Industrial relations reforms: boosting labour productivity?

Parliament house flag post

Industrial relations reforms: boosting labour productivity?

Posted 21/09/2011 by Steve O'Neill


Business leaders are citing impediments caused by the Fair Work legislation as a significant limit on labour productivity:
Mr Argus (former BHP Billiton chairman) ... warn(ed) of a return to "the dark days of the 1970s" if labour market flexibility was not boosted. He said under the Fair Work laws, unions were resisting "management attempts to achieve efficiency"... Bureau of Statistics data shows little change in labour productivity growth under the Fair Work Act when compared to the period under Work Choices, while other measures of productivity have also weakened since 2000.( ‘Labor woeful on economic reform, says Argus’)
The aim of such criticism, at a minimum, would be to widen ‘prohibited content’ in the matters addressed in enterprise bargaining, yet Australia has witnessed two decades of national industrial relations reform to make enterprise bargaining the centrepiece of our industrial relations system. It is thus reasonable to ask what were the IR reforms and have these influenced labour productivity?

Economists define productivity as the ratio of an index of outputs to an index of inputs. Labour productivity is the ratio of (the real value of) output to the input of labour. Labour productivity is defined as output (Y) per worker or per worker-hour (L).

Capital productivity is defined as output (Y) per unit of capital (K). However, capital productivity in Australia has not grown over 40 years (or fallen) and tends to be overlooked in the search for productivity solutions. Multi-factor productivity is a measure that attempts to account for all inputs into the production process. However the current debates focus on labour productivity above other measures. Reasons for this go to:

• labour productivity being easier to measure as it avoids the need to estimate capital inputs and avoids the need to aggregate capital estimates and hours worked
• a rough measure of labour productivity for the entire economy can be obtained by dividing GDP by official estimates of total hours worked in the economy (there are no official estimates of capital inputs for the whole economy), and
• it allows for a comparison of levels of labour productivity (value added per hour worked) between different parts of the economy or between different economies (Report of the inquiry into raising the productivity growth rate in the Australian economy, p.10)

From the 1970s (and before) a centralised wage fixation system operated through awards under the Australian Conciliation and Arbitration Commission (ACAC). There were 305 unions in 1970 with union membership about 50% of the workforce under award preference and effectively closed shops in some industries. State and federal industrial relations systems were distinct. Federally, wage indexation determined wage increases through the late 1970s until the 1982 recession.

In 1987, the ACAC introduced a two tier wage system with the second tier wage payment subject to restructuring and efficiency measures at the enterprise level. In 1988, the Australian Industrial Relations Commission (AIRC) adopted Structural Efficiency Principle for awards leading to career paths and multi-skilling. In 1991, the AIRC adopted enterprise bargaining as the main vehicle for determining employee remuneration. The Industrial Relations Legislation Amendment Act 1992 relaxed rules for making enterprise agreements (with unions) subject to an examination of whether employees’ terms had been reduced. The Industrial Relations Reform Act 1993 introduced: a non union agreement stream, protected industrial action in bargaining disputes (as well as employer lock outs) and a formal ‘No Disadvantage Test’ by the AIRC for approving certified agreements as well as new minimum standards such as national unfair dismissal laws in response to state legislation such as Victoria’s Employee Relations Act 1992.

The Workplace Relations Act 1996 introduced individual employment agreements, Australian Workplace Agreements which came to be regarded as a condition of employment for new starters. It narrowed the scope of national dismissal laws, removed award preference, introduced freedom of association and non-association and restricted union entry to workplaces. Victoria referred its employee relations system to the Commonwealth. Award simplification under the WR Act reduced award ‘allowable matters’ to 20 in 1998.

The Workplace Relations Amendment (Work Choices) Act 2005 expanded federal jurisdiction by its use of the Constitution’s corporations’ power. The Australian Fair Pay and Conditions Standard set certain standards for all employees under the Act. Workplaces with 100 employees or less were excluded from dismissal laws. Private sector state awards were transferred to the federal jurisdiction. The NDT was removed as the basis for workplace agreements meeting award standards, although a Fairness Test was later reintroduced (in 2007). Transmission of business rules had a limited 12 month effect until transferred employees’ pay reverted to the AFPC standard in the absence of a new agreement. Secret ballot provisions were required for protected industrial action. Other forms of industrial action were rendered illegal.

The Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008 terminated the making of new AWAs and triggered award modernisation with broader award terms. The Fair Work Act 2009 increased minimum standards via the National Employment Standards. Low Pay bargaining provisions were introduced a well as good faith bargaining. States referred their remaining private sector IR systems to the Commonwealth (ex WA). Unions were given a right to represent member/s in bargaining. Dismissal laws were widened with greater access. Union membership/workforce fell to 20% (2011: 18%).

Can government initiatives, such as the industrial relations reforms above, influence labour productivity? The first graph below tracks Australia’s labour productivity since 1970 on a chain volume measure and the second by changes to annual labour productivity growth rates.


Click on image to enlarge

Click on image to enlarge
 Since 1970 the period of highest levels of labour productivity growth occurred under the centralised award system under the McMahon and Whitlam Governments.

The periods of sharpest decline in productivity growth occurred under the Fraser Government (1977-1982) also under a centralised award system, and under the Howard Government’s very decentralised wages system (2002-2007). The Hawke Government’s attempt to restore labour productivity growth produced mixed results but was arguably higher at the end of its term than at the beginning.

The Hawke and Keating Governments produced the most sustained increase in labour productivity, while the early period of the Howard Government continued to increase labour productivity albeit at a slower rate, before leading to significant decline. Overall, economists may conclude that industrial relations reform has produced diminishing marginal returns in respect of labour productivity growth. On the other hand, the House of Representatives report on productivity cited earlier, teases out more of the reasons for its decline and strategies for growth.

Steve O’Neill Economics Section and Guy Woods Statistics Section


Thank you for your comment. If it does not require moderation, it will appear shortly.

Add your comment

[Click to expand]

We welcome your comments, or additional information which is relevant to a post. These can be added by clicking on the ‘Add your comment’ option above. Please note that the Parliamentary Library will moderate comments, and reserves the right not to publish comments that are inconsistent with the objectives of FlagPost. This includes spam, profanity and personal abuse, as well as comments that are factually incorrect or politically partisan. We will close comments after three months.




Captcha
Generate a new image
Type characters from the image:

Facebook LinkedIn Twitter Add | Email Print

FlagPost

Flagpost is a blog on current issues of interest to members of the Australian Parliament


Parliamentary Library Logo showing Information Analysis & Advice

Archive

Syndication

Tagcloud

Refugees asylum climate change immigration Australian foreign policy parliament social security elections welfare reform school education welfare policy health financing Australian Defence Force emissions trading indigenous Australians women higher education private health insurance people trafficking illicit drugs gambling health reform federal election 2010 United Nations Employment Asia income management Middle East Medicare Australian Bureau of Statistics statistics sport health forced labour federal budget Afghanistan Industrial Relations Carbon Pricing Mechanism politics dental health United States aid disability child protection environment poker machines Australia in the Asian Century Australian Sports Anti-Doping Agency steroids World Anti-Doping Agency National Disability Insurance Scheme detention aged care 43rd Parliament slavery health system Law Enforcement Australian Federal Police Criminal Law Fair Work Act Australian Public Service governance labour force people smuggling transport debt taxation international relations constitution New Zealand food WADA Australian Crime Commission pharmaceutical benefits scheme public service reform children's health Aviation foreign debt gross debt net debt defence capability parliamentary procedure Senate Senators and Members ALP ASADA Newstart Parenting Payment multiculturalism Youth Allowance sea farers federal state relations accountability Papua New Guinea youth paid parental leave pensions same sex relationships corruption coal seam gas customs planning federal election 2013 Australian Electoral Commission doping OECD crime health risks International Women's Day Gonski Review of Funding for Schooling sex slavery Special Rapporteur Northern Territory Emergency Response social policy welfare ASIO intelligence community terrorist groups Australian Security Intelligence Organisation carbon tax mining High Court Higher Education Loan Program HECS military history electoral reform employer employee renewable energy regional unemployment fishing European Union Federal Court family assistance skilled migration banking United Nations Security Council Australian economy forestry food labelling vocational education and training Drugs UK Parliament welfare systems Indonesia social media children Constitutional reform local government codes of conduct terrorist financing homelessness Parliamentary remuneration money laundering Trafficking in Persons Report energy science social inclusion human rights paternalism Australian Secret Intelligence Service sexual abuse terrorism World Trade Organization Australia public health China housing affordability bulk billing political parties water productivity health policy Governor-General US economy trade unions domestic violence export liquefied natural gas foreign bribery firearms question time speaker superannuation public housing election results by-election expertise public policy climate Intergovernmental Panel on Climate Change leadership voting Department of Agriculture Fisheries and Forestry regulation Pacific Islands reserved seats research and development new psychoactive substances synthetic drugs UNODC carbon markets animal health middle class welfare ADRV Census Indigenous constitutional recognition of local government referendum consumer laws PISA competition policy royal commission US politics violence against women language education baby bonus Leaders of the Opposition citizen engagement policymaking Australia Greens servitude Trafficking Protocol forced marriage Population rural and regional mental health alcohol entitlements ministries Hung Parliament social citizenship maritime Iran transparency ANZUS regional students school chaplains federal budget 2011-12 salary Medicare Locals primary care Building the Education Revolution social services Criminal Code Amendment (Misrepresentation of Age to a Minor) Bill 2013 online grooming sexual assault of minors ACT Assembly national security smoking plain packaging tobacco cigarettes Asia; Japan; international relations Work Health and Safety Migration; asylum seekers; regional processing China; United States; international relations fiscal policy Racial Discrimination Act; social policy; human rights; indigenous Australians Foreign policy Southeast Asia Israel Palestine asylum refugees immigration political finance donations foreign aid disability employment Economics efficiency human rights; Racial Discrimination Act employment law bullying asylum seekers Animal law; food copyright Australian Law Reform Commission industry peace keeping contracts workplace policies same-sex marriage disorderly conduct integrity retirement Parliament House standing orders prime ministers election timetable sitting days First speech defence budget submarines workers financial sector Canada Somalia United Kingdom GDP Tasmania world heritage political engagement leave loading Trade; tariffs; safeguards; Anti-dumping public interest disclosure whistleblowing Productivity Commission limitation period universities Ireland cancer gene patents genetic testing suspension of standing and sessional orders live exports infant mortality honorary citizen railways disciplinary tribunals standard of proof World Health Organisation arts international students skilled graduate visas temporary employment visas apologies roads Italy national heritage NHMRC nutrition anti-dumping Rent Assistance obesity evidence law sacrament of confession US presidential election international days DFAT UN General Assembly deregulation Regulation Impact Statements administrative law small business Breaker Morant regional engagement social determinants of health abortion Members suspension workplace health and safety marine reserves hearing TAFE Victoria astronomy resources sector YMCA youth parliament Korea fuel rebate Australian Greens presidential nomination Racial Discrimination Act political parties preselection solar hot water Financial Action Taskforce Horn of Africa peacekeeping piracy Great Barrier Reef Stronger futures political financing political education Social Inclusion Board early childhood National Quality Framework for Early Childhood Education and Care Murray-Darling Basin sanctions Norway hospitals republic President Barack Obama Presidential visits qantas counselling Korean peninsula Work Choices biosecurity hendra environmental law federalism federation preselection therapeutic goods Therapeutic Goods Administration plebiscites computer games pests suicide nuclear COAG Ministerial Councils floods ADHD stimulant medication advertising electricity extradition standards conscience votes poverty preventative health rural health coastal erosion Parliamentary Budget Office NATO work-life balance

Show all
Show less