One Hundred Years of the Higgins Legacy:
Treasured Inheritance or Debilitating Folly?

Labour Market Reform in an Election Year and Beyond

Peter Anderson

The Australian Government is expected to call a general election during 2004. With the Australian economy performing well and the labour market relatively strong, there is a danger that our ongoing economic challenges may be overshadowed. That would be a serious misreading of the national interest. It is essential that we continue to have a visible and effective debate on economic management, the labour market and competition policy.

In each federal election the economy and the labour market are important issues, sometimes very significant issues. Whether or not decisive in an electoral sense or not, they are fundamental issues for any party in government.

The debate should encourage the presentation of a medium to long term vision for the economy, workplace relations and the labour market, and for policies which go beyond single issues, short term outcomes or specific spending commitments. The temptation for politicians, particularly in an election year is to focus on short term electoral advantage. The job of business organisations is, in part, to inject that broader perspective.

The voice of business can also be lost in the cacophony of single issue organisations seeking funding commitments or media attention. Few politicians see themselves as 'champions of business' and employers usually shy away from election year policy---leaving it to business organisations to engage in the public debate. Moreover, trade unions campaign in partisan terms (and are campaigning for a change in government) and are already portraying the labour market and workplace relations in Australia in negative terms that suit their political agenda.

Some of you may be tempted to conclude that three of the major forces for re-regulation of the labour market are trade unions, the federal ALP industrial relations platform and policy and the Australian Industrial Relations Commission.

I prefer a different analysis. Whilst I am happy to discuss each of the above, the major reason for regression (if regression occurs) will be complacency (including complacency within the business community). That complacency is borne of:

  • A strong economy with a decade of growth;
  • A low level of industrial disputes; and
  • A low level of union membership.

Too many in our community, including the business community, think that the above is the natural order of things. It is not. It is the product of policy, of reform, of economic management, of investing in skills, of investing in workplace bargaining, of using new options and choices in setting wages and conditions, of risk-taking, of building a workplace culture that decries adversarialism, and of translating 'hard won gains' into productivity, competitive advantage and higher employment.

ACCI's 2004 pre-election survey of 1685 small, medium and large companies, released last month, puts economic management, workplace and business regulation front and centre of the agenda for the next Australian government with 41.5 per cent of businesses nominating these areas as the most important for business.

The living standards of Australians are firmly based on jobs. Our prosperity as individuals, and as a nation, is a product of having jobs and creating more of them. Employment is the product of decisions made by employers---on whether to employ and how to employ---and of employers' capacity to make these decisions.

Governments and politicians are elected to make decisions and choices about economic management. Our unemployment rate and living standards are the product of these choices.

From employment flows economic opportunity and social advantage for our community. Conversely, unemployment is the major contributor to poverty and to social disadvantage.

The global competitive economy---where no-one owes Australia a living---has meant that Australia has made a significant economic transformation since the 1980's. In this new reality, the need to reform the way we create and regulate jobs in Australia has been widely recognised---unfortunately its implementation has too often been heavily compromised.

The message from the recession of the early 1990's, when unemployment hit over 10%, is that unless we reform further before the economic cycle turns against us, we will suffer a heavy blow to living standards through widespread unemployment.

In June 2004 the OECD released its annual Employment Outlook. It says that 'a key precondition for success is expanding the share of the working age population that participates in paid employment'. The report shows that whilst Australia's labour market has performed better than the average of OECD countries, we are still outperformed by some countries with economic, welfare and political systems that are broadly similar to ours, such as the US, the UK and New Zealand. In each of those countries there is a higher percentage of the working age population in jobs. These higher proportions are not one-offs but have existed for some time. It is no co-incidence that each of these countries has a more flexible system of employment regulation than Australia.

By June 2004 our unemployment rate declined to 5.6%, based on headline ABS measures. This is the lowest sustained rate for two decades. However, the ABS now also publishes an underemployment rate, which is calculated by adding to the unemployment rate people who were working but who would like to work more hours. The combined level of unemployment and underemployment is more than 12%---far better than it was---but still too high. This measure does not provide the full picture of underutilization of labour as it does not include those who are not actively looking for work but who say they are available to start work.

Of course, no labour market could succeed in employing all those who say they would like to work or to work more. But what is clear is that if we build on the gains made there is enormous potential to still increase the number of Australians in paid work.

The pre-election survey shows a high level of concern amongst business with the level of employment regulation. This is not surprising, given that Australia, in international terms, still heavily regulates employment by federal and State laws, by six industrial tribunals and by over 4,000 individual awards.

Just about any employer will tell you that employment and workplace relations in Australia continues to be complex, regulated by multiple laws and systems, with many transactional difficulties for small and medium businesses, with sub-optimum bargaining outcomes, renewed centralised arbitration by the AIRC, emergence of widespread private arbitration by the AIRC, co-ordinated union campaigns, far from simplified safety net awards, continuing unfair dismissal problems, increasing influence of discrimination law, safety law and privacy law into workplace relations and difficulties in enforcing remedies against unlawful conduct.

In 2002 ACCI released the Modern Workplace: Modern Future 2002-2010 Blueprint to guide national policy on workplace relations and unlock more jobs in Australian businesses.

The audit conducted by the ACCI Blueprint concluded that we are only one decade into the reform of a nine-decade old system of centralised regulation.

The major reason why international economic organisations such as the OECD consistently recommend reduced and reformed employment regulation in Australia is their conclusion that, based on global trends and sound economic expertise, a reduction in costs and risks to employers would increase capacity and preparedness to employ additional staff.

Getting and holding the unemployment rate in Australia below the current 5.6% should be an important task of the next parliamentary term.

A credible jobs strategy needs to integrate many areas of government policy.

Employment policies should be directed to increasing labour force participation, increasing skills and employability, an active welfare system that moves the unemployed (including our long term unemployed) from benefits to employment, and a tax system that provides incentives to be in the workforce---not on welfare.

The ACCI Modern Workplace: Modern Future 2002-2010 Blueprint outlines the key priorities for workplace relations reform, one of the crucial reform areas highlighted by the OECD. These include:

  • more scope for workplace-based decisions and agreements on wages and employment conditions to drive productivity and reward;
  • less red-tape in making and approving agreements;
  • simpler minimum standards;
  • expansion of individual bargaining and Australian Workplace Agreements;
  • a single minimum wage;
  • less burdensome and fairer unfair dismissal laws;
  • better quality occupational health and safety regulation;
  • clearer and simpler laws about union rights and industrial action;
  • progress towards a single national system of employment regulation; and
  • flexibility to facilitate workplace-based agreements that help reconcile work, family and life activities.

The OECD's June 2004 Economic Outlook specifically commented on the need for more flexibility in wage setting in Australia as a key part of an employment agenda to generate more jobs:

    Evidence from certain industries, in particular low productivity workplaces, also points to beneficial effects of workplace reforms on labour productivity growth, which improved considerably vis-à-vis previous sluggish performance in the 1970's and 1980's.

    The OECD has welcomed the move away from highly centralized wage setting via arbitration. However, it has proposed a further tilting of the balance in favour of bargaining and restricting tribunal powers. Although awards have become less prescriptive, enterprises are still bound by arbitration decisions from multiple (federal and state) jurisdictions....The OECD has also proposed to reflect whether ... a whole ladder of minima, including for higher-paid employees---should not be replaced by a minimum wage which would, inter alia, have the effect of protecting those 15% of employees currently covered neither by awards nor collective contracts.

As employers, we support sustained and affordable growth (not reductions) in real wages and improved working conditions that are funded by productivity and performance in individual businesses. A simpler system would include a minimum wage that underpins the income of lower wage earners but which also allows other disadvantaged low income earners to obtain employment or enter the labour market, and allows growth in wages and employment conditions above the minimum though workplace bargaining.

(So-called) job-protection laws are only one of many workplace policy issues that need attention. They are often discussed in debates between politicians, largely because the federal government has proposed changes over many years. The Senate has agreed to some useful changes to federal laws, but government policy for a small business exemption has been opposed by all non-government parties.

The recent test case decision by the Australian Industrial Relations Commission, hotly contested by ACCI, to almost double national award redundancy obligations of employers, and to remove a 20-year exemption small business had from redundancy pay, has added to this controversy.

The ACCI pre-election survey revealed that almost 73 per cent of small businesses are concerned about both federal and state unfair dismissal laws and consider them an impediment to their commercial performance and prospects.

Some have disputed this, but the consequences are unarguable---small businesses are concerned about being prosecuted by disgruntled ex-staff and fronting-up to tribunals or paying out legal bills or settlement monies that are not warranted.

ACCI's Blueprint sets out 17 practical unfair dismissal reforms that respond to real issues raised by employers and that will make federal and State laws fairer and more balanced. They should be implemented by federal and state parliaments.

The OECD has pointed to the social impacts of 'job protection' laws, and concluded in its June 2004 Economic Outlook that:

    Dismissal legislation and provisions regulating the use of fixed-term contracts and temporary work agencies can all be described as restrictions placed on the ability of the employer to adjust the workforce and to control labour costs....in deciding whether to hire new workers, the firm will take into account the likelihood that firing costs will be incurred in the future. Assuming that wages cannot be fully adjusted to compensate for the fact that firms may have to incur firing costs, hiring decisions will be affected.

Similarly, a July 2004 report by Access Economics released by the Business Council of Australia concluded that 'if it is more difficult to retrench people, employers will be more reluctant to hire them.'

Both of these conclusions support earlier findings by the Melbourne Institute of Applied Economic and Social Research in 2002 that unfair dismissal laws:

  • are a substantial impediment to businesses when making employment decisions;
  • make businesses inefficient by having to retain underperforming staff; and
  • have an inequitable effect on longer term unemployed and disadvantaged job seekers who find it harder to secure employment.

The problems that unfair dismissal laws create not just for employers but also disadvantaged or unemployed workers must be a vital part of employment policy. Unfortunately, they are too often neglected. The OECD's June 2004 Outlook concluded that 'youth, as new entrants into the labour market, and women with intermittent participation spells, will primarily be affected by any reduced hiring'. If we are to increase labour force participation in Australia, young people and women should not be put at this disadvantage by unfair dismissal laws.

The labour market issues at stake in the 2004 federal election are historically significant, and genuine differences between the approach of the parties have emerged.

There are five key policy issues I will touch on today.

Workplace Bargaining

    Exclusively Collective, or Collective and Individual?

    The Obligation to Bargain Collectively?

    Enterprise bargaining or Industry pattern bargaining?

    The Obligation to Bargain with Unions on Union Demand?

    The Obligation to Bargain 'in good faith'?

    What is a 'workable system of non union bargaining'?

    What needs to exist for 'enterprise bargaining to be at the centre of the system'?

Australian Workplace Agreements

AWAs---their importance in fact

AWAs---their importance in 'the system'---the next logical step from collective bargaining

The implications of AWAs being abolished---in fact

  • Existing AWAs to continue until expiry---implications
  • Awards or union agreements or non union agreements with union rights to intervene: 'You have a free contractual choice between your wallet or your watch ... in other words, which form of theft is more convenient to you' (Epstein)

The implications of AWAs being abolished for the system---under what circumstances would AWAs return?

Arbitration

Economy wide arbitration of wages and employment conditions?

Industry wide arbitration of wages and employment conditions:

  • Awards to be 'comprehensive'
  • No limit on 'allowable matters'
  • Only limited by 'industrial matters' (NSW system = wide definitions).

Arbitration and Bargaining

  • Arbitration of Agreements or 'Intractable Disputes'
  • Arbitration of Above Award Obligations ('near market rates of pay')---see critique by Dr. John Edwards this week
  • A Public Interest Test?
  • Implications for Bargaining Conduct.

Regulation of Forms of Work

  • Full time employment
  • Part time employment
  • Casual employment
  • 'Non traditional forms of employment'
  • Contracting
  • 'contingent and insecure employment'
  • labour hire
  • outsourcing and contracting out.

Disputes and Boycott Activity

  • Secondary boycotts

    TPA or IR laws

    The Offences

    Penalties

    Investigation and remedies

     

  • 'Protected' industrial action

    Strikes against an industry or an employer?

    When it can be taken?

    What it can be taken over?

The final point I wish to emphasise is that many of the pillars of traditional employment regulation still exist in Australia and are capable of being re-activated by re-regulation. Policy regression is much easier for an Australian government than it was for, say the Blair government in the UK or the Clark government in New Zealand. However, this would be entirely the wrong approach.

Our existing system of employment and workplace relations regulation is more highly regulated than the UK or New Zealand systems under Labour governments. We start the debate in these months prior to a federal election from that reality.

Australia must keep moving forwards towards a system of labour market regulation that complements the open and competitive economy in which we trade and seek to create jobs. We cannot afford to regress.

All parties are faced with the challenge of presenting to the business community, and the public at large, an integrated long term jobs strategy.

If that vision is grasped with the right policy mix, business, jobs and living standards will prosper.

It remains the case that the levels and quality of employment we will have tomorrow is a product of the policy choices we make today.

Why HR Nicholls?

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