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Federal

Oct 18, 2010

So... just why do we need IR reform again?

We're told time and again that we need more IR reform. But no one ever says why.

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If you relied on the national newspapers alone for your view of the important issues facing the Australian economy – and there are, presumably, some people out there who subject themselves to such a benighted state — you’d be convinced that industrial relations reform was critical to our economic future.

The biggest tub-thumper is the Financial Review, which most weeks will run several op-eds and straight news pieces about the need for either limited reform or a comprehensive overhaul of IR laws. It’s probably unnecessary to add that the sort of reform urged by the Plutocrats’ Gazette isn’t the sort the CFMEU is calling for.

This is in tune with the desire for further IR reform that lurks in many Coalition hearts, although currently only a few, like Steve Ciobo, are brave enough to put their names to calls for the Coalition to abandon its election commitment to not touch IR for three years.

A common theme through all these demands for more IR reform is that they’re long on assertion but very short on evidence. The best example was the Fin’s editorial on 28 September, entitled “Bracing tonic for the economy”, about Treasury’s advice to the Government. On Treasury’s list of reform priorities, the Fin declares without context or justification “it ought to have included labour market flexibility as a goal but probably considered this futile in the face of bipartisan resistance to further change.”

Which is an odd conclusion to reach given Treasury clearly didn’t have that misgiving about telling both parties their Little Australia policies were nonsense, but anyway. More of Treasury’s views in a moment.

And just on a technical note, when IR reform advocates talk of “flexibility”, understand that they’re using shorthand for “flexibility to lower wages and conditions.”

But time and again, the need for IR reform is urged, without any supporting argument. There’s a signal lack of evidence to back up such consistent demands for reform. Typical was a Fin piece on 21 September, “Jobs law favours workers, say bosses” (I’d pay good money for a headline “Jobs law favours bosses, say bosses”).

A small business lobby group SME Boardroom had produced a survey purporting to show that unfair dismissal laws were “limiting the growth” of small businesses. On 8 October, an article by Mark Skulley quoted slabs from the annual reports of mining companies about how the Fair Work Act could “hurt workplace flexibility and productivity and push up costs”

And the evidence provided to back the claims? Well, none.

Worse is when the evidence directly contradicts the assertions of reform advocates. “Private wage growth is beginning to stir,” said David Bassanese last week in a piece calling for a mini-budget to slash government spending. Private wage growth is doing nothing of the sort. The ABS’s labour price index released in August showed private sector wage growth at 0.7% for the June quarter, the same as it had been in the March quarter, and the December 2009 quarter, lower than the 0.8% recorded in the March 2009 quarter, and certainly lower than the 1% quarterly increases seen prior to the GFC.

Indeed, the fact that private wage growth never topped 4% annual growth even at the height of the full employment produced by the pre-GFC resources boom is, compared to our record in previous mining booms, remarkable. It’s a key reason why, as ACTU president Ged Kearney points out, the wages share of national income is at historic lows.

You could attribute that wage growth restraint to Workchoices, except that wages growth wasn’t high before March 2006 either. The introduction of Workchoices was never justified by out-of-control wages growth.

So if wages (apart from executive remuneration) aren’t growing quickly, what are the other reasons why we need to impose greater “flexibility” on Australian workers? Let’s take three reasons: SME Boardroom’s suggestion that jobs growth is being curbed by unfair dismissal provisions, levels of industrial disputation, and Australia’s flagging labour productivity performance.

On the face of it, the idea that Labor’s IR system is crimping jobs growth is hard to sustain, given how strongly employment has powered out of the GFC. In September last year, Malcolm Turnbull said that Labor’s system would “be judged on its performance in the workplace”.

Surging employment growth, at nearly 50,000 jobs in September this year, appears to suggest it has performed well; indeed, had it performed much better, we’d have been in line for higher interest rates sooner than November.

The contrast, as more than a few commentators have noted, with the United States and its highly-deregulated labour market is fairly stark. But what about small business specifically? Over the August quarter, ABS data shows, traditional small business sectors like retail and rental, hiring and real estate were among the biggest hirers, along with mining, while sectors like manufacturing and financial services went backwards.

What about levels of industrial disputation? Is the return to low unemployment driving fractious unions to aggressively pursue big pay rises? The ABS’s data on working days lost per 1000 employees showed a fall in the June quarter, the second consecutive fall, to the lowest level since the depths of the GFC.

In fact let’s provide some context for levels of industrial disputation, using ABS data. Over the long-term, the Keating Government oversaw a step-change in industrial disputation, one gradually built on by the Howard Government. Australia is now at levels of industrial disputation that would have seemed fanciful in the 1980s.

Industrial disputation

A different data set from The Economist shows in 2009 Australia was little different from the US in terms of industrial disputation in 2009.

So there’s no basis for further reform according to levels of disputation.

What about productivity, which has plateaued and even started to fall in recent years? Treasury’s incoming briefing for the Government identified participation and education as priorities for improving productivity and addressing the problem of an ageing population.

But contra the Fin, Treasury did mention “flexibility”. “A close watch will also need to be kept on the labour market: while the evidence to date is that the labour market continues to be flexible, it will be important to guard against any developments that might put flexibility at risk.” And it said the same thing to Coalition.

So what’s the case for IR reform? Why is it a priority? What is the specific problem that needs to be addressed? We’re facing a reform drought from a generation of risk-averse, opportunistic politicians who lack the policy mettle of the Hawke-Keating-Howard-Costello generation.

Major economic problems like climate change, housing supply, water and infrastructure provision are going begging for solutions. But business and sympathetic commentators want the focus to be on IR “flexibility”.

It’s hard to avoid the impression the only real agenda is for corporate Australia to keep a tight lock on the share of national income going to its employees, which has been screwed down and screwed down to boost shareholder dividends and executive remuneration. There’s no case for major reform apparent from the data. If there is, let’s see some hard evidence from its advocates in business and the national papers.

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