The Law and the Labour Market

Why Not Full Employment?

Ray Evans

We are currently experiencing the worst aggregate unemployment figures since at least 1983 and perhaps the 1930's. Along with the reality of unemployment, fear of the prospects of unemployment has also increased. The Morgan poll (August 10/11, 1991) tells us that the percentage of employed people who believe their jobs are safe has declined from 82% in November 1989 to 70% in August 1991. In Victoria that figure is even less.

The opinion polls also tell us that the Commonwealth Government is blamed in large measure for our current unemployment. The Morgan poll shows that in November 1984, 42% claimed the Government was not doing enough. In August 1991 the figure was 73%. Not surprisingly, therefore, the press is now full of reports of attacks on the Government over unemployment. The President of the Australian Council of Trade Unions, the eloquent and charismatic Martin Ferguson, told the ACTU Congress on September 9 last.

"A clear message from the Congress would be that the present levels of unemployment would not be tolerated.There is a collective responsibility on governments, employers and ourselves to introduce policies which can lead to higher job growth and lower unemployment as a matter of urgency."

It is important for the ACTU to try to ensure that people blame the Government for unemployment rather than blaming the trade unions. So far they have succeeded in this. Once again the Morgan poll tells us that nearly 50% of people believe that world economic pressures, and government failure, are responsible for unemployment and only 30% of people blame the unions. Of course, diverting blame onto the Government is difficult for the ACTU, since Martin Ferguson declared some months ago that the ACTU was a partner in Government.

Amongst the policies adopted by the ACTU Congress, to ameliorate unemployment, were

  • Further reduction in interest rates.
  • A 25% cut in negative gearing tax deductions.
  • Acceleration of the Building Better Cities Program.
  • A National Infrastructure Development Fund to be used as a vehicle for superannuation funds.
  • Enforcement of anti-dumping laws and policies.

Here we have an interesting rag bag of ideas, which is at least as significant for what it does not contain as for what it does contain.

One of the curious things about the recent debate over unemployment is the apparent complete lack of intellectual curiosity concerning the causes of unemployment. It is as if unemployment was seen as something like drought or floods. Some journalists, including some prestigious financial commentators, are writing about a permanent upward shift in unemployment levels, as if it was some sort of inevitable climate change, beyond our capacity to remedy.

My argument today is that full employment is natural and normal, in just the same way that good health is natural and normal. Unemployment is the result of government intrusion into, and distortion of, the social order, just as ill-health and premature death can be caused, for example, by the systematic application of white lead on the face, as the ladies of fashion used to do in the 17th Century.

What is it then which causes this dreadful social malady? What must be done to cure the body politic of it and, in particular, what is the legislation which a federal coalition government will need to pass in the light of the constitutional constraints which are imposed upon it?

Why do we now have nearly a million officially unemployed people? When we consider unemployment figures in some form of desegregation, and it is the act of desegregation which is crucial, we immediately find major differences between different age groups.

Unemployment - 1972 - 1991

Males 15-19 are far worse off than females 45+. This fact is widely known, but it is rarely highlighted. The implications of it are never discussed. But the inescapable conclusion of the very high unemployment levels, for young men and women in the 15-19 age group, relative to other sections of the work-force is that the price of their labour, relative to other labour, or to labour replacing capital equipment, is far too high. It is the inevitable failure of the regulators to get the relative prices right which causes unemployment. (One reason for the inevitability of failure is that these relative prices are subject to constant change.)

One form of desegregation which is more difficult to obtain, but which in social terms is very significant, is unemployment rates for non-English speaking men and women, and for Aborigines. For the former we are looking at unemployment figures of 30% to 40%. For the latter we are looking at much, much higher figures, probably 80% to 90%. Those of you who were present at our inaugural seminar will recall the impressive address given by the late Sir John Kerr on the Northern Territory Aboriginal Stockmen's Case of 1966, a case which resulted in virtually total dis-employment of the Aboriginal stockmen of the Territory, with the most appalling social consequences.

The price for labour in the 15-19 age group is, of course, not a market price. It is a price set by regulation, by arbitral tribunals in State and Commonwealth jurisdictions, and by apprenticeship boards and other bodies which have statutory authority concerning entry into all manner of occupations. There is, for example, an apprenticeship board, in Victoria, which controls rates of pay and conditions of work for young people who want to become gardeners. If you want to become a gardener you must first become a gardener's apprentice. The price is not just a dollar value, although that is undeniably important. The price also includes intangibles such as the difficulties and frustrations of terminating an employment relationship if things do not work out.

All of the proposals for government remedies for youth unemployment are designed either to lower the effective price, or to raise the quality, of the young job-seeker, without acknowledging the source of the problem.

The fact is that young people have been priced out of the job market by regulators of all shapes and sizes, but notably the arbitral tribunals, acting under pressure from trade unions. Once that fact permeates the public consciousness, then dramatic political and institutional consequences follow.

I have been arguing along familiar economic lines, using economic jargon. Legally mandated prices for various sectors of the labour market are too high; demand falls; unemployment is the consequence. These terms are semi-technical, they do not arouse moral indignation.

At the time of the Profumo scandal in London, many years ago, there was a great debate over the significance of it all, and a famous editorial in the London Times sought to cut through the fog of wordy battle with the heading "It Is a Moral Issue!"

Similarly I want to emphasise that unemployment is a moral issue. There are particular people who, because of their activities and decisions over a long period of time, are responsible for unemployment, and for the personal tragedies and dreadful social consequences which unemployment brings. What these people have done requires us to make moral judgments. They should not, because of neglect on our part, be allowed to escape from the bar of public opinion.

One particular individual, now a Federal cabinet minister, and today frequently proposed as the third man who will resolve the stand-off situation between Prime Minister Hawke and back-bencher Keating, is particularly responsible for today's tragic unemployment of young people. I refer, of course, to Simon Crean.

On the 11th September 1984, just a few days after John Stone gave the 1984 Shann Memorial Lecture in Perth, Mr Crean, as Senior Vice President of the ACTU, was giving evidence at the public hearings of the Hancock Committee, elaborating on the official ACTU submission to the Committee. He was asked to respond to Stone's accusations concerning the causal relationship between the rates of pay prescribed for young people and youth unemployment.

Simon Crean emphatically denied that there was any connection between youth unemployment and youth award wages. Further, he denied there was any connection between unemployment in general and wages in general.

However, Crean went on to argue that Stone had been talking about adult wages and youth unemployment, and that there were under age awards, and that these allowed for substantially lower rates of pay, and hence, for employment opportunities for young people.

So Crean moved from vehement denial, to implicit acceptance, of Stone's argument within five minutes.

John Stone, of course, had specifically referred, in the Shann oration, to award wages for young people as the primary cause of youth unemployment.

What Simon Crean did not tell the Hancock Committee was the contribution he had personally made, as Federal Secretary of the Storemen and Packers Union, to youth unemployment. That union, under the Crean-Landeryou leadership, had pursued a vigorous policy of eliminating from the various awards in which they were involved, as many junior rates as they could. In 1982, only two years prior to his appearance before the Hancock Committee at which this exchange took place, the Storeman and Packers' Union had obtained a variation to the Woolbroker's Award which conceded adult rates of pay at 20 years of age and totally eliminated the junior rates for under 17 years of age. In consequence, most juniors were retrenched in the wool reclassing industry. Simon Crean was National Secretary of the SPU at the time.

As far back as 1973 Commissioner Littleton awarded the SPU 100% of adult rates at 18 years of age in the skin and hides award. In 1976 Commissioner Sheehy refused a claim by the SPU for adult rates at 18 years in the retail trade. I wonder how long that decision was sustained. The important issue here is that Simon Crean, a dominant figure in the SPU at this time, consciously, deliberately, knowingly, pursued a policy over many years of destroying as many youth awards as he possible could. Now that he is Minister for Primary Industry and leading contender for the Prime Ministership, I think that his conduct during this stage of his career should be subject to close scrutiny and that he should be called to account. As I have said, it is a moral issue.

At the time of John Stone's Shann Memorial Lecture, the issue of trade union monopoly power and unemployment was a very sensitive one. It was widely recognised that the metal unions' campaign of strikes and disruption of 1981-2, spearheaded by the learned Dr Carmichael, and the ubiquitous John Halfpenny, had caused massive retrenchments in the metals industries.

In the summer of 1982-3 the Australian Labor Party faction leaders faced a problem. The ALP had been defeated in the Flinders by-election, a by-election which they should have won by a mile. That defeat was attributed to the public's resentment of trade union behaviour, a resentment which spilled over onto Bill Hayden and the ALP. Hayden had been forced into a position of opposing Fraser's wage freeze. The first Accord, a document drafted that summer, was designed to turn the trade union problem into an opportunity, and to elevate Hawke to the leadership. It handled the unemployment problem with these words.

"The parties (i.e. the ACTU and the ALP) have also agreed that no new policy approach, however radical and innovative will be capable of meeting, in the short term, the parties' prime objective of full employment. Overseas and domestic factors continue to produce the sobering conclusion that while an alternative policy approach would enable a sustained recovery to occur and would reduce the plight of the unemployed, no rapid solutions are to be found for a return to full employment." (emphasis and interpolation mine).

The assertions in that paragraph have been repeated many many times since. In summary the ACTU was saying then, and is saying today, that whoever is to blame for unemployment it's not us.

Occasionally, however, the party line is forgotten and the truth is admitted. Paul Keating did this when he placed the 100,000 dead men (the unemployed metal workers who lost their jobs as a result of the metal unions' campaign in 1981-2) on the shoulders of George Campbell at the 1988 Hobart ALP conference.

The fundamental cause of unemployment is the gross distortions to the labour market caused by regulation. This regulation is imposed by arbitral tribunals, and other statutory bodies, which prevent people from contracting with each other, under mutually beneficial terms. The regulatory apparatus is used by the trade unions to regulate in the perceived interests of trade union members and officials. To use Professor Blandy's pithy description, the tribunals act as "enforcers" for the unions. When the regulatory apparatus refuses to do this, there is a row. We are currently observing the ongoing drama of such a row between the ACTU and the Industrial Relations Commission.

There is one final issue to be clarified before we take up the prescription for curing unemployment. The regulatory apparatus has been acting as the trade union enforcer for decades. It is only in recent times that unemployment has become a problem. For example, in 1972, aggregate unemployment was 2.1%, in 1975 3.9%, in 1978 6.2%, in 1982 6.6%, in 1983 9.9%, in 1989 5.8%, and we are currently pushing 10%.

  • Labour market distortion has been a feature of the Australian landscape since 1904. It has grown steadily since the days of Higgins, but it does not explain the cycle in employment statistics. The answer to this cyclical behaviour is, in a word, inflation. A government which can pull the wool over the eyes of the business community with unexpected inflation will cause economic activity to accelerate. When, however, the inflationary bubble bursts, then much of the activity which had been set in train by erroneous price signals turns out to have been completely mistaken. Employment is then destroyed.

An unregulated, flexible, adaptable, labour market is much more capable of adapting to and compensating for monetary disorder than a highly regulated one. But the Australian labour market would have to be one of the least resilient labour markets in the world. We have also suffered from a high degree of monetary disorder during the last eight years or so. Such a combination is very bad for economic life and particularly bad for employment.

The simple solution, then, to unemployment is first, sweeping liberation of the labour market; and second, monetary stability. The second issue is beyond the province of this paper. The first issue requires careful analysis. How, in Australia's current political and constitutional situation, do we create a legal order in which citizens are able to freely contract with each other concerning the rents which employers pay for the time, and the skills, of their employees?

In this publication are two papers by eminent academic lawyers concerning the constitutional and common law constraints with which a Federal government, in particular, must grapple, if it wishes to solve the unemployment problem.

In Mr Craven's paper we learn that the constitutional power, of the Commonwealth, to deregulate the labour market is highly constrained. If this conclusion is known to the shadow cabinet, that body is keeping the fact a tight secret. The only non-controversial power, under which the Commonwealth can bring down legislation empowering Australian citizens to write their own contracts concerning the rents they will charge for their time and skills, is the corporations power.

This means that under Commonwealth law, people will only be free from the busy-bodies of the State and Commonwealth arbitral tribunals, the descendants of H B Higgins, if they write these contracts with corporations. That at first appears to be a significant drawback because a substantial proportion of small businesses, particularly in the rural sector, is unincorporated.

I do not believe that to be so. Politics is not a stationary game. If within a very large sector of the economy, the incorporated sector, people are empowered to make their own arrangements, then the efficacy of freedom and the universal appeal of prosperity will spread over into the entire community. It will be politically impossible for state governments to continue to suffocate with regulatory quilts, the unincorporated sector of the economy over which they have constitutional authority, whilst the incorporated sector leaps ahead.

The big political problem we have is that our politicians believe that Australians are deeply frightened of freedom and prefer to remain cocooned by regulation. Once that issue is demonstrated to be totally false then those who have made good livings from labour market regulation, and from the monopoly rents enjoyed by the trade unions, will find that the political support necessary for them to continue in the style of life to which they have become deeply attached, has vanished.

These contracts between employees and corporations must have the legal standing to override all other Commonwealth and State laws, and that is something upon which the High Court will inevitably be required to decide.

For the High Court to accept and endorse the superseding authority of these contracts, some Commonwealth Government involvement in them will be necessary. They will, for example, have to be lodged with some Commonwealth agency, the Commonwealth Corporate Employment Contracts Agency, perhaps. Here, at last, is a job for former Deputy President Jim Staples. The legislation empowering these contracts should be safe from the hostile inspection of the High Court if it is required that they satisfy some statutory constraints.

The present Opposition Industrial Relations Policy contains the absurd provision that a minimum hourly rate, as determined by the Industrial Relations Commission, will be required. President Barry Maddern has picked this proposal up with his suggestion last Wednesday, very coldly received by ACTU President Martin Ferguson, that the IRC return to its 1950's practice of prescribing minimum wages only.

If constraints are to be imposed upon the contracts which Australian citizens are empowered to write with their corporate employers, an hourly rate determined by the IRC is the last constraint which a Government which understood the nature of the problem, and anxious to reduce the scandal of unemployment, would impose.

If hourly rates are to be fixed then they should be fixed, periodically, by the Attorney General. Thus a Minister, responsible to the Parliament, would be responsible for the unemployment levels of each particular age group, for each sex, for Aborigines, for non-English speaking job-seekers, as they become part of the stock of public knowledge, quarter by quarter.

Every member of parliament will be able to keep a careful watch over the level of unemployment, in all the various sectors of the labour market, in his or her electorate and thus bring direct pressure to bear on the Attorney as soon as these levels become unacceptable.

There are other constraints which the Coalition wishes to impose on contract writers. Annual leave, long service leave, for example, are among these constraints. These are silly constraints, reeking of government paternalism, and do not address the real problems of common law labour market contracts.

A very real problem is that of indentures, a problem which bears heavily on the appalling decline in the apprenticeship system. When I was an engineering student, more than halfway through my course, I was seduced by the offer of what was for me, real money, to take on a cadetship with the State Electricity Commission of Victoria. This cadetship paid me whilst I finished my course and bonded me for four years after graduation with the State Electricity Commission of Victoria. The PMG, which then included Telecom, offered similar schemes and they were very popular.

Such schemes would, today, most likely be struck down by the courts as being unconscionable contracts. It would be more sensible for the Commonwealth to use amendments to the Corporations Act to define carefully what form of indenture agreements are to be upheld by the courts and which forms are not. There is no doubt that indentures do raise some difficulties.

The crucial point at issue here is what degree of Commonwealth imposed constraint, on the contracts written by corporations with their employees, is necessary to lock the High Court into support of this legislation. That is an issue which is beyond my competence to advise, but it is an issue to which the Coalition should be devoting very close attention. As far as I am aware no attention has been given to the problem at all, or any acknowledgment even that the problem exists.

This is a situation in which constitutional and common law intersect in a crucial way with politics and economics. If the Coalition wins the next election and embarks on industrial relations reform, only to run foul of the High Court, it will be a national tragedy. Let us briefly run through a couple of political scenarios in order to work our way through these problems.

Assume, despite the Goods and Services Tax, that the Coalition does win the next election with a mandate to introduce employment contracts. Assume a Bill has been prepared, exhaustively analysed by the H R Nicholls phalanx of distinguished legal talent, and is put through the House within the first fortnight of sitting of the new Parliament, and is then passed by the Senate. It becomes law.

It is most likely that a State Labor Government will immediately challenge the Act in the High Court. However, until the High Court disallows the Act it remains law. During this period the new Government, whilst refraining from saying anything which could be construed as contempt of court, should seek to enlarge and deepen a public opinion which strongly supports the new Act. The High Court is fundamentally a political institution, and will reflect, as all political institutions ultimately must reflect, public opinion.

If, despite all legal precautions, the High Court disallows the Act then there is no alternative but to take the matter to a referendum. As Robert Menzies found in 1951 this would be a frightful situation to be in.

Contrariwise assume that the High Court, however reluctantly, gives the Act its blessing and Australians are free, in substantial numbers, for the first time since 1904, to negotiate their own contracts with corporate employers, unhindered by the intrusive dictates of arbitral tribunals. What happens to unincorporated businesses? They will find themselves in a most uncompetitive situation. Many will incorporate. However, there will rapidly develop enormous pressures on all state governments to introduce complementary legislation to the Commonwealth Act. The Labor governments will find themselves torn by very great tensions. There will be doubtless some state Coalition governments which will deeply resent what has happened. Nonetheless, the economic forces set in motion by such a Commonwealth Act will be so great that they will have to capitulate.

Consider another scenario. The Coalition wins an election. The Bill, well prepared, passes the House of Representatives, but is rejected by the Senate. Immediately the stage must be set for a double dissolution and, if necessary, a joint sitting to resolve the issue. Such a double dissolution must be only about this issue. The election must be an unemployment election.

There are other variations on this theme. Ultimately it boils down to the proposition that unemployment is a moral issue. Unemployment has been caused by people who either knowingly or unknowingly have priced people out of jobs.

The title of this paper is "Why not full employment?" The answer to that question is very simple; we have unemployment because we have not sincerely, really, wanted full employment.

The time has come to press the issue. The guilty men and the vested interests must be brought to book. The people cast aside by arbitral tribunals as unworthy or unfit to contribute to the community's well being must be brought back into the economic and social life of the nation. The H R Nicholls Society must not rest until this is achieved.

Why HR Nicholls?