Implications of Work Choices for the labor market and the broader economy
The Howard govt has given special emphasis to labor market reform as a policy solution to reducing structural unemployment and dealing with Australia's upcoming labor shortage. Beginning with the 1996 Workplace Relations Act through enterprise level wage bargaining and wage increases in line with economic circumstances and productivity improvements, these reforms have been significantly continued with the 2006 Workplace Relations (Work Choices) Amendment Act These extensive reforms introduced a single national industrial relations system which substantially modified unfair dismissal legislation, allowed minimum wages to be more flexible and removed a number of structural and institutional impediments to the developments of an efficient labor market.
It was recognized that a more flexible system of minimum wages may initially reduce labor productivity as more low productivity workers are encourages into the workforce. In the longer term, this more flexible labor market will promote productivity by encouraging companies to innovate and improve their training programs etc.
International competitiveness:
OZ industries operate in a highly competitive global economy. If the industrial relations system produces rising real labor costs, it will make Oz industries less competitive on global markets and will affect our economic performance. The decentralization of wage determination has contributed to higher productivity growth and the cost of labor in Australia has become more competitive as a result.
Income Inequality:
the deregulated industrial relations system is increasing the degree of wage dispersion - that is, widening the gap between income levels. Workers with greater skills and who belong to stronger unions tend to receive larger wage increases under enterprise agreements, while those with less skills and in weaker position receive the smaller safety net wage adjustments.
Govt argument:
OZ should implement further changes to the industrial relations system because previous reforms have been successful and so making further changes will also be successful. The govt also claims that although it isn't broken, the industrial relations system is far to complex for the average Australian and so needs to be overhauled to encourage maximum procedural simplicity. As PM Howard said in an address to the Sydney Institute, July 11 2005 “We will forge this era only by unleashing a new burst of productivity growth that, in turn, will benefit all society.”
Arguments against:
Economic commentators like Tim Colebatch argue that Work Choices will put the current system at risk, especially because the changes will shift the bargaining power from employees to employers.
System may reflect bargaining power rather than price signals.
No mechanism to prevent the occurrence of wage-push inflation. When growth is strong and the labor force is close to full employment, workers may demand wage rises, leading to inflationary pressures and spirals
The 2006 Work Choices changes are significant in that they are probably the most radical changes proposed since PM Stanley attempted a national takeover of state industrial powers in the late 1920s. With the changes coming into effect in 2006 but their full impact only emerging in years to come, the debate over industrial relations will continue for a long time yet.
Training is more important - giving workers higher skills base
