real GDP growth, profits, inventory changes, trade union density and the unemployment rate (when modelled) tend to move along similar international paths--particularly for major OECD trading partners--suggests rather strongly that countries not only respond to the experiences of one another, but also likely respond to other, perhaps common, drivers. Australian macroeconomic variables in particular have historically been strongly correlated to those of its major trading partners, particularly the USA and the UK.

In Section 3 I suggested that a broad attitudinal factor--the abandonment of the left--may have contributed to the apparent negative shift in the strike rate equations of Morris and Wilson. It was also suggested that this was largely an international phenomenon and may therefore have had a fairly similar worldwide influence.

To sum up, I suggest that international influences work their way into Australia in diverse ways. They may influence (i) local explanatory variables (such as inflation, GDP growth, union density and profits), (ii) shift variables (such as Accord-styled dummy variables) and possibly also (iii) parameter values (12). That pretty much covers all bases (to use an Americanism). It means that gauging the size of international influences is conceptually and practically problematic. It may be that, at best, we can only indirectly and approximately measure how the world economy influences the local one.

5. Concluding Comments

This paper has sought to address the issue of what has been behind the decline in the Australian strike rate over the last couple of decades. Attention has been drawn to two factors that, it is argued, have been overlooked in the discussion of declining strike rates. The first is inflation, which has been falling more or less since the early 1980s. The second is international influences that have a capacity to permeate the entire fabric of the economy. With reference to the international influences, it has been argued that one important international factor has been a groundswell change in attitude towards what might be loosely called the politico-economic agenda of the Left. In short, leftwing policies lost credibility during the 1980s and beyond. It is argued that this has contributed in part to the decline in strikes not otherwise explained by inflation and the other macroeconomic variables normally associated with changes in the strike rate.

Appendix: Data Sources

The strike rate is defined as the number of working days lost due to strikes per 1000 employees. Sources: Australian Bureau of Statistics (ABS) Industrial Disputes, Cat. No. 6321.0 various issues, ABS Labour Force Australia, Cat. No. 6202.0 various issues and AusStat related spreadsheets.

The older measure of union density is an estimate based on the ratio of total reported trade union members to the number of employees. Some union members may be unfinancial (i.e. in arrears) or retired or members of more than one union. Source: ABS Trade Union Statistics, Cat. No. 6323.0, various issues, and predecessor publications until last issued in 1996, thereafter linked and apportioned to newer definition data described next. The newer measure of union density measures the proportion of employees who are financial members (as defined) of trade unions in their main job. Source: ABS Employee Earnings, Benefits and Trade Union Membership Australia, Cat No. 6310.0, various issues, and ABS Trade Union Members, Australia, Cat. No. 6325.0, various issues. Data are interpolated and apportioned based on old definition estimates for years of missing observations.

Inflation is measured by the annual percentage change in the GDP deflator. Source: ABS Treasury Model Database, Econdata.

Endnotes

(1) See also Drago and Wooden (1990), who make a cross sectional study of strikes and various explanatory variables for 1988.

(2) Most Australian studies--certainly all the recent econometric studies--have focussed on working days lost per employee. However, some other measures have also been employed. See Aligisakis (1997) and Shalev (1992) for examples.

(3) See Miller and Mulvey (1993), who review most of this research as well as other research papers that employ alternative measures of strike activity.

(4) Healy is not the only commentator to ignore inflation as an explanatory variable of the strike rate, see for example Shalev (1992).

(5) The start date of 1960 is chosen because all recent econometric studies start at around this date.

(6) The correlation coefficient for annual total strikes and annual inflation is 0.77

(7) Morris and Wilson (1999) define profits as the ratio of gross operating surplus to the total wages bill. This generates the same broad results as those discussed in the text.

(8) It may be the case that other, for example, methodological and/or conceptual issues might be raised when comparing 'competing' perspectives. However, these are not pursued here.

(9) See Jacques (1996) for a discussion of the different approaches taken to education and social welfare in the UK versus various East Asian economies. See Jacques (2004) for an update on the importance of underlying cultural and attitudinal influences. Note also the importance of the privatising policies introduced by the Thatcher government in the U.K. and the like-minded policies espoused by the Reagan administration in the U.S.A. during the 1980s.

(10) http://www.socialismtoday.org/77/unions.html.

(11) See Wilson et al. (2000)

(12) For example, heightened sensitivity of the local strike rate to, say, a change in local profits might be brought about by a demonstration effect from overseas where overseas agitation over overseas profits has been successful in generating improvements in wages and conditions.

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Len Perry, University of Technology Sydney