Australian business is in a state of full-blown denialism about our industrial relations system.

Throughout yesterday afternoon, the key business lobby groups gave voice to how underwhelmed they were about the Productivity Commission’s final report on Australia’s industrial relations system. One by one, the disgruntled media releases emerged. The “report has fallen short of addressing what is required in a modern economy,” whined the Business Council. “The Productivity Commission did not match its own rhetoric for the need for tough IR reform with its final report, and for Australian business, this is not the fix we needed,” the Australian Chamber of Commerce and Industry said. The PC, the Minerals Council of Australia insisted, was willing “to settle for second best” thereby “blunting the case for reform … the PC sets the bar too low” (Australia’s IR system is so inflexible it evidently prevented the MCA from posting its media release on its own website). The MCA’s cousins, the Australian Mines and Metals Association, moaned that the PC had given the IR system “a free pass”and “needed to do more than blithely conclude our overall system is not in need of fundamental repair. It is very disappointing …”

Only the retailers were happy, welcoming confirmation the PC supported cuts to Sunday penalty rates.

The reason the PC has upset business is because it resolutely adhered to evidence, rather than ideology, in its analysis of the functioning of Australia’s industrial relations system. Australia’s most economically rationalist and independent policy institution, in an inquiry ordered by the Coalition, concluded:

“Contrary to perceptions, Australia’s labour market performance and flexibility is relatively good by global standards, and many of the concerns that pervaded historical arrangements have now abated. Strike activity is low, wages are responsive to the economic cycle and there are multiple forms of employment arrangements that offer employees and employers flexible options for working.”

It’s more or less the conclusion the PC arrived at in its draft report; if anything, the commission actually made its language slightly more positive in the final report. Indeed, the report busts any number of business myths about IR. For example, does IR deregulation lead to greater labour productivity? Australia’s best productivity gains came under the pre-1993 era centralised wage-fixing system; WorkChoices resulted in a slump in labour productivity (as Treasury warned Peter Costello it would) while it has improved significantly over the last three years under the Fair Work Act. What’s the PC’s conclusion?

“Despite strong theoretical grounds for expecting productivity effects from WR reform, Australian studies have found little evidence of such a relationship. The absence of evidence is attributable to limited data and, more fundamentally, the difficulty of disentangling the determinants of productivity growth. Indeed, economically significant productivity effects of reform may nonetheless be empirically unidentifiable …”

What about the right-wing shibboleth that minimum wages hurt the unemployed? The PC examined this issue at length, and devotes a long appendix to it. Its conclusion?

“… it is not currently possible to arrive at a straight-forward and definitive conclusion about the effects of changes in Australia’s minimum wages on employment levels or hours worked.”

And would cutting wages increase employment?

“It is likely that some reductions from current levels would increase employment at the economywide level but there are more caveats and uncertainty in this area. That is because, below some level, reductions in the minimum wage would have little effect on unemployment, due for example to skills mismatch issues, or could even see employment decline in some markets.”

The PC also had this to say about wages growth:

“Australia’s wage and income growth over the past 25 years has been strong, driven by productivity growth and a boom in the terms of trade. However, distributional trends in incomes reveal increasing inequality, coupled with a declining labour share of income. As Australia’s terms of trade returns to lower levels, continuing previous levels of wage growth will be a key challenge.”

The PC paints a picture of a system that protects workers while providing a business-friendly environment — a flexible system that can offset weak employment growth with lower wages, that has no problem with industrial disputations (currently at generational lows), that provides business and workers with multiple employment options. Only in retail, hospitality and entertainment did the commission accept the case for significant deregulation, advocating cutting Sunday wages to increase employment — and even in doing that it rejected the argument put by advocates of penalty rate abolition that somehow workers would be able to make up for lost wages by having more hours to work.

“The Productivity Commission considers that it is improbable that, as a group, existing workers’ hours on Sundays would rise sufficiently to offset the income effects of penalty rate reductions… most existing employees would probably face reduced earnings …”

Remember that the PC is not the only independent body of substance to discredit the IR myths peddled for decades by business. The Reserve Bank has repeatedly argued this year that Australia’s strong employment performance despite a weak economy reflects the flexibility of its IR system and the trading-off going on between weak wages and higher employment.

The remarkable extent of the business community’s denialism — which must, like all denialism, eventually default into a conspiracy theory, in this case that the PC and the Reserve Bank are for some reason lying about the economy — reflects the extent to which IR reform has nothing to do with higher productivity, employment or growth. Instead, it has everything to do with greater profits and further accelerating what the PC noted was “a declining labour share of income” — and the attendant rise in inequality that enables.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey