Wage Costs: a Relative Truth

2013 will forever be noted as a watershed year in Australia’s manufacturing industry, with the announced withdrawal of Holden and Ford due to cost issues.

Now eyes have turned to Toyota, which states it needs to cut its costs of making cars in Australia. It maintains that some of that reduction must come from employment costs. Toyota has put together a list of worker entitlements it believes are outdated and must go.

Some of the changes Toyota seeks include:

  • Cutting minimum Christmas shutdown from 21 days to eight;
  • Cutting four hour paid allowance to donate blood (generally taken by employees on Fridays);
  • Requiring medical certificates for sick days and requiring employees to notify managers of illness before shifts start rather than in the first hour;
  • Cutting minimum notice for changes to days off from two months to one months;
  • Removal of additional pay for working in confined spaces, dirty roles, skills payments, and travel outside of work hours; and
  • Reducing Sunday overtime payments from double time and a half to double time.

A number of employers and even workers could consider the current entitlements to be excessively generous and unsustainable. The situation echoes data in our Egan Associates’ Productivity discussion paper released in October, which revealed that Australia’s labour costs have been increasing rapidly and at a rate unmatched by its peers. Our situation is summarised by the following three graphs, taken from the paper:

1. Australian wages have outstripped inflation in recent years.

2. Australia’s unit labour cost (average cost of labour/real output) has risen significantly over the last ten years.

3. The labour compensation per unit labour input (compensation over total hours worked) has increased at a higher rate than other nations, even taking cost of living into account.

You can find the complete report here.

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