Slave Labour: A Submission to the Australian Industrial Relations Commission Inquiry into Junior Rates of Pay

Bob Day

Preface

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness....it was the spring of hope, it was the winter of despair....We had everything before us, we had nothing before us."

Charles Dickens, A Tale of Two Cities

The paradoxes in this passage from Dickens capture the predicament of young people entering the labour market in Australia today. They've been born into one of the most affluent eras in human history---with access to better medical care and a longer life span than any previous generation. As well, rapid progress on the medical, scientific and technological fronts will continue to transform their lives. In many respects we can confidently say there's never been a better time to be alive.

But the mechanisms for dealing with such remarkable change have seldom, if ever, been so ill-matched to the task. Crucially, the lack of flexibility in the youth labour market means that appallingly high percentages of young people are excluded from the world of work. The tragically high incidence of youth suicide is one direct result. Another is drug addiction and related crimes which account for more than half the prison population, along with youth alcoholism, homelessness, alienation, poor health, the collapse of family life....the list is all too familiar. And whilst it is commonplace to suggest there are no simple solutions, there is something close to a panacea for these ills---a job.

Foreword

One of the great challenges we face in Australia today is to harness the energy and talent of young Australians.

Unemployment robs hundreds of thousands of young people of the opportunity to gain the confidence that comes when we are valued for the contribution we can make to community life through our work.

In this provocative booklet entitled 'Slave Labour' author Bob Day contends that we have denied young people employment by pricing them out of work. Day asserts that by regulating youth wages at levels that bear no relationship to the economic value of their labour we have created serious barriers to employment.

These views will not find ready acceptance in many quarters. In fact, they will be violently opposed by some. However, if we are serious about finding solutions to youth unemployment there can be no sacred cows. We must assiduously examine every possible barrier and every potential opportunity to put our young people to work.

We simply cannot afford to ignore the talents and aspirations of young Australians and their potential to enrich national life.

Dawn Fraser AO MBE
Sydney, July 1999

Submission

In its "Statement and Outline of Procedure", the Junior Rates Inquiry poses the core question: "Whether it is desirable to replace junior rates with alternatives that do not discriminate on the basis of age". Clearly the alternatives envisaged by the Commission rely on the concept of "competency". It's a notion which appeals to many within the trade union movement and the ALP because it is marginally more defensible on the basis of equity than the present archaic arrangement---although the proposed methodology for calculating such competencies would be totally implausible. The main thrust of this submission however is that neither age nor third party notions of competency ought to have any bearing at all on junior wage rates. My submission is that the only relevant consideration should be the value of the labour itself to the person hiring it.

The time has surely come for the Industrial Relations Commission to institute a self-denying ordinance---to accept that this is an area in which its only constructive role is a negligible one and to confront the tragic consequences of its past involvement. Its regulatory activities are now widely accepted as being one of the most significant barriers to the expansion of job opportunities in the youth labour market.

If all youth employment in Australia today were provided by firms with the resources and staffing policies of BHP in the 1960's, we wouldn't have a problem. Companies of that kind would be able to amortise, over time, the cost of subsidising junior wages that were considerably in excess of the value of the work being done. But, as Commission members know as well as anyone, the bulk of prospective employers of young people are in the trades or small to medium-sized businesses which simply do not have the margins to afford such luxuries.

Under the present arrangements, these prospective employers are precluded from providing gainful employment and on-the-job-training to young people who are desperately looking to get a foot on the employment ladder. Employees who want to sell their services to an employer at a price the employer can afford are likewise legally prevented from doing so. Yet there are perfectly sound reasons why prospective employees might want to reach an arrangement outside an award---a greater degree of independence, a contribution to their own keep, job satisfaction and of course the incentive of future opportunities are among the more common motives.

Australia's 'rear-view mirror' approach to industrial relations is still based on the theory of conflicting interests which is now completely at odds with the realities of the modern workplace. The notion of voluntary acceptance of a wage that is unrelated to an award seems to offend those who see it only as "exploitation". But this view is demeaning to the common sense of those it purports to protect as well as to the decency of most employers. And as far as the small business sector is concerned it is a real ham-fisted intervention in the relationship between the employee and the employer.

The only sensible and intellectually consistent option is for junior wage rates to be based on the value of the work to the person purchasing it and set by agreement between the employers and employees themselves. It is, practically speaking, impossible for third parties, other than perhaps the parents of a junior employee, to understand or to make judgements about what is or is not in the employee's best interests. Those to whom such a prospect is anathema simply have not confronted the fact that as they presently stand nearly all junior wage rates are set at levels which make them uncompetitive in the job market. Nor, would I suggest, have they applied the traditional test of "Cui bono?"---"Who benefits?" and in whose interest are such arrangements? They certainly aren't in the best interests of the young unemployed.

A regulatory system that excludes so many from employment and prevents employers from giving them work must eventually be exposed for the scandal that it is. To those most directly affected by the intransigence of the process it is increasingly plain that it has less to do with concerns about social justice and a lot to do with the highly politicised role of trade unions and the tribunals themselves. When the young jobless realise that it is politics---rather than economic or social considerations that are blocking their access to the world of work, we can expect their response to be a very bitter one.

The falling rate of participation in the union movement among those who have jobs is partly attributable to the perception that unions are more concerned with protecting their own interests than those of their members. The rhetoric of equity in income distribution pales even more quickly for those who have no job and have been priced out of the market thanks to a centrally determined award wage. The young, who are generally well aware of their need to acquire skills if they are to become productive employees, will not thank those who have precluded them from on-the-job-training. Over-regulated wage fixing systems, by contributing to the destruction of jobs, add to the inequity they profess to correct.

As P.P. McGuinness recently observed, in the context of unskilled workers, "It makes sense not to compel employers to pay such a high minimum wage, but instead to preserve living standards thought socially appropriate through the tax and social security system. If for some reason you want employers to pay more, this is best achieved through the tax system".(1)

The same applies to youth wages. The burden of supplementing the value of the labour to the employer so as to achieve the unrelated goal of a minimum wage ought to be met by the community at large. I have no problem with that. The community is after all, like the individual youth, getting considerable benefit from the fact that they are employed. According to a National Youth Affairs Research Scheme Study ("The Price We Pay" 1997) youth unemployment already costs the Australian community more than $2 billion a year. It is just inequitable to expect small business and tradesmen to foot the entire bill and unrealistic to pretend that they can afford to do so and still remain competitive. Yet it is widely acknowledged that small business is the sector which has the greatest potential for generating new jobs. The Prime Minister himself put it thus, "The way to solve youth unemployment is to liberate the small business sector".(2)

It is one of the long-term consequences of the Australian settlement that we have developed a selective blindness about economic fundamentals. I argued this point last year in a proposal to the Standing Committee on Youth Unemployment:

Historically, Australia developed a centralised wage-fixing system as a result of the political consensus which also gave us tariff protection. It's safe to say that without the one we would never have had the other. High tariff walls led to what's been called "the cost-plus mentality". Whatever goods cost to manufacture---including the cost of labour---the manufacturer would simply add his margin to arrive at a price.(3)

But at some point we have to stop deluding ourselves that we can increase the price of goods or services---like labour---without it resulting in a decrease in demand for those goods and services. Price does matter. And "pricing young people out of the job market" is not just employer rhetoric but a harsh reality over which they have no control.

The laws of supply and demand are immutable and they apply as much in the workplace as in any other market. When there are external distortions, it is the weakest who suffer the most. It was once the case that bricklayers employed lads to carry their bricks, as plumbers did so that someone younger could dig the trenches for them. In exchange the lads were taught a trade. Until the cost became prohibitive as a direct result of centralised wage-fixing, this arrangement suited all the parties and was well-understood by all.

Historically, the collapse of that employment-generating system is well documented. In 1951 a first year apprentice's wage was approximately 7.5% of a tradesman's wage and there were virtually no unemployed teenagers. By the mid 1970's the wage rate had doubled to 15% and the term "youth-unemployment" began to have some currency. The wage rate is now 40% and youth unemployment is now regarded as the "single most important social problem of our time".(4)

In the Sexton Report, 70% of respondents, unprompted, characterised the issue in those terms. Approximately 70% of respondents also said they "would support the introduction of a youth wage equivalent to the dole or Austudy in return for full-time apprenticeship employment or training". Among respondents, as an indication of the gravity and familiarity of the issue, "youth unemployment is a problem which has directly affected 4 out of every 10 households having 16-24 year old family members in the last 5 years."

Among the survey target group---people living in the northern and north-eastern suburbs of Adelaide, acquaintance with the realities of our Proportional Rate System was more than merely theoretical. Respondents were well aware that a scheme which locks adult rates and junior rates together is incapable of adapting to contemporary conditions. In the 1970's for example an inexperienced school-leaver or job seeker was typically only 16 years of age. Today that same inexperienced person is more likely to be 18 years old and the relevant rate is much higher than the rate for a 16 year old. It is absurd.

Another anomaly inherent in centralised wage-fixing systems is the preoccupation with ascertaining what constitutes a "living wage"---a rhetorical construct which ought to be recognised as such. Variations in the cost of living across Australia make it virtually impossible to determine what an appropriate living wage might be. A young person living on a farm in the mid-north of South Australia clearly has a completely different set of circumstances to deal with---and thus different criteria in deciding on what constitutes an adequate income---compared with young people living on their own in the inner-western suburbs of Sydney. I have no difficulty at all with the proposition that people in different situations need differing amounts of money to live. But that has nothing intrinsically to do with the employer-employee arrangement. Cost of living adjustments ought to be made through the welfare system---not through an award system.

It is very clear to most of the people who are directly involved that the intangible benefits an employer confers by taking on a young employee are as significant---and probably more profound in their consequences, than the wage transaction itself. Anyone who doubts this greatly underestimates the capacity of young people to understand where their own best interests lie. They can see the benefits of starting on a low wage to learn a trade and there is increasing evidence of their wholly justified resentment of paternalistic state interference which prevents them receiving those benefits.

From a young person's perspective, there must be something especially galling and hypocritical about society's double-standards regarding employment. On the one hand we praise young people who undertake volunteer work. On the other we hold in high regard those who have found employment. Yet woe betide anyone who offers or accepts any arrangement in between. It is a 'no-go' area---although it is self-evidently a fertile field for mutually acceptable and agreeable arrangements between the parties.

It is, I think, inconceivable that the present system with all its inflexibilities will be allowed to continue indefinitely to exclude so many of our young from the world of work. Not even the most relentless demonization of the motives of small business employers could achieve that end. In the meantime I feel compelled to liken the struggle for the liberalisation of the existing wage regime to the campaign against slavery and to invoke Ernest Howe's description of it as "a bitter conflict with contemporary sentiment and interests of gigantic power".(5) Liberty. Freedom. The long struggle to break the shackles of workplace regulation goes on.

Endnotes

1. Sydney Morning Herald "So, Back to the Quack Remedies for Jobs", page 15, 29 October 1998.

2. The 7.30 Report, 28 February 1997.

3. "Checkpoint Charlie", a submission to the House of Representatives Standing Committee on Youth Unemployment, 1997.

4. Sexton Report, 1997.

5. Howe, E., The Clapham Sect and the Growth of Freedom.