Expanding economic opportunity: an international comparison of Australia’s labour market regulation

Labour market Labour supply Work insecurity Employee protection Working conditions Flexible work Labour regulation Employment Law Australia
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Australia has one of the most extensively regulated labour markets in the world. These regulations are maintained through a centralised system of complex industry-based awards and other statutory entitlements. This report presents a comparison of Australia’s labour market entitlements with similar common law countries, and looks at how the labour market is perceived in ways that affect investment and growth.

Australia has a number of key measures that create significant barriers to employment. The minimum wage of $18.93 AUD per hour is among the highest in the world, and nearly double the average of Organisation for Economic Cooperation and Development (OECD) countries with a minimum wage. Australia also has a very high degree of centralised wage determination through the award system, which damages the link between wages and productivity and creates distortions in labour markets. Further distortions are caused by penalty rates that destroy employment opportunities. Australia’s penalty rates are ranked equal highest in the world. Other onerous regulation includes the inflexible laws around recruitment, and the degree of centralised control over non-wage benefits such as leave entitlements.

These mandated entitlements combine to create inflexible labour markets. Australia’s ranking in the World Economic Forum’s ‘Global Competitiveness Report’ for labour market efficiency has fallen from 9th to 22nd over the last ten years, with significant declines in all the components that were consistently maintained in the index over that period. In comparison, the other Anglosphere countries have outperformed Australia. Australia’s ranking raises serious concerns for future growth, as international competitiveness is crucial for attracting investment in an increasingly globalised economy.

The deterioration of labour market efficiency has a very real personal impact on those seeking employment opportunities. Labour markets which are less efficient make it more difficult for individuals to find jobs which they enjoy, are consistent with their skill set, and allow them to reach their potential. Improving labour market efficiency is not just an important economic policy goal. It is a moral imperative.

While the overall unemployment rate is relatively low in Australia, underemployment is high, as is unemployment and underemployment for youth. Youth employment numbers have not recovered well following the global financial crises (GFC) ten years ago. Young people are often most disadvantaged by minimum wages and mandated entitlements that raise the barriers to employment.

In order to tackle growing underemployment and improve global competitiveness, Australia needs to embark on a deregulatory agenda. Work arrangements need to be decentralised and returned to the individual employers and employees who are in the best position to determine agreements that meet their unique circumstances. By removing strenuous requirements, Australia can foster an environment that is favourable for economic growth and allows more Australians to experience the dignity of work.

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