ECON2313: Australian Economic Contents …home.swiftdsl.com.au/~daveclark/econ2313lec6w.pdfOrigins of wage fixation and industrial ... reforms in the principles and methods of distributing

ECON2313:Australian Economic

DevelopmentLecture 6

Industrial relations & wage policy

Copyright: David Clark 2005 1

ContentsContents

Origins of wage fixation and industrial relations system

The Accord: 1983-96

Why the system failed & the deregulation debate which followed

The 1990s reforms & effects

1.

2.

3.

4.

1920

1940

1960

1900

Australian wage fixation:

1896-1970

1896: The Victorian Wages Board determines minimum rates in some industries

1921:Quarterly cost of living adjustments to basic wage begin & above-award margins for skil widely paid 1931: Arbitration Court cuts

some Federal awards by 10% - capacity to pay recognised

1953: Quarterly cost of living adjustments abandoned

1907:Harvester Case establishes principle of "a fair and reasonable wage" - a basic wage.

1967: Commission abolishes Basic Wage and margins from Commonwealth awards and substitutes a single total wage.

1904:Federal Arbitration Court established

1969: Equal pay for equal work recognised.

1941-43: Strikes and absenteeism outlawed. Cost-plus profits guaranteed for employers

1985

1990

1996

1980

Australian wage fixation:

1970-2000

1974: National Wage Case grants equal minimum wage to men and women

1982-83: Wages pause. Real wages fall by over 9%

1983: Accord Mark I re-establishes centralised wage fixation based on full indexation to CPI

1987: Accord Mark III. Commission creates two tier system: flat rate and second tier

1981: Wage indexation abandoned

1991: Top-downenterprise bargaining allowed through Commission

1975: Quarterly wage indexation re-introduced

1992: Industrial Relations Act amended to allow easier certification of agreements

1985: Accord Mark II focuses on superannuation and WorkSafe

1998: Waterfrontreform commences

1996: Accord ends & Industrial Relations Act emphasises collective bargaining





Main features of old IR system

Highly centralised and legalistic system, inherited from New Zealand.

Arbitration Commission seen as an independent "engineer with an oil can which would reduce industrial friction.

ie. industrial relations taken away from workplaces, placed in tribunals

1.

2.

3.

Why did both unions and employers support compulsory arbitration?

Unions defeated in strikes of 1890s. Saw arbitration an alternative. Trade unions also legalised under system - led to sharp rise in membership.

Employers believed State could be used to reduce militant union power

Part of turn-of-the-century belief in "civilizing capitalism"

1.

2.

3.

The Harvester Judgement1907 Justice Higgins handed down judgement in the Harvester Case, enunciating the principle of "a fairand reasonable wage"

ie the minimum wage needed to support a family in frugal conditions.

The notion of the Basic Wage is established and forms the basis for wage fixing for the next 60 years.





The Harvester Judgement continued

Emphasis was on needs, not capacity of economy to pay - although Justice Higgins believed that wage rises should not be allowed to squeeze profits too much.

7/- a day set as Basic Wage - took it from NSW Railways workshop - not a genuine "needs" analysis.

From 1921, changes in cost of living became a basis for wage rises

The Harvester Judgement and the "New Protection"

Increasing protection for manufacturers considered OK as long as they paid a "fair and reasonable wage".

This the foundation of pro protection alliance between labour movement, Labor Party and manufacturers which lasted through to the 1980s.

New Federal Government also keen to use protection to collect revenue to fund its activities.

•

•

•

1920s developments1920: Arbitration Act amended to allow for variation of awards during their lifetime.

1921: Establishment of quarterly cost of living adjustments to the basic wage.

Late 1920s: Cost of living adjustment principle led to wage-price-cost merry-go-round .

1929: The Brigden Report examines problem and enunciates the "infant industry case" for continuing protection

•

•

•

•





Wag

e ris

e, p

rice

rise,

cost of living, wage rise merry-go-round

Commission grants wage rise following rise in cost of living

Wage rise increases employers' costsand they demand rise in protection

Employers demand rise in protection and assistance, cost of imports rises further

Commission grants wage rises in response to rise in cost of living

1931 Basic Wage case

Cuts Federal awards by 10 per cent

Introduced an alternative criterion to " need": the capacity of the economy, or more correctly individual industries and employers, to pay.

The argument against cutting wages was best expressed by a cartoon of that era: "How could we buy more after a wage cut, when we can't afford to buy what is already in the shops".

In 1934, the Arbitration Court restored the 10% cut

1.

2.

3.

4.

When Arbitration Court restored the 1931 cut in 1934, it stressed:

It was not it's function "to support or oppose" any "radical reforms in the principles and methods of distributing the products of industry":

"This Court is created only to prevent or settle industrial disputes within the meaning of industrial disputes as understood at the time when the Commonwealth Constitution was established".

ie Did not see its role to fix wages according to ups and downs of the economy or play a "Robin Hood"

•

•

•





1950s & 1960s1950: Basic minimum wage for women fixed at 75% of current male basic wage. 1953: Quarterly cost of living adjustments abandoned. 1967: Commission abolishes Basic Wage and margins from Commonwealth awards and substitutes a single total wage. 1969: Equal pay for equal work recognised.

Whitlam and wages1974: National Wage Case grants equal minimum wage to men and women. Helps produce smallest wages differential between males and females outside of Scandinavia

Whitlam Government supports metal union demand for sharp wage rise at a time when world economy and Australian economy slowing sharply

1975: Quarterly wage indexation re-introduced and National Wage Case grants sharp rise. Hurt manufacturers hard, at a time when demand had fallen.

•

•

•

Gough Whitlam, PM 1972-75

Recession of the early 1980s

1981: Fraser Government abandons wage indexation

1982-83: Fraser's wages pause. Real wages fell by over 9%.

"Wage explosion then follows, which further hurts manufacturers and produces job losses.

•

•

•

Mal Fraser, PM 1975-83





The Accord: 1983-96

Deal done in 1983 between Bob Hawke & Paul Keating with ACTU to roll Bill Hayden as the then leader of Labor Party

Three main goals:- maintain real wages - maintain "social wage" - social security- more interventionist industry policy

Deal done in 1983 between Bob Hawke & Paul Keating with ACTU to roll Bill Hayden as the then leader of Labor Party

Three main goals:- maintain real wages - maintain "social wage" - social security- more interventionist industry policy

The Accord: 1983-1996

1983: Accord Mark I re-establishes centralised wage fixation based on full indexation to CPI.

1984: ACTU "Way Forward Plan" emphasises the "social wage", sex discrimination and Medicare.

1985: Accord Mark II focuses on superannuation and WorkSafe.

•

•

•

Accords III-IV

1987: Accord Mark III.

Commission creates two tier system: flat rate and second tier only available to those who show restructuring and efficiency outcomes.

1988: Accord Mark IV.

National Wage Case adapts award restructuring principle, wage rises linked to review of awards with view to efficiency and greater job satisfaction.





1989: Accord Mark V

to overhaul, simplify and build flexibility into awards

and protect weaker groups by raising low rates of pay.

1.

2.

Main aims:

But not a serious step towards greater labour market flexibility

1990-92: Accord VI

1990: ACTU major drive to reform training and education system.

1991: Enterprise bargaining now allowed to proceed generally through the Commission

1992: Industrial Relations Act amended to allow easier certification of agreements within the Commission.

•

•

•

Employment growth

low inflation

enterprise agreements

award safety net

training and superannuation.

•

•

•

•

•

1993: Accord Mark VII

Theme - "Putting Jobs First". Stressed:





1995: Accord VIII

Further safety net rises for award employees, ranging from $9-12 a week, spread over 1995-1998. Low wage earners to receive $11-14 rises.

Commitment to create 600,000 new jobs June 95- June 1998 and achieve 5% unemployment rate by year 2000.

Commitment to keep annual "underlyinginflation rate within 2-3 per cent per annum.

But Accord ended with defeat of Labor Government in March 1996

•

•

•

•

The Accord: 1983-1996% change on a year earlier

ABS 6301.0/6401.0

123412341234123412341234123412341234123412341234123412341234123412341234123412341234123483 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04

0

2

4

6

8

10

12

14

16

18

-2

-4

Average weekly earnings

Consumer price index

Note that real wages not maintained for most of 1980s, despite fact that this the main

Accord aim - i.e. CPI higher than AWE

But note that they have risen solidly since 1996, despite end of Accord

Note how crazy wage policy was in early 1980s!

(Total factor productivity growth- rolling average*)

The Accord's biggest failure

ABS 5206.0, 5231.0 and Treasury estimates..* Rolling average growth rates - six years to the year shown.

2.0

3

1.0

0.01970-71 1997-981990-911980-81

NB: The poor productivity growth in the 1980s, when the Accord was most important. Hence the

suggestion that it took our eye off the productivity ball.

% annual growth





Accord helped public servants during downturn

(May 1990-May 1993)

Managers/admin.

Professionals

Para-professionals

Tradespersons

Clerks

Labourers etc.

All occupations

0 2 4 6 8

av. annual % change in total earnings

Public sectorPrivate sector

But higher earnings growth meant higher unemployment

#

#

#

#

#

#

#

#

#

##

## #

##

##

#

75/76 77/78 79/80 81/82 83/84 85/86 87/88 89/90 91/920.14

0.15

0.16

0.17

0.18ratio

0

2

4

6

8

10

12

14% of workforce

Earnings/employment*Unemploy. rate (right axis)

#

* real wages, salaries & supplements/employment

Australia's rise in unemployment rate greater than most other Western

economies, 1960-1996US

Japan

Canada

UK

NZ

Australia

France

Germany

0 2 4 6 8 10 12-2

Percentage point change in unemployment rateSource: RBA Bulletin, June 1997

NB: the much lower rises in first 4 economies - including

Canada which is probably the most similar economy to

Australia





Mega unions took over during Accord era

(Numbers in brackets = number of unions)

Source: ABS 6323.0; June 94 figures

< 10,000 members

> 100,000 members

0 10 20 30 40 50 60 70

% of total membership

1984 1994(265 unions)

(120 unions)

(4 unions) (13 unions)

Trade union membership has fallen sharply

1986 1988 1990 1992 1994 1996 1999 200320

30

40

50

60financial members as % total employees

Males Females

Young deserted unions particularly(% of employees in unions)

15-19 20-24 25-34 All ages Private sector5

15

25

35

45

55

%

1982 1994 1999

Age groups





Trade union membership now much higher in public sector

Data: Source: Employee Earnings, Benefits and Trade Union Membership, Australia, August 2003 (6310.0).

52.4

19

24.1

42.4

15.8

21.8

46.9

17.6

23

Public

Private

All sectors

0 10 20 30 40 50 60

Membership as a % percentage of total employees

MalesFemalesPersons

Membership falls across the board

www.abs.gov.au/Ausstats/[email protected]/Lookup/81816F252134D252CA256F7200832F0B

Reasons for membership fall

Feminisation of workforce - women have much less interest in unions than men

Job creation over past decade largely in white-collar, non-unionised areas

Growth of part-time and contract employment

Accord 1983-1996 and union amalgamations isolated union leaders from members

1.

2.

3.

4.





The aims of deregulationIndustrial relationsEmployee relations

The past The future

Underlying beliefs

ConflictLow trust

Central control

Mutual interestsIncreased trustIndividualism

Flexibility

Uniformity

Why the old system failedWages set by arbitration

on social rather than economic grounds

Gave unions legal recognition and distanced them from their members

Wages set by arbitration on social rather than economic grounds

Gave unions legal recognition and distanced them from their members

Industrial relations debate between two main groups

Labour market deregulators who want a reduction in central regulation of labour conditions and wages and more emphasis on direct negotiations between employees andemployers.

Defenders of the status quo who argue that such a move will reduce the power of unions and lead to the loss of rights and employment conditions which were only won after years of struggle between employers and unions.

1.

2.





"Vision" of deregulation group

A faith in what Adam Smith called the "invisible hand" - in other words, market forces.

The deregulators believe that if labour markets are not regulated:

- supply and demand will set wages

- the labour market will then "clear" - there will be no continuing unemployment

- and labour will move between industries most productively.

Alternative "vision" of anti-deregulation group

A faith in intervention and regulation.

Real world labour markets are very different to the textbook world of the deregulators, they argue.

Employees are not homogeneous: they learn on the job, they are not all "rational economic men" making job choices on purely economic grounds, who slide up and down the indifference curves of their economics textbooks in search of their equilibrium point.

•

•

•

Deregulators argue unemployment can be reduced by labour market

reformArgue that unemployment is caused by regulation, rather than unemployment being a rationale for it.

Argue that the interventionists have neglected the micro-economics of unemployment, in their belief that appropriate fiscal and monetary policy measures would be sufficient.

Argue we should devote a lot more attention to micro-economic matters - rather than macro-economic ones - to such issues as wage and other costs of production, work organisation, the role of unions etc.

•

•

•





Regulators argue unemployment not just a microeconomic issue

If labour markets clear so easily, they argue, then why is some unemployment the norm, rather than the exception?

Besides, weaker groups of employees require protection from "the anarchy of market forces", they add. Also point to simple fact that those looking for a job usually much greater than job vacancies.

Deregulators reply that deregulation, by removing barriers to job creation, will see a dramatic rise in such vacancies. Their critics reply that jobs will only rise sufficiently if demand for goods and services is sufficient.

•

•

•

Negatives of old system Complexity of awards - State vs Federal etc - discouraged workplace restructuring. Meant some companies had to deal with over 25 unions.

Encouraged demarcation disputes between unions. Indeed, in some years more days lost from such disputes than from unions fighting employers.

Discouraged enterprise negotiations - producing a "let's all go home and leave it to the tribunal" attitude.

1.

2.

3.

Negatives of old system

Restricted wage differentials, providing a disincentive to improve skills etc.

Discouraged interest in profit sharing and other remuneration methods which pay the worker rather than pay the job.

Created an "Industrial Relations Club" - too legalistic approach to IR.

4.

5.

6.





Negotiation was minimalNegotiation was minimal(% of disputes by method of settlement, 1990)(% of disputes by method of settlement, 1990)

Negotiation15.9%

Fed./state legislat.22.3%

No negotiation60.6%

Other1.2%

Enterprise bargaining: was too limited & imposed from on high

Data asource: ACCI Report Dec '95/ACCIRRT Quarterly Report, Dec, '95

In non-union sectors

With profit sharing

With performance pay

Initiated by manager

By manager

Negotiated by head-office

At shop-floor

0 20 40 60 80% of 1520 1995 agreements

beyond workplace

at workplace

union officials

ie. rewarding job, not employee

Enterprise bargaining other limitations

Heavily concentrated in public sector and slow to develop for private sector employees on Federal awards

Agreements reached often not based on genuine productivity gains

Full scope for productivity rises not developed

From "outside" - rather than a product of on-the-job discussions

•

•

•

•





Productivity growth fluctuated markedly

Industry Commission (1997), Assessing Australia's Productivity Performance

Late 1960s - early 1970s

Early 1970s - mid 1980s

Mid 1980s- late 1980s

1990-96

0 0.5 1 1.5 2 2.5% annual average growth in multi-factor productivity

NB: poor growth in late 1980s

IR systems & productivity: no simple relationships

GDP % growth per capitaCanada 2

USA 3

Canada 1&3UK 3USA 1&2

UK 1&2

NZ 1,2&3

AUST 1AUST 2

Japan 3

Austria 2Sweden 1

Japan 2AUST 3

Austria 1&3

CentralisationLess More

** *

Source: EPAC

*****

**

**

*

*

2=1970s3= 1980s

Key

2

1

3

1=1960s

Main 1996 industrial relations changes

Individual contracts called Australian Workplace Agreements (AWA's) as alternative to awards

Reduced union powers by restricting right of access to

workplaces, abolishing "compulsory" unionism and allowing disamalgamations

Reduction in powers of IRC & greater workplace

negotiations





Arguments for changes1996 ACT

Greater flexibilityfor employers

More jobs &lower labour costs

Less trade unionpower

Means skilled willbe better off, unskilled likely tobe main victims

More competitive economy

Improved balance of payments, higher growth & possiblylower interest rates

Registered collective 42.0%

Award safety nets22.0%

Over-award & 22.0%

Individual arrangement14.0%

Wages: how they now set% of total employees

agreements

unregistered agreements

From a 1999 DEWRSB survey

Collective agreements:two main types

Largely in three sectors:- construction- metal engineering (eg . cars, white goods, fabrication- road transport

10-12% of workforce

Have won 4-6 % pay rises per year

Employer driven

Largely in three sectors- big retail chains- mining (except coal)- non-banking finance, especially insurance

2-4% pay rises dependent on trade-offs of working conditions, work on weekend etc.

Union-driven





What employees thought of workplace change 1990-1996

1995-96 Australian Workplace Industrial Relations Survey

Work effort increased

More stressed

Work pace intensified

0 10 20 30 40 50 60% of employees surveyed

No negotiation was the order of the day(Percentage of total working days lost, year

ended October 1997)

ABS 6321.0

Trade unionismWages

Leave, pensions etc.

Managerial policy

Working conditions

Other

Hours of work

0.9%14.0%0.5%

63.6%

2.1%

18.3%

0.5%

Negotiation9.8%

State legislation4.6% Fed-State legislation

7.4%

No negotiation77.9%

Other methods0.2%

Cause of dispute Method of settlement

Awards also being simplifiedThe AIRC made a landmark decision on 23 December 1997 to establish clear principles for award simplication, starting with the hospitality industry award.

Additionally, the parties themselves are taking action to simplify their awards.

For instance, the MTIA and the metal unions have made substantial progress in simplifying the key Metal Industry Award.

Government believes that the overhaul of the award system will bring a range of benefits: increased opportunity and momentum for agreement-making; many more opportunities than before for adapting working arrangements to suit the particular needs of the workplace; and awards which are easier to understand and apply.

•

•

•

•





Employees have more freedom For employees dissatisfied with the service provided by their union, the Act makes it easier for them to resign: only two weeks notice is now required.

Employees at an enterprise can now establish their own enterprise-based union. For example, the Ansett Pilots' Association registered the first enterprise association and at least two more applications are in the pipeline.

A number of unions have already applied to disamalgamate.

Employees are also now free to choose who, if anyone, they wish to have bargain on their behalf.

As a result, the Government argues that the role of unions is now dependent on the wishes of their members rather than legislative entitlements.

•

•

•

•

•

Preferential treatment for union members abolished

The Act has abolished preferential treatment for union members and outlawed ‘closed shops' (arrangements whereby all employees at a workplace were forced to belong to a union).

It has also prohibited discrimination on the basis of membership or non-membership of a union. Any attempt by a union to coerce an employer to breach the Act in any of these ways will attract substantial penalties.

For those who believe that their freedom to choose has been restricted or that they have been discriminated against because of their decision to join or not to join a union, the Employment Advocate can help to ensure that their rights are enforced.

•

•

•

Right to strike maintainedEmployees have a specific and limited right to strike during the negotiation of agreements and employers have a similar right to lock out employees.

However, an employee or union must not take industrial action to support or advance further claims during the period of operation of a certified agreement. Industrial action in relation to the employment to which an AWA relates is prohibited during the period of operation of the AWA.

The AIRC has been given strengthened powers to stop or prevent unlawful industrial action. The Federal Court can enforce Commission orders by injunction and can award damages where the orders have not been observed. Non-compliance with an order can also lead to union deregistration.

•

•

•





Additionally

Industrial action aimed at and having the effect of hindering interstate or overseas trade and secondary boycotts (for example, when one unit goes out on strike to aid the campaign of another ) are both now prohibited and damages can be awarded against parties undertaking such activities.

Also now illegal for employers to pay employees when they are engaged in industrial action.

•

•

Working time flexibility was increased

% of enterprise agreements which specify a normal span of work of 12 hrs + per day

1992-93

1994-95

1996-97

0 5 10 15 20 25 30 35 40

Source: ACIRRT, Sydney Uni.

Nearly one-third of jobs now part-time

19

26

3133

28

19881997

19992002

2005 (March)0

5

10

15

20

25

30

35

40

% of total jobs

ABS 6310.0

Part-time work much more common among female employees

75% of part-timers don't want increased hours

Note fall in part-time jobs as % of total recently.

Has also been big growth in contracting and self-employed over past decade.

•

•

•

••





Effects on part-time workers

Regulate maximum or minimum hours of work

Make awards restricting the % of part-time employees a firm can hire

Make awards that force employers to hire a set ratio of apprentices to skilled tradespersons

RESULT: Employers are likely to make greater use of part-time labour, employing for as as little as one hour at a time

••

•

•

Ends IRC's former powers to:

Earnings differentials grew( % increase in full-time earnings, Aug. 1995-Aug. 1997)

12

25

6

All full-time workersManagers/administrators

Labourers/related workers0

5

10

15

20

25

30

ABS 6310.0

End of Accord has meant end of national wage cases

National wage cases abandoned in 1993. "Safety net" wage rises since are not national wage cases - as media implies.

Therefore, now have no wages policy and no ACTU commitment to limit wage rises to inflation rate.

•

•





But unlikely to suffer "wage explosions" a la mid 1970s, early 1980s

and early 1990sIRC no longer has power to pass on wage rises won by one group to others

Increased competition from overseas means employers less able to pass on wage rises to prices

Greater mobility of capital means overseas-owned companies will simply manufacture elsewhere if wage growth here too high.

•

•

•

Role of awards post 1996Awards now provide a safety-net of minimum wages and conditions rather than setting the actual wages and conditions of workers, as they did under the old system.

Awards are now also clearly limited in terms of the employment conditions they can include.

New awards are limited to 20 allowable matters and existing awards should be simplified to only include these matters by 30 June 1998. After this time all award matters which are non-allowable became non-enforceable.

1.

2.

3.

Good guide to Australia’s current award system:

www.australianbusiness.com.au/abl/abol.nsf/BUFrameurl?open&url=/abl/bustips.nsf/All/E1D2C062420CABB24A256EF500839635?OpenDocument&Highlight=0,industrial,disputes

Monetary policy now the main tool used to influence wage outcomesReserve Bank has made it clear that if wage growth produces too high an inflation rate, it will push up interest rates to slow growth in economy and reduce union bargaining power

An annual inflation rate above 3% is deemed unacceptable

ie. Wages not left purely to "market forces". For example, if wage growth "excessive" - ie likely to push inflation above 3 % per annum- Reserve Bank will react by pushing up interest rates

•

•

•





Industrial disputation returned to 1960s levels

Source: RBA Australian Economics Statistics, 1949/50 to 1994/95/ABS 6321.0

### ### ### ##

####

### ##

# ####

#

#

#

#

#

#

##

####

# ####

#####

### ### #

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 20000

1

2

3

4

5

6

7Thousands

No. of disputesTotal workers involved '000Total working days lost '000

#These periods of recession but notebetter figures over past decade

Metal products days lost much lower

1970 1975 1980 1985 1990 1995 20000

1

2

3

4

5

6

Days lost per thousand employees

These periods of recession but note

better mid and late 1990s figures

Wages & productivity: growth periods

Source: RBA Bulletin, May 1997

5.5 yr. growth cycles, % annual

growth

Labour productivity

Capital stock

Labour hours

workedReal wages Total factor

productivity

I. Mar 75-Sep 80 2.3 3.5 0.9 2.8 1.4

II. Mar 83-Sep 88 1 3.1 3.6 -0.3 1.2

III. June 91-Dec 96 1.8 2.2 1.8 0.3 1.6

NB: re 1991-96 cycle

Data: RBA Bulletin, May

97

But real wage

growthrestrained

NB: microeconomic reformhaving an

impact

Labour productivity

growth poorerthan 1975-80

Reason:capitalstock

growthpoorer

Hours worked

growth alsoslackened

Documents

ECON2313: Australian Economic Contents …home.swiftdsl.com.au/~daveclark/econ2313lec6w.pdfOrigins of wage fixation and industrial ... reforms in the principles and methods of distributing