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Labor’s IR policy creates a dangerous apartheid

By Felicity McMahon - posted Monday, 3 September 2007


Labor’s plan to replace individual contracts with collective awards for those earning under $100,000 destroys choice and the opportunity to negotiate better pay and conditions.

After months of moaning about the woes of WorkChoices, Kevin Rudd has finally unveiled the ALP’s alternative Workplace Relations policy. Labor’s Workplace Relations policy will replace individual contracts and AWAs with collective awards for those earning less than $100,000. Only individuals earning more than $100,000 will be able to choose individual contracts, although those contracts will be still subject to Labor’s 10 minimum standards (something of a furphy, given the fact that nine of these “standards” are already enshrined in legislation and the tenth, about information at work, is a euphemism for providing propaganda about union membership).

The media analysis of Labor’s policy has been far from adequate. Dominating most of the editorials, articles and stories is concern for employers, for whom the flexibility of AWAs and WorkChoices is a benefit and for whom Labor’s IR policy will strike a devastating blow.

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But absent from this analysis is any discussion of the fact that employees will lose the ability to choose an individual contract or a non-union agreement, and therefore miss out on the benefits that AWAs and WorkChoices can bring them.

By imposing a $100,000 barrier to determine who can access individual common law contracts, Labor’s policy creates a dangerous apartheid. It divides people into two classes: those who have choice and those who do not.

Under the current system an employee can elect to be governed either by an Australian Workplace Agreement or by a collective agreement. AWAs are regularly used by employers to provide incentives to employees and to reward those who are high performers and are particularly productive. They are a powerful tool by which an employee can ensure that their skills and successes are monitored and rewarded by the employer.

Telstra uses AWAs for more than 18,000 of its total workforce of 47,840 people to do exactly that. “Telstra uses AWAs to recognise individual performance and productivity”, stated Telstra spokeswoman Sarah McKinnon (quoted in the Australian Financial Review, August 30, 2007). Telstra offers employees the choice of either accepting an AWA or the applicable collective agreement.

But Labor’s Workplace Relations Policy will remove that choice. Non-union individual agreements will be entirely beyond the reach of any individual earning less than $100,000.

This will include the vast majority of young professionals starting a career after graduating from university. Under the status quo, these individuals have the power to negotiate excellent pay and conditions for themselves, particularly in the face of a skills shortage. Labor’s plan would deny them that choice.

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It will also include older Australians making a career change and older women re-entering the workforce having seen their children grow up and move out of the house. These people have a considerable skills base, real-world experience, and the guts to stand up for themselves and negotiate better rewards for their contributions to their employer’s business.
Moreover, the impact on employees who have already negotiated a non-union or individual agreement will be an offensive assault on freedom of choice. After the expiration of the token transitional period Labor has outlined, your agreement will cease to be valid - even though both you and your employer want it to continue. So much for freedom of contract.

Worse still, having had your individual contract arbitrarily ended by the Labor Party, your new arrangement with your employer will be determined by a collective agreement negotiated by other people in your firm and possibly by a union of which you may have actively chosen not to be a member.

Having consciously pursued individual negotiations with your employer, executing an AWA or a common law contract thereafter, Labor will force you to accept a collectively negotiated agreement

So much for democracy. So much for individual choice. So much for individuals determining their own futures. So much for individuals choosing whether or not to engage or be involved with unions.

But Labor does not care about choice or democracy. It cares about jobs for the union comrades.

If this policy achieves nothing else for the Australian people, it will achieve that. You won’t have a choice in the matter.

But even more importantly, the imposition of the arbitrary $100,000 figure removes one of the greatest powers an employee has: to bargain on their own behalf on the back of their own talent for better pay.

This one-size-fits-all policy ignores the aspirations of a young and upwardly mobile middle class to negotiate on their own behalf without the interference of union organisation to ensure they are rewarded for their personal performance and not ham-strung by the inefficiency of others.

Labor’s policy reinstates the unfairness of collective bargaining. Collective agreements prevent individuals who are more successful, more productive and more highly skilled from earning more money: money they rightly deserve.

The theory is well-supported by empirical evidence. Studies have shown (PDF 636KB) that the presence of unions in an economy reduces the returns to skilled workers in an economy. In particular, the wage differentials between skilled and unskilled workers and the private return to education are reduced when unions and collective bargaining are present. This means that the return on investing in your own skills and education is diminished because collective bargaining reduces the ability of individuals to negotiate returns for their labor based on their productive capacity and performance.

Labor’s policy also ignores the fact that employers respond favourably to individual bargaining. For example, by the use of incentive arrangements to promote productivity Telstra says it has experienced significant increases in productivity in many parts of the business.

Recently, media commentators, most of whom have become extremely sympathetic to Rudd and the Labor Party, have been eager to point out that the diminishing power of unions over the past years due to declining union membership will mean that unions won’t have that much power in the collective bargaining process carried out under Labor’s policy. It is said, therefore, that a return to a collective bargaining regime will not necessarily be union-dominated.

This is not the case. Rudd’s policy restores the power that the unions have lost by the decline in membership. It enshrines union involvement in the collective bargaining process since non-union agreements will only be available to an enterprise where no union members are employed. As long as one employee is a member of a union, the union will have a role in the collective bargaining process. While Labor has been at pains to express that unions have “no right” to enter employment premises, in the context of collective bargaining the union will be the central player, regardless of the interests of the employees who are not union members.

But collective bargaining under Labor’s policy is not only bad because it removes individual choice - which is reason enough to oppose it - collective bargaining intrinsically bad. They result in higher wages at the expense of a number of parties.

First, consumers. Under collective bargaining consumers pay higher prices for goods because the costs of higher wages are passed on and the wage rises are not met with more efficient production.

Second, firms. Firms face substantial reductions in profits by paying higher wages without any corresponding increase in productivity.

Third, and most importantly, employees suffer. Employees working to deliver the productivity required by the firm suffer since their individual efforts are not rewarded outside the collective bargaining process.

Fourth, the economy suffers by experiencing a “wage-price inflation spiral” where increases in wages are not coupled with increases in productivity.

The economic literature supports these views, particularly in relation to the economic impacts of collective bargaining carried out by unions. There is empirical evidence (PDF 636KB) to show that non-unionised firms are more profitable than unionised firms (John M Abowd, Francis Kramarz, David N Margolis (1999) High Wage Workers and High Wage Firms). That study also contained evidence that employment growth can be slower in unionised than in non-unionised firms.

That same study also concluded that while the extent of collective or union bargaining may to be associated with higher wage growth, it is also associated met with no increases in productivity growth, lower employment rates, higher unemployment rates, and higher inflation.

Those are all bad economic fundamentals. An ideal economic situation is completely apposite. It is what we have experienced in Australia to date: high real wage growth coupled with productivity growth, high employment rates, lower unemployment rates, and stable lower inflation.

For some businesses, switching to Labor’s IR policy will have little to no impact on its business or productivity. For others, such as Telstra, it will be devastating to flexibility and incentive arrangements.

The point is, however, that one policy, WorkChoices, satisfies both businesses, while Labor’s IR policy will destroy the latter.

All in all, assessment of IR policy needs to be determined by three criteria.

First, which policy provides employees with the most choice? WorkChoices is the only policy that enshrines the right of employees to determine what governs their employment relations: individual agreements, or collective agreements.

Second, which policy provides employers with more flexibility to provide incentives and to reward productive, skilled workers? Which policy ensures that individuals can secure a return on investing in their own skills? We can no longer pretend that Australia is immune from the competitiveness of foreign companies and employees. If our workforce is not sufficiently skilled and competitive, jobs and businesses will move offshore, or worse still, will collapse altogether. There are millions of highly articulate, English-speaking Indian IT and Telecommunications workers eager to take the jobs of Australians. And Australian businesses are happy to employ them if Australian employees are not productive or skilled enough.

Collective agreements can never adequately provide the flexibility to reward individual performance and productivity improvements. WorkChoices is the only policy that therefore succeeds on this point.

Third, the policy must ensure that businesses can grow and contract with the business cycle without fearing that they will incur significant employment costs by risks. By reintroducing Unfair Dismissal Laws for small businesses, the engine-room of the Australian economy, Labor’s IR policy fails on this point.

The only policy that meets each of the criteria listed about is WorkChoices. Without the Coalition Government’s current Workplace Relations laws the democratic principles that should also apply to determining your employment conditions will be dismantled and individual choice will be removed.

And that, after all, is the most important thing.

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About the Author

Felicity McMahon is a graduate of the University of Technology, Sydney, with a degree in Business and a First Class Honours Degree in Law.

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