Australian industrial relations: no easy solutions

If any issue illustrates the major division between Australia’s major political parties in recent years, it has been industrial relations. While considerable attention was also given to the environment and the Iraq conflict prior to the 2007 federal election, it was industrial relations that contributed most to the Coalition’s defeat, despite Australia’s trade union membership declining from 48 per cent in 1984 to 19 per cent in 2006 (13.7 per cent for the private sector and 41 per cent for the public sector).

Industrial relations is indeed a complex policy issue. This is because all governments are under greater pressure to maintain a labour market attractive to investment at a time when the global labour market continues to increase from an estimated 1.46 billion workers during the 1980s to about 2.93 billion, as noted by Richard Freeman on The Globalist online site (June 3, 2005).

Providing another policy example is industrial relations, where mere criticism of the Howard government and faith in the Rudd Labor Government is never good enough, although studies do indicate why many Australians have lost pay and conditions under the promotion of Australian Workplace Agreements (AWAs). For instance, Professor Judith Brett asserted in The Monthly (May 2007) that the Coalition’s WorkChoices legislation may be “the equivalent of Chifley’s decision to nationalise the banks, when ideology overcame good sense and tempted him to extremism”, and was part of Howard’s determination since his youth in the 1970s to defeat the union movement.

In truth, the Howard government was anxious to create what it believed were the necessary conditions to favour business investment. In addition, subsequent economic success did enable the Coalition to provide even greater social welfare assistance for Australians. As indicated in an article by George Megalogenis in The Australian (September 20, 2008), the proportion of families whose tax was offset by benefits increasing from about 38 per cent in 1996 to 41.6 per cent by 2006-2007 (39.3 per cent as of January 2004).

Quite simply, there are no easy answers to industrial relations: Labor also struggles with the issue, although the degree of reform will long remain determined by ongoing interaction between political parties, interest groups and public opinion.

After all, even Sweden, arguably the most egalitarian of all liberal democracies thus far, has moved away from two decades of a centralised and co-ordinated bargaining system to utilise enterprise bargaining after the Engineering Employers Organisation forged a separate agreement with the Metal Workers Union in 1983.

Labor governments (1983-1996) encouraged productivity improvement and enterprise bargaining, as evident by the 1987 national wage case and the 1993 Industrial Relations Reform Act which allowed negotiations without union involvement. However, they also adopted an Accord with the trade union movement which reduced real unit labour costs by 14 per cent by 1990 although also introducing other important reforms such as compulsory superannuation for workers.

Of course, despite the need to pay adequate attention to public opinion, Australian governments are guided by elite opinion. With the Reserve Bank governor Ian Macfarlane noting in 1996 that wage increases should not outstrip inflation and overall productivity gains in order to help maintain investment, recent Australian governments have been eager to limit wage increases to the desired inflation target of 2-3 per cent.

So while the Howard government was forced to negotiate with the Democrats from 1996 to get the introduction of the AWAs through - albeit with a “no-disadvantage” test to leave no worker worse off when compared to minimum awards (as previously introduced by Labor) - it was always anxious to promote AWAs much further.

Having won a majority in the Senate from July 2005 (around a time when AWAs covered just 2.4 per cent of the Australian workforce by May 2004, compared to 41 per cent by collective agreements), the Coalition was aware that wages under union collective agreements increased by 4.3 per cent between June 2004 and June 2005 (compared to 3.5 per cent for non-union collective agreements and 2.5 per cent for AWAs), despite union membership falling further to 22.7 per cent.

However, it is naïve to suggest that Labor will save the plight of trade unions, despite the union movement spending an estimated $20 million on advertising to oppose WorkChoices prior to the 2007 election. After all, with employers eager to reduce costs, the proportion of casual workers within Australia’s workforce under Labor increased from around 16 to 26 per cent between 1984 and 1996 with part-time workers also rising from 17 to 24 per cent at a time when trade union membership declined from 48 to 31 per cent.

Indeed, the Rudd Labor government has given important certainty to workers. For instance, Labor restored the right of workers to collectively bargain. In addition the “no-disadvantage” test comparison with awards ensured unpaid parental leave of one to two years, although an employer may be able to refuse the second year on business grounds if the same parent wants both years off. The government has also given parents a right to request flexible work arrangements until their child reaches school age with employer objections to be based only on reasonable business grounds.

But Labor has also adopted a number of policies to reflect the increasingly competitive nature of the economy, so eliminating any return to the pre-1996 industrial relations landscape.

Re-affirmed on September 17, 2008 by Labor’s Julia Gillard at the National Press Club, this included maintaining protected action which means that industrial action (only after a secret ballot) can only be carried out in times of wage bargaining, although employers have the right to lockout workers during a period of industrial action.

While areas of wage negotiation could “include matters like salary sacrifice arrangements, health insurance, child care and payroll deductions of union dues for union members”, they excluded “matters that are properly the prerogative of management - like decisions about closing an unprofitable plant or using a preferred supplier”. Employees who participated in any unprotected legal action would be subject to a “mandatory minimum deduction of four hours’ pay”, and employers would no longer be able to pay strike pay.

Labor also maintained the Australian Building and Construction Commission until 2010, established to investigate industrial conduct in the heavily unionised building sector.

AWAs, signed before 2008 legislation abolished them, were also allowed to fuflfil their five-year maximum terms.

As for unfair dismissal provisions for small business, though Labor again indicated that this would apply to companies with less than 15 workers compared to the Howard government’s figure of 100, this would only apply to workers employed for more than 12 months with employers only needing to give one verbal warning. Any violation by an employer would give an employee unfairly dismissed compensation of up to a maximum six months pay.

But even legislation that guarantees the right of workers to join unions to forge collective agreements does not necessarily ensure anything. One has only to note the United States which upholds a right to collective bargaining yet has a much lower minimum wage, lower trade union membership (12.5 per cent in 2006), and just a quarter of American workers receiving paid vacation time in 2006 with another 33 per cent getting just one week.

So while Labor has upheld important minimum award conditions, good luck to Labor’s bid to help employees in child care, community work, security and cleaning. While a union or bargaining representative will be able to apply to bargain with a specified list of employers (such as with small cleaning companies), there can be no protected industrial action and Fair Work Australia will only make a binding determination if both parties agree.

Most important for many battlers - unable to benefit from strong trade union representation - is the extent that Australians will support a decent minimum wage and award system to which all other enterprise agreements and contract work can be measured against.

Fortunately, given that Australia has one of the highest levels of workers on minimum award wages in the developed world (about 20 per cent by May 2004), the recently formed Fair Pay Commission, (first pay decision in 2006) has upheld annual increases to ensure that Australia’s minimum wage remains decent after being 58 per cent of the federal minimum wage in 2005 compared to 45 per cent in Britain and 34 per cent in the USA. Such annual increases will help the many Australians who relied on award wages as of 2006, including about 43 per cent of workers in accommodation, restaurants and cafes, 21 per cent in retail, and 14.5 per cent in property and business services.

Such a trend cannot however be taken for granted. In recent decades, the debate about wages has moved from the need to maintain high wages in the 1950s and 1960s at a time when Australian industry had tariff protection, to the need to link wage rises to productivity improvements and inflation targets.

What if the debate moves towards a demand for much lower minimum wages in order for Australia to attract important investment in this increasingly competitive economic environment? Though abhorrent to many, such a need has already been suggested by Tony Abbott at a Quadrant-IPA dinner in October 2007 when he argued it is hardly unjust for a government to promote a 10 per cent fall in wages if that was to cause employment to grow by 10 per cent.

As Labor has indicated with its industrial relations reforms, the move toward a tougher labour market remains evident, despite its move to temper the pace of reform in line with public opinion.

While strong union influence will remain in the public sector and other private sectors, such as the commercial building sector should it withstand a greater entry by contractors, wages will continue to come under enormous pressure. This is especially true if governments look to skilled and non-skilled immigration to help solve many policy needs, a reality that is also placing immense pressure on housing costs as demand outstrips supply.

So let us have greater competition between Labor and the Coalition over one of the key issues that most affects many ordinary people.

While solutions are not going to be easy as the demands of the global economy will surely result in further pressure for labour market reform (to enhance business investment), industrial relations will test the sophistication of Australian society.

Though Labor carefully adopted the middle ground between necessary reform and public opinion by remaining Left of the Coalition on such a controversial issue, how long will the Coalition simply promote a quest evident since John Hewson’s 1990 Menzies lecture. A lecture outlining that a bid for “highly profitable, innovative companies which highly reward their workers” should be accompanied by the removal of hard won conditions such as the rostered day off, flexi-time, holiday leave loadings, and “sickies”.

There are many holes in Labor’s policy platform which gives the Coalition a chance to better address the complex link between economic success, wages, welfare, housing, and immigration.

However, have we merely entered an unprecedented age of rhetoric rather than substance as the difficulty of finding real solutions in this increasingly competitive world becomes evident as all nations struggle to balance a variety of policy needs as they seek to remain competitive in both taxation and labour cost terms.

If we do not find better solutions, then many Australian workers will experience a further decline in their purchasing power, although one can only hope that ongoing interaction between political parties, interest groups and public opinion continues to both recognise and address the needs of battlers.

If we can produce a better industrial relations policy stance, along with the many other issues that are linked to purchasing power (immigration and housing), then Australia will not need to return to a high rate of trade union membership, and will therefore provide another example of a successful and pragmatic nation.

Let the Coalition rise to the occasion in challenging Labor at the next election. Hopefully leading to better solutions rather than allowing Australians to rely on rhetoric and acknowledgement of problems while waiting for the next near or economic disaster to force change.