Last Wednesday I attended a joint Friedman/HR Nicol Society dinner arranged by the infamous John Humphreys. The guest speakers were Professor Judith Sloan and the former Howard minister Peter Reith. Both made the case for deregulation of the labour market and condemned the current Fair Work system as imposing excessive costs on employers and stifling flexibility. This is clearly a controversial issues and Labor is quick to remind people of workchoices.
Flexibility is one of those hot words when it comes to industrial relations. For many it’s code for employers being flexible with pay and conditions, while workers work harder in less certain jobs. For those who are employed in industries where they have little bargaining power and are working in jobs where little skills is required this is a likely consequence of a more flexible industrial relations system. Trade unions use the fears of such people to defend the arbitration system that gives them significant power.
What is often not mentioned in arguments about industrial relations is the cost of a highly regulated system to those people who are excluded from employment. Setting minimum standards for wage rates sets wages above the market rate, meaning that there are people willing to supply their labour for less than the award rate. Industrial laws actually make it illegal for people to work for less than the award rate. The result of this restriction on individual liberty means for those people who due to a lack of experience, training or ability are not productive enough to justify the award rate are excluded from the labour market.
The Government itself has all about acknowledged this by providing wage subsidies for its employment services to use. The ultimate effect of a wage subsidy is to reduce the cost the employer incurs employing people who lack experience or education. This method of creating flexibility has significant transaction costs to the employer and financial costs to the government. Wage subsidies have to be agreed to and both employer and jobseeker are at the mercy of government policy to determine if they are eligible for the subsidy. Ultimately the employer is getting taxpayer money for employing someone and the worker is getting a wage above market rates.
Another deficiency of the current system is that imposes a set of penalty rates on both employers and employees. Of course these benefits are popular with workers who earn extra money for working weekends, what often doesn’t get reported is the employment opportunities that never occur because employers choice not to open their doors. Rules that impose penalty rates and minimum hours eliminate opportunities for unskilled jobseekers to enter the labour market. While doing dishes for two hours on Sunday afternoon may seems like a “shitty” job to many of us, for others it is an opportunity to enter a new industry, gain some experience and a credible reference for their resume. This can be an important first step for some to enter the labour market. Unfortunately, “fairness” for workers at the bottom of the labour market comes at the expense of those excluded from the labour market. These are the true forgotten people in the industrial relations debate.
Australian Libertarian Society (old site) 
Not if it’s implemented through tax breaks, as I described here, and commented on most recently here (that comment links here).
No. There is only an eligibility problem if the subsidy is targeted (whereas it should be applied across the board), the employer only gets taxpayer money for employing someone if there is a funds flow but not if tax breaks are used, and the worker is not getting a wage above free market rates since the subsidies are Pigovian, i.e. offsetting a (labour) market failure. That is, the going market rates are already distorted to be lower than they should be. Those links cover these matters in passing. The rest of the material addresses engineering out yet other of the problems this article mentions, among other things.
Unions. Working to keep you out of a job.
JSC,
Work Choices was about allocative efficiency. Workers would not receive higher productivity through better practices of their own. Eventually the marginal efficiency of capital would rise, leading to higher levels of reinvested profits – and thus capital accumulation.
It was a short term way to reduce unemployment but a long term strategy to increase the demand for labour and hence wages.
This is of course very difficult to sell politically. I think now it can be simply pointed out that the unemployment rate started with a three back then…
Work Choices of course was onerous, the legislation and regulation complicated things further and unfortunately expanded Federal power contrary to the intent of the constitution.
Christopher- you should take that line to the IPA Review! They’re good with one-liners!
What is the IPA review?
http://ipa.org.au/about/review
You can also buy them at a physical location called a news agent. They come in a portable form with pages that you need to turn yourself- like a real newspaper, but smaller! I prefer the magazine, since I can then leave it in various locations around my workplace, and thus let others discover this pro-freedom forum.
The most important thing about Workchoices was not the change to IR regulations but Howard’s nationalisation of IR. Howard used deregulation of IR merely as a pretext for nationalising it. I recall that when he publicly announced his intention to nationalise IR he justified it by saying that it he needed to do it to prevent Labor from doing it a worse way. What good or “better”way is there for the federal government to usurp state powers? Labor would nationalise IR simply for the sake of increasing the power of the federal government and that is all that nationalising IR did. Howard could do nothing to prevent a future Labor government from “re-regulating” IR, and that is what it has done. The difference is that Labor can regulate industry nation-wide instead of individual state governments deciding the level and kind of regulations themselves. Howard didn’t prevent Labor from imposing it’s IR regulations on the whole country, he made it possible.
All that was necessary to deregulate IR in individual states was for LNP governments to be elected in each state so that they could deregulate IR.
Question: Is John Howard really that stupid? If I worked this out by myself within five minutes of hearing Howard’s announcment, didn’t the LNP people who decided on this policy also think of it?
New South Wales v Commonwealth [2006] HCA 52; 81 ALJR 34; 231 ALR 1 (14 November 2006)
913. The Amending Act is invalid. The reasons in summary why this is so are these.
(i) The Constitution should be construed as a whole and according to the principles of construction that I have stated in these reasons[1226].
(ii) The Amending Act was presented and enacted as a comprehensive integrated measure containing generally interdependent provisions.
(iii) The substance, nature and true character of the Amending Act is of an Act with respect to industrial affairs.
(iv) The power of the Commonwealth with respect to industrial affairs is a power in relation to “conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State” and not otherwise (except for Commonwealth employment and other presently not relevant purposes). As the jurisprudence of this Court shows, that power is a very large one. Much can properly be characterized as preventative of a relevant industrial dispute.
(v) The corporations power has nothing to say about industrial relations or their regulation by the Commonwealth. To the extent, if any, that s 51(xx) might otherwise appear to confer such power, it must be subject to the implied negative restriction imposed by s 51(xxxv).
(vi) The corporations power is concerned with the foreign, trading and financial activities and aspects of corporations, the precise limits of which it is unnecessary to decide in this case. In Australia, history, the founders, until 1993 the legislators who have followed them, and this Court over 100 years, as Kirby J has pointed out[1227], have treated industrial affairs as a separate and complete topic, and s 51(xxxv) as defining the Commonwealth’s total measure of power over them, except in wartime.
(vii) To give the Act the valid operation claimed by the Commonwealth would be to authorize it to trespass upon essential functions of the States. This may not be the decisive factor in the case but it at least serves to reinforce the construction of the Constitution which I prefer, that industrial affairs within the States, whether of corporations or of natural persons, are for the States, and are essential for their constitutional existence.
(viii) The validation of the legislation would constitute an unacceptable distortion of the federal balance intended by the founders, accepted on many occasions as a relevant and vital reality by Justices of this Court, and manifested by those provisions of the Constitution to which I have referred, and its structure.
914. I would make the same orders as Kirby J.
Lawrence (Comment 1. above):
“Not if it’s implemented through tax breaks, as I described here, and commented on most recently here (that comment links here).”
Whether the government pays the employer money or takes less from him in taxes, the effect is the same: The government loses money. There is no difference in result between taking the usual amount of money in taxes from the employer and giving him an amount of money in subsidy, and allowing the employer to keep that amount from his taxes and pay him no subsidy.
Either way, effectively all other tax payers collectively, who pay the usual taxes, are giving their money to the employer who pays lower tax. That is what a subsidy is.
“the worker is not getting a wage above free market rates since the subsidies are Pigovian, i.e. offsetting a (labour) market failure. That is, the going market rates are already distorted to be lower than they should be.”
The author’s point was that the awards dictate that all employees be paid at or above a minimum wage and thereby closes out those who’s skills do not justify this amount. The subsidy don’t offset the market rates for such labour, they give the less skilled employees equal rates to more skilled employees. That is not offsetting the market, it is completely bypassing the market.
“Work Choices of course was onerous, the legislation and regulation complicated things further and unfortunately expanded Federal power contrary to the intent of the constitution.”
Of fortunately, depending on who you are. It wasn’t a mistake. Our politicians are THAT stupid and the mistake would coincidentally have been in the federal government’s favour. Funny how many of the government’s “mistakes” work out that way.
Nuke – But.. but.. it you turn the newspaper over, surely you end up looking at the back of your screen?
: P
Loki3 followed up my earlier comment with:-
No, the effect is not the same; the material I linked to goes into why not. Briefly, the base or gross level of taxes paid by employers goes up at the same time as the tax breaks are applied, so other taxpayers never pay more to cover it – initially, employers pay much the same in aggregate, though depending on the transitional arrangements some employers might pay more and others less. Later on, increased hiring and reduced retrenching lowers all employers’ taxes, but nobody else has to pay more to cover that; it is covered by reduced outgoings on unemployment benefits etc. On top of that, precisely because the wage subsidy is offsetting a market imperfection, it is Pigovian; that is, it is bringing things nearer optimum, so GDP actually goes up (Professor Kim Swales’s modelling for a British variant indicates GDP improves by about half as much as employment, in percentage terms).
He added:-
As the linked material shows, this sort of subsidy via tax breaks does indeed offset market imperfections (the ones involved in funding unemployment benefits from taxes falling elsewhere, or from the costs of having the destitute around if those aren’t provided). And even the wrong sort of wage subsidy goes a little in this direction, contrary to what Loki3 supposes.
Loki is a troll, PML. See the gibberish at 11., which is not only semi literate, but contradicts what it said earlier. It is flip flopping in response to what I said.
Thanks for the heads-up, dotty. Here is the literate version:
“Work Choices of course was onerous, the legislation and regulation complicated things further and unfortunately expanded Federal power contrary to the intent of the constitution.”
Or fortunately, depending on who you are (John Howard). It wasn’t a mistake. Our politicians aren’t THAT stupid. If it were a mistake it would very coincidentally have been in the federal government’s favour. Funny how many of the government’s “mistakes” work out that way.
I wasn’t contradicting you, I was agreeing with you, only taking issue with the use of the word “unfortunately”, which implies that it increasing federal powers may have been an unintended consequence of the Act. It is unfortunate for we the people but not for the people who made and passed the legislation.
You slimy turd loki, you are destroying every thread here.
^ I was actually agreeing with you about expansion of federal powers. Or do you hate it when I agree with you as well?
You are ruining threads here by abusing me just for disagreeing with you. That is all I am doing. That is basically what you are criticising me for: having a different opinion to yourself. That is a totalitarian trait, not an individualist one.
Well, if you’re sincere, try becoming literate.
I am speaking of the older style of newspapers, made from real papyrus! No batteries needed. Still available at ‘news agents’ (you can google that word if you want.)
Wow. People actually used to leave their houses? Who knew?
“Well, if you’re sincere, try becoming literate.”
I’m typing posts to the comments section of a blog, not composing the Gettysburg Address. It is not lack of literacy, it is just haste. People often make spelling errors on discussion forums and naturally this sometimes confuses the intended meaning.
Be thankful I don’t use “texting” code like many true illiterates as well as those who should know better.