The labour market needs a Fels

Furthermore, comparisons with less regulated labour markets in the US, the UK and New Zealand continue to show that we have smaller proportions of the working age population actually in employment even though those countries have considerably higher proportions that are less employable because of their lower average literacy and numeracy. Using such comparisons, it can reasonably be argued that lesser regulation here would increase employment by at least 500,000. Contrary to the general picture painted of the US labour market, in a recent survey 69 per cent said they would "decide without hesitation to take the same job again", up slightly from 64 per cent in 1977.

One aspect that needs particular attention is the need for a fundamental shift in policy orientation. At present the focus is on measures to increase the supply of labour rather than the demand.

Judicial Realities

In a paper presented to the Samuel Griffith Society on The Old Province for Law and Order on 1 September I argued that the legal system is in a state of crisis arising from politically based judicial decision-making. The problem is particularly acute in employer-employee relations and the resultant uncertainty, acknowledged by Justice Guidice himself, provides a major case for reform.

There is a fundamental misunderstanding within the judiciary of how the labour market works, of how inefficient and inequitable the outcomes of decisions often are and, even more fundamentally, of the incapacity of outsiders to make meaningful assessments of employment relationships. The Coalition’s decision to establish a judicial college to educate judges and magistrates in practical skills and legal and social issues might offer an opportunity to educate the judiciary in elementary labour market economics. However, two things are required to deal with the judiciary.

First, while regular political criticism of judicial decisions is "out of court", there seems no reason why the Government could not establish an authority to analyse and comment on the possible effects on employment of judicial decisions on employer-employee relations and to recommend possible changes in the law. At present such decisions seem to be meekly accepted by the community and the decision-makers largely escape public criticism. Theoretically, the analysis could be done by the Law Reform Commission, which states its "main focus (as) on Commonwealth laws and legal processes, however its work is wide ranging from technical aspects of the law to questions of social policy". But the body concerned would need to have a specific objective and include both lawyers and economists.

Second, action is needed to effect a major reduction in the capacity of the judiciary to intervene in employer-employee relations. If a competitive labour market package were to be developed that could include an authority charged with ensuring competition in the labour market, as the ACCC does elsewhere. In short - "Do a Fels" to the labour market. The AIRC could be retained but as a voluntary mediation body.

Royal Commission into Building Industry

The establishment of a Royal Commission into the construction industry provides an important opportunity to establish an authority charged with ensuring competition in that industry and having the power to prosecute both employers and employees who flout the law and engage in restrictive practices. There is a successful model in the Building Industry Task Force established in NSW after the Gyles Royal Commission but disbanded by the Carr Government in response to union pressure. The need to establish another Commission to investigate this industry highlights the failure of the current system (both "judges" and police) to deal with the violence and intimidation that exists. My brief submission to the Commission sets out the arguments.

Alternative Routes

The difficulties of obtaining further reform through a comprehensive legislative package should not prevent the use of alternative routes: if you can’t penetrate the front defences, go around to the back. There is no doubt that both individual agreements and independent contracting under contracts for services (as distinct from contracts of services) are playing an increasingly important role in making the labour market more competitive and more flexible. The Government should be encouraged to promote the maximum use of these mechanisms including by supporting the newly formed Independent Contractors Association.

Conclusion

The following approach might be adopted by the Government:

Use the relatively poor performance of the labour market in the last five and half years, despite the strong economic growth, to develop a comprehensive reform package along the lines outlined with, most importantly, the PM himself playing an active role in promoting reform. Promote the idea that the labour market is now in greater need of a competition authority than the product market.

Write to leading business organizations and suggest that, if their active support were to be forthcoming, there may be an opportunity of irreversible major reform that would increase the flexibility of employer-employee relations.

Establish a Commission to analyse the employment effects of judicial decisions on employer-employee relations, with staffing to include economists and lawyers.