WHY THE AIRC SHOULD BE ABOLISHED
Des Moore Director, Institute for Private Enterprise
A paper presented at the Annual Convention of the Industrial Relations Society of WA, Margaret River, October, 2000
*Des Moore, formerly a Deputy Secretary, Commonwealth Treasury is now Director, Institute For Private Enterprise
NOTE: This paper reflects research undertaken over the past two years. The principal results are contained in a report commissioned by the Council of Federal and State Labour Ministers (and presented to it on 27 November 1998) entitled The Case for Further Deregulation of the Labour Market. Copies of that paper are available from the IPE at $6.00 (Phone/Fax 03 9867 1235). Along with other subsequent papers, it is also accessible via the IPE web site www.ipe.net.au
Some old hands of your Society may recall an important statement made not so long ago to a meeting of the International Industrial Relations Association. That went as follows:
"When we became a nation in 1901, one of the first things we did was to set up a Commonwealth Tribunal which could exercise its powers to settle disputes - a power which rapidly became one of settling wages and conditions directly or by example from most Australian employees. It was a system that served Australia quite well I think, but the news ...is that it is finished. Not only is the old system finished but we are rapidly phasing out its replacement, and have now come to do things in a new way."
Strange as it may seem today, this formed part of a praiseworthy oration by Prime Minister Paul Keating in August 1992 and it came shortly after his Minister for Industrial Relations had amended the IR Act, announcing when he did that "there is now consensus in Australia on the need to focus more directly on the enterprise and workplace". After the 1993 election Mr Keating went even further in encouraging reform when amending the Act to allow (limited) non-union enterprise agreements and when telling the Institute of Directors to expect a "new model" with a much-reduced role for the (then) Industrial Relations Commission.
Why am I recalling all this now? It is not simply to contrast it with the foreshadowed reversal that a Beazley Labor Government would make to most reforms implemented under Keating Labor - and since.1 Nor is it even to delve into how the union movement’s influence within Labor stopped Keating’s new model from developing.
Rather, it is to ask why Australian leaders continue to accept institutional arrangements for regulating employer-employee relations that probably remain unique in the world in the extent of actual and potential third party intervention. Can anyone think of an institution overseas comparable to the AIRC? Do Australians behave so differently that we really need to be unique in such matters?
The hitherto quiescent Business Council of Australia has now started to stir the pot by publishing "extensive interviews" with 57 CEOs showing that "91 per cent see a need for further reform of the industrial relations system, and estimating that such reform could deliver 20 per cent of the potential improvement in their businesses".
Moreover, in a marked change to previous views, many CEOs are evidently frustrated enough to recognize unions and tribunals as unlikely partners in any reform process. While acknowledging improvements, CEOs express revealing "concerns remain about the opportunity costs of the system, especially its capacity to consume management resources, its limiting impact on the art of the possible and its capacity to obstruct, deter and delay change, innovation and improvement through its effect on managerial, employee and union behaviour." 2
This is an important development because the BCA initiated the move to enterprise bargaining in the 1980s and countered the initial strong opposition from the Labor Government. It is particularly encouraging that the CEO of BHP, Paul Anderson, ventured recently to express concern about Australia’s workplace relations system and the unions’ role in it. In the past BHP has been reluctant to push the reform agenda and Anderson’s statement and the BHP attempt to establish individual contracts in its Western Australian iron ore project are welcome initiatives.
The resistance to reducing the power of regulating institutions, and their legislation allowing extensive intervention in employer-employee relations, undoubtedly reflects a belief that they form an essential part of Australia’s social culture. Why? Because an "independent" umpire is supposedly needed to protect employees and ensure preservation of Australian egalitarianism. Last year Melbourne’s leading left-wing historian, Professor Stuart Macintyre, expressed concern that this culture has changed and he exhorted Labor to recognise that the "challenge is to renew the institutions, the policies and the purpose of Labor, not abandon them". 3 Although one might wonder why Australians need special institutions and regulatory policies when we are supposed to be naturally egalitarian, Macintyre’s exhortation does appear to have influenced the reactionary policies recently adopted by Beazley’s Labor.
It is relevant that Macintyre even complained that the Third Way was challenging Labor’s achievement of "growth and progress towards a fairer, more equal, more free and independent Australia". This Third Way, he argued, failed to recognise "the fundamental threats" to "Labor’s trade union base", "the collapse of stable employment" and the "growing gulf between rich and poor". In an appeal that sounded a bit like old Soviet claims, Macintyre saw "the great challenge faced by the labour movement" as being "to provide jobs for all those who seek them".
Macintyre’s approach may strike cords with some but do they make a symphony? Many points can be debated but the overall picture suggests that his analysis displays a poor understanding of how modern society is working.
Australian Income Inequalities and the Role of Social Security
We could start by considering the argument that extensive labour market regulation allows wages to be regulated so as to minimise income inequalities.
The first point to make is that, although the spread between earnings in the labour market has widened since the early 1970s (indeed there has even been a fall in real minimum wages), this has also been happening overseas. The main influence has probably been the market responding to the increased demand for skilled labour and it would be strange indeed if Australia had stood aside from this world-wide trend.4
But there is a question as to why the egalitarian AIRC (as it now is) allowed a wider spread to occur without acting, let alone expressing any noticeable concern. There is a further question as to whether we can really claim to be so egalitarian when there are at least eleven OECD countries that have no Commission but a narrower spread of earnings than Australia. Perhaps the Australian labour market has been a more important influence on earnings spreads than the Commission!
Australian equalisers, of course, decry the wider spread of earnings in the less regulated US and UK labour markets and constantly use that as an argument against further deregulation here. However, those equalisers overlook the fact that those two countries have higher proportions than Australia that would otherwise be difficult to employ because they have relatively low literacy and numeracy skills (Chart 1). Despite this, the US and the UK actually have considerably higher rates of employment than Australia. It seems reasonable to conclude that these higher employment rates partly reflect the wider earnings dispersion and that, in turn, suggests they have a more flexible and more equitable labour market.
In short, wider spreads of earnings are not necessarily inequitable. They may allow higher proportions of poorer groups to be employed rather than be on the dole or out of the labour force altogether. And, given that obtaining a job is an important determinant of one’s future prospects, it is clearly more equitable to have a labour market that includes the poor as workers rather than not employed.
This is not simply a matter of reducing the 600,000 or so who are unemployed. There is also over another 1,000,000 people who are not in the labour force but who say that they want to work. Federal Reserve Chairman, Alan Greenspan, has drawn attention to the role played by the equivalent group in the United States in supplementing the labour supply in a more flexible labour market and minimising inflationary and interest rate pressures.
A second point relevant to the equity issue is that a more important test is the spread between total incomes - that is, we need to take account of the effects of tax and social security payments as well as earnings in the labour market. In Australia’s case, the results over the years when there has been some reduction in labour market regulation run counter to Macintyre’s thesis. Thus, the inequality in total incomes actually fell slightly between 1982 and 1995-96 and the most recent ABS analysis shows very little change between 1994-95 and 1997-99. As recent World Bank research shows, globalisation (which involves reduced regulation) has been good for both the poor and the rich in less developed countries, as it has in Australia. 5
Indeed, although published Australian statistics show high rates of poverty, this is not an accurate indication of what has been happening to the living standards of low-income groups. Poverty is defined statistically not by reference to an income’s capacity to pay for "necessities" but by whether that income is low relative to that of others. Indeed, Australia’s most common poverty definition puts almost 20 per cent in that state even though their living standards have been increasing steadily. With this farcical approach, a substantial proportion of families will always be in statistical "poverty" but it will have no meaning in terms of equality.
More important than all this, traditional analyses of income inequalities and of poverty fail to recognise that most people start low and move up the income scale over time. One OECD study of four countries suggests that only a very small proportion of people (around 5 per cent) are "touched" by poverty for an extended period and it confirms that "obtaining or losing employment is particularly important for transitions into and out of poverty". In similar vein, a recent ABS study found that 45 per cent of Australian low paid workers move on to higher paid jobs within one year and that low paid workers are at much greater risk of becoming unemployed. All this emphasises the importance of having a labour market that maximises employment opportunities.
A third point about equality is that even the Commission's safety net wage awards are not the determining factor in the extent of income equalisation and protection of those at the bottom end. The argument that social welfare and wages are complements rather than substitutes misses the point that safety net wage adjustments extend to all those on low wages, including those in upper income households, whereas the bulk of social security is means and asset tested. The Commission’s wage awards also overlook their potential adverse effects on those not in employment.
In reality, the enormous expansion in the social security system over the past thirty years has made wages increasingly less important as a vehicle for ensuring a reasonable living standard for low wage earners. It is a striking but little known fact, for example, that social security now provides households in the bottom quintile with more than half of their incomes.
Indeed, it is absurd that the media and others continue to portray the Commission as an institution that adjusts the "living wage" to provide a social safety net. For one thing, its adjustments extend to those earning about $900 per week and cover about 25 per cent of employees, which is clearly way beyond any safety net. More importantly, as the majority of the low paid live in households in the upper half of the income scale, there is no equity or social justice in regularly increasing wages for such households.
Indeed, from one perspective it is positively inequitable to keep wages up at thebottom end because it prevents some low skilled from getting jobs. Australia’sminimum wage is high relative to average earnings (around 50 per cent) and the great majority of economists agree that a lower (real) wage would increase employment, possibly quite significantly. The resistance comes primarily from those who wrongly see (higher) wages as a necessary income support measure for those who live in households with low incomes.
But for most households who experienced lower wages as a result of reduced regulation the means tested social security system would automatically provide some upward adjustment to incomes. To the extent that this did not happen, it would obviously be necessary to adjust social security arrangements.
In short, any reduction in wages resulting from less regulation need not (and should not) result in any significant increase in inequality of total incomes at the bottom end. While social security is by no means a perfect mechanism in the hands of politicians, it has the potential to ensure this happens at minimum cost because it can be based on the income needs of households and can minimise adverse employment effects.
Inequality in Bargaining Power
The other arm of the egalitarian argument is that, as the labour market is dealing with people not commodities, a move to a less regulated market would result in people being treated "unfairly". This appears to suggest that in a "free" market they would receive less pay or other conditions than they need. It is even suggested that negotiation at the point of hiring would not occur and there would be scope only to accept or reject employment offers.6 In short, a common perception is that, if employees have to negotiate directly with an employer, the employee will come off second best and exploitation will occur in some cases.
However, this assumes that the balance of bargaining power rests with employers and it overlooks the protection provided by the ordinary law against the use of force, fraud or undue influence. In fact, there are over 1,000,000 businesses in Australia and employers compete actively for the wide range of available labour services. There is no evidence of any significant monopsony power in the hands of employers and, accordingly, no evidence over the past twenty years of any upward trend in profit rates or squeeze on wages.7
While large companies are sometimes said to have more power in the labour market,8 they also need to treat employees well if they are to be successful competitors. Indeed, the fact that large companies convey the appearance of having more power often makes them a target for unions who try to obtain a breakthrough from human resources managers who fear that extensive disputation will diminish their company’s image. Indeed, it is often overlooked that large unions have long records of "bullying" of both workers and employers. I look forward to hearing more about union strategies this afternoon from the employee of the Fairfax press who recently took a leading role in the confrontational tactics adopted by his union in its dispute with that company.
This is not to suggest that businesses are all good employers and all treat their employees well in practice. But it is totally wrong to imply that freer labour markets would simply indulge in a form of slave trading in people. All labour markets in modern economies actually trade in the services of people and those people do not simply refuse or accept offers. There is a negotiation process as illustrated by the increase in Australian Workplace Agreements (now about 100,000) despite the regulatory hoops the negotiators have to jump. And there are also some who negotiate employment agreements that are not even considered by the AIRC or other authorities.9
The fact that many voluntarily leave jobs also indicates the considerable freedom that already exists for decision-making by employees. The latest ABS survey of Labour Mobility shows that in the year ended in February 2000 nearly 1,470,000 employees quit voluntarily. It also shows that, despite oppressive unfair dismissals regulation, employers were able to retrench almost 400,000.10
The reality is that there is a trade in employment services and it is one that often involves a complex balancing of costs and benefits by each party. Those costs and benefits may not all be capable of being incorporated into a formal agreement or award, and this makes it difficult for a third parties to judge what an agreement should contain, let alone decide whether it is being observed. The decisions to quit and retrench involve a substantial balancing on both sides of the costs each party will bear if the employment agreement is terminated, not all of which will necessarily be in an agreement.11
Nothing of what has been said should be taken to deny that, under a freer labour market, there would be some reduction in wage rates for some employees, particularly those at the bottom end. However, would it be inequitable for such wages to fall when there would be an accompanying increase in employment of those who have been denied employment, when there would be social security increases for those in low income households who experienced wage falls, and when those experiencing wage falls and new employment would have the opportunity to increase wages over time?
There is insufficient time today to consider in depth some other objections that are raised to a freer labour market. However, a few need brief attention.
First, there is the claim that less regulation would increase job insecurity and working hours and/or stress. Indeed, the trade union movement conducted a campaign last year apparently based on the notion that reduced regulation to date has done just that.
However, the well-established pollster Morgans has been conducting surveys of employee perceptions of job security since 1975. These surveys show that only in the recession of the early 1990s has the proportion of employees regarding their job as safe dropped below 70 per cent. Moreover, there has been no increase in the average duration of jobs (which are actually slightly higher in less regulated labour markets) and the number of voluntary job leavers scarcely suggests concern about job prospects. Historically high unemployment rates have created a false perception that jobs are insecure and that has been used to frighten people.
Equally, there is no evidence to support the regulation of working hours. Indeed, such regulation appears to have limited practical effect - average working hours continue to decline; those working long hours are mostly in managerial or professional positions and their hours need to be assessed against the background of the significant and growing reduction in the length of working lives; and there has been a major reduction in physical labour and the stress from that.
A second argument used against freer markets is that the original justification for the establishment of existing arrangements remains valid, that is, the prevention and settlement of industrial disputes. However, for most of the period from the establishment of the Commission to the late 1970s the record shows a very large number of working days lost from industrial disputation.
Since 1979 Australia's rate of disputation has been consistently above the OECD average. Although international and Australian data are not fully comparable in terms of absolute rates, Chart 2 for the most recent years suggests that our rate of disputation has not fallen as much. And such data probably does not fully capture what is happening.
For example, in arguing in 1998 that the Workplace Relations Act 1996 had had little or no effect, one legal expert pointed out that industrial action was still "occurring on a widespread basis with little interference from Courts and tribunals charged to ensure that it stop or not occur". Even the waterfront "dispute" escaped the data because the sacking of the workers meant that technically it was not a dispute. And, in typical Australian fashion, there is a continued failure to give credit to the Minister for Workplace Relations for his strong support of reforms that have markedly increased productivity on the waterfront.
Interestingly, less regulated labour markets overseas appear generally to have fewer disputes, as they do in Australia’s unregulated labour market in housing. That industry operates almost entirely on the basis of individual contracts between trade contractors and builders, with the result that it not only has the most dispute-free workplace arrangements but is the most efficient and cost-effective housing industry in the world. No evidence of exploitation of workers, or unfair pay, has ever been adduced.
Reducing Wage Breakouts
Another argument sometimes advanced is that a high degree of centralised intervention in wage bargaining is needed to prevent wage surges and consequent adverse employment outcomes. However, our centralised system was no help in stopping the large wage breakouts of 1974 and the early 1980s, and there is little doubt that the Accords of the 1980s contributed to the higher inflation that, in turn, led to the recession of the early 1990s.
However, the main reason for rejecting this argument is that there has been a major change in the respective roles of the Reserve Bank and the AIRC. The Bank now has responsibility for keeping inflation to an average of 2-3 per cent and this means that it no longer has to accept the level of wages determined by the Commission, as it did under the inflationary Accords of the 1980s in particular. This important but little-recognised change means that there is no macro-policy argument against a decentralised system of wage determination, which some economic analyses of different systems have suggested have been more successful than Australia's.
Reducing Trade Union Power
One final point regarding objections to freer labour markets is the argument that they reduce the power of trade unions to protect workers. However, there is no reason why workers cannot continue to use trade unions to help in negotiating employment with employers, in just the same way that they can use outside agencies (which are increasingly run by ex trade unionists). Indeed, potentially unions have a role to play in providing a range of services to members.
The complaint about loss of trade union power essentially relates to the loss of virtual monopoly powers of representation granted by tribunals in regard to particular areas of the workforce and the preference in employment sometimes given union members. Such powers should not exist in a society that has a responsible judicial system. Unions are also concerned that they may one day have to obey tribunal orders instead of largely ignoring them - and boasting about it!
The reality is that trade unions’ relatively low and declining membership across almost all industries means they can no longer justify claims to be the workers’ representatives, particularly in the private sector. It is about time that this was recognised by the AIRC and the courts, not to mention the Parliament.
Put simply, the economic argument for freer labour markets is that there is a high probability they would lead to higher employment and lower unemployment, primarily because the reduction in regulation of employer-employee relationships would make it less risky for employers to add to both employment and investment. Although the recent improved performance of the labour market might indicate to some that there is no need for further reform, a closer look suggests that is not the case.
Chart 3 shows that although the unemployment rate fell between 1992 and 1998 from 10.5 to 7.8 per cent of the labour force, the proportion of the working age population relying on income support payments increased from 17.5 to 18.4 per cent. The reduction in unemployment was thus at least partly offset by increases in other benefit recipients, particularly recipients of disability pensions. In short, many of those who would otherwise have been unemployed have effectively been shuffled on to social security. Moreover, even after seven years of strong growth in GDP the rate of unemployment is still slightly higher than the bottom reached in the 1980s.
On the employment side, Chart 4 shows that the (age standardised) proportion of the working age population in employment increased between 1993 and 2000 from 62.6 to 67.9. However, 1993 was the bottom of the cycle and the August 2000 figure is only fractionally higher than the previous peak in 1989, when the labour market was more regulated. Again, after 7 years of strong economic growth there has been little if any structural improvement in the employment side of the labour market.
How does this performance compare with that in other countries? All international comparisons need to be treated with reserve but the most apt are probably with the UK, the US and NZ as these countries have broadly similar political and legal institutions and, except for the US, similar social security systems. As those countries also have larger proportions that are more difficult to employ, Australia should have a better labour market performance.
In fact, Chart 4 shows our employment performance has been significantly worse. If in August 2000 we had had the same proportion of our working age population as employed the previous year in those less regulated labour markets, we would have had the following additional numbers in employment: USA 612,000; UK 328,000 and New Zealand 110,000. That would almost certainly have meant much lower Australian unemployment too.
Arguments that the US has a higher proportion of its population in jail are irrelevant to employment comparisons based on working age population. Equally, as pointed out in my March 1999 article in the Australian Bulletin of Labour, Gregory's argument that the US labour market has not produced higher GDP growth is also largely irrelevant. The US has much higher levels of employment and GDP per head and Australia has not been closing the gap in living standards.
The Economic Importance of Having the Right Institutional Arrangements
The economic case for freer labour markets involves more than the idea that employers would acquire the power to offer lower wages. Most importantly, such markets should provide employers with the flexibility to manage their work forces instead of having to first consider whether or not some policy would be socially "acceptable" to the quasi-monopolistic regime operated by unions and tribunals. The bottom line is that, whether in the form of actual legislation or the tribunals that administer it, institutional arrangements in the labour market have an important influence on economic performance. This importance derives from the lack of any identifiable statistical explanation for about two-thirds of economic growth. Although the usual explanation is that the missing two-thirds mainly reflects technological change, this leads inevitably to the question of what determines the rate of application of technology. One of the world's leading analysts of historical growth differences between countries, Angus Maddison, has argued that :
"If we are to explain why the economic growth experience of nations has been so diverse; and why income spreads are now so wide, it is necessary to go beyond proximate and measurable elements of causality and consider institutional or policy influences which may retard or encourage economic development."
Maddison is not alone in emphasising the importance of institutional arrangements and there is a growing literature on institutional economics. In Australia the problem is not simply a matter of the award system administered by the AIRC, as reflected in the absurdly interventionist 20 allowable matters (see Attachment). It extends also to the highly interventionist and one-sided interpretations of the law by tribunals.
Over the last couple of years decisions of the Federal Court in particular have effectively neutered two important statutory provisions clearly designed to protect employers against union intimidation - Section 127 of the Workplace Relations Act, which was supposed to be a "quick and effective" remedy against illegitimate industrial action, and Section 45D of the Trade Practices Act to prevent secondary boycotts. However, the Government failed in its attempts to amend the legislation to counter what was obviously union thuggery in the Victorian building industry.
Argument that the Court has simply been applying the law wears thin when, for example, a judge refuses orders against a ten day strike during the currency of an enterprise agreement that actually had a no-strike clause; or when he decides that an employee is not a "casual" even though he was paid as a casual, called a casual and regarded himself as a casual; or when the Victorian Supreme Court is prevented from hearing employer claims at common law against union intimidation because it was deemed that such claims could constitute "coercion" against unions. The sidelining of employer resort to the common law is a major concern.
It is difficult to avoid the conclusion that Federal Court judges have a pre-determined view that the balance of bargaining power requires legislation to be interpreted so that unions are favored. A classic recent example of heavy interventionism has been the Federal Court decisions to the effect that outsourcing to obtain lower costs may be in breach of the legislative provision requiring freedom of association. Two such appalling decisions - one against St George Bank and the other against Burnie Ports - have been appealed to the High Court, where the Commonwealth has joined the action in support of the employer’s case.
The outcome is also awaited of the full Federal Court’s decision in February to review Justice Gray’s injunction against BHP’s important initiative in offering iron ore workers individual contracts because Gray perceived an "arguable case" that this involved discrimination against union workers. It is scandalous that this has dragged on for so long, let alone that there should be any doubt about the decision. The Court has also pursued a similar course of action in deciding to review the Commonwealth Bank’s offer of individual agreements to its 28,000 staff.
These are only the most recent instances of excessive third party interventionism, which has become so large that it has prompted the establishment of a special email news service to keep track of developments. Those interested in the history, albeit incomplete, can view some egregious examples on the HR Nicholls Society web site (www.hrnicholls.com.au). The long-standing pro-union bias, which has been highlighted recently by union boasts that they hardly ever comply with tribunal orders, adds to the employment deterrent effect.
The arguments put forward suggest that there is a strong case for Australia to substantially reduce the regulation of employer-employee relations and to abandon the concept of having a separate tribunal dealing with such relations. That does not mean we should move to a completely "laissez faire" arrangement, of course. The ordinary courts would still deal with cases involving such relationships but they would operate under much less restrictive legislation.
Indeed, the common law "system" as adapted in equity courts is a coherent and viable alternative legal framework to the present regime within which employment relationships can satisfactorily be established. The key principle under common law is that the worker and employer should basically be free to decide on the content of their relationship because both parties expect to benefit from entering a contract. However, there are exceptions to this freedom designed to protect the public interest, such as the unenforceability of contracts entered into for illegal purposes or which involve significant abuse of third party rights. Courts have also come to be prepared to imply a duty by an employer to provide a safe work place.
The common law/equity system also protects the processes involved so as to ensure that the principle of freedom of contract is not abused and that the rights of the parties to the contract are protected. Thus, contracts procured by the use of force, fraud or undue influence are not upheld by the courts and, nowadays, this may extend to contracts deemed to have been entered into in a manner which is "unconscionable."
The main changes compared with the present regime would be the elimination of any privileged position for trade unions and of the capacity for third parties to undertake extensive intervention in certain important areas. Intervention would cease in the determination of minimum pay and conditions; in the dismissal of an employee when that is in accordance with the contract of employment; and in a dispute between employer and employees or unions over pay and conditions.
However, there would be a potential problem in simply returning to reliance on the common law/equity system. The risk would be that the judicial activism of the AIRC would move into the courts, as is already happening with the Federal Court. The simple repeal of the Workplace Relations Act 1996 or its successor would thus run a very real risk that, before long, the courts would adopt similar interventionist practices to the AIRC. In New Zealand, a strong tendency of this kind has emerged after the passage of the Employment Contracts Act in 1991.
To counter such judicial activism would require a change in the whole basis of the Workplace Relations Act by substituting new Federal legislation that affirmed certain rights of employers and employees to contract without constraints, or subject only to specified constraints consistent with the common law/equity system. In short, the common law/equity system applicable to the employment relationship would be codified so as to limit the discretion of the courts in handling such cases.
Such Federal legislation would presumably need to be based on the corporations power. Minister Reith has initiated a project to examine the possible use of the corporations power as the basis of Commonwealth regulation of employer-employee relations and I have been refereeing part of that project. There would be potential advantages and disadvantages in using that power. The main advantage is that it would allow the Commonwealth to reduce the scope for judicial interventionism which is inherent in the reliance on Section 51 xxxv of the Constitution.
Minister Reith has argued that this "would enable a coherent national framework of minimum standards to be established for the conduct of workplace relations in corporations", although the unincorporated sector would not be covered. However, from my perspective the minimum standards would mainly be concerned with the processes rather than the content of the employment contract.
Finally, there would remain a question of how to deal with the inevitable assertion that workers would be disadvantaged relative to employers in a less regulated situation.
One could respond to such assertions by pointing out that the market should generally be able to supply adequate information at a reasonable cost to enable workers and employers to conclude contracts without workers being placed under duress. The market should also be able to offer dispute settlement advice and services.
However, to meet concerns that would undoubtedly be raised, particularly in regard to affordability for those who are unskilled and less educated, the AIRC could be converted into a voluntary body to provide advisory/ mediation services to those on low incomes either on a subsidised basis or even free of charge. Such services could include a range of standard employment contracts, with dispute resolution procedures included, and the provision of mediation and advisory services.
Such a body, the Advisory Conciliation and Arbitration Service (ACAS), has been operating in the United Kingdom for 25 years and it has succeeded in establishing a basically voluntaristic approach in relation to settling both collective and individual disputes. Thus, it now handles on an entirely voluntary basis, and settles, the great majority of collective disputes and nearly half of individual disputes. As it never seeks to judge the merits of any case or to impose solutions, the onus to settle disputes is placed where it should be, that is, entirely on the parties directly involved. Indeed, the ACAS approach is to encourage all employers to establish mechanisms to deal with disputes. Most importantly, unlike our Commission, it has established universal acceptance of its impartiality. Although ACAS provides extensive advisory services to both employers and employees at no charge, its annual budget is only around 26 million pounds.
Summing up, my argument for abolishing the AIRC and the existing extensive regulatory legislation is as follows:
- Institutional arrangements are important determinants of economic performance;
- Australia's institutional and legislative arrangements for regulating employer-employee relationships are highly interventionist and employment-deterring;
- Under freer labour markets there would almost certainly be an improvement in the rates of unemployment and employment. There would need to be social security protection (including additional measures if required) against reduced living standards for those low wage earners experiencing wage reductions and living in low income households;
- The main reasons advanced in favour of retaining the AIRC and a high degree of regulation have not stood the test of time and appear fundamentally flawed;
- There is a satisfactory alternative based on repealing all the existing legislation regulating workplace relations. The AIRC could be converted into a voluntary advisory/ mediation service with subsidised services for low wage earners and new legislation could be passed that codifies the common law/equity systems that would normally apply to contractual relationships between employers and employees. If judged necessary to supplement the existing means tested social security system, or possibly as an alternative to some existing benefit or benefits, a tax credit system could also be introduced.
- The decisions taken at the ALP Conference in July included the abolition of individual and non-union bargains, an increased emphasis on "good faith" bargaining that could require bargaining with a union, an increase in powers of the AIRC (including some powers not previously held, such as the power to arbitrate collective agreements as well as awards - which could be used to regulate market rates of pay), the abolition of secondary boycott laws in the Trade Practices Act, the declaration of small contractors to be employees, increased funding of the ILO and trade union training, greater rights of entry by unions, and unionists to become the agent of all employees.
Similar backwards steps are being taken or threatened by State Labor Governments in NSW, Victoria, Queensland and Tasmania. Of particular concern is the attempt by Queensland to bring independent contractors (who are free to negotiate their own terms and conditions outside the tribunals) within the regulatory framework. Labor is also pursuing that policy in most other States and Federally.
- See BCA Papers, September 2000
- Australian Financial Review, 12 November 1999.
- See Wooden.M "The Changing Skill Composition of Labour Demand", Australian Bulletin of Labour, September 2000 where analysis suggests over 70 per cent of growth in hours worked between 1989 and 2000 was in professional and associate professional occupations.
- See "Growth is Good for the Poor" by David Dollar & Aart Kraay, Development Research Group, The World Bank, March 2000.
- See Hancock,K "Unemployment and the Regulation of Employment", A Reply to Des Moore, Economic Society of Australia (SA Branch), 30 May 2000
- The profit share of Australian incorporated businesses has been increasing as a proportion of GDP. However, that reflects the relative increase in incorporation. The combined profit share of incorporated and unincorporated businesses has been relatively stable since the early 1980s but at a lower level than pre 1972.
- Ibid, Hancock,K.
- In 1999 there was 22 per cent employed under over-wards/unregistered agreements and 14 per cent under "other" pay agreements ie not registered or under awards.
- Labour Mobility, ABS 6209.0 October 2000. Of the 1.47 million who left voluntarily, 235,000 left because of unsatisfactory working conditions.
- The employer has to bear the costs of recruiting and training a new employee and the employee the costs of searching for a new job.
ALLOWABLE MATTERS TO BE INCLUDED IN AWARDS UNDER THE WORKPLACE RELATIONS ACT 1996
- Classifications of employees and skill based career paths;
- Ordinary time hours of work and the times within which they are performed, rest breaks, notice periods and variation to working hours;
- Rates of pay generally (such as hourly rates and annual salaries), rates of pay for juniors, trainees or apprentices, and rates of pay for employees under the supported wage system;
- Piece rates, tallies and bonuses;
- Annual leave and leave loadings;
- Long service leave;
- Personal/carer’s leave, including sick leave, family leave, bereavement leave, compassionate leave, cultural and other like forms of leave;
- Public holidays;
- Loadings for overtime or for casual or shift work;
- Penalty rates;
- Redundancy pay;
- Notice of termination;
- Stand down provisions;
- Dispute settlement procedures;
- Jury duty;
- Type of employment, such as full time employment, casual employment, regular part time employment and shift work;
- Pay and conditions for outworkers, but only to the extent necessary to ensure that their overall pay and condition of employment are fair and reasonable in comparison with the pay and conditions of employment specified in a relevant award or awards for employees who perform the same kind of work at an employer’s business or commercial premises.
CHART 1 - LITERACY AND NUMERACY SKILLS
Source: London Evening Standard, 25 March 1999 (from Moser Report on adult basic skills in the UK showing that adults who lack basic skills are five times more likely to be unemployed).
Working Days Lost in Labour Disputes
Note: Compiled by UK Office of National Statistics. Due to differences in methodology, data are not necessary comparable internationally. Data are for working days not worked per 1,000 employees.
Proportions Receiving Income Support Payments
1965 to 1998
Source: Discussion Paper, The Challenge of Welfare Dependency In The 21 st Century, Senator the Hon Jocelyn Newman, Minister for Family Services, 1999.
Note: The unemployment rate is a proportion of those in the labour force aged 15 or over whereas for those receiving income support the proportion is of all those aged 15 and over.
Employment as a Share of Working-age Population
Note: Employment rates are for total employment as a proportion of population aged 15-64 (the working age population as used by the OECD). Australian data are age standardised as supplied by the ABS for August each year and data for other countries are year averages from the OECD Employment Outlook. In recent years the OECD year average data for Australia has EPRs about one percentage point higher than shown above.