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Reform, yes - ideology, no

18 May 2005

Is the federal government interested in efficiency or ideology, asks John Edwards

AUSTRALIAN labour productivity has increased twice as fast in the last twelve years as in the previous twelve years, and twice as many jobs have been created. Over the same period the labour cost per unit of output has increased at only one quarter the rate of the previous twelve years and the profit share of income has reached a high not approached at any time in the last half century. Industrial disputes, meanwhile, have fallen so dramatically that the numbers are rarely reported.

A pretty good outcome, one would think, particularly when compared with Australia’s long history of labour strife, and the great difficulties of labour market reform today in Japan and most of Europe. Nor is the good run over.

Since July last year the Australian economy has created nearly 300,000 additional jobs, two-thirds of them full-time. The share of the working-age population now either with a job or seeking a job is today higher than it has ever been, at least in peacetime. At 5.1 per cent the unemployment rate is the lowest in nearly thirty years.

Yet last year the rate of growth of private-sector wage costs was a modest and steady 3.3 per cent, exactly the same as that recorded three years earlier.

Australia’s 14 years of continuous expansion are explained by this extraordinary success in the labour market. Output growth is the sum of labour-productivity growth and employment growth, both of which have been unusually high.

The Reserve Bank has been prepared to let the expansion run because the modest rate of growth of nominal wages, and the even more modest increases in nominal labour costs per unit of output, hold inflation down.

It is worth reminding ourselves of this remarkable record as Prime Minister John Howard and Workplace Relations Minister Kevin Andrews begin a debate about the need for big changes in Australian industrial relations.

The great success in industrial relations is the product of many forces. Having a much more competitive and open economy is important, and that is largely due to tariff cuts and a stronger competition regulator.

Having flexible industrial relations is important, and that is largely due to the switch from central wage fixing to enterprise bargaining made by prime minister Paul Keating and industrial relations minister Laurie Brereton in 1993 and 1994.

For the first time since federation, the Keating government broke the connection between wage increases in one industry and wage increases in another, and within wide limits offered employers and employees the right to reach agreement as they wished.

It is one of the obvious but unrecognised truths of Australian politics that for more than a decade the Labor Party and the Liberal Party have shared an unspoken consensus on these basic elements of Australian industrial relations.

It’s also worth reminding ourselves that the political pendulum swings, and whatever is legislated today will sooner or later be reconsidered by a federal Labor government. Whatever is now changed, it is important to get it right, to make it durable. That means it must not only be efficient, but also fair. It should not merely strengthen the already powerful hand of the employer against the employee. It should not be too greedy, because the disputes it then engenders will poison the tolerance and goodwill on which the fourteen years of prosperity have been built.

It seems to me there are good arguments to legislate for a uniform national system, if it is a fair national system as well as an efficient one. There are good arguments to permit individuals to make the arrangements they wish with an employer, so long as they also have the unprejudiced right to collective bargaining if they wish, and union representation if they wish, and recourse to inexpensive and timely judgement when they wish if the employer breaks the agreement.

But if Howard and Andrews are intent on removing the power of the Australian Industrial Relations Commission to make rules on basic working conditions, on pushing employees into individual contracts and on removing the floor of occupational minimum wages while at the same time restricting the right of unions to organise in the workplace and the right of workers to strike, it will be pretty obvious that the real agenda is not efficiency or productivity and certainly not fairness.

The real agenda will be a throwback to an earlier and nastier idea of what Australian industrial relations is all about. •

John Edwards is HSBC’s chief economist for Australia and New Zealand. His most recent book is Curtin’s Gift: Reinterpreting Australia’s Greatest Prime Minister (Allen and Unwin, 2005). He was an economic adviser in the Keating government, 1991-94.

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