Multi-employer bargaining: a barrier to firm growth?

by Dan Andrews, Jack Buckley

In this Research Note we explore the potential impact of multi-employer bargaining on firm growth and the unintended consequences this could carry for both firms and workers. Our key insight is that while firms with fewer than 20 employees are largely exempt, the debate has ignored the possibility that a business – when faced with a different wage bargaining regime once it hires its 20th employee – may ultimately decide not to hire their 20th worker.

Summary and key conclusions:

  • Analysing the firms most likely to be impacted by the recent reforms, we find that those firms who grow past the 20-employee threshold (‘growing firms’) are very different from those just below the threshold who do not expand (‘stagnant firms’). Using detailed microdata, we show:
    1. Growing firms are much younger: more than half are younger than 8 years old and a quarter are less than 4 years old. This matters because younger firms are more innovative.
    2. Growing firms create an average of 13 additional jobs each, for a grand total of almost 157,000 net new jobs. This is equivalent to more than one-third of total net job creation in financial year used for the analysis (2017/18).
    3. Growing firms are at least 12 per cent more productive in terms of output per worker.
  • Young high-growth firms are also an important source of competition and productivity-enhancing reallocation. When they expand, they largely do so by poaching workers from firms who are more than 5 times as large, almost 5 years older and 19 per cent less productive. The workers who are poached also win because they receive a pay rise of 15%.
  • Our research supports two key conclusions:
    • The Fair Work Commission should take into account firm age when determining whether firms should be subject to the same enterprise agreement.
    • Policymakers should closely monitor the impact of the new laws on firm dynamism and make legislative changes if necessary. With a review of the laws due within two years, empirical research into the impact of the reforms on firm growth will be crucial.