Written by Joshua Hoole, originally published in the Semester 1 2015 edition of the Sydney Tory.

As one of the few, remaining policy areas that consistently attracts ideological and political contestation in Australia, the industrial relations system represents the core of the inherent divide and philosophical dichotomy between economic liberalism and centralised economic socialism. However, disappointingly, the Liberal Party has largely ceded the industrial relations ground to the Australian Labor Party, overwhelmingly for electoral reasons, borne by an inability to articulate the rationale for a decentralised workplace system. The ramifications of this have been detrimental, with the current industrial relations framework, embodied in the Rudd/Gillard Government’s overzealous Fair Work Act, accounting for falling productivity rates, a decline in relative competition with Australia’s foreign competitors, a resurgence in unfair dismissal claims, rising unemployment and corresponding sluggish growth in real wages, all amid additional regulatory burdens being exerted on small businesses. In this article, I outline the problems with the awards system, penalty rates, unfair dismissal laws and the minimum wage as they stand and present a case for industrial relations reform.

The Awards System 

As a relic of a by-gone economic and social era, the award system represents counter-intuitive and anachronistic thinking at its finest and is the epitome of the need for systematic reform of Australia’s industrial relations system. The very nature and operation of the award system ensures that productivity is an irrelevant and ostracised component of employment relations, undermining innovation and economic dynamism. This is enshrined in the way in which the system operates across entire industries, as individual businesses and workplaces are hamstrung by the need to accord and meet entire industry-wide conditions, irrespective of the specialised and unique concerns and operations of minor players that constitute the industry itself. Concerns over the inapplicability of the constrictive nature of the award system were recently typified in a submission by Westfield to the Productivity Commission, investigating the Economic Structure and Performance of the Australian Retail Industry, where it was noted that the award system “preclude[s] retailers from rewarding the most productive staff”. The use of industry-wide award structures, therefore, institutionalises a variety of anti-competitive practices, including a correlation between position/seniority and wage growth and incentives, discouragement of workplace training and skills advancement through entrenched age-earning fixtures and a lack of innovation by delineating and demarcating workplace functions on the basis of position and employment status. Thus, the award system is an archaic component of Australia’s industrial relations system, where a disconnect between wages growth and productivity permeates the economy, undermining meaningful and sustainable economic growth, compelling its abolition.

Penalty Rates

Furthermore, in the context of an increasingly globalised world, consumer preferences and demands have necessitated fragmented operating hours for businesses and, subsequently, working hours for employees. Unfortunately, for industries across Australia, most notably retail and hospitality, much of their ability to continually innovate has been impeded by crippling penalty rates, mandated by the award system, lacking any raison d’etre in the contemporary era. Those who assert the merit of penalty rates lay their contention largely on the outdated notion that those who work unsociable hours require some form of compensation. Yet, this presents a false dichotomy of employers triumphing at the expense of supposedly exploited workers, as it ignores the fact that for many individuals, most notably young people, the only times they are available for work are on weekends or during weekday evenings. Restaurants, small business retailers and cafes are unable to open on Sundays or seize increased consumer traffic during late-night shopping and dining periods, due to the prohibitive and exorbitant costs of these ‘unsociable’ operating hours. Accordingly, penalty rates are not only deleterious for businesses and employers but, more profoundly, act as a lock out for a variety of potential employees, as those who are willing, able or have no alternative other than working these shifts are priced out of the labour market. Hence, the problem with the operationalisation of penalty rates goes to the inconsistency between their purported rationale and the lived everyday reality, with the system hurting those that it is intended to protect, substantially limiting business profitability, thereby reducing employment opportunities and workplace training and experience.

Unfair Dismissal Laws

Additionally, Australia’s stringently regulated and centralised industrial relations system is further shackled by the prevalence of unfair dismissal laws. Since their modern inception by the Hawke/Keating Labor Government in 1992, the burden of substantiating whether an employee’s termination contradicts notions of fairness has been reversed, with employers now being required to discharge it. This has dramatically worsened since Labor’s Fair Work Act was introduced in 2009, leading to a doubling in unfair dismissal claims lodged with the industrial umpire to 17,000 per year. The implications of this are multi-fold. From a business perspective, small and medium enterprises, which generally lack the resources to seek consistent legal advice and support in their dealings with employees, along with limited finances, are left unable to invest in greater numbers of human capital, to expand their enterprises, due to the precarious position that unfair dismissal laws place them in, concerned by the prospect of being the subject of legal action for firing incompetent, reckless or improper staff. And therein lies the other side of the problem for small business, as unfair dismissal laws have the prospect of acting as nothing more than a protection racket for disruptive, disloyal or incompetent employees. Correspondingly, from a prospective employee standpoint, unfair dismissal laws weaken their employment prospects and may well lead to employers discriminating against applicants on the basis of perceived risks of likelihood in utilising these laws. Ironically, then, the unfair dismissal laws championed by the Australian Labor Party, are, as a matter of fact, bolstering the market share and dominance of multinational corporations and conglomerates, at the expense of local, family-run, mum and dad businesses, while further entrenching poverty amongst ostracised groups. Hence, by preserving unfair dismissal laws, Australia’s economic growth and prosperity are undermined, as productivity, investment and workplace efficiency are replaced by fear and a mundane acceptance of sub-par performance or ongoing workplace conflict.

The Minimum Wage

Moreover, possibly the greatest manifestation of the unintended disadvantageous consequences of the over-regulated labour market system in Australia is that of the minimum wage. While the underlying rationale of the minimum wage posits it as a mechanism that protects the most vulnerable in the community and prevents the birth of a working class poor, the reality is vastly different. At its essence, the minimum wage is a tax on low-skilled, poorly educated Australians who are attempting to enter the labour market. It is an artificial barrier, much the like the tried and failed protectionist trade barriers that have spectacularly collapsed over the last few decades, which has created a noticeable segmentation between those who have the dignity of work and those precluded, irrespective of whether they are willing and able to do so. Many such individuals in the latter category were actually once members of the former but fell on hard times after being retrenched, only to find that they struggled to gain employment immediately afterwards. This vicious cycle, in which the unemployed become long-term and hard-core unemployed, is aided in no small part by the operation of the minimum wage, which accounts for an erosion of human spirit, an entrapment of poverty and evaporation of previously sought-after workplace attributes. All of which ignores much of the plight of youth, who generally haven’t had the chance to engage in meaningful employment, precluded because of the demands of an audacious minimum wage, which ignores the lack of workplace and professional expertise required for many industries. Therefore, the minimum wage operates as a particularly malicious regulatory bar against many marginalised Australians, denying them the dignity of work and the chance to invest in themselves, by developing their human capital base.

Reform is Needed

Ultimately, as this article has highlighted, there is a need for the institution of ongoing reforms of the labour market in Australia. However, the pursuit of such reforms – abolishing the award system, in turn winding back penalty rates, abolishing unfair dismissal laws and the minimum wage – is neither anti-union or pro-business. Instead, it should be a matter for individual stakeholders, to decide what best suits them. By having an over-centralised and regulated industrial system, the many unique cases cannot be fully accounted for, let alone comprehensively catered to. In order to forge the economic growth and prosperity of tomorrow, difficult and politically unpopular reforms must be implemented today. This is especially pertinent in the ever-competitive globalised economy, where Australia’s competitors continue to seize the economic impetus, while Australian businesses languish in the doldrums. To arrest this, Australia must have a dynamic, flexible, nuanced and deregulated labour market. And, although this may seem, at first, overly complicated and vastly removed from any conception, the vision starts from a humble inception: a blank piece of paper.

Photo: Flickr – used in accordance with the Creative Commons License