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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.

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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72 thoughts on “So… just why do we need IR reform again?

  1. sickofitall

    It’s all about making sure the ‘trickle-up’ effect (for that is how money works – anyone who says otherwise is an idiot) stops trickling and starts gushing up. I hate f*cking economists: the only less educated people in this country are the Anglican Clergy from Moore College in Sydney. My Arts degree (in History and Politics) was about 10% economics, which covered 100% of economic thinking. Anything I missed was just overpaid, undereducated bullies (of all political stripes) tinkering…

  2. John Bennetts

    Next article: A shareholder’s action plan to improve CEO “flexibility”?

    Targets:
    1. Move a few on. Outlaw poison pills of any name or shape. If they are that good, another job will come up… won’t it? And we don’t need redundancy pay or severance deals, do we? They work against flexibility in a big way. What you are paid is what you get.
    2. Pay a what they are worth instead of what they want.
    3. Open up board rooms to female directorships – say from 8% to 40% min. I’d like to see a mandatory gender split in the range 40-60 for each gender.
    3A. Do something about the “Directors’ Club”. Don’t know what, don’t care. How about a culling and re-stocking? Our boards need new blood, almost all of them.
    3B. Publishing minutes of Board meetings. Sacrilege! If Treasury can do it, so can corporates.
    4. Outlaw poison pill corporate ownership deals. Rupert, are you listening?
    5. Democratise (wrong term) AGM’s.
    6. Remove the right of Boards to appoint new Directors between AGM’s. S. Mayne would have
    an idea or two here.

  3. Jimmy

    Int the past 15 years we have had solid economic growth a short down turn and now a return to solid growth. At no stage have we had a wages break out despite hovering close to full employment for extended periods and duiring the downturn the labour market was able to easily adapt to less full time but more part time employment to minimise job losses. this to me sounds like a well functioning IR system.

  4. GocomSys

    Bernard,
    (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”).
    Of course there are many viable solutions available. Unfortunately, in the current environment, many positive attempts to solve these problems are being sabotaged already in the initial stages. The usual suspects, for a variety of opportunistic reasons are scuttling these processes. Diverting the “focus” onto other issues is just one of many ways to do it. A “focus” on solving priority issues in the national interest just isn’t part of their short term strategy!
    It is high time to “out” these culprits!

  5. the man on the clapham omnibus

    The biggest threat (and need for reform) in my opinion probably on the productivity & skills front.

    Big business is not willing to pay the bill for this, they run a ‘beggar thy neighbour’ scam by poaching trained & skilled employees from overseas, the public service and when that fails smaller companies.

    With visa based migration, wages are opened to more competition, schools become more crowded, demands on healthcare increase, service costs rise, and incentives to train native workers fall. Not all jobs recruited for are high earning where income taxation would cover some of these costs.

    Effectively this discourages investment in local skills, training and ignores the cost of extra infrastructure required for an increased migrant population. European politics is aflame at the moment with these types of issues where a lack of integration of immigrant communities has created social problems where traditional working class areas are forced to cram more people in. Business has reaped the benefit of the lower wages, a more ‘compliant’ workforce and reduced training costs but avoided the externalities created.

    Irwin Stezler had a thought provoking article in the Age on the weekend that businesses should bid for overseas visa workers to cover the externalities rather than automatically going via the skilled visa route.

    This would help ensure that hiring was more about actual skills shortages than just another tool to drive down wages and avoid training costs.

  6. Jimmy

    Where is the censor to stop people posting links to erection problem ads? as above!!

  7. freecountry

    Bernard Keane,
    [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.”]
    Well of course. But that, too, is flexibility to increase employment, and whatever you say about low unemployment, it’s nowhere near capacity. Roy Morgan estimates combined unemployment and underemployment at 13.1 per cent, that’s 1.5 million people.

    Higher employment means higher productivity, labour becomes harder to find, wages rise by natural means. This isn’t just “theory,” it was demonstrated spectacularly by the outcomes of the Hawke-Keating microeconomic reforms.

    It’s also flexibility for minimum award wages to be set at the state level, as they should be, because the cost of living is vastly different from state to state. And flexibility for jobs to be created in regional Australia, where the cost of living and especially land is far cheaper than in the pressure-cookers of the capital cities.

    Sickofitall:
    [It’s all about making sure the ‘trickle-up’ effect (for that is how money works – anyone who says otherwise is an idiot) stops trickling and starts gushing up.]
    Actually you’re right in one respect: there is no such thing as a “trickle-down effect”. Real wealth (as opposed to fiat money) does not “trickle”; it springs into existence from thin air, whenever two parties enter into a mutually advantageous trade for something (like labour or an i-pad) that’s worth more to the buyer than it is to the seller. It’s that newly created wealth that economists call “growth,” and historically that is what has led to real wage increases in Australia.

    Julia Gillard claims to be the carrier of the Hawke-Keating torch. The brilliance of their 1980s Prices and Wages Accord was that for the first time it linked wage increases to inflation–in other words, it introduced flexibility to industrial relations for the first time. It wasn’t perfect, but it was a massive start. If Hawke were in government today, what would he say about flexibility?

  8. Tom Mullin

    Just our ‘corporate elite’ salivating at the thought of duplicating the US. 30 years of no real growth in workers wages, 10 years of zero income growth in the middle class.

    Whoopie, gobs more money for the CEO’s, speculators and the like. More quietly, gobs more money for political parties and retirement jobs for politicians.

    Gosh, how dare we have lower income inequality than the US.

    For the simple: lower wages for ‘little people’ = higher pay for CEOs’ (and their hangers on). The fact that this destroys a consumer based economy seems to be beyond them (though they all pin their hopes on more immigration). Yep, they are all sillier than Henry Ford.

  9. Liz45

    Funny how the proponents of reducing other peoples’ incomes never include their own? It’s as though those on low incomes have a ‘special place’ to buy their essentials, and therefore, low incomes are OK for the rest of us. The arrogance of so-called economists and politicians is breathtaking. I recall the article written by a well known economist about pensioners demanding a decent income, as opposed to those on a single pension or benefit living in poverty. I’m sure his income was in the six figure category?Also, equal pay for women has gone backwards, thanks to Howard. Some women have to work an extra 65 days per year to earn the same as their male counterparts. It wasn’t that long ago, when male teachers in NSW received a higher income than their female colleagues, who undertook the same training and worked at the same school? Equal pay for those women took 5 yrs of constant fight and argument?

  10. ronin8317

    Unfair dismissal laws had been rorted extensively by lawyers before Work Choice. The NSW workplace safety law is also pretty stupid : it uses the ‘French’ style law with a presumption of guilt.

    Beyond that, the IR reform Australia really needs is for CEO to be fired by their directors with only 4 week termination pay, outlaw severance packages, and remove the ability of former execs to sue their previous employer. What’s good enough for the workers should be good enough for the managers as well.

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