Productivity is Key – But Recent Changes to IR Laws are Productivity Killers

Danielle Wood was appointed Chair of the Productivity Commission by the Albanese Government. This is what she said a few months ago about productivity:

"It's the single most important driver of long-term living standards, which is not just about people having more money. It's about a better health system, a stronger environmental policy – every aspect of our lives is touched by how efficiently we can produce goods and services. I think at this point in the cycle we're seeing that the economy is stagnating. People are worried about the pressure created by wages growth on inflation and the only way you square the circle on that is by getting productivity moving again. It's critical for business but its critical for every person in the country as well." (see QF Inflight Magazine April 2024 @146)

The Government has recently been talking up its productivity agenda. Unfortunately, its changes to IR laws are productivity killers and fly in the face of the Productivity Commission Interim Report titled "A more productive labour market" (October 2022). Here are a few examples of how the Government, by re-regulating the labour market and giving much more power to unions and the FWC, will significantly and adversely impact national productivity and ultimately, make Australia a poorer nation.

Enterprise Bargaining is no Longer Enterprise Bargaining

When enterprise bargaining was introduced by the Hawke/Keating Government, with the full support of Bill Kelty at the ACTU, it was a landmark shift to deregulate Australia's rigid centralised wage fixation system. The change played a significant role in Australia's subsequent 30 plus years of economic growth. At its heart the system operated on the basis of an award safety net supplemented by enterprise bargains which were to reflect the economic circumstances of each enterprise. Non-union enterprise bargains were also available. The terms the parties agreed upon could alter from one agreement to the next to reflect changing circumstances, so long as the outcome satisfied the No Disadvantage Test when compared to the applicable award.

The system we now have changes these principles in a fundamental way.

An agreement is now a fixed floor. In broad summary,? employers have no ability absent employee/union agreement to alter terms and conditions set out in an agreement. The notion that bargaining provides flexibility above an award safety net is a thing of the past.

Also, unions can now establish industry based terms and conditions. This is antithetical to the whole purpose of enterprise bargaining. It is also fundamentally anti-competitive. Unions can do a deal with compliant industry players and then over time, bind other industry players to that deal. This has at least two consequences. First, it drives up labour costs in the industry to the highest common denominator, regardless of the circumstances of individual enterprises. Second, it reduces the ability of new industry entrants to get established as they will have less opportunity to innovate and get established while providing terms and conditions in accordance with the award safety net. This suits established industry players who often, because of their size and history, have unionised workforces with beneficial terms and conditions. They don’t want competition and the new laws allow them and unions to work together to lessen competition.

Same Job Same Pay

Labour hire companies have for decades provided an alternative labour source for many employers in many industries. Some labour hire companies have paid award terms and conditions. Some, including most of the major players, have their own enterprise agreements, many of which have been negotiated and signed off on by relevant unions. Under the new laws unions have an ability to ensure that labour hire employees provided to a host employer must be paid the same at the employees of the host employer who perform the same work. So regardless of the fact that the labour hire company may have their own EA, they must pay in accordance with their clients terms and conditions if they are more beneficial. Again, this is antithetical to the principles of enterprise bargaining and adds rigidities to the labour market.

Unions say its unfair that two people doing the same job should be paid differently. Of course this superficial analysis suits a PR campaign but it is economic nonsense. Using the unions logic, if two people perform the same work but one is highly experienced and an excellent performer and the other is a poorer performer they should still be paid the same. Similarly, if an employee works for Company A and does the same work as an employee at Company B, then using the unions logic they should be paid the same regardless of the circumstances of the business they work for. Also, if Company A provides say, maintenance services to Company B, then according to union logic, Company A should pay their employees the same as Company B who do the same work.

These examples serve to illustrate that "same work same pay" is no more than a convenient (but I acknowledge very successful) slogan to advance union interests. Those interests being to undermine the labour hire industry because amongst other reasons, (a) labour hire employees are historically hard to unionise; and (b) labour hire employees have to work if the employees of the host employer take protected industrial action thus reducing unions ability to force an employer to agree to union demands.

These are just two examples. All up, the changes to IR laws are adding rigidities and a significant anti-competitive character to the Australian labour market. This will damage our nations long term economic interests and ultimately make us a poorer nation.