For The Labourer is Worthy of His Hire

For The Labourer is Worthy of His Hire

Ray Evans

Bob Day has just given us a telling demonstration of the truth of the theme for this conference "For the Labourer is worthy of his Hire".

It is now my task to give the sermon on this text. It might have been more appropriate if this sermon had been held over until Sunday. There is, as well, a hymn which is most appropriate for this text;

"Forth in thy name O Lord I go,

My daily labour to pursue."

We are now moving into the pre-election period for the 1993 federal election. The Opposition's Fightback program has been successfully bedded down, at least in terms of public acceptance of the GST. However, in many speeches since the November launching of Fightback, John Hewson has made it clear that labour market reform, not tax, is the crucial policy issue dividing Government and Opposition, and that only the Coalition can provide the measure of reform necessary to bring back full employment.

The full detail of the Coalition labour market reform package is still to come but the broad outlines are well known. The existing structure of arbitral tribunal and registered organisations will be maintained. There will be a statutory prohibition on closed shops, and other less dramatic reforms of the system will be implemented. But, and this is the big but, for the first time since 1904, there will be a Commonwealth mandated opportunity for employers and employees who wish to opt out of the system, to write their own contract of employment, and have that contract recognised as superior in law to any arbitral decision either state or federal.

The constitutional problems which arise from this ambition were discussed at length at our last conference in Adelaide. I do not propose to go over that ground again today. Let us assume that the Commonwealth Government will have constitutional power to legislate this freedom for at least that part of the work-force which is employed in the corporate sector.

That is the good news. The bad news is that there are certain constraints which the Coalition proposes to impose upon these contracts, which have the capacity to negate the power of the new labour market regime to solve the unemployment problem. I do not believe the significance of this contradiction can be over estimated.

The most serious constraint with which the Coalition is grappling is a minimum hourly rate which must apply in all of these contracts. The current policy states:

"Section 2.8. An agreement must provide for at least the relevant minimum award rate of pay for ordinary weekly hours of work for the particular classification of the employee. For the purposes of the agreement, that award rate of pay shall be calculated as an hourly rate."

In other words if the parties settle on a minimum hourly rate less than that stipulated, by some arbitral tribunal, the contract loses its legal standing vis a vis the various arbitral tribunals which would otherwise dictate the terms and conditions of employment.

Coalition spokesmen defend the imposition of the minimum hourly rate constraint on the grounds that many people believe that without it, some employers would exploit, to use the Marxian terminology, their employees. As John Howard wrote to me,

"As far as the economic quality of the policy is concerned, I imagine one of your worries relates to the minimum wage stipulation. I believe this is something we shall simply have to disagree on as I hold a strong view that discarding the minimum wage provision could affect significant support the policy now enjoys in the community."

There can be no doubt that a lot of people agree with John Howard on this matter. It is not clear whether such people themselves believe in the Marxian theory of value which underpins the whole notion of working class exploitation by the greedy capitalists, or whether they hold that everybody else believes in it, and that these beliefs have to be accommodated. I suspect it is the latter.

I think it is quite clear that Mr Howard himself fully understands that the Marxian notion of working class impoverishment and capitalist class enrichment is absolute nonsense. But it is also clear that he does not want to come out and simply say so. There are a number of examples, familiar to many people, which demonstrate that Marx got it totally wrong, and to which Mr Howard could refer. The examples from the housing industry, which Bob Day has just given us, are familiar to most people. It is not a major political problem.

John Howard was brought up in a Methodist household. So was I. Methodism has vanished, along with six o'clock closing, but the imprint of many sermons still remains, and this text "For the Labourer is worthy of his hire" is one which tells us that Mr Howard ought not to be frightened of Marxian shibboleths.

None of this would matter if the minimum wage constraint on these contracts was an irrelevant bit of decoration to a policy. But a fundamental purpose of labour market reform is to bring an end to the scandal of unemployment, not only amongst unskilled, poorly educated, young people, but also the unemployed of my own generation, those in their fifties, for whom retrenchment or bankruptcy has brought an end to their working life and their self respect.

The Prime Minister has sought to take unemployment off the political agenda with proposals to change the flag and to ditch the monarchy. He has had some success in this venture. Nevertheless the cancer of unemployment continues to eat away at almost every level of society. The most optimistic economic prognoses are forecasting an increase in unemployment figures. The Coalition cannot escape the question in the lead up to the next election "What are you going to do about unemployment?" Indeed John Hewson has been seeking to ward off the Prime Minister's attacks on the constitution, and the flag, by making the point that none of the changes proposed by the Prime Minister will create one new job.

The only effective remedy to unemployment is contractual freedom in the labour market, an end to legal privilege for trade unions, and, as in the United States, dole payments which are limited in duration. It is an interesting corollary for those of us who are deeply concerned at our monetary regime and the theoretical structure behind it, that in a recent mammoth treatise on unemployment by some eminent labour market economists from the London School of Economics and Oxford University, (Layard, Nickell and Jackman), inflation is seen as a crucial determinant of unemployment.

The minimum hourly rate constraint, then, which the Coalition proposes to attach to its voluntary contract system has the lethal property of preventing the employment of those young people who have never had a job, and the re-employment of the middle-aged unemployed. It will also disemploy a number of people who presently have jobs, illegal jobs no doubt, but whom the custodians of industrial law have, for political reasons, left alone.

Some of you will recall that Senator Cook, Minister for Industrial Relations, and persecutor of President Barry Maddern and his colleagues in the Industrial Relations Club, was threatening wool growers around the country, a couple of months ago, with visits from his departmental inspectors to see if award rates and conditions were being paid in the shearing sheds of the land. One Queensland woolgrower was contemplating spending a weekend in jail because his contract of employment, with his shearers, was not in writing.

For some years now Aboriginal groups have been trying to make a go of some cattle properties in the Northern Territory on land purchased or acquired under the Northern Territory Aboriginal Land Rights Act. The Aboriginal employees on these stations have never been paid award wages, because it has been impossible to pay such wages. There has never been a visit from a departmental inspector to these cattle properties, nor the threat of one. John Howard's minimum hourly wage will almost certainly mean that these people will continue to be illegally employed. He will, eventually, have to answer questions why this is so.

There are two issues, then, which have to be clarified on this minimum hourly rate problem. The first is the likelihood, if not the certainty, that it will maintain unemployment. The second is the power of the myth which is apparently forcing John Howard to put at risk the future of the next Coalition government, let alone the well being of hundreds of thousands of Australians.

In January last it was clear from press reports that John Howard was grappling with this problem. He is convinced that Australians will not accept voluntary contracts without a minimum hourly rate, but he understands the threat to the next Coalition government if unemployment does not quickly subside once the labour market reform legislation is passed.

In this context we should not forget that it is unlikely that the Coalition will win control of the Senate, and that the Democrats have committed themselves to blocking the Howard labour market reform legislation. The Coalition has responded by promising a double dissolution and a joint sitting of the both Houses to get the labour market reform Bill passed. This means there will only be one bite of the cherry. The reform package has to produce the goods first time. There will be no second chance.

John Howard's problem is that award rates, as established by the arbitral tribunals, have given rise to the very unemployment, particularly amongst young people, which his reforms must solve, and it is the award rate which it is proposed to use as the minimum hourly rate for voluntary agreements. It is no use stating, as the existing Coalition policy does, (Section 4.17) that the Commonwealth will institute proceedings, in co-operation with the States, to have junior wage rates set in all applicable awards. It took Simon Crean and his trade union colleagues nearly ten years to abolish junior rates in the industries in which his union was involved. To reintroduce them, at a level which will encourage employment, will take a similar time. That is not a solution to youth unemployment today.

A minimum hourly rate will do either one of two things. It will either be so low as to not destroy any job, anywhere in Australia and if it is that low there is no point to it. It is below the market rate for all employment, anywhere. That, however, is not the proposal now in the policy. If, contrariwise, the minimum hourly rate does destroy employment opportunities then the Coalition's prestige as a Government able to solve unemployment will quickly vanish.

The minimum hourly rate which is just low enough so that nobody, anywhere in Australia, is denied employment is a figure, actually a very large number of figures, which no one single person, no arbitral tribunal, can possibly know. It will change from place to place, and from month to month.

The problem with which John Howard is grappling is the problem which defeated the socialist enterprise in the Soviet Union and Eastern Europe. Hayek and von Mises pointed out in the 1930's that the function of prices is to inform people where to invest their time, their talents and their capital. Prices provide, above all else, the information which, like Adam Smith's invisible hand, enables millions of people who cannot know one another, to cooperate in producing the goods and services which provide us with the prosperity we take for granted.

Prices which contain accurate information, which really mean something, cannot be determined by bureaucrats or by tribunals. They can only be determined in a marketplace in which buyers and sellers continuously interact in voluntary exchange. For decades prices in the Soviet Union were determined by bureaucrats, sometimes using Sears and Roebuck catalogues from the United States as a guide. The consequence of this economic planning, as it was called, was bankruptcy on a scale of which we are only just beginning to comprehend.

John Howard would respond by saying that he is only proposing a minimum price, not the price, at which the hire of the labourer is to be agreed. Immediately however, he runs into the problem that this minimum price either puts nobody out of work, in which case it is unnecessary, or it does put someone out of work, in which case it is socially and economically disastrous.

Let me now turn to the text for this brief paper, and the theme of this conference - "For the Labourer is Worthy of His Hire." On the face of it, it sounds like a text which Henry Bournes Higgins could have used to justify the Harvester decision. But it turns out to be no such thing. The key preceding text is (Luke 10:2)

"The harvest truly is great, but the labourers are few: pray ye the Lord of the harvest, that he would send forth labourers into his harvest."

In secular terms we can paraphrase that text by observing that humans are never satisfied. However well supplied with material possessions, with cultural or religious services of whatever kind, we can always think of something else we would like to have, or to do. The harvest truly is great. This is a simple rebuttal to the Keynesian or pseudo Keynesian view that an economy can manifest inadequate "demand". I have never met anybody that has any difficulty spending his income. I have never met anybody who thinks he would find it difficult spending twice his income.

To be able to consume, however, requires that one has either to produce, or to have inherited a sizeable slab of capital. It is through the price mechanism that we are rewarded for our labour, and in spending that reward we enjoy the benefits of what other people have produced.

Karl Marx developed a theory of value which held that the value of an artefact or a service was determined by the quantity of labour, alone, which was required to produce the thing. On that basis he held that capitalist economies would suffer from a continuing crisis of lack of demand, in that the rewards to labour would always be insufficient to allow it to consume all that would be produced. This in turn would force capitalists to drive down the wages paid to labour in a positive feedback type situation of ever growing crisis of surplus production and inadequate demand.

It is this Marxian legacy which John Howard believes makes it necessary to have a minimum hourly rate in the voluntary agreement package. It is absolute garbage. The Marxian theory of value, and the resulting immiseration of the working class was the first piece of Marxian garbage to be thrown in the intellectual dust bin. It is impossible, unless you run a totalitarian society, to force people to become "wage slaves". If you refuse to pay people what they are worth they will find an employer who will. Have you ever heard of a plumber, or a painter, who would work for you for free? If you want a baby sitter or someone to clean the house, both services still completely unregulated as far as I know, you still have to pay the going rate, a market determined rate.

What a labourer, and we are all labourers in this context, is worth is determined by the value of his product, a value determined not by one isolated employer, but by employers competing for the services of employees. If employer A does not think labourer B is worth $50,000 per annum, then employer C may be very glad to hire labourer B at that figure, since his contribution to the employer C's enterprise will be worth perhaps $70,000. Judgments of this kind usually involve subjective evaluations, at least before making commitments. But that does not destroy the validity of the argument. In the end all questions of value are decided on subjective grounds.

In economic terms the rent for a labourer is, or tends towards, the marginal productivity of his or her labour, and the text from St Luke's Gospel is fulfilled.

The great problem for unskilled, inexperienced young people is that their marginal productivity is extremely low. The Federal Government is subsidising the cost of employing these people as far as it can without enraging the trade unions. In doing so it implicitly recognises, as does Laurie Carmichael in the recent Carmichael Report, that they have been priced out of the job market.

It will be administratively difficult, and politically impossible, for anyone to set minimum hourly rates, to apply all over Australia, which will not act as a barrier to someone, somewhere, getting employment. The labourer is always worthy of his hire. The rent for the labourer's services may be low, but what matters for the young, untrained person, who has never had a job, is getting a foot on the first rung of the employment ladder.

A good sermon should never be longer than fifteen minutes. Let me conclude by referring, as all good preachers in conclusion do, to the text for the day. Jesus was sending out his disciples, two by two, to do some advance publicity. He told them that the harvest was great but the labourers few.

He was sending them as lambs among wolves. They were to stay in those houses in which they were welcomed, eating and drinking such things as they were given, for the labourer is worthy of his hire.

These disciples were selling religious services. They were content to work for their keep. Their psychic income was high. They agreed voluntarily and enthusiastically to do want they wanted to do for the rewards they were offered.

Because our society has become much more productive than the Palestine of the beginning of the Christian era, even the most unskilled labourer will be able to earn more than his keep. Through experience on the job he will be able to increase his human capital and command a higher rent in the labour market. He will always be worthy of his hire.