Does Australia need industrial relations deregulation?

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.