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Labor’s IR policy creates a dangerous apartheid

By Felicity McMahon - posted Monday, 3 September 2007


Second, firms. Firms face substantial reductions in profits by paying higher wages without any corresponding increase in productivity.

Third, and most importantly, employees suffer. Employees working to deliver the productivity required by the firm suffer since their individual efforts are not rewarded outside the collective bargaining process.

Fourth, the economy suffers by experiencing a “wage-price inflation spiral” where increases in wages are not coupled with increases in productivity.

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The economic literature supports these views, particularly in relation to the economic impacts of collective bargaining carried out by unions. There is empirical evidence (PDF 636KB) to show that non-unionised firms are more profitable than unionised firms (John M Abowd, Francis Kramarz, David N Margolis (1999) High Wage Workers and High Wage Firms). That study also contained evidence that employment growth can be slower in unionised than in non-unionised firms.

That same study also concluded that while the extent of collective or union bargaining may to be associated with higher wage growth, it is also associated met with no increases in productivity growth, lower employment rates, higher unemployment rates, and higher inflation.

Those are all bad economic fundamentals. An ideal economic situation is completely apposite. It is what we have experienced in Australia to date: high real wage growth coupled with productivity growth, high employment rates, lower unemployment rates, and stable lower inflation.

For some businesses, switching to Labor’s IR policy will have little to no impact on its business or productivity. For others, such as Telstra, it will be devastating to flexibility and incentive arrangements.

The point is, however, that one policy, WorkChoices, satisfies both businesses, while Labor’s IR policy will destroy the latter.

All in all, assessment of IR policy needs to be determined by three criteria.

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First, which policy provides employees with the most choice? WorkChoices is the only policy that enshrines the right of employees to determine what governs their employment relations: individual agreements, or collective agreements.

Second, which policy provides employers with more flexibility to provide incentives and to reward productive, skilled workers? Which policy ensures that individuals can secure a return on investing in their own skills? We can no longer pretend that Australia is immune from the competitiveness of foreign companies and employees. If our workforce is not sufficiently skilled and competitive, jobs and businesses will move offshore, or worse still, will collapse altogether. There are millions of highly articulate, English-speaking Indian IT and Telecommunications workers eager to take the jobs of Australians. And Australian businesses are happy to employ them if Australian employees are not productive or skilled enough.

Collective agreements can never adequately provide the flexibility to reward individual performance and productivity improvements. WorkChoices is the only policy that therefore succeeds on this point.

Third, the policy must ensure that businesses can grow and contract with the business cycle without fearing that they will incur significant employment costs by risks. By reintroducing Unfair Dismissal Laws for small businesses, the engine-room of the Australian economy, Labor’s IR policy fails on this point.

The only policy that meets each of the criteria listed about is WorkChoices. Without the Coalition Government’s current Workplace Relations laws the democratic principles that should also apply to determining your employment conditions will be dismantled and individual choice will be removed.

And that, after all, is the most important thing.

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About the Author

Felicity McMahon is a graduate of the University of Technology, Sydney, with a degree in Business and a First Class Honours Degree in Law.

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