Labour market reform - some simple solutions

It's time to inject reality into the labour market reform debate. With the Treasurer weighing into the debate by calling for more individual workplace agreements (called AWAs) I have to tell him that unless the government changes the legislation to substantially reflect marketplace realities then his call will be just be a lot of hot air. And it's not just him. The current debate being sponsored by The Australian about this issue seems to be dominated by people who either have never actually ever employed people, had significant people management experience, or ever worked as an employee under the myriad of "blue-collar" awards.

Accordingly when we hear impassioned pleas to amalgamate the six separate State and Federal industrial relations system into one you can only wonder which shower these people came down in. All of these IR systems are almost equally dysfunctional because their core assumptions are at odds with the marketplace. Not just a little different, but diametrically opposed. Unless these core issues are addressed an amalgamation or federal take over simply produces just one big dysfunctional system.

First, in the real world of small - or more appropriately defined “privately owned” - businesses, employers and employees have a common vested interest in the success of the business. They are not opposed in practice.

Second, workers primarily want money in return for their labours. Sure they will take the sick pay or the redundancy entitlement if it’s on offer. But if you actually give them the choice between the benefit and a cash value, they’ll take the money every time. Employers prefer that as well, because it gives them some certainty.

Third, most workers and employers want continuity of their workplace arrangements. We have major skill shortages in this country and not just in the traditional trades. Recruiting and training new people costs employers a great deal. Workers have ongoing needs like mortgages, families to feed and educate and living to do. Their interests are mutual in this respect.

Fourth, no employer or employee actually believes that people shouldn't work at nighttimes or on weekends if that's what the job takes. And no one believes that anyone shouldn't work longer than 7.6 hours in a day or 38 hours in a week if the work is available and that's what they want to do.

And finally all employers and employees know a job only exists if it is economically viable. Every employee knows that if the boss pays more to the worker than the worker generates, then that job won't last too long. Workers aren’t silly.

It's no surprise then that somewhere between 25 and 40 per cent of the non-government employees are "permanent casuals". Factor in the number of independent contractors and you then have over half the workforce being paid “just money” for what they do, working at times that suit themselves and their employers or principals. That often means at night or on weekends. The term "permanent" in the employment description is relevant because in no sense are these people "casual" employees employed by the day for the day. They all have relatively predictable and regular hours, although rarely are they 7.6 hours each day from Monday to Friday.

Recently published research (pdf file 510KB) done by Professor Mark Wooden of University of Melbourne in the ongoing HILDA surveys shows that most are happy in these arrangements.

Now let us look at our six IR systems in relation to these above realities.

Of all the Commissioners who run them, with the exception of a few former solicitors, not one has ever owned a business which ever employed anybody. Less than 5 per cent of them have ever had proper management experience. Would it also even be 5 per cent that have ever been employed "on the tools" under Awards and have had first-hand experience of the conditions that they now preside ever? However nice, caring or competent they may be, almost none of them have had any first hand experience of workplace realities.

The primary assumption of all these Industrial Commissions is that employers and employees interests are fundamentally opposed and they are inherently in dispute or disagreement over working conditions. They mistakenly believe that is because employers are powerful and are seeking to pay workers as little as possible because they are weak. It’s simply not true.

The next assumption is that workers are incapable of exercising choice in the workplace conditions and instead of just receiving cash for their work they must have part of their remuneration as preset entitlements, such as sickness, working-too-long or boss-going-broke insurance. (Otherwise known as sick pay, long service leave and redundancy.)

While the commissions agree with the marketplace, that continuity of employment is important, they got the penalty on the employer for providing irregular and unpredictable work - "the casual loading" part - right. However they got the goal part horribly wrong. They mandated a continuity mechanism of strictly regulated permanent full-time employment with inflexible guaranteed minimum hours that in nearly all privately owned workplaces is uneconomic for employers.

They are still trying to socially engineer our society by restricting when work can be done and how long any person can work in a week. For instance in 1948 the concept of penalising employers who tried to employ people outside the hours of 9 to 5, Monday to Friday, was introduced to give teeth to the concept of “the 40 hour week” as it was then. There was no intent to reward employees for weekend work. The goal was to simply prevent employees working at all at times deemed inappropriate. Nearly 50 years later, every award still has these work prevention mechanisms, which are totally at odds with today's society and its needs. No one considers it inappropriate for anyone to work at weekends in this day and age.

And finally there isn't one Commissioner or fellow traveller who doesn't actually believe that when they raise the minimum wages workers simply get that higher wage and it does not have any economic consequences. The real worry though is that they all seem to believe that if it weren’t for them, the workers would never get a pay rise or have a job.

So you see unless we do something to influence these core assumptions, amalgamating the six systems does nothing more than give us some economy of dysfunctionality.

Obviously the most sensible thing to do is to scrap the whole system if for no other reasons than it simply doesn't work and can’t be made to work without changing every one of its primary assumptions and half the workforce ignores it anyway. The rest use the system, dysfunctional as it is, to change the rules using certified agreements so some sort of economic work can be carried out. In that respect almost no one actually works to it.

However a major change, like abolishing our present system, would involve our politicians taking on those with a very powerful vested interest and who have no qualms about lying about how important it is to protect workers from evil bosses.

Instead, the government could most usefully legislate four core principles, which will allow the marketplace to come up with the practical solutions. These principles are all politically easy to do.

1. No workplace agreement or award that governs workplace conditions can mandate either directly or indirectly when workers can or can't work or how long they can work. This doesn’t mean that agreements or awards can’t have “reward” rates where it is agreed to pay someone more at a particular time. Some awards and many agreements do that now but it should be a function of the market and the difficulty in getting people to work certain times, for example the midnight to dawn shifts. If an employer has a job to do at the weekend and an employee is prepared to work for the same rate that they would get Monday to Friday, then the employer is not penalised for letting them work. As it is now, the higher pay under most awards at weekends is not so much a reward for the employee but a penalty for the employer, which is designed to prevent them employing people. It’s time for a change.
2. Give workers choice. All matters relating to the employment conditions are to be negotiable between the employer and employee. This will mean employees can negotiate cash values for all matters relating to their employment. It could even extend to such things as "unfair dismissal". Why not? Everyone acknowledges that unfair dismissal laws pose a major cost to employers for little benefit to most workers. What worker wouldn’t jump at the chance to trade that “right to claim for unfair dismissal" for more money each week?
3. The industrial relations commission is not to be involved in across-the-board pay increase matters, if for no other reason than centralised price-fixing simply doesn't work, however well-intentioned the price fixers are.
4. Remove all monopoly representation rights for unions, and while we are at it, remove their tax-free status as well. What public purpose is served by unions having a monopoly and getting out of paying tax at the same time?

These propositions would be universally politically popular so there is no reason for the government not to do it. A couple of pages of legislation and it will all be done. Well not quite, but employees and employers would then be free to negotiate their own agreements either individually or collectively. Everyone agrees that almost no one can legally work strictly according to any award. Half the workforce simply ignores the awards and for the other half, the entire IR system is consumed by efforts to get around the restrictions of the awards.

Today’s primary industrial relations problems mainly stem from a failed attempt at social engineering, which if it was ever a good idea in 1948, is certainly not today. If we rid ourselves of the concept that a government has the right to restrict work to certain times and days, then the registration of agreements will simply become an administrative process easily done by anyone.