Monday, March 26, 2007

Unions want to turn back the clock

The Business Council’s Michael Chaney has a short piece in this morning’s AFR (subscription required but see the BCA press release here) on WorkChoices which came into operation a year ago on 26th March 2006.

That was the day mass sackings were due to commence with pay and conditions destroyed throughout the workforce. But that hasn’t happened – since that time 200,000 new jobs have been created while wages have continued to rise as they have through the 1990s.

Unemployment is at its lowest level for 31 years with (horror-of-horrors) skilled labour being in short-supply. Class war between unions and pitiless bosses hasn’t worsened either - industrial disputes remain at their lowest level since 1913.

With wages more closely linked to productivity wage increases send out useful signals about where labour can most valuably be employed. This helps to create jobs and to improve general productivity and living standards.

Mr Rudd and his union mates have switched from trying to identify victims in these developments to building a campaign identifying potential victims of workforce reform. We are, according to these ninnies, all potential victims from WorkChoices - its just a question of time.

We will be real victims if the opponents of WorkChoices are successful in winding back industrial laws to those that prevailed in the 1980s. According to Access Economics reforms over the 20 years to 2004 have directly created 315,000 Australian jobs.

John Howard is right in refusing to retreat from labor market reforms even given the unfavorable election outcome in NSW. The Age, today, predictably emphasizes the unpopularity of IR reform in the face of union propaganda rather than its benefits. Their review of the outcomes of WorkChoices emphasizes the opposition campaign against it rather than its practical benefits.

We will all be worse off if the union-Labor scare campaign successfully turns back the clock. Skilled, unskilled and female workers will all face reduced labour market opportunities if the link between what they can produce of value and what they are paid is muddied by trade union backed Labor Party stupidity.


Fred Argy said...

Harry, no economist would deny the need for a high degree of structural wage flexibility and employer autonomy. But on my reading of the empirical literature, one starts to get diminishing economic returns from labour market deregulation after a point.

The cross country evidence and Australia's own experience suggests that at the stage of deregulation Australia reached prior to 2004/5, the social costs start to rise sharply while the economic benefits start to diminish and become marginal.

Need I remind you Harry that the period 1988/9 to 2003/4 was a golden age for productivity, employment and real wages - and that it was all prior to Work Choices? While I have not checked up recently on the statistics, I think the post-Work Choices period has been less sparkling on all three indicators.

Anonymous said...

What has workchoices that EBAs don't apart from the Minister being able to veto ANY agreement.

Anonymous said...


Productivity focus steals away the fact that the least able to find work are able to do so under flexible arrangements.

Arguing or insinuating that Labor reform has an adverse impact on producitvity is a new one in economic theory that is perhaps left alone. What it does have is a tyranny of aggregates effect as those less efficient are able to find jobs. Labor reform expands and broadens the labor market.

Would you please provide evidence that there have been social costs arising from deregulation prior to 2004/5 as I don't see it.

hc said...

Fred, I think the recent performance of the Australian labour market has been outstandingly good in terms of unemployment reduction.

I also think that the fact that across the board wage increases have not developed in response to excess demands in the resources sector is a testimony to thye advantages of a decentralised system.

Wages have grown most strongly in the sectors where skills were in short supply without overall inflation.

I don't understand why diminishing returns should emerge when the primary intent is to tie a worker's reward to their productivity. This should generate productive effort choices.

I think the trade unions live in a Victorian world where workers are paid a wage as a type of charitable donation from their employer not because workers and a firm reach a mutually agreeable deal. The latter view explains why productive workers in competitive markets won't suffer - its in their employer's interest to pay them a wage that reflects their marginal productivity.

Fred Argy said...

I would like to respond to the comments by Anonymous and Harry.

1. I am not advocating a return to the IR framework of the 1970’s or 1980’s or even 1990’s. What people like me are arguing for is going back to the pre-2006 situation – and even then only in part (e.g. the old unfair dismissals regime was too rigid). My main concern is twofold: to restore the right to collective bargaining when a majority of workers demand it and to give workers more control over their working hours with less risk of dismissal if they object.

2. Of course the employment market has been strong over the last twelve months! But if you look at the historical picture you will find that the improvement began a decade and a half earlier (in common with most other countries) and the golden age was probably 2002-2005 – which was before Work Choices. To argue, as the Prime Minister did yesterday, that if Work Choices were reversed, we would be “going back to stagnant jobs growth” is absurd!

That said, I do expect Work Choices will make a contribution to participation rates because (in combination with the welfare reforms) it will allow more downward labour cost flexibility and make the economy a little more resilient to shocks and a little less vulnerable to inflation.

But my point is that these economic gains will be small and most of them are achievable by other policy means (albeit with higher taxes). A comparison of the UK, the more liberal Nordic countries with the USA shows that labour market deregulation produces diminishing returns (relative to the alternatives) after a point – one which I believe we reached before Work Choices. There was no need to impose an extra social cost on low-paid workers and their families.

3. Anonymous, I mentioned productivity because Harry argued that reforms like Work Choices “would help to improve general productivity”. I doubt it. The improved managerial flexibility will be offset by lower worker morale and a reduced willingness of employers to train their low-paid workers. Also, as it will be easier for a firm to lower its labour costs whenever competition is tight, it will approach efficiency improvements with less urgency.

I agree that labour market deregulation has a distorting effect on productivity in the short term because more marginal workers are employed, so the last twelve months are irrelevant from that viewpoint.

4. As to the social costs of labour market deregulation, they usually take the form of widening differentials in earnings and conditions between high and low-paid workers. This would have been reflected in final income inequality In Australia were it not for Howard’s generous family payments. Unless Howard continues to redistribute generously through the social security system (his tax policy is regressive), we will see rising inequality in the future.

chrisl said...

I am never sure if Fred Argy is happy with higher employment or not.

Fred Argy said...

Strange question, Chris. You wouldn't have asked it if you had read any of my writings.

My simple answer is that I care a great deal about enhancing work participation and speeding up the transfer from welfare to work. But in economics there are many ways to skin a cat. The debate is about whether there are ways of achieving the desired employment and efficiency goals through a policy framework which is fairer than Work Choices. If you are really interrested, Chris, I can send you one of my recent journal articles which sets out such an alternative.

chrisl said...

Fred My apologies for the strange question.
In my opinion higher employment is unequivically a good thing. A terrific thing. A job defines who you are and what you are. We are having a reunion on Saturday and I am sure the most asked question will be " What are you doing now"
If the answer was "absolutely nothing" the conversation would turn stone dead.
There is no doubt in my mind that the work-choices policy has increased employment opportunities.
Collective bargaining is a crock because not all workers are equally skilled or motivated.
Dismissing a worker for some misdemenour leaves you with a problem! How to find another worker.
Having tried the carrott and the stick approach to motivating workers , IT IS A NO-BRAINER