Industrial relations reform in Australia

by John Q on June 2, 2005

An unexpected outcome of the 2004 elections in Australia was that the Howard (conservative) government somewhat unexpectedly gained control of the Senate, giving it, from July 1, the power to pass legislation without relying on the support of minor parties or independents.

The most significant outcome, so far, has been industrial relations reform. Until now, Australia has experienced much less radical change in industrial relations than other English-speaking countries such as Britain and New Zealand. Not coincidentally, in my view, there has been much less growth in inequality in Australia than in these countries or the US.

Employment relationships are complex, and I can’t claim to be an expert on the details of the Australian system, either as it now exists or as it would operate under the proposed reforms. Having had most of the hard work done for me by the union, and before that by central wage fixation, I’ve tended to neglect the topic, but it’s certainly time for a crash course.

In the mean-time, here’s my broad-brush view. The outcome of bargaining over employment depends on two main factors: the state of the labour market and the balance of bargaining power. Usually, but not always, the state of the labour market is more important, but it’s largely determined by exogenous macroeconomic shocks originating not in the labour market but in the financial sector or the world economy.

The reforms proposed by the Howard government will tilt the balance strongly in favour of employers. The likely outcome is a substantial increase in inequality of incomes, and in day-to-day relationships within the workplace.

The National Tertiary Education Union held a day of protest yesterday, and asked everyone to contribute in whatever way they could. My contribution was to get to work on a paper on the topic. So you can read my very preliminary analysis, for what it’s worth (PDF file). Comments much appreciated.

Ir Reforms Quiggin



jet 06.02.05 at 12:47 pm

I’m not sure I understand your implication that the economic model of English speaking countries is causally related to the English speaking debt. Isn’t it more likely that the economic model performs better than European models, but can not pay for European styled entitlement programs, which are the cause of the huge deficits?


Rob Read 06.02.05 at 3:18 pm

Why not make these rather inneficient (and failure rewarding) entitlements optional?

Just Let people opt out of the Pension, Unemployment and Health schemes and keep their own money.

Collectivist Equality is just a measure of how much the jealous can hold the financially succesful back.


lakelobos 06.02.05 at 6:33 pm

The low number of comments tells the sad story of “labor” in the US (and may be in other places). The “balance of bargaining power” is with the rich and the workers, even university professors, have almost no power to bargain. This inequality is directly translated in the rich getting richer and more powerful and the workers, i.e. us, getting poorer and powerless.

The two comments above mentioned entitlement and pensions, seems the same concern to me, as a danger or a burden. I believe the societies they advocate will be difficult to live in for most.


derrida derider 06.02.05 at 8:49 pm

But surely the balance of bargaining power and the state of the labour market are closely related. A deregulator would say that where the labour market is healthy the workers are in a great position to extract any rents available. Where it is unhealthy, lower labour costs are exactly what is called for to restore it to health. While I personally reckon its a bit more complicated than that, this is an argument that the lefties have really failed to engage with.

And lakelobos’ view that only “the rich” have bargaining power is ridiculous. Harvey Norman stores are rich, lakelobos – but does that mean that they can charge what they like, or that you automatically pay their asking price?


John Quiggin 06.02.05 at 10:03 pm

DD, I don’t think your version of the argument works properly. Consider my dealings with a monopsonist. The monopsonist has the bargaining power, but if the price is (exogenously) reduced enough the quantity demanded will be high, and I will be in a position to demand more. But that doesn’t change the fact that in an unregulated bargain, the monopsonist gets all the rent.

You might want to deny that employers have monopsony power. I think this is generally false in an existing employment relationship (unless the outside labour market is booming) and commonly false in relation to new hires.


Bob McGrew 06.02.05 at 10:54 pm

Doesn’t the whole “Low-income families have experienced almost no income growth since
1970” argument depend on looking at government measures of inflation, which most people estimate overestimates by about 1% per year?


lakelobos 06.03.05 at 4:46 am

DD, I doubt there is much support to the thinking that labor has a lot of bargaining power (US). You have it right that in a refined measurement, one may allocate some bargaining power to labor, though small or even tiny. However, in a 2 short paragraphs, my recommended comment length, a binary allocation of bargaining power, i.e. rich=1, labor=0, is a decent approximation.

What do you mean by “labour market is healthy?” And by the way, bargaining power exists in a context of negotiation of sorts, which implies constraints outside which nothing happens. Therefore, Harvey cannot raise prices at will; labor will simply not buy (i.e. no negotiation).


jet 06.03.05 at 7:16 am

Who says US labor doesn’t have bargaining power in the US? Just look at the UAW which members start at $17/hour and in 5 years are at $23/hour. And this is with full benefits, overtime, and more job security than most. Not too shabby for unskilled labor.

So since Union pay is so great compared to skills offered to the employer, I’m gonna have to go with the commonly accepted theme that as workers become more skilled and better educated, they need unions less and less.


lakelobos 06.03.05 at 4:47 pm

And your conclusion is based on the UAW only? It’s General Motors no Right to Generalize based on a single reading. Also, the number of UAW members is decreasing. In its peak years — 1969, 1973 and 1979 — the UAW had over 1.5 million members. Last year, by the UAW’s count, it had 675,898 members, a number not seen since the 1940s.

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