A FAIR GO ALL ROUND: WORKPLACE RELATIONS IN THE TWENTY-FIRST CENTURY KINGSLEY LAFFER MEMORIAL LECTURE 2004

HEATHER RIDOUT

It is a great honour and a pleasure to be invited to deliver the Kingsley Laffer Lecture this evening. As a graduate of the Faculty of Economics (now Economics and Business) at the University of Sydney it is also something of a homecoming. I am conscious of the prominence of earlier Laffer Lecturers. These include a former Prime Minister, a member of the High Court of Australia, ACTU Presidents and numerous other distinguished persons. As Chief Executive of the Australian Industry Group, I am also very pleased to be following in the footsteps of Bert Evans, one of my predecessors and a mentor, who delivered the Laffer Lecture in 1994.1 I well remember that lecture. It was something of a watershed for the Ai Group (then the Metal Trades Industry Association). It marked the nal capitulation of our defence of Australias centralised industrial relations system. The Ai Group had been a fervent supporter of this system. Our members had long experienced the damaging effects of wages leapfrogging and union campaigns for shorter hours and other improved conditions. The industrial harmony that prevailed during the accord years in the 1980s was a welcome respite. By mid-1994, the Ai Groups position on the shape of Australias workplace relations system had shifted dramatically. It had shifted with the recognition that Australia and Australian industry had taken a new path of global integration where international competitiveness was the benchmark and when a uniquely Australian approach to markets and their reform would be fundamentally challenged. Bert made the comment that things will never be the same again and when I look back, he was clearly right. That speech also explored how viable and relevant the Australian concept of fairness was to the conduct of industrial relations in Australia. This was juxtaposed against the challenge of trade being conducted not between countries of similar real wages and per capita GDP levels as had characterised the 1960s and 1970s, but between countries of very unequal cost and regulatory regimes.
Chief

Executive, Australian Industry Group.

THE JOURNAL OF INDUSTRIAL RELATIONS, VOL. 47, NO. 2, JUNE 2005, 226--241

T H E 2004 K I N G S L E Y L A F F E R M E M O R I A L L E C T U R E

227

In my comments tonight, I would like to revisit the concept of the fair go all round and its relevance and meaning in the context of the inuences shaping the Australian economy and society in the twenty-rst century. In recent years, we have seen very strong and relatively stable improvements in Australian living standards. This suggests that the series of changes we have made to our approach to industrial relations have passed the basic economic test. There is widespread recognition that Australias aggregate economic successes owe much to the full range of liberalising reforms introduced over the past couple of decades. Notwithstanding the benets of greater productivity and prosperity, we face calls for re-regulation; we hear arguments for a reinforcement of the sway of centralised institutions and we face a range of applications to extend the reach of central regulation. At the core of all of these lies a concern with the fairness of outcomes under the transformation to our current workplace relations system. A fundamental feature of the Ai Groups approach to workplace relations has been, and remains, our commitment to a uniquely Australian approach. This approach is characterised by the aspiration of a fair go all round. It involves the maintenance of a strong role for the Australian Industrial Relations Commission and a fair safety net of minimum conditions. It also involves the acceptance of legal, social and ethical responsibilities by employers. We take fairness very seriously, and in tonights address, I will argue that we should not re-regulate industrial relations in the name of fairness. In fact, I will argue the opposite: just as a return to more centralised approaches does not make sense in terms of economic arguments, neither does it make sense from the point of view of fairness. Our legitimate concerns with fairness do, nevertheless, require an active approachthe trickle-down model is not convincing. We require, instead, a new emphasis on the enablers that underwrite the creation of opportunities and improved access to those opportunities. We need an acceptance of diversity and we need to put in place ways to cater to that diversity. We need, in short, a richer and deeper policy agenda that allows us to build a fair go all round in its most profound, dynamic sense.

MAJOR FORCES AT WORK IN THE TWENTY-FIRST CENTURY

Of course, workplace relations do not evolve purely under their own steam; rather, they form part of much broader economic and social processes. To set the scene, I would like to sketch some of the major elements of the broader processes that will condition the conduct of our workplace relations over the next hundred years. Globalisation Just as throughout the twentieth century we saw an extraordinary intensication of globalising forces, in the twenty-rst century these forces are set to continue and, if anything, exert even more inuence. The industrialisation of China is on everyones lips. There are numerous mind-boggling statistics.

228

THE JOURNAL

OF

INDUSTRIAL RELATIONS

June 2005

China currently has 15000 highway projects underway covering 162 000 km of roadenough to circle the equator four times; China will produce 325 000 engineers this year. This is ve times as many as in the USA; and In 2003, China accounted for 40% of global cement consumption; it accounted for 30% of the growth in oil demand; 90% of the growth in steel demand and 99% of the growth in demand for copper. There is also a growing awareness of the impact that India will make on global production and consumption. To these we can add the next phases of South East Asian developmentwhich will surely include that of our closest and largest neighbour Indonesia. South America, Eastern Europe and at least some of the African countries also seem likely to accelerate in importance and inuence. The twenty-rst century is set to bring forward major changes in international competition as new sources of cheap labour and raw materials are tapped and transformed into goods and services supplied to the global market. At the same time, if history is any guide, these same developments will be associated with increases in living standards and increasing demand for goods and services within these countries. Australia, as a medium-sized, open economy has little choice but to adapt as these forces play out. In broad terms, we will see a magnication of the challenges and opportunities we are now experiencing as a result of the rapid changes in China and that we have previously experienced in the face of the industrialisation of Japan, Korea and South East Asia. The general contours of these developments are fairly clear. Over the next 20 years, we are very likely to see two countries, each over 60 times our size and both well within reach, go through extended growth spurts. Beyond that we are merely guessing. The best we can say is that our success in the face of these opportunities and these challenges will depend on our adaptabilityhow well we can switch out of and into areas of activity according to the vicissitudes of global markets. Demography Over the past few years, we have all become much more conscious of the powerful domestic demographic forces that are already well in train and that will exert their accumulating inuence over the century ahead. In short, the combination of falling birth ratesparticularly over the past 40 yearsand the continuing increases in longevity that have characterised the whole industrial era, carry two broad implications. First, the proportion of people above workforce age will steadily rise. The number of Australians aged 65 years or more will increase from approximately 2.5 million today to 6.2 million in 2042a rise from approximately 13% to 25% of the total population.2 Second, the growth in the number of people of workforce age will fall. In fact, in approximately 40 years, the absolute number of people of working age is set to stop growing altogether.3

T H E 2004 K I N G S L E Y L A F F E R M E M O R I A L L E C T U R E

229

Figure 1 Average GDP growth and volatility.

Source: Ken Henry, Policy Strategies for Future Growth, address to The Australian Industry Groups National Industry Forum, Canberra, 9 August 2004.

The publication in 2002 of the Intergenerational Report4 has highlighted the implications of this for the Commonwealth budget. The suggestion is that, under admittedly contestable assumptions, a structural budget decit of approximately 5% of GDP could emerge by 2042. This evening, however, I am not concerned with the budgetary ramications but rather with the implications of these demographic forces for continued growth in Australian living standards. According to work done in the Commonwealth Treasury, over the past 40 years, the growth in the number of people of working age contributed an average of 2 percentage points to annual GDP growth. This is a very substantial contribution and is more than half of the annual real GDP growth since the end of the 1950s. In the next 40 years, if age-specic participation rates remain unchanged, we are looking at an average annual contribution of only 7/8 of a percentage point. Moreover, this average contribution will decline over that period and will have all but disappeared by the middle of the century.5 All these facts and gures may appear quite remote from the topic of workplace relations. In fact, the opposite is the case. I think I can take for granted that we share the view that our children and future generations should experience improvements in living standards and opportunities approaching those we have enjoyed over the past half-century. If this is right, our demographic destiny requires us to nd alternative sources of productivity to replace the diminishing contribution to improved living standards delivered by growth in the number of working-age Australians.

230

THE JOURNAL

OF

INDUSTRIAL RELATIONS

June 2005

If we do not nd alternatives, we will face something like the experience of Japan in the 1990sa period referred to as the lost decadein which growth averaged approximately 1.5% per year. Two such alternatives are higher rates of participation in the workforce and greater rates of productivity growth. Workplace relations are central to both of these and, as the demographic forces build momentum, pressures are also building to adapt our workplaces to better generate improved productivity and greater rates of participation. Changes in households and the role of the state For all the tremendous technological, economic and global changes during the twentieth century, perhaps the most dramatic changes of all occurred closer to homein fact they occurred within our homes. These changes have occurred side by side with far-reaching extensions of the redistributive state in supplementing market outcomes. The general story is well known. Housework has been transformed with technology and innovations in energy and water supply, greatly reducing the direct demands on the time of household members. In combination with increases in the real purchasing power of wages, social attitudes and law have evolved to improve both the opportunities and the attractiveness of opportunities available to women outside the home, relative to those available within. Households have increasingly outsourced some of the activities previously supplied privately. They have outsourced both to the market and to the state the role of which has extended into providing education, health care, child care, family assistance, student assistance, carers assistance, income support for older Australians, aged care and income support for single parents, for instance. Partly a cause and partly as an effect of these developments, family sizes have fallen as women now have fewer children and, more recently, as fewer women have children. These changes have broadened the range of choices that families havein terms of their consumption possibilities, in terms of their discretion over their time and in terms of their workforce participation. Not surprisingly, Australians have responded in a great variety of ways to this unprecedented expansion of choices. People now have much longer and more varied periods of study; they have more leisure time and more leisure activities; they have children on their own; they have much higher levels of consumption; they dissolve their marriages; they remarry; they remain unmarried; they change jobs more often; they work on a part time or casual basis much more; they appear to be permanently leaving the workforce at an earlier age; and, of course, women participate much more in the paid workforce. These changes represent a great legacy of the twentieth century and there should be little doubt that they will continue to develop and exert their inuence in the twenty-rst century. Their inuence on workplace relations is far from the least of these.

T H E 2004 K I N G S L E Y L A F F E R M E M O R I A L L E C T U R E

231

The increased diversity of circumstances and preferences is now a fundamental feature of the Australian workforce. We have come a long way since Justice Higgins in the Harvester Judgement described a typical member of the workforce as a husband supporting a wife and three children. This model was never a totally satisfactory characterisation of the Australian workforce and has become less and less appropriate over time. Today, with everincreasing diversity, there is no comparable social norm around which we can construct a simple characterisation of the Australian workforce. Just as we have yet to come to terms completely with the increased diversity of the workforce, our industrial relations system is still well short of adjusting to the much greater role the State has come to play in meeting equity objectives by supplementing the outcomes of the private economy through our highly progressive taxation and income support systems. These shortcomings are highlighted by the difculties the Commission has in accommodating in its decisions the interplay between the annual safety net adjustments to minimum wages and the income tax and income support systems.

WORKPLACE RELATIONS
These themes of globalisation, demography, increased workforce diversity and the wide role of the redistributive State all bear closely on the conduct of our workplace relations in the twenty-rst century. They all point to the continuing need to adapt and to modernise. This was a central message in addresses at the Australian Industry Groups National Forum a few weeks ago by both the Prime Minister and the Leader of the Opposition. Mr Howard stated:
. . . of all of the policy issues in the economic area with which I have been connected and identied . . . none has seemed to me to be more important than the need to reform and to maintain the reform of our industrial relations system, because deep down its an expression of the modernisation and the embracing of the modern relevance of the Australian economy.

Mr Latham made the following remarks:

I believe that Australia needs a second round of productivity gains and improvements. We cant just rely on the reforms of the 80s and 90s to secure our competitive success for the coming century. We need to do more. We need to recognise that the reform process is ongoing. We need a second wave of economic change.

Against this background of the need for more reform, I would like to explore the directions of change in workplace relations and their relationship with a fair go all round. Productivity and participation The dual challenges of globalisation and demography demand the pursuit of a high-productivity path. Current generations are enjoying the opportunities created by rising incomes and expanding opportunities. In fairness to future

232

THE JOURNAL

OF

INDUSTRIAL RELATIONS

June 2005

generations, we must retain this emphasis and ensure that these opportunities continue to expand in the future. Workplace relations are a central element in this. The evidence of the past decade or so is that the more decentralised and exible features that have entered into our approach to workplace relations have coincided with strong increases in productivity. Although not the only factor, it is difcult to sustain the argument against the positive contribution that enterprise-level bargaining can make in generating productivity improvements. A fundamental ingredient in further productivity increases is the development and acquisition of skills linked to building innovative enterprises. We need to build a deeper culture of skills development among employers and employees. A key to this is for our workplace relations system to better facilitate investments by employers and employees in skills development and acquisition. This too requires exibility and it requires cultural change, both on the part of employers as well as employees and federal and state governments including in relation to a commitment to lifelong learning.6 As with productivity, improved rates of workforce participation are critical both at the economy-wide level and at the level of the individual enterprise. Many individual enterprises are nding a much slower stream of new recruits owing through traditional recruitment paths. This pattern will only grow in intensity and become more widespread with demographic changes. Businesses, governments and workers themselves will need to accommodate older and more diverse entry into positions and much greater re-training and re-skilling for new positions. This is also a core ingredient in our ability to build a fair go all round. At the same time as businesses need to search, recruit and train in new ways, they also face the increasingly diverse requirements of the workforcea diversity that reects different family and personal responsibilities and different needs and preferences. Businesses need to look more broadly for people to ll positions and they need to be able to offer a broader range of positions to suit the diverse circumstances of the workforce. All the while, the increased variety of work design still needs to be coordinated into overall schedules that meet the technical, logistical and customer prerogatives faced by individual enterprises. To meet these various objectives, employers and managers need to be able to combine a mix of full-time, part-time and casual work and they need to be able to offer exible mixes within these categories. The sort of detailed planning around these often-idiosyncratic parameters is best accommodated in decentralised negotiations between employers and their workforces. There is a tremendous contrast between these demands for diversity on the one hand and the paternalism that appears to inform contemporary drives to standardise and to regulate work design and work practices on the other.

T H E 2004 K I N G S L E Y L A F F E R M E M O R I A L L E C T U R E

233

Some shortcomings with the current approach I have suggested that decentralised negotiation in workplace relations has a significant role to play in securing productivity gains, in facilitating more appropriate education and training opportunities and in improving workforce participation. Each of these has a role to play in building a fair go all round. Against this background, I would like to point to two particular features of our current system that act to undermine the ability of enterprise bargaining to contribute to these important objectives. Claims to extend centrally enforced entitlements Over recent years we have seen a concerted attempt to extend the reach of the centralised system into new standardised entitlements. I am thinking of attempts to impose stringent one size ts all regulations on working hours, to extend redundancy provisions, to entrench a selective suite of entitlements in the name of work/family balance and attempts to constrain the employment of workers on a casual basis. The shift to an award system which operates as a safety net should have resulted in there being far fewer test cases and other applications to vary the awards and far less likelihood of the onus of proof being satised when applications are made. This occurred for a few years after the award changes were introduced, but in recent times the unions seem to have realised that the 20 allowable matters in awards cover all of the signicant terms and conditions of employment and that the Commission is prepared to entertain a wide range of applications to vary the level of the safety net. Under the centralised industrial relations system, the ACTU could be expected to pursue a test case every few years. More recently, the ACTU appears to have formed the view that the union movements interests are best served through the pursuit of numerous test cases relating to issues of broad public appeal such as hours of work, redundancy pay, work/family balance and outsourcing. Recently, three major federal test cases and one major NSW State test case were all going on at the same timethe Redundancy Test Case, the Family Provisions Test Case, the 2004 Safety Net Review Case and the NSW Secure Employment Test Case. The Australian Industry Group devotes substantial resources to all of these major cases and their proliferation presents challenges for us as well as the Commission. The wisdom behind the unions claims in many of the test cases can be questioned. For example, in the Reasonable Hours Test Case which was heard by the AIRC in 2001 and 2002, the unions endeavoured to impose very costly across the board additional paid leave and penalty payments if employees worked beyond a specied number of hours. The claim was intended to discourage the working of signicant amounts of overtime. Detailed evidence was presented to the Commission by employers setting out how the claim, if granted, would seriously threaten the viability of their operations. Evidence from employees was also presented to the Commission in the form of an independent focus group study carried out by ANOPcommissioned by the Australian Industry Group.

234

THE JOURNAL

OF

INDUSTRIAL RELATIONS

June 2005

Interestingly, it was clear from the study that many employees were extremely hostile to the ACTUs claims which they perceived, quite accurately, would limit their opportunities to work overtime and derive the lifestyle benets which ow from the additional income. In the words of some of the employees:
Contrary to what you hear on the press and radio, its bollocks that people are working too much. No ones going to knock back overtime.

and
Philosophically, its a good idea. The French did it. But the French dont live in Sydney with six gure mortgages.

and
If I want to push myself thats my decisionjust as long as I can say no.

A strong point that came out in the evidence and in the ultimate decision of the Commission was that a one size ts all approach just does not work. Another strong theme which owed through the evidence was that employees want to preserve their ability to make lifestyle and career choices as individuals, rather than being forced to t into a paternalistic view of what their preferences should be. This strong desire by employees to retain the right to make their own decisions was reinforced again in the Metal Industry Casual Employment Case. In this case, the unions sought to impose sweeping, across-the-board restrictions on the engagement of casuals. These included a requirement on employers that employees engaged on a regular casual basis for 4 weeks would automatically be deemed to be a permanent employee. The case continued between 1999 and 2001 and the Commission eventually decided to establish a right for casual employees to request to convert to full-time or part-time employment after 6 months of regular employment. The right of an employer to refuse an employees request to convert was preserved so long as the refusal was reasonable. What has occurred since the metals award was varied may surprise some, but the results were entirely predictable. The results expose the aws in many of the arguments commonly made about casuals. The Commissions decision entitled many thousands of casuals in the metal industry to request to convert to full-time or part-time employment. Very few decided to do so. The reasons are obvious. Many employees prefer casual employment because of the exibility it provides and because of the extra income that results from casual loadings. Last year, the labour hire company Manpower gave evidence to the AIRC that only two of its 500 employees who were eligible to request to convert had chosen to do so. Next week, formal hearings commence in the AIRCs Family Provisions Test Case. Once again, the ACTU has made a series of claims seeking to impose prescriptive, across-the-board requirements on employers. For example, the unions are seeking

T H E 2004 K I N G S L E Y L A F F E R M E M O R I A L L E C T U R E

235

to double the period of maternity leave and create an absolute right for employees to return to work on a part-time basis after maternity leave regardless of the circumstances of the relevant business. In its submissions, the ACTU asserts the existence of a new social norm in society and, through its applications in the Case, it is attempting to dene leave and part-time work preferences of households that conform to the alleged norm. Such an approach is inherently awed. The wide diversity of household types, work patterns and family and leisure preferences, dees the concept of a social norm. In contrast, our approach is that the award system can best meet the large variety of preferences for work by allowing the high degree of exibility required for employers and employees to reach agreement over working hours, leave and other matters. This is similar to the sensible approach the Commission has taken to date on work/family balance matters. In support of our arguments, the Ai Group has led witness statements from approximately 20 companies with the Commission. It is very apparent from the evidence that most employerssmall and largeendeavour to accommodate the genuine needs of employees to balance their work and family responsibilities. The issue is typically dealt with in a cooperative no-fuss way in workplaces. The ACTUs prescriptive approach threatens this cooperation and could generate negative attitudes among employers towards the work family/balance agenda. This would be very unfortunate when so many positive developments are currently occurring in this area. There is also the impact that the additional costs would have on the competitiveness of employers. In the words of one witness in the casethe female owner of a third-generation, family-owned company in operation since 1920:
We accept that we are responsible for our own performance and are striving for excellence in our product development, manufacturing and marketing activities. Where we have control over methods and resources invested we are achieving excellent outcomes. However, there are impediments to success beyond our control that are frustrating and divert important resources . . . The ACTUs claim for additional regulations will, if successful, involve additional overheads and administration as well as other direct and indirect costs that we cannot afford. They will make manufacturing in Australia simply too difcult. It will be easier to do as our competitors have done cease manufacturing and instead import Asian product for resale.

Large annual safety net increases A fundamentally similar argument applies to the very large increases in safety net minimum wages of recent years. Year after year, the AIRC hears arguments to raise minimum award wage rates by amounts often greater than justied by productivity increases. In recent years, in particular, the Commission has granted increases that easily outstrip general productivity improvements and indeed outstrip the general rate of wage increases. These increases in money wages achieved through the centralised institutions may appear fair and reasonableat least from the standpoint of a full-time worker

236

THE JOURNAL

OF

INDUSTRIAL RELATIONS

June 2005

in secure employment. Of course, that is a very narrow reading of a fair go all round and it overlooks several important dimensions. It overlooks, for instance, the unfairness for those workers who, as a result of the higher wage rates, are either excluded from a position altogether or unable to nd the number of hours of work they would prefer. It also overlooks the unfairness of the reduced scope for negotiations at the enterprise level when such negotiations could be channelled into a better accommodation of the diverse needs of individual workforces for improved training and for more exible and more family-friendly work design. There is irony here too. In the Family Provisions Test Case, the ACTU bemoans what it sees as an inequitable slow spread of family-friendly provisions to lower-paid workers. There is, of course, no recognition of the role that the ACTU itself has played in channelling productivity improvements into higher wage rates for award workers. Once productivity increases have been used in this way, they cannot also fund the introduction of a more family-friendly work design.

BUILDING ON THE UNIQUELY AUSTRALIAN APPROACH

I have argued the advantages of a decentralised, enterprise-based approach to workplace relations and I have pointed to some important shortcomings in our current system. In view of these arguments, I would like to return to the theme of a fair go all round and put forward some suggestions about building on the uniquely Australian approach to workplace relations. Fairness, like workplace relations, is about a lot more than the immediate size and distribution of material outcomesalthough these should remain part of any consideration. Fairness is also about creating opportunities; it is about holding open the door to opportunities to all; it is about recognising and accepting diversity; it is about encouraging and rewarding achievement and it is about the exercise of individual and corporate responsibilities. Our education and training capabilities; our tax, income support and saving systems and our general regulatory environment are all clearly relevant to how we go about developing individual and social fairness. In considering a fair go all round, we cannot quarantine our considerations from the signicant contributions that are made to the incomes and opportunities of the workforce from outside the workplace relations system. We need to look also at our provision of training and education and at the general redistribution of social income for instance. One of the advantages of the centralised elements of our workplace relations system is the ability to incorporate broader, national issues and goals into the debate. Examples of this advantage in operation include the contribution to lowering ination in the 1980s and the role the centralised institutions played in assisting the development of enterprise bargaining and equal pay for women. It is true that our system does not always achieve all that it might when considering of these broader issues. However, this does not mean that we cannot improve its ability to take a broad approach. There are, of course, improvements

T H E 2004 K I N G S L E Y L A F F E R M E M O R I A L L E C T U R E

237

that should be made. I would like to mention three improvements in addition to those I have already touched upon. Fairness does not necessitate complexity Australia has a Medusa-like workplace relations system with a breathtaking array of intertwined and inconsistent state and federal employment laws and industrial instruments. We have six separate workplace relations systemsthe federal and ve state systems. The current situation is unfair to both employers and employees. Fairness does not necessitate complexity: indeed fairness is often impeded by complexity. It is almost impossible for businesses to know fully what is required of them under the employment laws in Australia. Companies operating across state and territory boundaries need to grapple with: The Federal Workplace Relations Act and Regulations; Broad state and territory industrial relations Acts, together with many other specic pieces of legislation dealing with leave and other entitlements; The 2200 federal awards and a further 2000 state awards; OHS Acts in each state and territory, together with associated regulations, Codes of Practice and numerous detailed Australian Standards called up in the legislation; Workers compensation legislation in each state and territory; Anti-discrimination Acts in every state and territory; The Federal Sex Discrimination Act, Racial Discrimination Act and Disability Discrimination Act, plus the new Age Discrimination Act which was recently enacted despite the fact that age discrimination legislation exists in every state and territory; and Training legislation in every state and territory. The situation would not be quite so bad if the legislation was consistent across the different state and federal jurisdictions. Of course, it is not. It is difcult for employers and, far from protecting employees, the existing massive degree of overregulation hinders employers in their need to understand their obligations and implement high standards. The Ai Group has long supported the goal of achieving a unitary workplace relations system in Australia. A unitary system is inherently logical and the barriers to achieving it are not legal onesthey arise due to vested interests. Those with a vested interest in the current system will always focus on the complications and not on the opportunities. Vested interests will make the achievement of a unitary system difcult in the short term but that is no reason to abandon the idea. The idea that we need to maintain 2200 federal awards to preserve a fair safety net is just nonsense. One set of minimum conditions applicable to employees up to the trade or the equivalent level, with more exible safety net provisions applying to supervisory, professional and managerial employees may be all that is required. Alternatively, one set of minimum conditions could apply to each major industry not, for example, the more than 300 awards that apply in the manufacturing sector.

238

THE JOURNAL

OF

INDUSTRIAL RELATIONS

June 2005

Some argue that the safety net should be legislated. However, decisions made by politicians are inevitably based on political factors. The better approach is for the safety net to be maintained by an independent tribunal which hears submissions from all of the parties, is willing to commission independent research and which can arrive at a fair and sensible outcome. I would suggest that even politicians themselves would not be too keen to take on responsibilities for maintaining the safety net given the political pressure they would face. Inadequate adjustment for the larger role of the state With surprisingly few exceptions, the considerations of the AIRCparticularly in relation to its role in impacting on broad social equity outcomes, have not adequately adjusted alongside the growth of the role of the redistributive State in shaping overall social equity. The place of the centralised industrialised relations institutions in overall equity has paled alongside the emergence of a world-leading income support system. At the same time, the State has come to assume roles in providing health services, education and training and science and research infrastructure. The provision of these services is supported by a highly progressive taxation system. It is fair to say that we have not reassessed the role of the centralised workplace relations institutions in the light of these developments. Through its role in considering the needs of the low-paid, for example, we still call on the centralised institutions to have regard to the equity of overall social outcomes. At the same time, there is a growing awareness of the difculties of performing this role by adjusting pre-tax wages. In recent years, the Commission has acknowledged that: the incidence of low-paid secondary earners in middle and higher income households undermines the effectiveness of using the wages system to achieve social equity objectives; and there is a disturbingly low benet-to-cost ratio associated with increases in safety net increases.7 The recognition of the limitations of using centralised adjustments to minimum wages to shape social equity outcomes objectives is a major development. It suggests that the time has now come for a major reassessment of the capacity and the appropriate role of our centralised wage institutions in the achievement of overall social equity. Such a reassessment needs to grapple with the considerably more effective and considerably less wasteful ways of meeting this important responsibility, which are available to the State than are available to the central wage-xing institutions. It also needs to grapple with the important interplays between wages and conditions and the broader social safety net. Giving the Commission the right tools to deliver fairer outcomes Under the Workplace Relations Act, the Commission is required to maintain a safety net of fair minimum wages and conditions. Fairness is rarely straightforward, however, and it usually requires a thorough analysis of the inter-relationships between a variety of economic and workplace relations considerations.

T H E 2004 K I N G S L E Y L A F F E R M E M O R I A L L E C T U R E

239

In maintaining the safety net of minimum conditions, it is essential that the Commission focus on the broader economic and social context in which its decisions are embedded. Matters that come before the Commission should not be dealt with simply on the basis of case law and a narrow suite of industrial relations implications. Just because the unions make an application to the Commission for a new or adjusted test case standard and generate signicant publicity about their application, it is essential that the Commission not take this as a signal that the safety net needs to be adjusted. The safety net should only be varied if there are powerful economic reasons or social reasons that outweigh the sorts of economic and social costs associated with the extension of the safety net discussed this evening. A further important issue is that, in maintaining the public interest, the Commission needs to focus not just on the case at hand but on the totality of the changes made to the safety net over recent years. For example, in considering the impact on industry of the ACTUs prescriptive claims in the Family Provisions Case, it must not overlook the large safety net adjustments which it awarded in the 2003 and 2004 Safety Net Review Cases and the substantial increases in redundancy pay which it have just been awarded in the Redundancy Test Case. Given the economic challenges facing Australia over the years ahead, there is a powerful argument that at least some of the members of the Commission should have expert economic experience and qualications, rather than simply being drawn from the ranks of those operating in the workplace relations eld. After all, the annual safety net review cases are focused almost entirely on economic theories, statistics and forecasts. These represent important challenges for the Commission and for Governments who make appointments to the Commission. Healthy public debate about our institutions is essential and is at the cornerstone of a democratic society. My comments should not be taken as a lack of support for the Commission. Despite the challenges, the Australian Industry Group remains a strong supporter of the Commission. The AIRC has served Australia well over time and it is essential that it continue to do so in the future. The Commission has come to be part of the Australian social fabric and it imparts to our overall conduct of workplace relations a particular avour of fairness and a widely held perception of fairness.

CONCLUDING COMMENTS
Workplace relations in the current century will assume at least as important a role as in the twentieth century. This evening I have outlined some of the more important forces that our workplace relations practices and institutions will need to grapple with over the coming century. Our response to these forces is shaped by our commitment to the Australian aspiration of a fair go all round. The pressures of globalisation of demography and the increasing diversity of work requirements among our workforce call for an approach in which greater emphasis is placed on decentralised, enterprise-based management of workplace relations.

240

THE JOURNAL

OF

INDUSTRIAL RELATIONS

June 2005

A more decentralised, enterprise-based approach is more compatible with the need to achieve highly productive and exible work practices and work places. We need to be much more aware of the trade-offs between central safety net decisions and the scope for decentralised bargaining. We also need to be much more aware of the choices we are takingand the options we are closing off when we extend general entitlements or agree to steep rises in minimum wage rates. We need to reassess the role and effectiveness of the safety net as an instrument of overall social equity and consider how best to deal with the interactions between safety net considerations and the much broader and much more comprehensive social safety net of income support and service provision funded by progressive taxation. I have pointed to the importance of reforms that take us towards a simpler system. I have argued that the Commission should have access to expertise that goes beyond the narrow realm of industrial relations and covers a broader range of disciplines. Alongside these points, I have also argued for a concept of fairness that is more than the growth of material living standards from year to year. The concept of fairness should also focus on building opportunity and catering for diversity. I do not suggest that we have already taken all the steps that we can take. Clearly, this is not the case. Our education and training systems provide an obvious example of an area where we can and indeed must go further. Just as obviously, great strides still need to be taken before we can say we have come to terms with the increasing diversity of our workplaces. I have argued that these objectives: economic objectives and the objectives of building opportunity and catering for diversity will be impeded and not assisted by a return to a more centralised and more standardised system of workplace relations. Finally, I have suggested that the pursuit of fairness, just as the pursuit of higher productivity, requires a new and deeper reform agenda. It is an agenda that goes beyond the usual suspects in the structure of our workplace relations system. This embraces training and education, lifelong learning, work and family, income support and innovation.

ENDNOTES
1. A C Evans, A New Generation in Industrial Relations, Second Annual Kinglsey Laffer Memorial Lecture, 1994. 2. Commonwealth of Australia, Australias Demographic Challenges, 2004. 3. Commonwealth of Australia, Australias Demographic Challenges, 2004. 4. Commonwealth of Australia, Intergenerational Report, Budget Paper No. 5, 20022003 Budget Papers. 5. Ken Henry, Address to the Melbourne Institutes 40th Anniversary Dinner, February 2003. 6. One element of the necessary cultural change is a changed perception of the merits of the traditional trades as a career path. At the Australian Industry Groups National Forum in Canberra earlier this month, the Prime Minister lamented our societys xation with higher education to the detriment of the traditional trades. This is a problem that affects us allthe manufacturing and construction industries, for instance, are experiencing severe skill shortages and the problem is set to worsen. The solutions are multi-faceted and not straightforward. For example, training

T H E 2004 K I N G S L E Y L A F F E R M E M O R I A L L E C T U R E

241

and skill formation needs to be delivered in more contemporary ways. Four-year apprenticeships are no longer attractive to employers or employees. 7. On the one hand, employer costs are inated by increases in the wage-related costs that ow from safety net adjustments (such as payroll tax, workers compensation payments and employer superannuation contributions). On the other hand, benets to workers are diluted by the combination of the income tax system and the means testing of income support payments. Generally, for every dollar of additional cost to employers, wage earners receive less than 50 cents.