Why a Six Figure Salary is Only Good For Some Electricians

Most in the electrical trade in Victoria, were jumping up and down with joy on Thursday afternoon, after the union told the boys – and possibly a few girls – that by 2014 they can expect to be earning six figure salaries.

In what’s being referred to as a ‘landmark’ decision, the new enterprise bargaining agreements (EBA) mean each year for the next four years, a sparky can expect to earn an extra 5%, capping off their base salary at $107,000 by the mid noughties.

From an individual point of view, these blokes were ecstatic. They finally feel ‘rich’ and are getting ahead of the man. But none of them probably stopped to think about the potential economic cost that this could bring.

And let’s be honest none of them probably really care about the economic cost, which is fair enough. All they see right now, is a holiday for the wife to Thailand and maybe being one step closer to taking the kids to Disneyland one day.

Now, I’m not hanging it on Australia’s tradies, I’m married to one of the best in the business if you ask me.

But quite frankly, they couldn’t give a rats backside about the potential affects to the economy. Mainly because they don’t see how it affects them. The union was fighting for them and that means they didn’t have to worry about it.

Many times in the past, Kris has written about how the minimum wage can actually destroy jobs. This wage jump for electricians is certainly no minimum wage, but it can still have devastating implications for the industry that the union hasn’t looked at – or if it has, it’s ignored.

It’s considered a landmark case because it’s one of the only industries now to have a pay rise each year that’s ahead of the official inflation figures. Which is great for them.

But it ignores that potential ongoing cost to the economy that could take years to unfold.

For one thing, it could lead to a misallocation of labour. But more importantly, while there are winners from this decision, there are losers as well.

What the union forgets – or ignores – is that the new wage structure is only good for those that are in the industry now and manage to remain in their job.

You see, artificially high labour costs will just end up pushing more contracting businesses into handing out redundancies. Plus, it could make the hiring on of an apprentice less likely in the future. Especially when that apprentice could eventually just become another highly paid employee.

And even though part of the new agreement means that any sparky automatically earns a double hourly rate once they work over 36 hours each week, companies will be encouraged to keep the labour force to a minimum on a job site.

I mean, think about it. It’s going to be a lot cheaper to pay nine blokes two hours overtime each week than pay ten guys a flat 36 hourly rate.

The outcome is that it’ll eventually lead to less people being employed.

Then you have to consider the cost of building construction in Victoria. For many years now, the state has enjoyed a construction boom. Which may all come to an end because of this new EBA.

Increased labour costs are likely to lead to other states fighting to win the big construction projects. Or, unions in other states fighting for the same pay scales, and therefore even more electricians losing their job or missing out on getting a job.

Do you think the unions have considered these effects?

If you’ve ever been to union meeting, they’ll tell you, that they’re working for you, and that business is greedy and evil and you should maximize your benefits.

Well, of course you should maximize your benefits. But when the collective benefits for a privileged group means unemployment for the not-so-privileged few, the real impact of trade unions is revealed.

Look, the problem doesn’t just affect the electrical trade. It’s all part of the widespread problem that is wage fixing and trade unions.

And that’s one of the greatest mistakes people make when it comes to set wages determined by an organisation like a union or the government.

People think they’ve been ‘protected’ and looked after.

They’re not. The only people protected are the ones lucky enough to remain in the industry. Claims that unions look after everyone are clearly incorrect. It’s just that no-one pays much attention to the people forced out of their jobs thanks to the unions.

Sometimes these organised bodies fighting for everyone’s rights think they are doing the right thing, when they just end up hurting the very people they’re supposed to be trying to protect.

Shae Smith
Assistant Editor
For Money Morning Australia

 


Since starting out in the financial markets over a decade ago, Shae has extensive experience across various aspects of the industry. Shae cut her teeth in the derivatives industry, teaching clients basic trading techniques with technical analysis.

Joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications, such as Australian Small-Cap Investigator, Gold Stock Trader and Microcap Trader. She’s spent the past two years however, honing her macro analysis skills alongside Jim Rickards, showing Australians how to invest and profit form global macro trends.

Drawing on her extensive experience, Shae is a contributor to Money Morning, and lead editor of sister-publication Markets & Money, where she looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.


56 responses to “Why a Six Figure Salary is Only Good For Some Electricians

  1. Wait until the construction boom turns into a construction bust.
    Everyone including sparkies will be bidding with lower prices to win what limited work their will be. I’m in the constuction sector and believe me, undercutting has already begun. With a 30% fall in building permits (and rising) doesn’t equate to increased wages in the construction sector. As they say in the Castle-“Tell them there dreaming”

  2. On another note, if electricians are going to stick to their 6 figure salaries then don’t be surprised when the only sparkies working in the near future speak with an American or Irish accent.

  3. After reading this article i could’nt help but be rminded of the UK car industry. the Unions with thier militant wokers both priced themselves so high so as to not be affordable and secondly, just to stick it to ‘the man’, decided to build poor quality car due to a lack of care. high wages, crappy work. i see Australia has seen the errors of the mother land. its good to know that in Australia ‘we are different’ so nothing bad happens here.

  4. Well done Shae on another unwarranted attacked on the trades person. Don’t hear any attacks on the CEO class do I? Is Ralph worth $16m? CEO getting pay increases when the share price and the profits are tanking? Companies going staight to “sophisticated investors” to raise and diluting retail (and exisiting and loyal) share holders and getting all the gravy, nothing to say about that? Increase in the average CEO salary from 30 to 100 times average earnings, nada from you.

    These are important issues to share holders who, after all, are your business. If people did not invest in shares then no business and no profit for you. So why are you not taking up these issues?

    You should work for the American Fox Business Channel, they would love you.

    All too easy to upset some trades persons then powerful CEO’s eh?

    Shae, it starts at the top. If the worker sees their boss getting undeserved bonus and pay levels why should the worker show restraint? Let’s see some real leadership. And let’s see you and Kris demanding it. Also the working class are under enrmous pressure from cost of living increases such as mortgage and utilities. They have no choice but to seek large increases.

    It is not the so called “labour shortage” RBA but the increases in costs that will create the wage pressure.

    For all your bluster about the working man and the government I have never seen you once turn the same level of “insight” to the executive class. How about it Shae?

  5. Well, that’s right. The pay of public servants and those in the mining indudtry are perhaps the only ones that have managed to keep pace with inflation. The earning and purchasing power of just about everybody else has been deteriorating, and looks set to deteriorate further. Apart from the privileged, executive class, that is.

  6. Kevin, you are spot on. as you say the CEO’s and execs are the biggest waste of money ever. essentially does someone really need to be paid $16M/yr? can someone actually spend that much money each year? its not needed. Everyone should should grab and scratch for every dollar they can get and we can all then sit ‘rich’ with no economy afetr ten years. They everyone will happily take a pay cut to just be employed.

  7. Kevin B – I also think the CEO’s get overpaid (although I think Ralph earns $13M not $16M but your point still stands)

    However unless a tradesman is either working a lot of overtime or in some way working in conditions that warrant a much higher rate of pay, $100,000 is a bit excessive IMHO.

    I see a lot of different pay structures, and it is very noticeable that some occupations that may only be semi skilled at best attract a very high pay rate, whilst other highly skilled individuals who also work hard get quite modest pays in comparison.

    There just seems to be an imbalance, and it is a concern that we may hit a time when every employee wants a bigger slice of the pie to make up for that imbalance.

  8. PF you said:
    “There just seems to be an imbalance, and it is a concern that we may hit a time when every employee wants a bigger slice of the pie to make up for that imbalance.”

    Now, that’s a good one. If there is an imbalance, should not a balance be achieved for an equitable and socially harmonious society? Presumably it should, but your worry is that every employee might get a bigger, and presumably a more fair, share of the economic pie?!!! Showing your true colours, are you???

  9. cb @ 10 – no my concern is that if everyone or every trade union started making large wage increase demands, we could see ourselves back into a 1970’s type of era when large wage rises were the norm, and as a result we had sky high interest rates and galloping inflation.

    I would prefer that all get the benefits of wage growth in line with higher productivity and output. that scenario benefits many including borrowers as debts get negated by inflation, savers get high rates in the short term, but the value of their savings gets eroded quickly, retirees and the poor are affected as the price of goods rises quickly so that those in the supply chain can pay the higher wages etc. We also become uncompetitive as a nation if we pay ourselves too much.

    Too many issues to list, but you will see how we just go further out of balance.

  10. PF – Yes, I know the story line. They want to print and pocket all the fresh money at the top while keeping the rest starved of the same so that the purchasing power of the currency remains relatively unaffected. The fact that we would end up very quickly in a disaster if everybody did and got what they are doing and getting, goes to show beyond a shadow of a doubt that what they are doing and getting at the top is inequitable and deeply immoral.

  11. Well my concern was that a select few workers are being very well paid (and I see that in my work) whilst the others are not all that well paid.

    That creates a social and economic imbalance which doesn’t help anyone except the privileged few.

    I’m not sure what you are taking issue with.

  12. I will summarise it for you, PF:
    1. You take issue with some worker wagess being able to keep pace with inflation and you see THAT as a threat to currency stability.
    2. By contrast, I take issue with the fat cats at the big end of town getting their exorbitant pay rises by comparison to the few workers you are concerned about.

    Admittedly, to settle the question, we would need to have the figures as to how much these two groups contribute to price rises, relatively speaking.

  13. Kevin B@5,
    I think that the issues of bank CEO salaries and trade salary agreements are completely different. Banker salaries are set by company’s board of directors and can be voted down by shareholders. This is entirely different to a union setting what the market rate is for sparkies’ labor. Furthermore, it misses the whole point that Shae makes: wage fixing can be ultimately destructive as opposed to fair.
    Furthermore, you have it completely wrong on what shareholders are: they are not your customers, they are your owners or stakeholders. Your customers are your borrowers and account holders (who the bank will think are stakeholders too, like one big happy family).
    So while you rag on Shae for focusing on the world’s most highly paid sparkies, it’s probably fair to to differentiate between the two.

  14. cb @ 15 – the whole point of the op was that some selected workers are being paid well above the rest of the workers who are performing the same tasks, and that can create problems for wage restraint.

    Essentially I agree with Shae on that issue, and it also appears that I agree with JC @ 16 as well.

  15. Well, in that case I disagree with you all. JC is getting bogged down in technicalities. It matters little what the mechanism is for fixing or deciding remuneration to anybody. The more money is being paid out to someone, the more their purchasing power increases relative to those who are not similarly remunerated. Plus, whatever extra money is paid out, will have an overall upward pressure on prices, so that the growth in money and remunerations will benefit its recipients and disadvantages everybody else who does not get the same level of pay rise. The differential between the various groups as they do or do not keep up with the money printers determines the losers and the winners from whatever is going down.

    My argument is not with wage rises leading to price rises, but with the focus you are taking on whose wage rises should be watched and curtailed. You focus on the workers, while I focus on the big end of town. Your elitist outlook causes you to be weary of worker wage rises while I am pointing out the inequity of what is being done by the big end of town. That’s all.

  16. Still quoting from the same, about Noosa.

    “In all Resort Corporation spent $210 million on the Noosa Sanctuary resort and clearly believed that the market value of what they were creating was much higher than that.

    The project went into receivership and it was generally thought that the very worst case scenario was a 50 per cent drop in value to $105 million. That would have gone close to covering the HBOS first mortgage debt which was in the vicinity of $120 million. But no. The highest and winning bid was just $60 million, payable in 21 days. HBOS lost half their money on a 60 per cent first mortgage security. Second and third mortgage holders plus the equity funds were wiped out.”

  17. @ JC at 16

    I was referring to share holders being Money Morning’s customers not shareholders being the companies customers, probably did not express it properly. You are right shareholders are supposed to be the owners.

    But is that true in reality? Your example is a poor one to say the least. Even if the majority of sharholders vote the pay structure down it is advisory only. Apparently us sheep are way too dumb and can not possibly be trusted to decide for ourselves what a CEO is worth.

    And, no, they are not completely different. The trades persons rely on a skills shortage to demand such high wages, so do CEO’s. Is that true in reality?

    Wage fixing goes on at all levels, why are tradies singled out all the time? CEO’s fix, trust me, it is one big executive club. How many people are serial members of boards?

    And don’t get me started on diversity meaning better decisions. Look at Gail Kelly, nearly bankrupted St George and managed to get promoted to CEO of Westpac and convince Westpac to buy the bank she nearly bankrupted! Lol.

    How many of us can hold down 5 jobs or more at the same time. Kris is quick to have a crack at RBA board members (and they deserve it) but shine the light on execs as well.

    PF you might be right about Ralph’s wage, it varies depending on who is writing the column but 13 or 16 million, no difference really. Is anyone worth that much money?

  18. PF – And the second WOW is going to be when these cut price luxury homes go on sale in that Noosa development. Would you care having a guess at how Noosa prices are going to be affected until that stock is cleared? If they are already down by 30%, they could be knocked by another 20% – 30%, making it the sharpest drop around the nation for a very long time going back. Your views?

  19. Ralph – agreed, it all becomes a hypothetical argument at those levels, and it usually entails bonus shares or performance bonuses, so the value is elastic. I shouldn’t have commented in retrospect.

    I think the CEO of the NAB will need to get his tail out there and start earning his keep though, he gets about $5M and he will be thinking it’s not enough with the storm he is facing today.

  20. cb – Noosa has been down for some time now. It is a beautiful area, but entirely dependant on tourism, so the strength of our dollar has stopped most overseas tourist, and that being on top of the GFC, the toursist areas in Qld and Nth NSW have been hit quite hard. I’m quite sure I have mentioned all of this before.

    It is also too far from Brisbnae to be considered as a great buy with a long drive to work on the northside, it is almost 2 hours drive to the CBD. I am seriously considering buying on the Sunshine coast myself, but closer to Brisbane than Noosa, and I will wait til next year when I expect more good buys to be around.

    Qld and WA have been living with depressed house prices for some time, and I expect the rest of Australia to follow, although I don’t see why areas with good employment and not tourist dependant will fall by that much.

  21. PF @ 26
    I suspect you will be spoiled for choice over the coming years as far as bargains go…

  22. Kevin@23,
    Well I’m not a “customer” of Money Morning. I don’t pay for anything nor do I expect anything. All I get is Kris Sayce’s commentaries, which are one of the best “free” things I get in my mailbox. In terms of food for thought, it pours shame on newspapers and the “debates” I could get on TV.
    I understand what you’re saying about CEO salaries, but shareholders do have the power to make changes, if the collective willpower is great enough. I believe that bank CEOs are typically very effective people, but in the case of Australia where they literally can’t “fail,” yes, I find their remuneration to be rather extreme. If you understand scalability, I understand why their salaries are so high, but I agree that it appears difficult to understand how performance benchmarks are calculated.
    Yes, I believe that some people are worth the money they are paid. For example, Carlos Ghosn, the CEO who turned around Nissan. Steve Jobs, the guy who invigorated Apple. I’m sure there are many more you can add to the list.

  23. cb – I was not going anywhere in particular with those links I thought they might be interesting to throw in. Were you refering to a particular post?

    Here’s another one on WikiLeaks posted today:

    http://seeker401.wordpress.com/2010/11/30/wikileaks-release-of-embassy-cables-reveals-us-concerns/

    Editors Note:

    “well there it all is..the 9 best stories so far..as i said to someone yesterday..who gains from this?..who is affected the most?..who is missing from cables?..answer those questions and you get a true feeling of what this is really about..remember assange is the man who says 911 isnt a conspiracy..yeah..”

  24. dc @ 34 – it can’t possibly be Jewish propaganda – cb stood up for Wikileaks last time they leaked secrets like this, so we can all count on his continuing support for Julian Assange again this time, cb isn’t the type to turn in the wind, he will hold his position I’m sure.

    As a self confessed alternate sceptical free thinker fearlessly defending the rights of others to free speech, there is no other course of action.

    Is there?

  25. CB et al:
    What is the minimum age from whence people may begin to access their super funds?
    is it 50?
    also, is it mandated how one may access super, i.e. is it limited to dribs and drabs or can one access a large proportion of it (or all of it) in one swoop?

    am just starting to think about these things so long as my hubbie will be 50 in about 7 years time, and we have a SMSF that is growing quite nicely thanks to Hellicopter Ben …
    Am just wondering if we’ll be able to access these funds somewhere not too distant down the line so that we can buy back into the deflated property market which i believe will exist then.

  26. Hi Sandra,

    I’m not expert but …

    It looks like you can access you super when you turn 65, or earlier if you’ve retired from the workforce – the minimum age is between 55 and 60, depending on when you’re born. From my calculations, it will be at age 60 for your hubbie.

    Seeing he’ll be stuck in super for a while, note that your SMSF can now borrow to buy an investment property.

    I believe you can choose how you access your super (e.g. lump sum, income stream).

    https://www.amp.com.au/wps/portal/au/AMPAUGuidanceTopic3C?vigurl=%2Fvgn-ext-templating%2Fv%2Findex.jsp%3Fvgnextoid%3D38db5b9128ab2210VgnVCM10000083d20d0aRCRD

  27. thanks PF.

    Looks like for us “younger folk” we cant touch it until age 60.
    It’s a shame that the government has to be so prescriptive over how we can and cant spend our own money …

    Time will tell if we ever get to even see one cent of that money

  28. I’m no expert, but if the housing market is just starting to collapse now, I imagine prices will be in decline for many years and maybe decades before they hit rock bottom. Until they do I’d have thought it would be best to hold off on looking for cheap opportunities as you’d be buying into a down trend. That is unless you are looking to buy a property to live in yourself.

  29. your are perfectly correct dc.
    we are wanting to buy to live in… and enjoy.
    after a lifetime of work. seems we’ll be half dead though by the time we are allowed to enjoy the fruits of our hard earned savings.

  30. dc – I’m expecting a price decline over two or three years, but not a collapse, and that isn’t one of my jesting remarks.

    Nothing is certain though.

  31. dc, Sandra, PF – I’m predicting about 7-8 years of prices falling by about 40% in total, then another 5-6 years of prices drifting as people lick their wounds, then heading higher in about 14 years time.

    I reckon all the gains of the current boom (since around 1997) will be wiped out.

  32. I have only just caught up with the tail end discussion in this thread. My prediction is that, most probably, somewhere between 2035 and 2055 the world is going to end

  33. Drew, sorry, I forgot about this comment. It was something I posted in jest as a half sentence. Notice that there is no full stop at the end of it, and I left it like that so that I could complete it later with, wait for it: ‘for me.’ So, to answer your question, my demise will make absolutely no difference to house prices, lol.

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