An economist’s view of the proposed workplace reforms

The Government could decide to step up wage deregulation and hang the social cost! But such a hard line strategy is not really what most Australians want.

A second alternative would be to step up wage deregulation but link it with compensatory measures such as means-tested family payments and earned income credits for low-paid workers. Such a package might well produce substantial employment gains with more limited social costs. But there are two problems. The compensation would only offset the erosion in relative earnings of low-paid workers. It would still leave vulnerable workers without control of their lives in the workplace. The second problem is that the compensation measures would be costly and require a deferment of tax cuts - which might be politically difficult in the current climate.

There is a third way of achieving good employment outcomes without much social sacrifice: it is to go part of the way down the Scandinavian route. For two decades, a string of Scandinavian and smaller European countries have been successfully using “active labour market” programs (for example retraining, work and mobility incentives, wage subsidies and selective job creation) to deliver comparable unemployment and economic outcomes to the US - but with much lower levels of income inequality and higher levels of social mobility. Unfortunately mainstream Australia is not culturally disposed towards the Scandinavian high-tax egalitarian model (even though it has been economically successful).

Who said policy reform was easy?