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One reason Australian wages are depressed? Formidable employer power

In Breaking News
02 3 月, 2023

The level of employer concentration in some of Australia’s labour markets is so high that powerful employers are suppressing workers’ wages.

Key points:

  • The impact on wages paid by dominant employers is getting worse in Australia
  • A Treasury paper suggests employer dominance suppressed wages in the years before the pandemic
  • Weaker bargaining power among workers is also impacting wages growth

Those are the findings from a new Treasury working paper.

The federal Assistant Minister for Competition, Charities and Treasury, Andrew Leigh, says the findings paint a worrying picture.

Dr Leigh said they added to accumulated evidence that Australia’s economy has become less dynamic in the 21st century, with less competition among firms, increasing mark-ups from big companies and declining productivity.

The Treasury paper also says declining union membership has helped employers become more powerful and that may be contributing to weaker wages.

However, the paper says, a key driver of the increased impact of employer concentration appears to be declining firm entry and dynamism, because it has meant that established businesses are facing less competition from new entrants, and that’s allowing them to exert more market power.

Dr Leigh will outline the findings of the Treasury paper in a speech in Melbourne today.  It is his fifth in a series of lectures on competition and economic dynamism in Australia.

‘Monopsony’ power and weak wage growth

The Treasury working paper, written by Jonathan Hambur, is titled, “Did labour market concentration lower wages growth pre-COVID?”

It is an important piece of work, providing fresh evidence that market concentration is driving down Australian wages.

It deals with a concept economists call “monopsony.”