Some Thoughts On Australia’s Workplace Relations Framework Inquiry

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.

One area 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.

More likely 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.

I mentioned 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.

Unfair 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.

Anything 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 and regulations.

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.