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The labour market needs a Fels

By Des Moore - posted Saturday, 15 December 2001

The failure of the first Howard Government to employ the admittedly risky double dissolution strategy signalled a disappointingly cautious approach to industrial relations reform and, although the 1996 legislation and the staunch efforts by Peter Reith helped improve labour market flexibility, the experience of the last five and a half years can only be described as disappointing from more than one perspective.

Yet the international economic organizations keep on telling us that further labour market reform is needed. This year’s OECD report on the Australian economy, for example, called diplomatically for further deregulation and revealed that comprehensive agreements determining all work conditions and pay requirements - "thus completely replacing awards" - possibly extend to only about 12 per cent of employees covered by federal awards. Although the OECD has reduced its estimate of Australia’s structural rate of unemployment from 7.5 per cent (in 1998) to 6 per cent, that seems optimistic given that we only just touched six briefly and it is scarcely something to write home about anyhow. On the philosophical side, it is a worrying fact that, after five and a half years in office, the Coalition went into the 2001 election with polling suggesting the majority of voters thought Labor better equipped to reduce unemployment.

Nor do the election campaign and result provide obvious encouragement except in the negative sense that there will be no regulation roll-back by Labor. However, some encouragement was provided from Prime Minister Howard’s campaign statements that his principal concern, if the Coalition lost, was Labor’s proposed re-regulation. Since the election the Prime Minister has also indicated he is keen to pursue industrial relations reform. The election result certainly suggests that a policy that appeals to the average person can succeed despite pseudo-elitist opposition – maybe even because of it.


How Substantial Change Might be Obtained

If substantial deregulation is to be obtained it has to be pursued on several fronts but there are also some pre-conditions.

First, substantial deregulation would be most likely to succeed with active Prime Ministerial involvement. Mr Howard is sympathetic, and has the capacity to get across to the so-called working class the benefits of deregulation and the problems with existing arrangements. There is no doubt that the Coalition won votes from this working class with its boat people policy. Of course, the task would be greater than with the boat people policy if only because there would be no bipartisanship. But having three former ACTU presidents on the Opposition front bench could actually help. The question is whether the PM could be persuaded to commit himself sufficiently.

Second, the active support of the business community is needed, as it eventually was in the latter part of the 1980s. Arguably, there is an opportunity for corporate Australia to help create a labour market where there would be virtually irreversible flexibility in employer-employee relations, in much the same way as privatisation has virtually permanently wiped out much of the public authority sector. The Business Council in particular needs to be persuaded to do more than confine itself to opposing re-regulation, which is all it could muster for the election.

If the Prime Minister became more actively involved in reform, that might persuade the business community to emerge from its cultural recession and inferiority complex. But any such active involvement would need to encompass much more than the introduction of the promised reform legislation on unfair dismissals for small business and secret ballots. Indeed, the active involvement of business would probably depend on there being a comprehensive package rather than a couple of bits of legislation that are likely to be defeated in the Senate.

Third, this raises the question of what a comprehensive package might include and whether it is even conceivable that major legislative reform might get past the Senate. The key to that might be for a package involving the establishment of a competitive labour market along with measures to protect low wage earners living in low income households against real reductions in their income levels. If such a package was actively promoted as both equitable and efficient, successful legislation should not be ruled out.

The protection to low wage earners in low income households could be provided by adapting an existing social security benefit or by introducing a new benefit such as a tax credit, which seems to work reasonably well in the US and some other countries. Given that deregulation should increase employment and reduce unemployment, the net budgetary cost of protecting low income earners in this way should be relatively small.


Some Specifics

The development of a comprehensive package would be helped by focussing on specifics that should add to the case for deregulation.

Employment Realities

The Liberal’s October election policy statement on "More Jobs, Better Future" made much of the additional 830,000 jobs "created" since it came to office in March 1996. However, while this constituted employment growth of about 2 per cent pa, only a miniscule 82,500 of these additional jobs came from the reduction in unemployment and the unemployment rate dropped by only 1.5 percentage points from 8.2 per cent (using the latest figures the rate dropped by only just over one percentage point). The fact that, over the five and a half years, there was no increase at all (from 63.5 per cent) in the proportion of the working age population (15 years and over) going into the labour force to seek employment hardly supports the Liberal policy claim to have "replaced Labor’s outdated industrial system with a modern system".

Indeed, given that the economy grew at almost 4 per cent pa between 1996-97 and 2000-01 and that there are over one million people who say they would like a job but who are not in the labour force, the growth in labour demand must be regarded as relatively poor.

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About the Author

Des Moore is Director, Institute for Private Enterprise and a former Deputy Secretary, Treasury. He authored Schooling Victorians, 1992, Institute of Public Affairs as part of the Project Victoria series which contributed to the educational and other reforms instituted by the Kennett Government. The views are his own.

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