IR changes no bargain for workers or business

Employment and Workplace Relations Minister Tony Burke. Picture: Getty Images

I’m not quite sure when bills of parliament were first given advertising-style jingles but Employment and Workplace Relations Minister Tony Burke is clearly a fan. His nearly 250 pages of legislative amendments have the tagline Secure Jobs, Better Pay.

The fact the changes are likely to lead to fewer secure jobs and falling real wages probably doesn’t bother him. His main aim is to pay off the trade unions for all the support, financial and in kind, they provide to Labor.

Either he really doesn’t understand how labour markets work or he is being incredibly badly advised. But, either way, the net effect of the changes being proposed is a return to pre-Hawke-Keating regulation of industrial relations. Those were times when the highly centralised system relied heavily on third-party intervention and led to sluggish real wage growth and poor productivity in the face of a high incidence of strike activity.

Ultimately, there were no winners and Australia’s international ranking in terms of per capita income slipped year after year until the Hawke government embarked on wide-ranging economic reform.

Before I outline the key features of Labor’s immediate proposals to change industrial relations law, it is worth outlining some key facts that are central to any analysis.

On the point of the rising insecurity of jobs, it has been demonstrated again and again that this is essentially a myth.

The proportion of the workforce that is in casual jobs has been steady for more than two decades; the gig economy is small and many participants have other jobs; and average job tenure has actually risen over the past decade or so. Burke is chasing down a problem that doesn’t exist, certainly outside the context of an economic downturn.

A second important consideration is whether multi-employer bargaining, a central feature of the legislative amendments, will actually lead to higher wage growth compared with other institutional arrangements. Analysis undertaken by Mark Wooden of the University of Melbourne is very helpful in this regard.

Bearing in mind that slow wage growth has been a feature of virtually all developed economies during the past decade, countries with the most decentralised, enterprise-focused bargaining frameworks have experienced the highest wage growth, including the US. Those countries with multi-employer bargaining, including many European countries, have experienced much lower wage growth. For those in between – Australia is in this category, according to the OECD, because of our comprehensive award system – have had slightly higher wage growth than those with multi-employer bargaining arrangements.

There is a common view that Australia’s bargaining system is broken, in part because of the rigid interpretation of the better-off-overall test by the Fair Work Commission, and this needs to be fixed. Indeed, the Morrison government made an attempt to introduce several improvements, some of which had similarities to the current legislative amendments, but Labor voted them down when in opposition.

It is the case that enterprise agreements have fallen out of favour with employers. It is estimated that only 15 per cent of all employees are covered by agreements. But here’s the thing: employers may have turned their back on negotiating new agreements – too costly, too complex, too uncertain – but they have been able to introduce individual arrangements or use basic award conditions plus individual arrangements. Indeed, the most common form of pay setting covering employees is individual arrangements.

It’s obvious why trade unions are keen to have legislation that kickstarts enterprise bargaining because it deals them back into the game. At less than 10 per cent of the private sector workforce, unions are facing an existential crisis and require legislative props to reinvigorate their role in representing workers.

What is therefore required is a range of elements of compulsion to facilitate a revival of trade unionism. One glaring example is the requirement that a union sign off before any agreement is put to workers for their approval – whether or not any of them are union members. The amendments also provide for strong third-party intervention via the FWC. This is needed because the unions don’t have the resources to embark on a major uplift in enterprise bargaining without the backdrop of arbitration.

What is harder to understand is the previous support of business – or big business at least – for measures to kickstart enterprise bargaining.

There seems to be a naive view that the halcyon days of the early phases of enterprise bargaining could be recaptured. These were days when there were genuine productivity trade-offs and employers could make serious savings on wage costs by altering penalty rates and the like. By the same token, the support of industry associations is easy to understand – they are always beneficiaries of arcane industrial relations regulations that can be navigated only by specialists.

On the point of multi-employer bargaining, bear in mind there are already provisions in the Fair Work Act that permit this – in respect of workers in low-paid industries and for businesses with a common interest but are not in competition with each other. The most common example of the latter is franchised businesses within the same group where it doesn’t make sense for each business to bargain with the workers.

In its place, Burke is proposing a vast expansion of the scope for multi-employer bargaining for businesses deemed to have a common interest, be it industry, geographic location or other factor. Of course, the unanswered questions are who deems which businesses have a common interest, and can businesses be forced to be part of multi-employer bargaining against their wishes. The short answer is that unions and/or the FWC will decide which businesses have a common interest and that employers will have little effective choice about being part of multi-employer bargaining and covered by the final agreement.

Not only is this serious back-to-the-future stuff, it is also profoundly anti-competitive. Bus­inesses with deemed common interests won’t be able to compete in terms of the wages and conditions offered to their workers because these will be stipulated in agreements with legal effect. It is ironic that Competi­tion, Charities and Treasury Assistant Minister Andrew Leigh is constantly banging on about anti-competitive arrangements in product markets but presumably is perfectly happy to see competition stifled in the labour market.

The ultimate irony is that Australia has a comprehensive award system that provides a safety net for all employees, a fact completely ignored by the federal government. The award system is the obvious way to improve the pay and conditions of workers in low-paid care industries, the cost of which will be picked up by taxpayers in any case. A recent example is the increase granted to award rates of pay for aged-care workers. Bargaining really makes little sense in this space apart from facilitating the push to unionise workers.

It’s not uncommon for employers to exaggerate the potential impact of changes they don’t like, but in this case Burke’s dog’s breakfast of amendments is so bad, they are on point this time.