Interview: Head On
Unions: Do You Have a Moment?
Industrial: Vital Signs
Economics: Taxing Times
Environment: It Ainít Necessarily So
History: Melbourneís Hours
Immigration: Opening the Floodgates
Review: Pollie Fiction
Poetry: The Cabal
The Locker Room
The Cowra Clause
Belly Spreads The Word
Lying Lies And the Lying Liars Who Tell Them
In the early years of the Hawke government a more centralised wage-fixing system was needed to break the Fraser-Howard government's debilitating, inflationary wage-price spiral, and this was established through various incarnations of the accord with the trade union movement.
But, crucially, in exchange for restraint in money wages, the Labor government provided seven rounds of tax cuts in 13 years, returning all of bracket creep and more. It later introduced compulsory superannuation for working Australians - an enduring Keating legacy. And it increased the social wage for working people through targeted increases in family payments, Medicare, child-care subsidies and more affordable access to education.
These improvements in the social wage were paid for by the community through the tax system, relieving employers of extra wage costs and allowing them to improve their competitiveness. The improved competitiveness of Australian business, combined with an active export promotion program, triggered strong growth in Australian exports of manufactured goods and services. Labor's industry plans reoriented manufacturing industries to the export market, giving them a stronger future in an open, competitive economy.
The cooperation of the trade union movement was fundamental to the success of Labor's economic reform program. As the deregulation of financial and product markets proceeded, the government and the union movement gradually moved from centralised wage-fixing towards a decentralised wage-fixing system based on productivity improvements. The government and the unions ushered in a system of enterprise bargaining, with unions voluntarily easing restrictions on work practices in exchange for productivity-based pay rises and the establishment of skill-based career paths.
Under Labor the profit share of gross domestic product (GDP) rebounded strongly. It has continued to grow under the Coalition and according to the 2005-06 Budget Papers is expected to keep growing until at least 2008. There has been a historic shift in the profit share from around 18 per cent of GDP to more than 26 per cent. Yet there seems to be no limit to the profit share to which some business groups aspire.
Further labour market deregulation
The Coalition government claims that the key to future productivity growth is further labour market deregulation. It has legislated for the virtual dismantling of the Australian Industrial Relations Commission, the establishment of a new body to set the minimum wage, the promotion of individual contracts in preference to collective agreements and the effective removal of unfair dismissal laws. Over time, just five minimum conditions of work will replace the system of awards.
These changes will result in one of the most deregulated labour markets in the developed world. But who says an almost completely deregulated labour market is the best for the country? Surely not all regulation is bad. For example, in product markets there is not much point in buying and selling goods and services if you can steal them. So regulations are put in place through legislation to establish property rights. These regulations are needed for the efficient functioning of markets. And to encourage innovation, intellectual property is protected for specified periods so that others cannot simply copy the invention or breakthrough.
In the labour market, most of the productivity-stifling restrictive work practices of the 1970s and 1980s were removed through enterprise bargaining and award modernisation initiated by the Labor government and continued under the Coalition. Those who argue that further labour market deregulation is the key to the next round of productivity growth should identify the restrictive work practices that are retarding this growth.
Highly skilled professionals will not be affected by the government's deregulatory agenda, since they have never relied on this sort of regulation. They establish their pay and working conditions individually, comfortably relying for their bargaining power on the market value of the skills they have to offer.
But low paid workers rely variously on the minimum wage, awards and the enhanced bargaining power of collective bargaining. The government's deregulatory agenda is directed at them - at the setting of the minimum wage, the award system and collective bargaining.
Since 1996 employees have not been able to choose their representative in negotiations; the employer has a right of veto over collective bargaining and representation by unions. A right that can be vetoed is no right at all. Imagine how a business would react if employees were legally able to veto its chosen representative in enterprise bargaining. The inability of working Australians to choose collective bargaining sets us apart from most countries of the western world, many of them with much higher productivity levels than Australia - including Finland, Sweden, Belgium and Austria.
No one has been able to demonstrate beyond mere assertion that abolishing unfair dismissal laws or expanding the use of Australian workplace agreements (AWAs) will unleash big productivity gains.
The Treasurer refers to an OECD survey about the possible employment impacts of unfair dismissal laws in Australia and asserts that it shows that the abolition of unfair dismissal laws for small business would create 77 000 jobs. In truth, the OECD finds that Australia's system of protection against unfair dismissal is one of the least strict of all OECD countries.
An OECD analysis of employment protection legislation concludes that 'a reasonable degree of employment protection legislation could be welfare-improving'. The OECD advocates reasonable employment protection legislation in combination with a modest system of redundancy payments and effective re-employment services, arguing that this policy combination contributes to an efficient labour market. And since the OECD finds that Australia's employment protection system is one of the least strict among OECD countries, and concludes that there are net economic and social benefits from moderate employment protection legislation, the government cannot be said to have established a credible case for abolishing unfair dismissal laws.
Rather, there is a case for streamlining the unfair dismissal procedures for small business (including by removing unscrupulous ambulance-chasers from the system). In the absence of a streamlined system operating like a small claims court, disgruntled employees will seek remedies through the much more protracted unlawful dismissal and anti-discrimination procedures, at potentially much greater cost to employers.
As for the spreading of AWAs throughout the workforce, there is already a market for competing contractual arrangements covering workplace relations in Australia. More than 75 per cent have chosen collective agreements and common law contracts. Another 20 per cent have engaged in employment under the award system, leaving only three or four per cent on AWAs.
If contemporary awards were as rigid and outmoded as the government asserts, many more employers and employees would be opting for AWAs to boost workplace productivity and take-home pay. Long-time advocates of labour market deregulation, like Professor Mark Wooden, have concluded that the government's agenda goes too far:
But what if AWAs are not desired by workers? Currently, there do not appear to be measures that ensure that workers have the ability to choose between individual contracts and collective agreements. If the aim is to provide employees with real choices, then I am on Greg Combet's side - the right to bargain collectively needs to be protected. Further, the government should have a vested interest in ensuring collective bargaining continues to flourish if it believes, as it has stated so often in the past, that enterprise bargaining has been fundamental to the productivity gains on the 1990s.
In pursuing further labour market reform there will always be some scope for ongoing modernisation and simplification of awards. But if awards are to reflect the realities of modern workplaces, this is best done by the relevant parties rather than by prescriptive government legislation. Further modernisation and simplification of awards could be a productive exercise all round, and is well worth pursuing.
As Saul Eslake points out, there is no obvious correlation between the degree of centralisation of wage-setting arrangements and employment growth in OECD countries over the past decade. If sensible proposals for labour market reform are advanced they should be assessed rigorously for their productivity-raising potential. But further labour market deregulation is being used as a diversion from the more challenging task of identifying and supporting new sources of productivity growth.
Sustained productivity growth is best generated in harmonious workplaces. It is created by combining work, initiative, ideas, technology, physical capital and risk-taking. Increases in real wages over the last decade or so have, fundamentally, been caused by the record productivity growth unleashed by the economic reform program of the Hawke and Keating governments in a moderately regulated labour market.
The view that more and more labour market deregulation is good for Australia is grounded in an employer-based ideology and an orthodox economic theory that precedes the rise of behavioural economics pioneered by Nobel Prize winner Daniel Kahneman. One of the policy implications of behavioural economics is that:
governments and employers could do a lot to raise subjective wellbeing if they put more emphasis on the enrichment of jobs - increasing job satisfaction by giving workers more personal control, opportunity to use their skills, variety in tasks, respect and status, and contact with others. Taken literally, the economists' model assumes that all work is unpleasant - a disutility - and is undertaken purely to gain the money to buy the things that bring utility. Like the rest of us, economists know that, in reality, work carries much intrinsic satisfaction ... various ways in which labour can be used more efficiently make life unpleasant and even unhealthy for the workers involved: ever changing casual hours, rolling shift work, split shifts and firms continually moving their staff to different cities. When we pursue efficiency at the expense of people, economists have got things around the wrong way, trashing ends so as to advance means.
For more than a century working Australians have taken their rewards from increased labour productivity partly in the form of improved working conditions. There is nothing wrong with this. The purpose of lifting productivity is to improve wellbeing, and much of that improvement comes in the quality of work. The government's deregulatory agenda is not designed to remove (unspecified) artificial obstacles to working people improving their wellbeing; it is to give employers greater freedom and flexibility in the way they deal with their workforce.
It is hard to sustain an argument that real wages need to fall at the bottom end. Seeking to cut real wages is precisely the wrong policy response in a tightening labour market with acute skill shortages emerging in many areas. This is no temporary situation: working-age Australians will continue to be in short supply as our population ages over the coming decades.
In arguing for the effective complete deregulation of the labour market for low-skilled Australians, some business organisations want any pursuit of fairness to be undertaken through the government's income-support system. They refuse to recognise or acknowledge that lower real wages supplemented by taxpayer-funded income-support payments must involve ever increasing taxes. Since taxes are a form of regulation that has deterrent effects on work, savings and investment decisions, a generous interpretation of their policy position is that they want to substitute one form of regulation for another.
The disincentive effects (deadweight losses) associated with income tax are estimated at 20 to 30 cents for every dollar of tax collected - a costly form of regulation indeed. Lowering the real minimum wage and supplementing it with government cash benefits is an argument for a continued expansion of the welfare state. This is hardly desirable from the perspective of private incentive. An ever expanding welfare state to fund income-support payments for low-paid workers is a costly race to the bottom, seeking to compete with the countries of Asia on the basis of low skills and low wages. In the twenty-first century Australia should instead be engaged in a race to the top, competing on the basis of embodying high levels of intellect and ideas in its products and services.
Vital Signs, Vibrant Economy (UNSW Press)
|Search All Issues | Latest Issue | Previous Issues | Print Latest Issue|
© 1999-2002 Workers Online