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Why The Labour Market Should Be Deregulated: Attachments

Des Moore

Attachment A: Some Background Comparisons

Growth in Living Standards and Levels

Since the establishment of the conciliation and arbitration system, Australian living standards have slipped from being the highest in the world to the middle of the pack. Growth per head has been slower even than in most Western European countries.

Productivity and Employment Growth and Levels

Although improving in very recent years, Australia's growth in productivity has been lower than the OECD average and than most Asian 'tigers'. Our productivity levels are low by OECD and US standards, and some Asian countries have passed them.

Some countries with high productivity levels also have high employment levels; others do not. There is no evidence to suggest that increasing productivity leads to increases in unemployment: if anything, the opposite.

Although our employment to working-age population ratio is now higher than for most of the 1950s and 1960s, Australia has performed poorly in employment as well as productivity relative to other comparable countries.

Unemployment

Estimates of Australia's structural unemployment rate have increased since the 1980s and the OECD's latest estimate of 7.5 per cent puts it above the OECD average, which is about the same as in the 1980s. Even at 7.5 per cent there would be an implication of reduced labour market flexibility.

In countries with similar economic frameworks, deregulated labour markets seem to have lower unemployment rates and to be more successful in reducing such rates.

OECD and other research also points to increased 'generosity' of unemployment and other social security benefits as a major factor in the increase in structural unemployment rates.

Differences in Labour Market Regulation

Analysts of wage bargaining systems differ as to the effects on countries' economic and labour market performances of centralised versus decentralised labour markets and regulated versus deregulated labour markets. However, deregulated markets generally score better, ranging from very slightly to considerably. Moreover, a major explanator of economic performance differences in general is being identified as differences between countries in their institutions and policies.

Job Security

OECD and Australian data show no reduction in measured job security. In fact, Australian data suggest an increase as partial deregulation has proceeded. Even so, perceived job security has fallen in Australia and it is less than in some deregulated labour markets

Minimum Wages

The comprehensive OECD Jobs Study concluded that high minimum wages seriously reduce employment prospects, particularly for young people and for low-productivity workers in regions.

Not all OECD countries have a statutory or national minimum wage. Some rely on social security systems instead.

Australia's minimum wage of about 50 per cent of average earnings is relatively high, particularly compared with the US and Canada.

Quality of Workforces

Adult literacy comparisons (which are a key indicator of earning capacity) suggest that Australia is less worse-off in terms of literacy skills of the low-skilled than most comparable overseas countries.

Earnings Inequality

Since the late 1970s, earnings dispersion has tended to widen in all OECD countries, including Australia. The absolute and relative increase in demand for skilled workers appears to have been important.

The widening has been greatest in the US and the UK. It has stopped or moderated in many countries in the 1990s, including Australia (but not in the US and the UK).

Although earnings in the Australian labour market are less dispersed than those in North American countries, they are more dispersed than in some European countries. Also, Australia's minimum wage has been falling in real terms since the mid-1970s.

Earnings Mobility

OECD data suggest that about half of persons in low-income groups move up the income scale within five years. US research also suggests considerable mobility. However, substantial proportions remain stuck in low-paid employment.

The US and a few other OECD countries supplement incomes of low-paid workers through their tax systems.

Industrial Disputes

Australia has had a relatively high level of industrial disputation. Disputation levels have declined since the mid-1970s, as they have elsewhere. But they have stayed above the OECD average.

Trade Unions

Although trade-union density has fallen in Australia to slightly below the OECD average, our trade union 'coverage' rate was about average (a high 80 per cent in 1994).

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Attachment B: Allowable matters to be included in awards under the Workplace Relations Act 1996

1. Classifications of employees and skill based career paths;
2. Ordinary time hours of work and the times within which they are performed, rest breaks, notice periods and variation to working hours;
3. Rates of pay generally (such as hourly rates and annual salaries), rates of pay for juniors, trainees or apprentices, and rates of pay for employees under the supported wage system;
4. Piece rates, tallies and bonuses;
5. Annual leave and leave loadings;
6. Long service leave;
7. Personal/carer's leave, including sick leave, family leave, bereavement leave, compassionate leave, cultural and other like forms of leave;
8. Parental leave, including maternity and adoption leave;
9. Public holidays;
10. Allowances;
11. Loadings for overtime or for casual or shift work;
12. Penalty rates;
13. Redundancy pay;
14. Notice of termination;
15. Stand down provisions;
16. Dispute settlement procedures;
17. Jury duty;
18. Type of employment, such as full time employment, casual employment, regular part time employment and shift work;
19. Superannuation;
20. Pay and conditions for outworkers, but only to the extent necessary to ensure that their overall pay and condition of employment are fair and reasonable in comparison with the pay and conditions of employment specified in a relevant award or awards for employees who perform the same kind of work at an employer's business or commercial premises.

Note that legislation is before Parliament to remove 19.

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Table 1: Comparative Levels of Labour Productivity and Employment (indices)

Notes:

(a) GDP per hour worked (US = 100). Source: A. Maddison, Monitoring The World Economy 1820-1992, Table 2-7(a),OECD Development Centre Studies, OECD, Paris, 1995.

(b) Employment to working age population (Denmark = 100). Source: OECD, Employment Outlook, Paris, July 1996 & July 1997.

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Chart 1: Minimum Real Rates of Pay (1989/90 = 100)

Note: Minimum real rates of pay up to 1981/82; thereafter award rates of pay deflated by the CPI.

Sources: For 1949/50-1981/82: Reserve Bank of Australia, Australian Economic Statistics 1949-50 to 1994-95, Table 4.17, June 1996 (Occasional Paper No. 8). For 1982/83-1996/97, ABS, Award Rates of Pay Indices, Australia (Cat. No. 6312.0); it is assumed that minimum wages moved in line with award rates in this period.

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Chart 2: Employment as a Share of Working-Age Population

Note: Employment rates pre-1966 are for total employment as a proportion of population aged 15-64 (the working-age population). Rates from 1966 on are for employment of 15-64 year olds as a proportion of the population aged 15-64. The use of total employment pre-1966 has the effect of raising the employment rate, probably by 1-1.5 per centage points.

Sources: 1949-64: population data: Reserve Bank Australia, Australian Economic Statistics 1949-50 to 1994-95, Table 4.2, June 1996 (Occasional Paper No. 8). Data for June of each year. Based on cited sources ABS Cat. Nos 3201 (annual) and 3101 (quarterly). Employment data: 1949-64 annual averages, Reserve Bank of Australia, op. cit., Table 4.3, based on cited source M. W. Butlin, A Preliminary Annual Database 1900-01 to 1973-74, Reserve Bank of Australia, Sydney (Research Discussion paper 7701). 1966-97: ratios age-standardised by ABS using base year 1978. Data for August of each year. Because of possible distortions to August employment figures for 1996 and 1997, the chart also shows April figures for each year 1991-97.

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Chart 3a: Industrial Disputes in Selected Countries, 1979-97,
Working Days Lost Per 1000 Employees

Chart 3b: Industrial Disputes in Selected Countries, 1988-96,
Working Days Lost Per 1000 Employees

Sources: International Labour Office, Geneva; Statistical Office of the European Communities, Luxembourg.

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