IR reform - it's not in the detail

The Federal Government’s announcements of changes to workplace relations regulation have left many important details unclear, including the precise future role of the AIRC, which they have decided to retain. Indeed, one is tempted to say the reform gun was only half-cocked when it was let off in May.

Before considering some of the pellets that have fallen out of the reform gun barrel, it is relevant to recall that 20 or so industrial “ayatollahs” (according to Justice Michael Kirby) wrote to the prime minister last November (and subsequently) to suggest the government establish a commission of inquiry to report on the advantages and disadvantages of giving workers and employers maximum freedom to negotiate the terms of employment contracts.

We proposed such an inquiry because we felt there would be extensive opposition to labour market deregulation and the supporting arguments needed to be well canvassed in advance in the public arena. We judged that government ministers could have difficulty in getting across the rationale for the changes. Our proposal was rejected. But why - and what has been the outcome?

With the benefit of hindsight and odd whisperings from Canberra, my belief now is the government did not commission a public report or issue a white paper, as it had already decided it would be too risky politically, because it assessed there would be insufficient support for deregulation from the business community, as well as the usual opposition from most of the media.

The prime minister admitted recently the proposed changes “are not radical” and after they have been implemented, “Australia’s labour market will still be more regulated than those in the UK and New Zealand”. He omitted to mention the even less regulated US labour market.

It is not often I agree with ACTU Secretary Greg Combet, but his assertion the government has not put the economic case for the changes is not the complete ambit claim unions are wont to make. Much of the government’s supportive publicity consists either of a defensive response justifying the changes on the remarkable basis that many existing regulations will remain or denying ACTU claims.

One possible reason for not promoting positive effects may be that the potential increase in labour demand is expected to be small. The government has not argued that the participation rate will increase and no revision has been made to the prior budget forecasts of a fall in that rate in 2005-06 and a slower increase in employment over the next three years. Yet in the election campaign the prime minister rightly emphasised that increasing workforce participation would make an important contribution to reducing the so-called “generation gap”. So Mr Howard has had to fall back to justifying the changes by generalisations, such as they will “remove impediments to further job creation” and create “a new burst of productivity” or, more recently, that unemployment will fall below 5 per cent (from its existing 5.1 per cent), which appears to run counter to the budget estimates.

Indeed, although ministers have made frequent reference to the $3.6 billion expenditure on the 16 Welfare to Work measures, the budget papers do not suggest any expected net addition to the supply of labour and the recent estimates hearings failed to extract any figure from officials. What we do know, however, is the budget provides for a 29 per cent increase in assistance to the unemployed and no reduction in total social security spending from the extraordinarily high proportion of GDP already allocated (9.4 per cent) over the next three years. In short, on the basis of the budget, it seems we can expect an increase in unemployment and in welfare numbers generally.

The limited extent of the changes in workplace relations, and the lack of detail about them, has also increased the difficulty of “selling” them. But enough has been said to allow unions and the Labor Party to run a scare campaign. Moreover, the apparent continuation of a considerable amount of regulation is making it easier for Labor to say that it will reverse many of the changes.

The decision to continue determining the minimum wage on a not dissimilar basis to the existing one is probably the worst feature of the proposals. And the government says decisions of the new commission will be guided by parameters set in legislation to “establish a better balance between fair pay and employment”. This, it claims, will avoid the existing adversarial process.

But this is highly misleading. Whatever parameters are legislated will not avoid controversy over the weight that should be given to this or that guideline. Moreover, the naming of the new body as a commission to determine “fair pay”, the requirement that it balance fairness against employment, and the suggestion that it will operate along the lines of the UK Low Pay Commission, indicate Australia will continue to have a minimum that is high relative to the average wage. At 58 per cent of the median, Australia already has the second highest minimum after France among OECD countries and much higher than Spain (30 per cent), Japan (32 per cent) or the US (34 per cent). And, while the UK minimum is lower at 43 per cent of the median, the latest LPC decision leaves it at exactly the same relative rate as when that body was established.

The key point here is the maintenance of a high minimum in Australia will severely limit the scope for increasing the employment of those looking for work. ABS surveys show that, in addition to the 550,000 unemployed, there are another 550,000 under-employed, plus a further 800,000 who are not actively looking for work but say they would be able to start within four weeks if jobs became available. In short, almost two million want work or more of it. But as many of these are unskilled, their capacity to obtain jobs is importantly dependent on employers being legally able to offer a wage commensurate with their lower productivity. Such employment would in turn provide the training that would offer the potential for higher wages to be earned down the track.