The Law and the Labour Market
Why Not Full Employment?
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
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
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
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
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
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
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
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
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
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.