Howard’s workplace and welfare reforms and Australian values

At the same time, the Howard Government has made welfare less accessible and more conditional, with much tougher penalties imposed for compliance failures (including “no-payment” for up to eight weeks), and it extended the new rules to many sole parents and people with disabilities, who will now be forced to look for part-time, low-skilled work.

The fear of losing eligibility to welfare benefits will also make it more difficult for employed workers to exit from unsatisfactory jobs or, if retrenched, to reject lower-paid jobs. The net effect of the changes in the welfare system will be to further increase the potential market power of employers relative to vulnerable employees.

Impact of reforms on productivity and employment

The new rules on unfair dismissals will give managers more flexibility in managing human resources and this should have a positive effect on productivity. On the other hand, the increased scope for downward wage-cost flexibility is likely to reduce average productivity.

Apart from bringing more marginal workers into employment, it will have the same effect on industry as tailored tariff protection - lessening the urgency of improvements in workplace efficiency and helping to artificially prop up firms which are less efficient than the norm.

The Howard reforms may also reduce the willingness of employers to provide work-related training for lower-paid workers. As to the effects of lower unionisation on productivity, the literature is inconclusive. While “bad” unions can interfere with efficient management decisions on resource management, good ones can have the opposite effect, leading to improved morale, trust, workplace harmony and team spirit.

In short, the Howard Government’s latest reform agenda is, on balance, unlikely to do much for productivity.

However, there is little doubt that it will help speed up the transfer of low productivity workers from welfare to work because it will allow employers to effectively pay them less, demand less predictable, more anti-social hours from them (without penalties or loadings) and fire them at will if they prove unsatisfactory. The Howard reforms will also put extra pressure on welfare recipients to take up the first available job.

Impact of reforms on distribution and aggregate utility

In terms of its impact on the distribution of market power, Howard’s WorkChoices and welfare-to-work agenda should be seen as a fundamental break with the past. By markedly clawing back collective bargaining (even when wanted by nearly 100 per cent of employees), by greatly increasing managerial autonomy, by transforming what was an indirect power to make labour laws (through an independent arbiter) into a direct power under the control of the Executive, by completely disempowering many workers and by fundamentally redefining the right to welfare, Howard has taken a big step towards (and even in some respects beyond) the US social model and retreated much further from Australia’s consensus-based “wage-earners welfare state”.

If international experience is any guide, Howard’s workplace-welfare agenda will inevitably lead to greater earnings inequality. Moreover, for most vulnerable workers (i.e. those without individual bargaining power) it will mean less income security, less say in the workplace decisions that affect their wellbeing (such as on working hours) and less capacity to achieve their desired work-family balance.

All this will compound the problems many of them already face from ongoing structural and skill-biased technological change.

Leaving aside the effects of Howard’s reforms in reducing joblessness, an issue I return to later, Howard’s losers will all come from the poorer sections of the working population whereas the winners will generally come from much better-off homes.

What will this do to aggregate utility? To assume, as many economic rationalists do, that a dollar’s worth of gain to one has the same utility weight as a dollar’s worth of loss to another, irrespective of their starting incomes, is quite simplistic. Surveys consistently show that people generally become happier when their incomes rise from low to median - but after that they do not get any happier as they get richer (unless they markedly out-perform their peers).