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The IR conundrum: society or economy?

By Tim Martyn - posted Tuesday, 15 November 2005

Henry Ford once complained, “Why is it when I hire a pair of hands, I get a human being as well?” Today, Australians are being forced to consider a similar conundrum: in the pursuit of economic prosperity, how much are we willing compromise our families and communities?

The Federal Government has declared that for Australia to continue to compete in a global marketplace, we need to lower the costs of labour to business, particularly at the lower end of the spectrum. Yet such incomplete arithmetic begs the question: by reducing the costs of work to business, are we not at the same time raising the costs to families? As Henry Ford indicated, it is simply impossible to improve productivity without considering human needs - particularly among the most vulnerable. With the Australian Workplace Relations Amendment Bill 2005 currently before Parliament, it’s important to consider how they will impact on Australians at every income level.

Dismantling Australia’s labour market safety net

In Australia, a worker’s right to a living wage was declared in the Harvester Judgement handed down by Justice Higgins in 1907. In it, Justice Higgins determined the minimum weekly wage required to support a family of five by establishing the cost of living, i.e. the amount an average worker paid for food, shelter and clothing. The agreed upon sum of two pounds two shillings per week would enable a family, on a single income, to live in “frugal comfort”.


In 2005, Australians are being asked to discard the Harvester formula for determining the prevailing national ‘living wage,’ along with much of the labour market protections built up over the last century. These include scrapping of unfair dismissal laws covering 90 per cent of the Australian workforce, removing the no disadvantage test for workers negotiating individual contracts and restricting the ability of unions to intervene in disputes between employees and employers.

At the heart of the changes is a plan to relegate the Australian Industrial Relations Commission (AIRC), the body that has determined wages for a century, to settling industrial disputes. Replacing the AIRC is a new Australian Fair Pay Commission, an institution with a wholly different agenda to its predecessor.

The Government appointed head of the new Australian Fair Pay Commission (AFPC), economist Ian Harper, is a controversial choice to protect Australia’s lowest paid. Not only is he on the Academic Board of the Centre for Independent Studies (CIS) - an institution that has openly declared its hostility to minimum wages - but he has written extensively on the mistakes made by the Harvester judgement for not including considerations of businesses ability - or propensity - to pay wage increases.

While the other Government representatives on the AFPC have not yet been appointed, what is clear is that the Federal Government believes that the present minimum wage is at least $70 too high, as they declared this year. The present rate of the minimum wage, the CIS and the Federal Government argues, is an impediment to employment growth at the bottom end of the labour market. Rather than assisting the long-term unemployed to fill the present skills gaps in the labour market, the Government’s new strategy is to create jobs for low skilled workers by keeping down wages and conditions.

The Federal Government intends to make the labour market more flexible by reducing the minimum rights and conditions afforded to workers to just five: a 38-hour standard working week; minimum hourly wages; sick leave; annual leave; and 12-months unpaid maternity leave. Everything else will be negotiable. So, individual employees will be able to bargain away prior rights and conditions for more pay.

However, there has been considerable community concern that many individuals, particularly among low-income Australians with little or no bargaining position, will fare far worse under the new system.


To date, Australians have been loath to take up individual contracts. Despite the Federal Governments ongoing promotion of the benefits of Australian Workplace Agreements (AWA), only 2.4 per cent of the workforce has made the switch - up from 1.2 per cent in 2002. This amounts to less than 200,000 workers nation wide. The most rapid growth in AWA coverage has been in the hospitality sector, where unions and collective agreements have failed to penetrate a largely casual and part-time workforce, with a high rate of turnover.

The slow take up of individual agreements is largely a result of the “no disadvantage test” amendment that was introduced along with the Federal Government’s 1996 Workplace Relations Act. Under this clause, employees are protected from bargaining away their safety net entitlements when moving onto individual contracts. An individual contract, such as an AWA, fails the “no disadvantage test” when it would result, on balance, in a reduction in the overall terms and conditions of employment afforded to employees by relevant state and federal laws and awards.

The no disadvantage test was a safety net designed to protect individuals with little or no bargaining power. As the AIRC explained in its decision in the Safety Net review Case decision in 2004, “Bargaining is not a practical possibility for employees who have no bargaining power”.

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About the Author

Tim Martyn is a regular writer for, is the theme editor for the Department of Victorian Communities YouthCentral site and as his day job is a Policy and Research Officer for Jesuit Social Services.

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