Analysing The Industrial Relations 'Reforms'

To ‘reform’ means to ‘amend your ways’ or to ‘bring about an improvement’.  Applying this terminology in the realm of recent industrial relations policy may require some stretch of the normal dictionary definition.  Dramatic changes to the industrial relations and wage-fixing arrangements have been among the more significant policy initiatives of the Coalition Government led by John Howard over the last decade.  However, whether they have produced improvement is much more contentious, with the Government’s own claims now being challenged by a growing volume of argument and evidence produced by industrial relations researchers and political economists.  This paper looks at the major policy changes and their effects.  It sets the government’s industrial relations ‘reforms’ in the context of history, class relationships and political economic analysis.

Land, Labour and Capital

First it is necessary to establish the principles that should govern public policy in general, and economic policy in particular.  Efficiency, equity and sustainability are fundamental.  We need policies that use society’s resources efficiently, distribute the fruits of economic activity fairly, and produce outcomes that are economically, socially and ecologically sustainable.

Australian political economic experience in recent years is sadly lacking, according to these principles.  However, it is far from obvious that the main problems arise from the labour market.  Labour productivity has been steadily rising.  Industrial disputation – measured in terms of average days lost per employed person – has been at historically low levels.  To the extent that there are labour problems, they have little to do with industrial relations.  They relate more to specific skill shortages in particular regions and industries, and to the relative neglect of investment in education and training that are necessary for a technologically advanced economy.

The problems relating to capital markets are more fundamental.  Capital has been increasingly used for speculative purposes, diverting investment away from more productive activities.  The volume of trading in derivatives markets has mushroomed while fixed capital formation has stagnated.  Investment in infrastructure has been particularly deficient in Australia.  Meanwhile, speculation in real estate has been rife.  The effect is redistribution of wealth, but without a corresponding boost to wealth-creation for the society as a whole.  The number of billionaires on the Business Review Weekly’s ‘Rich 200’ list has grown annually.  The salaries of chief executive officers in multinational corporations have ballooned – the average remuneration of CEOs in the top 51 companies in the Business Council of Australia is now 63 times the average earnings of ordinary working Australians (Shields 2005).  Yet there is little direct connection between these prodigious incomes from capital – or speculative gains in real estate – and the achievement of goals relating to efficiency, equity and sustainability.

The problems arising from land markets are particularly glaring.  A dramatic inflationary process that began in the early 1990’s continued until 2003.  Of course, periods of boom interspersed with periods of stagnation have long been characteristic of land markets, but the long boom since the early 1990s was particularly dramatic.  It produced major redistributions of wealth, favouring landowners at the expense of these renting housing and/or aspiring to become land owners.  And it made home ownership prodigiously more expensive.  In Sydney for example, the ratio of a median priced house to average annual earnings was 4:1 in 1986; but by 2003 this ratio had risen to 12:1 (Stilwell and Jordan 2005, p.218).  For many people on low or even middle incomes, this meant that the capacity to become a homeowner had all but evaporated.  The great Australian dream has become the great Australian nightmare.

One might expect that these concerns would be addressed by a national government committed to the effective use of the nation’s resources and motivated by the principle of social justice.  Instead, the current Australian government has decided to focus on other policy priorities.  Its tax reforms have included the introduction of the regressive Goods and Services Tax, cutting capital gains taxation and, most recently (in the 2006-7 budget) reducing income tax for high income earners and those in receipt of superannuation.  Redistribution of income from poor to rich is a predictable consequence.  Concurrently, its industrial relations ‘reforms’ seem likely to have a similar effect.  As Sydney Morning Herald economics editor Ross Gittins (2005) has noted, the policy changes are ‘more about class war than economics’.

Signalling the Direction of Change: the 1996 Act

            The origins of the recent industrial relations ‘reforms’ can be traced back to 1996 Workplace Relations Act.  That legislation indicated the newly elected federal government’s wish to transform the award-based industrial relations system that had been such a distinctive feature of Australian industrial relations throughout the twentieth century.  Almost all Australian employees had been covered by awards, handed down by state and federal arbitration tribunals, that regulated the conditions of their employment in considerable detail.

The 1996 Act can be interpreted as an attempt to chart a quite different direction from that set out in the preceding Labor government’s Industrial Relations Reform Act of 1993.  That earlier Act had established a legal right to strike, albeit subject to severe restrictions; introduced a federal system of protection against unfair dismissal, administered by the Australian Industrial Relations Commission (AIRC); and allowed for (indeed, encouraged) enterprise bargaining (EB) as an alternative to awards.  EB involves processes of formal collective bargaining that result in a certified agreements (CA) which, when approved by the AIRC, become legally binding in place of the relevant award.  Although non-union EB was possible in principle under the 1993 Act, in practice almost all CAs involved one or more unions.  The AIRC was required to certify that they did not put workers at a net disadvantage, compared to the award, but this was effectively guaranteed by the mere fact of union involvement.  Only in those cases when an employer failed to reach agreement with the union and put its final offer to the workforce in a ballot was there any question of EB undercutting award terms and conditions without compensation in the form of significant pay increases; and these were rare.  Employers did gain important concessions in the course of EB, in particular on hours of work and penalty rates, but they had to pay for them.

            This approach to industrial relations under the Labor government was an attempt to accommodate the interests of the trade unions that could mount effective EB campaigns, while continuing to pursue a broader set of public policy concerns about labour productivity and equity in wage-determination and employment.  In practice, employers did rather well out of the newly decentralised system, with labour productivity increasing more rapidly than real wages, leading to a consequent steady increase in the profit share in GDP. Hours of work rose for many workers, so that part of the increase in the average hourly real wage came at the expense of a reduction in leisure time and increased pressure on family and other relationships.  The unfair dismissal provisions in the 1993 Act gave significant protection to employees but relied heavily on financial compensation, and undermined the emphasis that had previously been given to reinstatement as a remedy under state law.

The pre-1996 industrial relations regime made it very difficult, if not impossible, for Australian businesses to follow the U.S. ‘Walmart route’ to higher profits: keep unions out, cut wages, strip entitlements and employ the working poor.  So employers’ organisations, particularly the Business Council of Australia (BCA) which had a long-established commitment to ‘Americanising’ Australian industrial relations (as noted by Dabscheck 1990), were pushing for change.

            The election of the Howard government in 1996 initially made less difference than many of its supporters, like the BCA, had hoped.  The government had no Senate majority, and was forced to negotiate with independents and minor parties (particularly the Australian Democrats) to secure the passage of contested legislation.  Thus the 1996 Workplace Relations Act was a compromise that did not satisfy those who were campaigning for a more comprehensive assault on the existing institutional arrangements of the so-called ‘industrial relations club’ and for the deregulation of the labour market.  The unfair dismissal provisions remained.  So did the centrality of awards in the wage-fixation process, providing a basis for employees to get wages and conditions not wholly dependent on union strength or individual bargaining power.  However, the Act that the Australian Democrats eventually agreed to support did make two critical changes: the stripping back of awards and the introduction of Australian Workplace Agreements (AWAs).  Awards, which had been quite comprehensive in the issues that were prescribed, were now limited to 20 ‘allowable matters’; and AWAs, which were formal individual contracts, could override both awards and CAs. 

The government’s evident intention was for AWAs gradually to replace both awards and collective agreements.  However, it was forced by the Democrats to accept a new version of the ‘no-disadvantage test’, making it difficult for employers to use AWAs to undercut award (or, where relevant, CA) conditions.  This made them unattractive to employers.  So the government’s ambition for the growth of AWAs was not realised in practice.  It’s frustration was evident, for example, in the attempt to make its funding of universities conditional upon them offering AWAs to their staff.

            In May 2004, a fifth of the Australian labour force still had their pay (and, by implication, other conditions of employment) determined by awards; nearly two-fifths were covered by CAs, almost all reached through negotiation with unions.  Only 2.4% were on AWAs.  Nearly a third were employed under ‘unregistered individual arrangements’.  The remaining 2.6% were covered by ‘unregistered CAs’, which may have been non-union.  Awards are actually more important than these figures suggest, because they have continued to determine non-pay conditions of employment for many workers covered by CAs and (at least in principle) for many of those on ‘unregistered individual arrangements’.  These awards have been determined by both federal and state jurisdictions.  Five states retained their own award systems, operating alongside and in at least potential tension with the AIRC.  The exception was Victoria, where the Liberal government led by Jeff Kennett abolished the State’s arbitration tribunals in 1996 and referred the relevant powers to the Commonwealth.

So, other than in Victoria, the state-based arrangements provided significant protections from changes initiated by the federal government (Lee 2005).  Not surprisingly, the ‘unification’ of the IR arrangements on a national basis came to be regarded as a key target for those committed to the extension of a neoliberal policy agenda.

Driving a Fundamental Power Shift: the 2005 Act

            Gaining control of the Senate on 1 July 2005 made it possible for the Australian government to ‘step up a gear’ with its stalled industrial relations ‘reforms’.  It signalled the broad outlines of the most radical changes to Australian industrial relations since federation in its widely distributed WorkChoices booklet and an intensive, and very expensive, publicity campaign.  The government introduced its new legislation to Parliament in November 2005.  The broad outlines (as summarised by Ellem et al 2005) are as follows:

The removal from awards and inclusion in legislation of four minimum standards to be known as ‘Australian Fair Standards’; these cover annual leave; sick leave; unpaid parental leave (including maternity leave); and maximum working hours.

The ‘No Disadvantage Test’ for measuring agreements against awards to be replaced by the
‘Australian Fair Standards’.

Making unfair dismissal protection not applicable to companies with fewer than 100 employees.

The disappearance of the no-disadvantage test for AWAs leaves only the most minimal of safety nets covering basic pay, personal/carers’ leave, parental leave and maximum ordinary hours of work.  AWAs will last for 5 years, and will override both CAs and awards. This will make them very much more attractive to employers.  Awards remain, but minimum rates of pay will now be set not by the AIRC but by a new Australian Fair Pay Commission, chaired by right wing economist Ian Harper and with a mandate to promote employment by reducing real wages over time.  Awards are ‘simplified’ by greatly reducing the number of job classifications and, with them, the number of award rates that are set.  Award rates of pay have already fallen a long way behind those paid to workers covered by CAs; under the new regime, it can be anticipated that awards will be like fossils, still observable but reflecting conditions in an increasingly remote and distant past.

Withdrawing access to the AIRC in unfair dismissal cases for workers in companies with less than 100 employees is more dramatic than using the 20 employees limit that had previously been indicated.  An exception for dismissals made on ‘operational grounds’ will in any case effectively neuter the protection afforded to workers in large companies.

Finally, there are severe threats to trade union rights, including much tougher restrictions on industrial action, limiting union officials’ right of entry to the workplace, and stamping out the process of pattern bargaining whereby an EB established in one workplace becomes the model for EBs in others (White 2005).

            Two important consequences of the 2005 Act are likely to be a substantial growth in the use of AWAs, at the expense of both CAs and ‘informal individual arrangements’; and an increasing move towards non-union CAs.  It might be thought that formalising existing informal arrangements is no bad thing, and that AWAs might be better than nothing.  However, from an employer’s point of view, under the previous laws informal agreements were insecure, being open to challenge in a way that AWAs will not be. Formalisation will therefore benefit employers, not workers, who lose their legal entitlement to the remaining award conditions once they have signed an AWA.  It will not be possible to force existing employees onto AWAs (although it now seems that workers seeking internal promotion may be forced to do so), but employers will be able to recruit on an ‘AWA-or-nothing’ basis.  As Ron Callus (1996) predicted when AWAs were first introduced, new employees will typically face a ‘take it or leave it’ situation because of the inherent power asymmetry in the employment relationship.

How quickly will the changes take effect?  People move between jobs, in and out of unemployment and in and out of the labour force, at quite a high rate, and after (say) five years we can anticipate that a large minority of those in employment will have been forced onto AWAs in this way.  Young people and migrants from non-English speaking backgrounds will be especially vulnerable.  The growth of AWAs will inevitably fragment the workforce and seriously weaken union influence, even in what are today union strongholds.  As already noted, AWAs will override CAs, and they will all expire at different dates (normally their fifth anniversary), none of these dates bearing any relation to the life of any CA.  Workers who have signed AWAs will not be free-riders, like non-union members who currently work under CAs that unions have negotiated for them.  AWA workers will have little to gain personally from union membership for the entire duration of their AWA, and will not be able to strike legally even if they wish to.  As AWA employees are unlikely to become union members, union density will continue to decline and the credibility of unions in EB will decline with it.

            How these industrial relations ‘reforms’ will affect future employment relations will depend on ongoing struggles between capital and labour, industrially and politically, as well as the state of the macroeconomy.  One possible scenario is that by about 2010 some 50% of Australian employees might have signed AWAs, with another 20% still subject to informal individual arrangements; this would leave 20% regulated by union and non-union CAs and the remaining 10% on awards.  In those circumstances union density might have fallen from the current 23% to the low teens.  When the next recession occurs the twin processes of de-collectivisation and de-unionisation would presumably accelerate.  All this would have substantive consequences.  Hours of work may be further extended, at the employer’s discretion; employment will become yet more precarious; managerial prerogatives will be greatly strengthened; and wage inequalities will increase.  These political economic tendencies, already evident in patterns of employment and income distribution, can be expected to be intensified by the 2005 IR ‘reforms’.

Evidence and Argument

            In some respects, the Howard government’s IR policy changes represent an extension of the preceding Labor government’s shift from the economy-wide award system towards more decentralised enterprise bargaining.  But the focus on individual contracts is quite different in character, reflecting an anti-union outlook and a more strident neoliberal agenda.  A growing volume of evidence and argument supports the view that class power rather than economic efficiency is the central concern.  An array of articles in The Journal of Australian Political Economy in December 2005 show that, beyond the rhetoric, there is no sound foundation for the current ‘reforms’ in terms of any likely improvement in labour market outcomes.  An article by David Peetz (2005) takes up the productivity issue in particular, providing a devastating critique of the government’s claims that AWAs will produce a productivity surge.  Another article in the same journal, by Benoit Freyens and Paul Oslington (2005), uses neoclassical economic reasoning, in conjunction with the results of a direct survey of businessmen, to support the conclusion that the changes to unfair dismissal laws are unlikely to have the positive effect on employment that the government has claimed: 6,000 rather than the officially claimed figure of 77,000 jobs is a more realistic estimate.  Yet another contribution, by labour market economist Mark Wooden (2005), argues that pushing minimum wages down is unlikely to increase employment unless accompanied by major changes to the welfare system that widen the gap between minimum wages and welfare payments.

Equally worrying implications concern the likely impact on particular sectors of the workforce.  Barbara Pocock and Helen Masterman Smith (2005) look at the ‘reforms’ from a gender perspective, noting that women are likely to be particularly vulnerable to the institutional changes and power relationships in the markets for labour.  The vulnerability of young workers, many of whom are in casual and insecure employment, is also stressed by Richard Denniss (2005).  Particular sectors of employment are also focal points for problems that are already occurring, eg. the building and construction sector which the government has singled out for particularly punitive treatment of the workforce (Ross 2005); and universities, where changing employment conditions for staff are being linked to radical changes in education policy and funding (Rosewarne 2005).  David Plowman and Alison Preston (2005) draw some important lessons from the Western Australian experience, which in certain respects was a fore-runner of the national ‘reforms’, showing strong evidence of the tendency to generate greater wage disparities.

            We can anticipate more analyses of the government’s IR reforms, building on this initial round of studies.  The Economics and Labour Relations Review has published a special issue on the topic in mid 2006, for example, and the Evatt foundation’s annual State of the States report (2005) included other critical commentary on the ‘reforms’.  Indeed, what is already notable is the strong and consistently critical position being adopted by industrial relations analysts who one would not normally expect to be in broad agreement.  A striking example of this is the submission presented by 151 industrial relations academics to the Senate Employment, Workplace Relations and Education Legislation Committee that briefly inquired into the proposed legislative changes in November 2005.  It seems that the government’s zeal in this policy area has generated widespread scepticism about its motives and the lack of evidence to justify such radical change.

Impacts of the I.R. ‘Reforms’

            The new industrial relations legislation came into force on March 27, 2006.  Immediately, there were indications of its likely effects on employment relations.  29 workers at the abattoir at Cowra, NSW were dismissed and the employer moved to re-hire some of them on AWAs offering reduced wages and conditions.  The termination notices had to be withdrawn because the government’s own workplace inspectorate, the Office of Employment Advocate, was required to investigate.  Yet more notorious was the case of employees of Spotlight in Coffs Harbour who were asked to sign contracts increasing their pay by 2 cents an hour to compensate for the loss of conditions worth $90 per week (O’Malley 2006a).

            The first systematic survey of the effects of the new laws was published at the end of May 2006.  It was undertaken by the Office of Employment Advocate, the Australian government’s own agency responsible for registering AWAs.  The survey showed that, of 6263 agreements lodged since the legislation took effect, 64 percent of them removed leave loadings and 63 percent cut penalty rates.  It also revealed that 52 percent of the new agreements cut workers’ shift loadings and 40 percent stripped away public holidays.  All removed at least one award condition, while 16 percent removed all of them.

So there is little doubt that the new policies are having – and can be expected to have – a major impact on the wages and conditions under which people work.  What is not yet known is how effective the Fair Pay Commission will be in lowering minimum wages.  In June 2006 the NSW Industrial Relations Commission resolved that there would be a $20 pay rise for the state’s lowest paid workers and criticised the Federal Government’s bid to have the wage case deferred.              Other relevant developments include new legislation regarding independent contractors.  The Independent Contractors’ Act, introduced in Federal Parliament in June 2006, will override State industrial law, raising concerns about whether employees can be re-classified as contractors for the purpose of reducing employer’s legal obligations to them.  The chief executive of the Association of Professional Engineers, Scientists and Managers of Australia warned of unscrupulous employers using the laws to shed staff and return them as contractors, avoiding their employment obligations (O’Malley 2006b).  A Federal court ruling in June 2006 has also made it possible for employers to withhold promotions from their staff unless they sign AWAs.

Other developments are more explicitly party political.  The federal ALP Opposition has promised to ‘tear up’ the new IR legislation if it wins the next election, and its leader Kim Beasley is personally committed to eradicating AWAs.  The trade union movement is campaigning strongly on the issue – with mass rallies, such as those held across the nation in June 2006, continuing media advertisements, and other means of promoting opposition to the ‘reforms’.

There is growing anxiety about the IR ‘reforms’ among the general public.  Small business owners naturally welcome their exemption from the unfair dismissal law that previously limited their ability to fire employees.  But, in general, the evidence from opinion polls shows the widespread unpopularity of the ‘reforms’ in the broader society (see, for example, Wilson 2005).  According to Towart (2005), this reflects the success of the unions, rather than the government, in ‘framing’ the debate.  Certainly, the union movement has been unified and energised by the government’s audacious assault on the existing IR arrangements (illustrated by Combet 2005), and a mood of apprehension, if not hostility, characterises public opinion more generally.  If this situation is maintained it could contribute to a change of government at the next Federal election.

There is no shortage of support and strategies for a different direction, although much remains to be done in developing a vision of what alternative industrial relations arrangements are worth struggling for.  Would there by a return to the 1993 situation, or to the 1996 arrangements?  Would some other hybrid arrangement, compromising with the recurrent business call for ‘workplace’ flexibility, be developed?  Or some alternative that is motivated by the quest for ‘flexibility’ on employees’ terms and/or greater equity of distributional outcomes?  Political economic changes seldom, if ever, involve straightforward reversions to earlier conditions, but what we could, or should, move on to is unclear.  That is why careful political economic analysis is necessary.

            Class relationships are also at issue.  The current government’s industrial relations ‘reforms’ attempt to shift the balance of power between employers and employees.  The strategy clearly bears John Howard’s personal stamp.  His commitment to radically transform class relationships – union power in particular – is of long standing.  His capacity to do it now reflects his own centralisation of power within the government (Kelly 2005).  He evidently wants to make IR ‘reform’ a key element in his political legacy, comparable to Margaret Thatcher’s declared (and largely achieved) ambition to ‘scorch socialism off the face of Britain’.  This is despite the absence of any fundamental problem – either of industrial disputation or a productivity slowdown (other than that arising from the relative shift to service industries) – needing redress at the current time.  The government’s confrontational stance on IR ‘reform’ may be interpreted eventually, with the benefit of hindsight, as the zenith of neoliberal economics – or the nadir of class-based politics.

Conclusion

If, as a society, we are concerned about both economic productivity and social justice, we have to be deeply concerned about how markets work, who benefits economically and who gets to bear the social costs.  Labour markets, and the ‘rules of the game’ shaping how they function, are very important for our national wellbeing.  However, what happens in labour markets is also linked to other markets – for land and capital.

More than a century ago, the innovative political economic thinker Henry George emphasised the land market as the key to economic productivity and social justice (George 1879; see also Johnson 2005 for recent discussion of industrial relations from a Georgist perspective).  Indeed, conditions in the land market underpin many of the tensions that are now focussed on the labour market and industrial relations.  The failure of governments to use comprehensive land taxation has led to the inflationary process in land values and the corresponding economic stress for aspiring house buyers and renters. That, in turn, means that earning an adequate wage income to cover housing costs is such a pervasive concern. The need for reasonable job security is also particularly important for people with mortgages. So labour market, housing and land market conditions are interdependent.  The recent industrial relations ‘reforms’ in Australia add to the stress of working people trying to cope with their expenditure commitments. A more effective solution requires a fundamental re-thinking of policy towards all these markets - for land, for housing and for labour.

References

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