Saturday, August 8, 2015
For several years, militant employer groups and the national dailies have been claiming that Julia Gillard's Fair Work Act reregulated the labour market, put the unions back on top and caused the slowdown in productivity improvement.
The report puts those people back in their box, rejecting outright their claim that the industrial relations system has become dysfunctional.
"Many features work well, especially given the need to find a balance between the conflicting goals of the parties involved," the commission's chairman, Peter Harris, said.
"Changes to the workplace relations framework have to recognise that it's not just about the economics. There are ethical and community norms about the way in which a country treats its employees."
The report's conclusion is that industrial relations needs "repair not replacement". So it does propose a lot of changes – most of which go the employers' way – which are worth debating, but not today. Today let's just record the full extent to which the scales have fallen from the commission's eyes.
Its first realisation is that the labour market isn't the same as other markets and labour is not just an ordinary input to the production process.
"Labour economists [those economists who specialise in studying the labour market] generally recognise that labour markets work somewhat differently from the pure competition model. Of course, no market aligns completely with the basic and tractable model described in introductory economic textbooks, and some of the common divergences from the competitive model arise in labour markets too," the report says.
"However, labour markets additionally have some particularly distinctive features. These features provide a potential economic rationale for different aspects of labour market regulation . . ."
What's distinctive about the labour market is that "units" of labour being added to the production process inescapably come with fallible humans attached. What's more, the human units work for fallible human managers. This makes the labour market far less impersonal than textbooks describe.
"In the real world, employers and employees are people with all their various flaws and virtues, and these can collide in workplaces in ways that have ramifications for how labour markets function."
For one thing, "people make mistakes". For instance, employers and employees may form an employment contract without doing enough to check the other side out.
For another, "employers and employees have values that are important to the way they do their work. An employee may want to work many additional hours at no cost because of professional pride. Employers may want to pay bonuses, provide better staff facilities or assist an employee facing family problems (say domestic abuse) because they are dealing with human beings who they wish to help and please.
"Employers and employees dealing with each other are not merely doing so as part of a calculated business strategy, and in some cases this opens the door for one party to exploit the other's goodwill and non-monetary motivations. (One less altruistic formulation of this is that employers may sometimes set higher prices for labour to motivate trust and to increase the cost of shirking – one example of so-called 'efficiency wages'.)"
The simple model assumes units of input and even units of output are homogeneous (all the same). But "there are few 'representative' employers and employees. People have heterogeneous [different] tastes for workplace conditions and heterogeneous abilities, even when paid the same wage rate.
"Some businesses are poorly managed, and most are not at the technological and managerial frontier [not best-practice]."
Some of these complexities "suggest a need for regulation, others not. For example, regulation of blatantly unfair dismissal is justified, not only because the act itself is problematic but also because the potential to do it allows leverage by an employer to exploit vulnerable employees".
The commission "considers that, on average, employers have stronger bargaining power than employees, with consequences for wages and conditions, unless countered by regulations or (constrained) employee collective bargaining".
Get that? The commission acknowledges the legitimacy of collective bargaining. It also accepts the relevance of ethical and social considerations.
"Labour market outcomes do not just affect economic performance – they also have a substantial impact on equality of opportunity, the stability of family relationships and social cohesion more generally.
"The ethical and social dimensions of the labour market form a basis for many aspects of the workplace relations system that differentiate it from the regulation of other markets. For example, the 'price' of labour differs from the price of most other inputs in an economy.
"A broad principle underpinning Australia's competition policy framework is that lower prices from competition are almost always desirable. In labour markets it is less clear that a lower price is necessary desirable, given that many people's incomes and wellbeing depend to a considerable extent on the price of labour and it can be costly to use alternative mechanisms to redistribute income.
"Indeed, the existence of a minimum wage – a 'floor price' set by regulation, which would usually be seen as contrary to the public interest for other goods and services – illustrates this distinction."
Returning to the commission's dismissal of the militant employers' claims, it finds that "contrary to perceptions, Australia's labour market performance and flexibility is relatively good by global standards, and many of the concerns that pervade historical arrangements have now abated.
"Strike activity is low, wages are responsive to economic downturns and there are multiple forms of employment arrangements that offer employees and employers flexible options for working."
But my favourite quote is this: "Toxic relationships between employers and employees can sometimes surface due to poor relationship management rather than flaws in the workplace relations framework."
Ain't that the truth.