INTRODUCTION TO ECONOMICS
ECONOMICS OF WORKPLACE REFORM
There has been considerable discussion about
Canberra’s proposed new Workplace Relations legislation.
Much of the discussion has centred on the direct and immediate
consequences of the specific proposals, such as the likely effect on
working hours, penalty rates, the process of hiring and firing, minimum
wages, awards, the unions, individual contracts or Australian Workplace
Agreements [“AWAs”] as they are called and so forth.
Whilst the actual consequences of the proposed changes are undoubtedly of importance to all involved in the workplace, it is possible to discern within the proposals various underlying political, sociological, legal and economic arguments or views which provide the basis of the proposed changes. Although they are largely intertwined some separation is possible such as to consider the economic aspects in isolation and to determine the economic reasoning behind the proposed changes. Basically the thrust of the proposed changes appears to be to deregulate in order to introduce or increase competition within the labour market and create greater flexibility. As so revealed there is a fundamental inconsistency in the proposed changes.
The process whereby labour is bought and sold
comprises a market. The
Australian labour market, in so far as one exists as such, is generally
regarded as high-priced. Historically
this has been balanced by the fact that productivity or output per
worker has also been high and thus able to generate high wages and
perquisites and generally sustain a high standard of living.
It is alleged, for instance by the Business Council of Australia, that the productivity of the labour market in Australia is falling [allegedly 1.4% in the last 12 months]. At the same time the productivity of overseas labour markets is rising. In many instances the price of such labour is still considerably cheaper than in Australia. It is argued Australian goods and services must sell in an increasingly competitive world and so in order to sustain our national standard of living and traditional way of life, the Australian labour market, it is claimed, needs to become more productive. How then to increase productivity ?
Competition is the act of striving against
another person or force for dominance reward or a goal; the last can
range from self-amusement to survival.
Most, but not all, economists see competition as central to
economics itself. Competition between buyers and sellers, suppliers and
consumers, determines price in a market.
Competition exists at various levels.
Direct competition is said to occur where goods and services that
perform the same function compete against each other eg one brand of
soap or one bricklayer competes against other brands of soap or other
competition occurs when products that are substitutes for another
compete eg carpenters for bricklayers or chemical cleaners or deodorants
for soap. A third level of
competition is called budget competition which virtually suggests that
competition is universal encompassing anything on which a consumer might
wish to spend his limited capital.
Most economists, certainly market economists, see
competition as the stimulant to innovation, efficiency and lower prices
and hence to increased living standards and faster economic growth.
Theoretically at least the unfettered free market is the most
productive form of organisation and will produce an optimum output.
A market is not a jungle.
There must exist some laws, rules and regulations that preclude
violence and fraud and facilitate and protect cooperation. Cooperation, in the sense of partnerships and combinations
[or companies], and the entry into and performance of agreements is at
least as important as competition in this regard.
It is the nature and extent of laws rules and regulations that
apply or are imposed on a market that create and sustain many, if not
most, arguments and disputes within a society.
For a variety of reasons the Australian labour
market is subject to a number of laws, rules and regulations, which
determine the manner in which it operates.
They include minimum wage laws, professional and
occupational licencing laws, and a variety of employee and union legal
protections and mandatory benefits such as unfair dismissal laws,
penalty rates, long service leave, minimum holiday and sick leave
entitlement and so forth.
The proposed workplace changes can thus be seen as an acceptance by the Commonwealth government of the economic argument that less regulation and control of the labour market will increase its competitiveness and that will in turn lead to greater productivity and hence prosperity. Greater prosperity will then provide job security, not by making it more difficult to retrench workers from existing jobs but by providing more employment opportunities.
A SINGLE SYSTEM
The irony and contradiction in the proposed
changes lies in the nature of government in Australia.
Australia is a federal rather than a unitary country ie it
comprises a number of separate sovereign states that have joined
together to create a central government with certain specified powers
and functions, retaining the residue of governmental functions and
powers to the States.
Under the Australian Constitution the
Commonwealth does not possess an Industrial Relations power.
This is accordingly reserved to the States. The Commonwealth’s present-day overwhelming power in this
regard has been largely created by progressive and gradual accretions by
Canberra, which have been successively endorsed by a sympathetic High
Court, based on the constitutional power contained in S 51[xxxv] to
conciliate and arbitrate to prevent and settle industrial disputes
extending beyond the boundaries of a State.
Presently the power to legislate and regulate
with respect to industrial relations is split between the Commonwealth
and the States [except for Victoria, which under Premier Kennett
surrendered its Industrial Relations powers to the Commonwealth].
This has had the effect of creating competing systems.
To a large extent parties are free to switch between Commonwealth
and individual State control so that Industrial Relations is not a
monopoly. A large
number of industries, and their employers and employees, continue to be
regulated by State, rather than Commonwealth laws, rules and
Ironically it would appear that the seeming basis of the proposed changes, namely the economic advantages and benefits to be gained by competition have been rejected by Canberra with respect to its own power and instead it seeks to eliminate competition. Somewhat optimistically given the High Court’s record in such actions, the States have announced their intention to mount a High Court challenge to the proposed changes.