Labor reshaping Australia’s IR system to fit the union vision

The Australian Labor Party and the trade unions have been waging a war against what they call "insecure work" and contracting for some years, but it is only now they are in power that the reality is starting to dawn on employers.

Take BHP.

The mining giant complains that the cost of Labor's "Same Job. Same Pay" policy will cost it $1.3 billion (US$850 million) per year. Apparently in the mining industry contract labour, hired through a labour hire firm, works for less pay than someone employed directly.

This is apparently by design. When large miners negotiate deals with the unions they tend to accept higher pay rates knowing that they can fill up a significant amount of their labour demand with contractors at a cheaper rate.

BHP claims that the $1.3 billion is the equivalent of 5,000 jobs. That means that the average pay of a worker is $260,000. It's no wonder that there are plenty of contract workers available for hire at a figure somewhat less than that, but still well-over average pay rates.

Should we feel sorry for BHP? At current profit levels, an additional $1.3 billion would appear to be fairly trivial. BHP earned a net profit after tax of US$41 billion (A$63 billion), making the loss equivalent to two percent of net profit.

But commodities are a cyclical business, and only 2 years ago in 2020, BHP's full-year profit was US$8 billion (A$12 billion approx), in which case it would have been more than 10 percent of profit.

Besides, companies like BHP run tight ships, and an increase in the wage bill will almost inevitably mean redundancies, so we should be thinking more about the BHP workers.

The unions like to portray anyone being paid less than anyone else as exploitation, but it's hard to see someone on $200,000 plus as downtrodden.

Oversimplifying the employer-employee relationship

The truth is that there are a variety of reasons why people will work for less, or more, or on contract.

Contract work gives the worker more flexibility, or it may allow them to work more hours for higher wages, just at a lower unit cost.

From a business point of view if you are in a cyclical industry, the ability to stand down a worker by terminating a contract rather than making them redundant, with all that entails, can be attractive, and even necessary to survival.

Even though the labour hire firms' staff are generally unionists, unions hate these types of arrangements because it robs them of power, particularly the power to strike.

They also adhere to Karl Marx's concept of the Labour Theory of Value where labour is held to have some sort of intrinsic value.

Yet in the labour hire world, supply and demand are big determinants of what someone is paid, and you shouldn't worry if one person is being paid less or more than another-that is a result of a complex matrix of when they were hired and what the conditions were at the time.

In the union world, there is one price, and that's it, otherwise, it is an abuse of human rights.

Australia's economy has grown quickly in recent years because we've adopted much more of the labour-hire view of the world. By treating labour as a commodity, you ensure that resources flow more quickly to where they are needed.

Labour shortages will drive up wages and pull in new workers until the need is filled and reallocate resources from areas with less priority. The extra mobility in these arrangements also produces better outcomes.

Unions too often rely on seniority rather than ability, with the "last on, last off" rule leading to ossification in production and shifts the economic burden onto younger workers, irrespective of their real worth to the enterprise.

The gig economy is next, but why?

Another area where contracting has transformed industry is in the small business sector where many tradies, and others, today are self-employed when once they would have worked for a boss.

Former Prime Minister John Howard changed the laws to allow this to happen more easily, and the beneficiaries were eternally grateful and became part of what was termed "Howard's battlers."

They're the ones in the large, chromed SUVs driving to the job work during the week, and fishing on the weekends, while their wives have been transformed into their business managers.

It also includes many people in the "gig economy" like Uber drivers, and independent owners like truck drivers who might drive essentially just for one company.

Labor and the unions also have these in their sights.

They call this sort of work "insecure" when the actual employees would call it "flexible." (If you want to know what this means in reality, have a chat with your next Uber driver, and as likely as not you'll find they're financing a degree, or the deposit on a house, but can't afford to be tied down to someone else's timetable.)

There was an attempt by the tax department, which also hates the gig economy for its own tax-related reasons, to treat some of these as employees.

The High Court of Australia struck it down, deeming that a commercial contract is a contract, not an employment arrangement.

The Labor government is now proposing to change the legislation so that the Fair Work Commission can set minimum standards for gig workers.

Based on past performance, this is likely to make life harder for these workers, and less flexible.

The best protection against low pay is full-employment, and the buffer that gig work provides at the margin actually makes this more likely, than in a system where everyone is an employee.

There are costs that employers wear on their employees' behalf, which contractors wear on their own behalf. Costs like the risk of resignation or learning to do the job, and sometimes even office space and overheads.

When the employer has to bear the risk of taking on the employee, they are much more hesitant than when the employee is a contractor and bears the risk themselves. Contractors are also able to fill in cracks in a way that employees can't, for example making a full-time job out of fractions of jobs at different employers.

Productivity is the key to Australia's recovery, but yet again Labor is acting against the country's best interests.

This should probably be no surprise. Labor is a wholly-owned subsidiary of the union movement. It has been since the day it formed in the aftermath of Australia's shearers' strike.

You might think the government works for you, but in reality, they work for the union movement. It's an employment contract that's been in place for 130 years and shows no signs of being terminated by either party.