Wage policy determination in Australian economy
Monday, 1 June 2009
Muhammad Faisol Chowdhury
It is very important to identify the priorities that should be considered for determining the wage policy in Australia in this era of competitive market forces and deepening wage inequality. This write-up discusses the debates that attend the wage policy and highlights the wage dynamics of the labour market by analysing the debates that has begun regarding the kind of arrangements that should govern wage determination in both the present and future.
Wage inequality can be observed in Australian labour market since the beginning of the twenty first century. Ironically, this wage inequality still exists in the changing Australian labour market. Wages policy determination has been a recent and critical area of debate since the dynamics of labour market, labour supply and demand has changed in a great deal for the last couple of decades. These changes include an increase in fixed-term and casual contracts, increase in outsourcing in public and private sectors and greater role by labour hire agencies and changes at the top of the labour market, and large number of immigrants who are actively involved in the labour industry.
As a result, a growing polarisation of wages inequality can be found in the labour market. Wage differential is present among various groups and sectors of the economy. There are large occupational and industry-based wage differentials in different sectors of the economy where a worker will be paid differently though he may be doing the same kind of job. Even in the same industry, different units may pay different wages for the worker who is having the same measurable skills.
First, the differentials are found across occupations: the firms that pay professionals a premium over the market average also pay less skilled workers a premium over the average in their occupations. Second, these differentials have a strong tendency to persist over time; industries that pay in one period tend to be found paying them in later periods. In addition, many empirical researches highlighted that the issue of gender pay equity is a vexed one for policy makers, trade unions, employers and women in paid work.
In Australian workforce direct discrimination exists where women are remunerated at a lower level than men performing the same duties. While these differences can be party explained by the occupational locations of women and men in the respective labour markets, the industrial relations and wage fixation system and 'masculine' concept of skill are equally influential.
With the aim of overcoming this wage inequality and to setting a standard wage policy, different governments have played significant roles by implementing different industrial and employment relations approaches in course of time. At the same time, based on some critical analysis it can also be argued that inadequate government involvement and poor methodologies have been used in determining the wages policy, which sometimes resulted in unsuccessful attempts of balancing the wage inequality.
Historically a number of key institutions played a key role in wage setting, in broad terms these changes were sometimes being consistent with a neoclassical approach. Effectively these changes were carried forward by Australia's system of compulsory conciliation and arbitration, and a system of industrial awards. The Whitlam Labour Government during 1970s initially promised more government intervention in the economy and faster economic growth that would benefit all. But, the government tended to pursue less regulation and intervention by implementing policies, such as tariff reductions and less restrictive immigration, which led to more involvement in the world economy.
Afterwards, for a while a move back to more government intervention in the economy can be observed where wages policy became more centralised. But from 1983 onwards, the Hawke Labour Government slowly began the process of economic reform. The emphasis on government's involvement with the labour market was to continue in the context of an 'Accord' with the unions and not a great deal was done to deregulate the labour market. Past served Howard Liberal Government had accelerated the process of economic reform and had advocated the benefits of labour market reform and less government involvement in the economy. For example, enterprise bargaining was introduced in 1991, individual agreements in the form of AWA were introduced in 1996, while in 2006 legislative changes effectively dismantled the award system and privileged enterprise and individual bargaining.
However, with regard to determination of the wages policy for Australia, these changes are assessed differently across the literature. Being critical, it can be said that, since individual contracts at enterprise level is increasing rapidly, centralised bargaining process is thus not appropriate for the labour market. In fact, a centralised bargaining process does not genuinely help negotiation at an enterprise level effectively. Decentralising the labour market is important to ensure that people's needs are met. In the field of labour market and wages policy, decentralisation is welcomed by a whole range of stakeholders, from business and local governments to community groups. While each have their own ideas on how to make policy more effective, all agree that labour market policy has a crucial role to play in wages policy determination and economic development.
Similarly, decentralising labour market policy is a delicate and challenging subject of political debate. Questions like how greater flexibility can be provided in managing wages policies while still guaranteeing efficiency and accountability, or does decentralisation really enable the co-ordination of policies, and how to make the best use of decentralised powers can be raised.
Similarly, some critics have identified a number of flaws of decentralisation of wage settings. For example, earnings dispersion is symptomatic of the incremental removal of protections for the low paid, such protections covering wage setting, and the hours and terms of work. On their account, low paid workers and workers in sectors with poor bargaining infrastructure, have been unable to rely on the market to generate fair wage outcomes, and have not been active participants in decentralised wage structures. In addition, when determining the wages policy for any country, the relationship between the government policy and labour market changes are particularly important at all time. Centralised pattern bargaining process is needed in the workplaces in order to ensure a fair and equal wage system for all.
While prioritising the issues for determining the wages policy, the government's efforts should be towards reducing wage differentials and introducing some sort of standardisation in determining minimum wage level. But, as the matter stands today, it is practically very difficult and these differences in earnings of the workers in different sectors of industry are likely to continue. Much depends upon the capacity to pay and profitability of these sectors. So the wage policy will have to take these factors into consideration. Some government spokesmen said that significant attention to the issue of determining wages policy had been given by the Howard government. The Work Choices legislation and AWA (Australian Workplace Agreement) directed the new Australian Fair Pay Commission (AFPC) to apply the principle that men and women should receive equal remuneration for work of equal value in the performance of its functions.
In another aspect, it is mentionable that the essential features of a national wage policy are, firstly, a high degree of centralisation in wage determination and secondly, a large measure of control by the government over changes in the general level depending largely on national, social and economic considerations rather than narrowly on the state of particular firms and industries. Subject to these general requirements, there may be substantial variations in the manner of administering national wage policy. At the same time, a wage policy will also have to aim at a progressive rise in real wages. Wage increases can come on account of increase in cost of living and improvement in standard of living. In order to overcome the wage inequality problem, many people supported the developments that had been sought to address the issue of gender pay equity with a series of legislative amendments and changes (for example: Work Choices 2005) to the way industrial tribunals assessed pay and conditions of employment in the process of making minimum wage industrial awards. Arguably, the arbitral model had unduly interfered with efficient labour market processes and had been the cause of a number of economic problems in the past. In general, compulsory arbitration has been viewed as consisting of a highly centralised system of wage determination that the country has always had one kind of wages system and this has somehow led the Australian labour market to perform different than other labour markets.
In contrast, the Work Choices and AWA regime deal with the issue of gender pay equity has been subject to considerable criticism. For instance, the ending of the Australian Industrial Relations Commission's (AIRC) ability to convene and decide wage inequality on employment issues of particular significance to working women and then have those decisions applied to the award system has undermined the principle of equal pay for work of equal value. The Australian democrat's senate committee minority report also noted weakness with the amendment act's pay equity provisions the minimum wages should be revised at regular periodicity and should be linked with rise in the cost of living. For example, throughout the past decade inflation has been far lower than the present time at 4.0 per cent. And because of Howard's Work Choices and AWA system, low-paid workers had a wage freeze since June 2005. Work Choices all but completely dismantles the labour market floor and over the last three decades Australian policy has approached wage determination issues by way of labour law measures, an approach that has provided for collective remedies as pay increases were granted through a centralised, tribunal based, industry level industrial award system, with increases in award wages being granted on an industry basis.
Moreover, with the operation of last federal government, the prospects for further progress to the goal of an acceptable wage policy were limited due to the 'take over' of gender based equal remuneration by the 'national' wage fixing system. Instead, the retention of the 1994 Federal Equal Remuneration provision as the only means to remedy gender pay inequity effectively means that the concept of pay equity in Australia can no longer be remedied on a collective basis. The Federal IR legislations were indeed steps backward on the road to gender pay equity.
The above discussion demonstrates that some people agreed with the recent developments at the federal level in Australia which are positive steps on the path to achieving wage equality. People who oppose or question the changes to wages policy argue that earnings dispersion is symptomatic of the incremental removal of protections for the low paid, such protections covering wage setting, and the hours and terms of work. On their account low paid workers and workers in sectors with poor bargaining infrastructure, have been unable to rely on the 'market' to generate fair wage outcomes, and have not been active participants in decentralised wage structures. The adoption of the IR legislations by last served Howard Government was a major achievement in the process to eliminate stereotypical gender based attitudes when minimum pay rates are established for all workers.
However, some people suggested that the previous federal government's legislations were actually inferior enough to determine an appropriate wage policy for the country. These people supports the changes to wages policy view the earning dispersion as consistent with the removal of imperfections in the market that impeded and restricted the setting of wages and employer flexibility, as well as being consistent with the removal of barriers that impeded the growth of higher earnings.
Being a diverse and multicultural workforce, the labour demand and labour supply are changing in Australian workforce since last decade. As a result, the wage policy determination should prioritise issues that are related to the labour market, industrial, bargaining and non bargaining sector of employment and employment relations and involvement of a centralised system. Thus a suitable wage policy can be developed which will be appropriate for a modern, civilised and diverse society like Australia.
The writer is Lecturer, School of Business, North South University. He can be
reached at email:
faisol_chowdhury@hotmail.com
It is very important to identify the priorities that should be considered for determining the wage policy in Australia in this era of competitive market forces and deepening wage inequality. This write-up discusses the debates that attend the wage policy and highlights the wage dynamics of the labour market by analysing the debates that has begun regarding the kind of arrangements that should govern wage determination in both the present and future.
Wage inequality can be observed in Australian labour market since the beginning of the twenty first century. Ironically, this wage inequality still exists in the changing Australian labour market. Wages policy determination has been a recent and critical area of debate since the dynamics of labour market, labour supply and demand has changed in a great deal for the last couple of decades. These changes include an increase in fixed-term and casual contracts, increase in outsourcing in public and private sectors and greater role by labour hire agencies and changes at the top of the labour market, and large number of immigrants who are actively involved in the labour industry.
As a result, a growing polarisation of wages inequality can be found in the labour market. Wage differential is present among various groups and sectors of the economy. There are large occupational and industry-based wage differentials in different sectors of the economy where a worker will be paid differently though he may be doing the same kind of job. Even in the same industry, different units may pay different wages for the worker who is having the same measurable skills.
First, the differentials are found across occupations: the firms that pay professionals a premium over the market average also pay less skilled workers a premium over the average in their occupations. Second, these differentials have a strong tendency to persist over time; industries that pay in one period tend to be found paying them in later periods. In addition, many empirical researches highlighted that the issue of gender pay equity is a vexed one for policy makers, trade unions, employers and women in paid work.
In Australian workforce direct discrimination exists where women are remunerated at a lower level than men performing the same duties. While these differences can be party explained by the occupational locations of women and men in the respective labour markets, the industrial relations and wage fixation system and 'masculine' concept of skill are equally influential.
With the aim of overcoming this wage inequality and to setting a standard wage policy, different governments have played significant roles by implementing different industrial and employment relations approaches in course of time. At the same time, based on some critical analysis it can also be argued that inadequate government involvement and poor methodologies have been used in determining the wages policy, which sometimes resulted in unsuccessful attempts of balancing the wage inequality.
Historically a number of key institutions played a key role in wage setting, in broad terms these changes were sometimes being consistent with a neoclassical approach. Effectively these changes were carried forward by Australia's system of compulsory conciliation and arbitration, and a system of industrial awards. The Whitlam Labour Government during 1970s initially promised more government intervention in the economy and faster economic growth that would benefit all. But, the government tended to pursue less regulation and intervention by implementing policies, such as tariff reductions and less restrictive immigration, which led to more involvement in the world economy.
Afterwards, for a while a move back to more government intervention in the economy can be observed where wages policy became more centralised. But from 1983 onwards, the Hawke Labour Government slowly began the process of economic reform. The emphasis on government's involvement with the labour market was to continue in the context of an 'Accord' with the unions and not a great deal was done to deregulate the labour market. Past served Howard Liberal Government had accelerated the process of economic reform and had advocated the benefits of labour market reform and less government involvement in the economy. For example, enterprise bargaining was introduced in 1991, individual agreements in the form of AWA were introduced in 1996, while in 2006 legislative changes effectively dismantled the award system and privileged enterprise and individual bargaining.
However, with regard to determination of the wages policy for Australia, these changes are assessed differently across the literature. Being critical, it can be said that, since individual contracts at enterprise level is increasing rapidly, centralised bargaining process is thus not appropriate for the labour market. In fact, a centralised bargaining process does not genuinely help negotiation at an enterprise level effectively. Decentralising the labour market is important to ensure that people's needs are met. In the field of labour market and wages policy, decentralisation is welcomed by a whole range of stakeholders, from business and local governments to community groups. While each have their own ideas on how to make policy more effective, all agree that labour market policy has a crucial role to play in wages policy determination and economic development.
Similarly, decentralising labour market policy is a delicate and challenging subject of political debate. Questions like how greater flexibility can be provided in managing wages policies while still guaranteeing efficiency and accountability, or does decentralisation really enable the co-ordination of policies, and how to make the best use of decentralised powers can be raised.
Similarly, some critics have identified a number of flaws of decentralisation of wage settings. For example, earnings dispersion is symptomatic of the incremental removal of protections for the low paid, such protections covering wage setting, and the hours and terms of work. On their account, low paid workers and workers in sectors with poor bargaining infrastructure, have been unable to rely on the market to generate fair wage outcomes, and have not been active participants in decentralised wage structures. In addition, when determining the wages policy for any country, the relationship between the government policy and labour market changes are particularly important at all time. Centralised pattern bargaining process is needed in the workplaces in order to ensure a fair and equal wage system for all.
While prioritising the issues for determining the wages policy, the government's efforts should be towards reducing wage differentials and introducing some sort of standardisation in determining minimum wage level. But, as the matter stands today, it is practically very difficult and these differences in earnings of the workers in different sectors of industry are likely to continue. Much depends upon the capacity to pay and profitability of these sectors. So the wage policy will have to take these factors into consideration. Some government spokesmen said that significant attention to the issue of determining wages policy had been given by the Howard government. The Work Choices legislation and AWA (Australian Workplace Agreement) directed the new Australian Fair Pay Commission (AFPC) to apply the principle that men and women should receive equal remuneration for work of equal value in the performance of its functions.
In another aspect, it is mentionable that the essential features of a national wage policy are, firstly, a high degree of centralisation in wage determination and secondly, a large measure of control by the government over changes in the general level depending largely on national, social and economic considerations rather than narrowly on the state of particular firms and industries. Subject to these general requirements, there may be substantial variations in the manner of administering national wage policy. At the same time, a wage policy will also have to aim at a progressive rise in real wages. Wage increases can come on account of increase in cost of living and improvement in standard of living. In order to overcome the wage inequality problem, many people supported the developments that had been sought to address the issue of gender pay equity with a series of legislative amendments and changes (for example: Work Choices 2005) to the way industrial tribunals assessed pay and conditions of employment in the process of making minimum wage industrial awards. Arguably, the arbitral model had unduly interfered with efficient labour market processes and had been the cause of a number of economic problems in the past. In general, compulsory arbitration has been viewed as consisting of a highly centralised system of wage determination that the country has always had one kind of wages system and this has somehow led the Australian labour market to perform different than other labour markets.
In contrast, the Work Choices and AWA regime deal with the issue of gender pay equity has been subject to considerable criticism. For instance, the ending of the Australian Industrial Relations Commission's (AIRC) ability to convene and decide wage inequality on employment issues of particular significance to working women and then have those decisions applied to the award system has undermined the principle of equal pay for work of equal value. The Australian democrat's senate committee minority report also noted weakness with the amendment act's pay equity provisions the minimum wages should be revised at regular periodicity and should be linked with rise in the cost of living. For example, throughout the past decade inflation has been far lower than the present time at 4.0 per cent. And because of Howard's Work Choices and AWA system, low-paid workers had a wage freeze since June 2005. Work Choices all but completely dismantles the labour market floor and over the last three decades Australian policy has approached wage determination issues by way of labour law measures, an approach that has provided for collective remedies as pay increases were granted through a centralised, tribunal based, industry level industrial award system, with increases in award wages being granted on an industry basis.
Moreover, with the operation of last federal government, the prospects for further progress to the goal of an acceptable wage policy were limited due to the 'take over' of gender based equal remuneration by the 'national' wage fixing system. Instead, the retention of the 1994 Federal Equal Remuneration provision as the only means to remedy gender pay inequity effectively means that the concept of pay equity in Australia can no longer be remedied on a collective basis. The Federal IR legislations were indeed steps backward on the road to gender pay equity.
The above discussion demonstrates that some people agreed with the recent developments at the federal level in Australia which are positive steps on the path to achieving wage equality. People who oppose or question the changes to wages policy argue that earnings dispersion is symptomatic of the incremental removal of protections for the low paid, such protections covering wage setting, and the hours and terms of work. On their account low paid workers and workers in sectors with poor bargaining infrastructure, have been unable to rely on the 'market' to generate fair wage outcomes, and have not been active participants in decentralised wage structures. The adoption of the IR legislations by last served Howard Government was a major achievement in the process to eliminate stereotypical gender based attitudes when minimum pay rates are established for all workers.
However, some people suggested that the previous federal government's legislations were actually inferior enough to determine an appropriate wage policy for the country. These people supports the changes to wages policy view the earning dispersion as consistent with the removal of imperfections in the market that impeded and restricted the setting of wages and employer flexibility, as well as being consistent with the removal of barriers that impeded the growth of higher earnings.
Being a diverse and multicultural workforce, the labour demand and labour supply are changing in Australian workforce since last decade. As a result, the wage policy determination should prioritise issues that are related to the labour market, industrial, bargaining and non bargaining sector of employment and employment relations and involvement of a centralised system. Thus a suitable wage policy can be developed which will be appropriate for a modern, civilised and diverse society like Australia.
The writer is Lecturer, School of Business, North South University. He can be
reached at email:
faisol_chowdhury@hotmail.com