Secure Jobs, Better Pay? Not from this flawed IR bill
Not only is there a lack of clarity in some of the provisions that will result in high levels of uncertainty, there is also the risk that businesses and workers will be badly affected. At best, businesses will be hit with substantial bills from specialist lawyers and consultants. The amended act will discourage productivity improvements and deter investment.
Steep costs for taxpayers are also likely in the context of ongoing budget deficits and rising government debt as a result of multi-employer bargaining for low-paid workers in feminised industries such as aged care, childcare and disability services.
But consider first the definition of a small business. Notwithstanding the fact there are multiple definitions within government, the Fair Work Act defines a small business as one with 15 or fewer workers. That’s heads, not effective full-time workers. A relatively small cafe or service station could easily have more than 15 workers. What if a proprietor operates three small but separate outlets, each with six workers on the books? Would this mean that business is not considered small?
Increasing the number from 15 to 20, a concession made by Workplace Relations Minister Tony Burke, will make little difference as it doesn’t sort out the problems outlined above. Permitting businesses with fewer than 50 workers to argue their case to be excluded from multi-employer agreements looks like an expensive, bureaucratic ruse.
Hapless Small Business Minister Julie Collins would have us believe more than two million, or 90 per cent, of businesses would be exempt from the provisions. What she fails to understand is most of these businesses don’t employ anyone apart from their owners and more than 60 per cent or about eight million employed people work for larger businesses.
In addition, what happens in large and medium-sized businesses affects small businesses. Small firms do business with larger ones as suppliers, or buyers, or both. They have an interest in the outcomes for larger businesses, too.
The principal flaw in Labor’s amendments is not the definition of small business but the incoherence of multi-employer bargaining pasted on to a system based on national employment standards, modern awards and enterprise-level bargaining. It should not be overlooked that Object (f) of the Fair Work Act is “achieving productivity and fairness through an emphasis on enterprise-level collective bargaining underpinned by simple good-faith bargaining obligations and clear rules governing industrial action”.
What is often not understood is that for those employers who are not bound by enterprise agreements or have given them up, there is nothing preventing them from paying some or all of their workers more than the pay stipulated in the relevant awards and/or boosting conditions. In fact, the most common method of setting pay is individual arrangements; it’s not awards or enterprise agreements.
While the government claims its main aim is to “get wages moving”, it’s clear wages are starting to move. The latest figures on the Wage Price Index point to overall annual wage growth of more than 3 per cent, with private sector wage growth well ahead of wage growth in the public sector. (This latter feature is the result of earlier enterprise agreements locking in modest pay rises.) Other data sources point to even stronger wage growth as workers enjoy rapid promotion and other perquisites. A tight labour market is the surest way to lifting wages.
Where award rates of pay are close to market rates, there has always been less incentive for employers to bargain with their employees and/or representatives. This is because there is not much scope to increase wages to compensate workers for productivity gains that could be achieved. Most of the services industry fits into this category, as does retail and fast food.
By contrast, there are some other sectors where award rates of pay are fractions of the going rates. It is in these sectors, mainly highly unionised, where enterprise bargaining has found its natural home, even though the ability to secure productivity concessions in recent years has become difficult as the unions have dug in their heels. Some companies have also required the assurance of prohibited industrial action during the course of enterprise agreements in order to secure finance.
This background partly explains why enterprise bargaining under Labor’s Fair Work Act has been only partially successful. It was never really suited for companies for which the award rates of pay are close to market-related pay. Note here that award wages are adjusted annually through the national minimum wage review, with the latest increase between 4.6 and 5.2 per cent.
Add in the complexity of the bizarre interpretation of the better off overall test and the pedantic interpretation that members of the Fair Work Commission have placed on the required bargaining steps and agreement-making procedures and it was hardly surprising that enterprise agreements fell out of favour.
The preferred solution is to fix the rules governing enterprise bargaining rather than jumping to an unjustified and untested shift to widely available multi-employer bargaining. The case for an ill-defined “single interest” bargaining stream has never been made – apart from it being something demanded by the unions.
Not only is the shift potentially inflationary as all firms covered would lift prices simultaneously, it is also unlikely to lift productivity as workplace variations can never be covered by such agreements. Sector-wide strikes also would be highly damaging. There is no doubt that the Reserve Bank would take a keen interest in such developments when considering lifting the cash rate.
It was always a forlorn hope that Pocock would realise the bill shouldn’t be rushed through parliament this year.
The cliches of the government were always likely to carry the argument over careful analysis of the arcane features of our IR system and the damaging impact of the proposed changes.
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Tweaking the definition of small business will do little to fix the inherent problems of Labor’s industrial relations amendments, Secure Jobs, Better Pay. This is the key message for independent senator David Pocock as he agrees to pass the government’s complex and poorly drafted bill.