This year the Productivity Commission, on request from the Commonwealth Government, will undertake an inquiry into Australia’s workplace relations framework. Australia’s industrial relations system has already undergone a fair bit of “reform” in recent years – WorkChoices in 2005, the Fair Work Act in 2009, not to mention the changes that occurred in the 1980s and ‘90s. Some of these changes could be argued to have been ideologically motivated, and I suspect some of the next set of changes will seem to be ideologically motivated as well. Nevertheless, I am somewhat interested in the idea of economists taking a good long look at Australia’s WR framework, particularly in areas that have not been much exposed to that sort of thinking. Keeping in mind where I am coming from, the questions the PC has asked in its recently released Issues Papers look to me to be for the most part the right ones, and generally cover at least to some extent the many sides of workplace relations debates.
where I will be particularly interested in what the PC concludes is the provision of a safety net. The PC has indicated that they are
going to examine where the balance should lie between wage regulation and the
tax and the transfer system in addressing concerns about income distribution
(Issues Paper 2, p.7). I think it unlikely that the PC will recommend
abolishing minimum wages completely, but from the outside I think there is not
an insignificant chance that they may recommend some combination of a (possibly
lower) minimum wage, and an in-work benefit such as an earned income tax
credit. One of the arguments for relying on an earned income tax credit as
opposed to minimum wages to help address income inequality is that they impose
less of a cost on employers, hence improving employment outcomes. Another
argument is that they target low-income households more effectively, whereas
some minimum wage workers are from high-income households, such as secondary
income earners. Like most things in workplace relations though, the evidence
for this is very much contested. One could also say that, historically, a
minimum wage is as much about getting a ‘fair’ income from working as it is a
mechanism for addressing inequality.
to be subject to greater scrutiny I think are penalty rates and junior rates of
pay. The PC cites an argument (Issues Paper 2, p. 14) that higher penalty rates
of pay for weekends are inappropriate for some sectors where Australia has
shifted towards a ‘24/7’ timetable. Again, abolishing penalty rates for certain
sectors seems to me a relatively unlikely recommendation, but the PC may
recommend revisiting some of the magnitudes of the rates. Ditto with junior
rates – that is the wage rates paid to juniors, which are less than adult
minimum wages – these could be re-assessed depending upon any findings that the
PC has regarding the relative productivity of adult and junior employees.
in a previous post that it would not surprise me if the
inquiry recommended dropping individual flexibility arrangements. These are meant to (at least in theory) allow
employers and employees to vary the collective working conditions of an
employer’s workforce for an employee’s individual circumstances. However, the
evidence shows that they are not widely used, with employers preferring to use informal
documents to grant an employee flexible working arrangements.
dismissals could be another interesting area. I may well be wrong, but I am not
sure that the economic effects of unfair dismissal arrangements in Australia have
ever been analysed in detail. The PC has asked submissions to address what the
effects of these arrangements are on firm costs, productivity, recruitment
processes, employment, and employment structures (Issues Paper 4, p. 3). Workplace relations
participants have a lot of assumptions about the effects of unfair dismissals –
it will be interesting to see which ones hold up to close scrutiny.
else? Oh yes there will be the usual PC aim of reducing ‘red tape’. In fairness
though there is a lot of complexity in the workplace relations system, and it
is probably one of those areas that could do with a bit less ‘fat’ in its laws
The PC’s draft report is due out mid-year, with
the final report to government due on 30 November. Depending on what arises out
of those I may have some more to say on the inquiry then.