Assessing the Federal IR reforms

Justice Henry Higgins, the architect of the 1907 Harvester decision of the Arbitration Court which enshrined the principle of a living wage, defined the scope of the Australian arbitration system as a “new province for law and order”.

Almost a century on, John Howard claims that industrial relations reform is “one of the great pieces of unfinished business in the structural transformation of the Australian economy”.

The great strikes of the 1890s demonstrated that a labour relations regime based on the law of master and servant was untenable as a matter of justice. Federation saw the entrenchment of Commonwealth powers to establish institutions to conciliate and arbitrate industrial disputes across state borders. The states followed suit with their own dispute settling and wage-fixation tribunals.

Distinctive about the Australian arbitral model was its recognition of unions as bargaining parties with legal rights, and wage-fixation on national and industry levels through awards. Awards also comprehensively stipulated employment conditions. Over-award collective bargaining was commonplace particularly in industries with well-organised unions and tight labour markets. But overall, the system delivered high wages and employment security, and was supported by both the ALP and the Liberal Party, and in general by employers.

Economic turbulence in the 1970s, and a shift in the labour share of GDP and increased bargaining power by unionised workers led to a backlash. For much of the 1980s, increases in wages arose primarily from annual national wage cases, in which the crucial determinant of the outcome was bargaining between the ACTU and the Hawke Labor Government under successive versions of the Accord. As the Accord process came under strain in the late 1980s, individual unions sought to regain a more prominent role in wage bargaining, while policymakers sought to increase flexibility. The outcome was the system of enterprise bargaining, in which unions reached agreements with individual employers.

Reflecting the political compromise that led to the adoption of enterprise bargaining, unions focused on the bargaining aspect, while employers focused on flexibility and the opportunity to buy out restrictive award conditions. The election of the Howard government saw three key changes to industrial law. The vestiges of compulsory unionism were swept away, and unions kept on a very tight rein by the Office of the Employment Advocate (OEA), and an individual stream of bargaining - Australian Workplace Agreements (AWAs) - was introduced.

Federal Awards were simplified to 20 allowable matters. One of the most significant changes was the removal of restrictions on casual employment, which led to an increasing casualisation of the service workforce. The actual take-up of AWAs by employers has not been impressive - except in sectors such as the federal public service and communications where government pressure played a major role, and in mining where the introduction of AWAs has been the culmination of a decade long de-unionisation campaign by major firms.

The AIRC (Australian Industrial Relations Commission) proved more interventionist than anticipated, continuing to set new employment standards through test cases (for instance, redundancy payments in small businesses which the government is keen to wind back). Overall, real wage rates and employment have improved under the Howard Government, but with very patchy gains in some sectors, and a continuing rise in inequality. The improved bargaining position of employees as labour market participation increases and skill shortages bite is no doubt a motivating factor in business’ desire for further IR reform, a desire that can now be fulfilled with the government’s Senate majority.

Unlike the period leading up to the introduction of enterprise bargaining in 1991, there have been few sustained attempts to make the policy case for reform. The BCA (Business Council of Australia) embarked on a major research program in the late 1980s with numerous studies arguing for deregulation.

As David Peetz has argued, studies recently commissioned do not bear out the arguments for productivity which dominate the rhetoric of the government and business. The consensus of the academic literature is that high performance work places are perfectly compatible with active unionism and sensible collective bargaining. Nevertheless, Howard’s long standing desire to reform IR now has a chance of fulfilment, despite the fact a political storm over the mooted changes is gathering fast.

The reform proposals have two main elements. The first is the amendment of unfair dismissal laws, so as not to apply to enterprises with less than 100 employees.

The second element is a substantial extension of previous trends, aimed at reducing the role of unions, awards and arbitration, while increasing that of direct contracting between employers and individual employees. In particular: