Volume 1 April 2007

China in international imbalances
Yu Yongding

International trade and poverty: cause or cure?
L. Alan Winters

Making the boom pay
John Freebairn

Reforming Australian industrial relations
Joe Isaac

Minimum wages and inequality
Andrew Leigh

Does the Fair Pay Commission decision matter?
Mark Wooden

The corporate political environment and big business response
Geoff Allen

Stock return predictability in rational markets
Bruce D. Grundy

Passive profits from accounting indicators
John D. Lyon

A 'Battle of Ideas'
Tom Elliott

On painting one's life picture
Peter Yates

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By Joe Isaac

The WorkChoices legislation has produced the most radical change in our industrial relations system in 100 years.

Prime Minister John Howard says that the Australian economy has performed very strongly in recent years. Australians have enjoyed higher living standards from a combination of prudent economic management, strong jobs growth, higher real wages, low inflation and interest rates, lower taxes, increased family benefits and improved Government services.

In such circumstances, why do we need WorkChoices?

The case for change

The Government rests its case on assertions rather than evidence. The Prime Minister has said that we ‘must press ahead with economic reform if we are to prosper in the 21st Century.’ He maintains further that the measures in WorkChoices represent ‘the next logical step towards a flexible, simple and fair system of workplace relations… Only through this will the full potential for productivity gains in the Australian economy be realised.’

The main elements of the change include:

• A substantially national system;
• A new tribunal, the Australian Fair Pay Commission, to fix the minimum wage;
• A smaller safety net;
• More limited powers for the Australian Industrial Relations Commission (AIRC), whose main function now is voluntary mediation and administering industrial action;
• New Australian Workplace Agreements (AWAs);
• Unfair dismissal rights confined to firms with 100+ workers;
• More restrictions on collective bargaining and right to strike; and
• Several anti-union features.

The various pieces of legislation need to be considered jointly because they are inter-related and their combined effect will change the balance of industrial power greatly in favour of employers.

WorkChoices in context

This paper examines WorkChoices against a number of conditions/assumptions regarded as necessary for an economically efficient and socially fair industrial relations system. Some of these conditions may be disputed but this would at least allow the basis of any disagreement on the new system to be identified.

In summary, the suggested conditions are as follows:

1. A system that promotes economic growth through higher employment and productivity.
2. Recognition that labour is not a commodity but a human resource. On certain issues, economic considerations may need to be balanced against social considerations, especially in view of the imperfections of the market.
3. Norms of fairness are a feature of most labour markets and need to be recognised in the interest of long term economic efficiency.
4. There needs to be provision against unfair dismissal and discrimination in accordance with ILO Convention 158, which Australia has ratified.
5. While there is a great deal of common interest between workers and their employers, there are generally differences on the terms of employment that need to be resolved.
6. Generally, individual employees have weaker economic power than do employers. To rectify the unbalanced power, collective bargaining with the right, within limits, to industrial action, should be available to the parties in accordance with Conventions 87 and 98, which Australia has ratified and which underlies the UN 1948 Universal Declaration of Human Rights.
7. Legislation is necessary to provide limits on industrial action and to override the strictures of the common law on unionism and effective collective bargaining.
8. There should be machinery to mediate by compulsory conciliation and arbitration in industrial disputes.

The Government’s argument for a national system is that the present dual system is complex and costly. While there is a good case for a national system, the complexity and costs of the existing arrangement are exaggerated. The obvious reason for the incorporation of State systems is to prevent State governments and tribunals from frustrating the Federal government’s industrial relations objectives.

The Government has decided to establish a new tribunal to fix the minimum wage on the spurious argument that the existing procedures under the AIRC are ‘adversarial and legalistic’. Even if true, which it is not, the remedy is to rectify it by legislation rather than setting up another body. The most plausible explanation is that the Government believes that the AIRC has pitched minimum wage increases at too high a level at the expense of employment growth. The figures below do not support such a view. Unemployment has come down to its lowest rate for many years.

The role of AWAs and bargaining

Individual bargaining has taken place over the years and can continue to do so as common law contracts between employers and individual employees, subject to relevant minimum awards. They have provided scope for flexibility in pay and working conditions.

AWAs are a more formalised version of common law contracts. The object of the new legislation is to increase their number, and various provisions in the Act will facilitate this. The new AWAs are, of course, a downgraded version of the old AWAs because the No Disadvantage Test base on the old Safety Net has been replaced by the more limited standard. The new ‘safety net’ will be limited to five items known as the Australian Fair Pay and Conditions Standard, in contrast to the previous 20 award items. The standard 38-hour week is now an average over 12 months. This will allow various established conditions of work – overtime and other penalties – to be taken away from workers in the name of flexibility. Those employers who may be disinclined to resort to cost cutting in the ways facilitated by the legislation, may be pushed by competitive forces to follow suit.

The expectation that the new system will generate higher productivity growth is illusory. Indeed, it may even reduce the pressure for productivity growth and allow employers instead to rely on cost-cutting through wages and conditions. Historically, productivity rises and falls from year to year, largely unrelated to the wage fixing system. The sources of sustainable productivity growth are technological developments, increased capital and skills, and a competitive market.

Until WorkChoices, the size of the employer was not relevant to the application of the unfair dismissal provision, defined as ‘harsh, unjust and unreasonable’. What constitutes ‘harsh, unjust and unreasonable’ depends on the circumstances of each case but in general it means that dismissal is not genuinely connected with the performance and conduct of the worker in relation to the requirements of the firm. Casual workers (some 25 per cent of employees) and those with less than six months (increased under the new law to 12 months) of employment with a firm, would not be protected by this provision.

Now well over 90 per cent of firms and well above 50 per cent of employees will be excluded from the provision. Even a portion of the small minority of large firms may be able to escape this provision if there are ‘genuine operational reasons’, defined as ‘economic, structural or similar reason’, for termination. However, the anti-discrimination provision will still apply to all firms. The Government’s justification for the substantial exclusion of the unfair dismissal right is that the provision discourages employment. The evidence for this argument is thin, to say the least. There are, of course, many cases where the provision has been misused by employees who see it as an opportunity of squeezing a cash settlement out of the employer. The same may be said of some discrimination claims, yet these are still allowed. Furthermore, even if an employer is willing to include an unfair dismissal procedure in an agreement, the Act forbids it from doing so.

In dealing with the unfair dismissal issue, it is a matter of striking a fair balance between the respective rights of employer and employee, and providing speedy and less costly proceedings, particularly affecting small employers whose activities may be seriously disrupted by having to engage in such proceedings. There is undoubtedly scope for procedural improvements. It is arguable that, for reasons of expediency, small firms, say, with less with than 10 employees as applies in some European countries, would seem to be a reasonable compromise on size for exclusion from the provision.

Beyond AWAs

There has been a tendency in public discussion to regard AWAs as the main issue in the legislation. However, AWAs as such are not a problem. It is important to consider the combined effect of the various pieces of legislation rather than to focus on one in isolation. Thus, the restriction of the unfair dismissal provision should be considered in conjunction with the ability of employers to avoid collective bargaining as well as intervention by the AIRC, and to foist AWAs on workers on a more restricted safety net protection. Together, these provisions provide the potential for employers with less than 101 employees, on the expiry of an existing agreement, to dismiss workers and to provide them with re-employment on AWAs subject only to the new lower safety net standard.

These provisions together with others – employer ‘greenfields’ agreements enabling employers to set wages unilaterally, placing undue restrictions on industrial action, and so on – have the potential to marginalise unions and blunt the bargaining power of collective action in violation of ILO Conventions. It is ironic that one of the stated objects of WorkChoices is ‘to give effect to Australia’s international obligations in relation to labour standards’. All this despite the fact that over the last 10 years, the annual average loss from strikes is barely one hour per person – a small fraction of the loss from absenteeism and industrial accidents.

There have been occasions in the past when certain unions misbehaved in an industrially and socially destructive manner. This has been occasionally true also of business corporations. For both, restraints and sanctions are appropriate when they misbehave. However, it is difficult to justify making occasional lapses in the behaviour of some unions the basis for a set of restraints, particularly when these restraints have the potential to substantially frustrate their capacity to achieve objectives by procedures in keeping with our international obligations. The fall-out in these circumstances is not simply felt by unions, but especially on those who are disadvantaged by weaker union power and those who are forced into individual bargaining.

In conclusion

Trade unions, collective bargaining and collective action have gone hand in hand to rectify the unbalanced bargaining power in favour of employers under individual bargaining. In most developed countries, this development has been supported by legislation consistent with ILO Conventions. In Australia, the balance has also been underpinned by compulsory conciliation and arbitration. Overall, the economy has done well under these arrangements, and certainly so in the last 10 years. The object and philosophical basis of WorkChoices appears to be to unravel these arrangements and open up the prospects for a return to the master and servant mentality of the 19th Century.

The Government asserts that WorkChoices will provide a ‘flexible, simple and fair system of workplace relations’. It is neither simple nor fair. Its legal provisions are complex, running into 1300+ pages. The choices are mostly for employers. The degree of labour market flexibility in Australia is already among the top five of the OECD countries. The assertion that only through WorkChoices will ‘the full potential of productivity gains’ be realised does not rest on any persuasive argument or economic evidence.

The new system goes against the Australian ethos of a fair society. It will result in uncertainty and litigation. These consequences will not be evident for a year or two because a large number of agreements were processed before WorkChoices came into effect and because of the prevailing shortage of labour. However, the straws blowing in the wind since the new legislation came into being give an indication of what could happen on a large scale.

In 1992, Mr Howard, then in Opposition, announced JobsBack, an industrial relations programme substantially in line with WorkChoices. Yet, since 1992, without that programme, we have enjoyed the economic benefits noted by the Government itself. There are no signs on the economic front, at least in the medium term, suggesting the case for such a radical change in our industrial relations system.

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