Workchoices Roadblock to Productivity

8/12/2019 Workchoices Roadblock to Productivity

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Work Choicesa roadblock to

A paper by Alex White

Was

Productivity ?


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November 2008

Paper by Alex White

Bachelor of Arts (Hons),University of Melbourne

Masters of Public Policy and Management (candidate),University of Melbourne

University of Melbourne, Victoria, Australia

Email : [email protected]

Web : www.alexwhite.org

Twitter : www.twitter.com/alexanderwhite

Facebook : www.facebook.com/alexanderwhite

LinkedIn : http://www.linkedin.com/in/alexanderwhite

This work is licensed under the Creative Commons Attribution-Noncommercial-Share Alike 2.5 Australia License.


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A critical assessment of the Work Choices laws inaddressing its stated aims and objectives

IntroductionThe 2005 legislation, Workplace Relations Amendment (WorkChoices) Act represented one of the most fundamental shifts inindustrial relations laws and Commonwealth-State relations sinceFederation. With the principle aim of Work Choices to unleasha new burst of productivity growth, 1 John Howard describedindustrial relations reform as an article of faith for the Coalitionparties. 2 This article of faith statement was also allegedlyrepeated in a speech to the 2005 Liberal Party Federal Council, 3 although this appeal to ideology was not repeated in later publicstatements.

Using the corporations power in the Australian Constitution(Section 51(xx)), Work Choices sought to introduce a singlenational workplace relations system, overriding most stateindustrial relations systems. 4 This in itself was remarkable, upheldby the High Court; until Work Choices it was widely believed thatthe Commonwealths direct role in industrial relations was limitedby Section 51(xxxv), 5 limiting powers to make laws to conciliationand arbitration for the prevention and settlement of industrialdisputes beyond the limit of one state.

Work Choices elevated individual statutory agreements (AustralianWorkplace Agreements, AWAs) as the pre-eminent form ofworkplace agreement, with enterprise level workplace agreements(collective agreements) and state and Federal Awards relegated

to lesser status. The arbitration system, encapsulated by the Australian Industrial Relations Commission (AIRC) that had beena feature of the Australian workplace relations system since 1904had its role greatly reduced, with new Of ces and Commissionsresponsible for overseeing the application of workplaceagreements, setting of minimum wages and settling of industrialdisputes.

When introduced to Parliament in November 2005, the Ministerfor Employment and Workplace Relations, Kevin Andrews MPsaid: the Workplace Relations Amendment (Work Choices) Bill2005 moves Australia toward a exible, simple and fair system ofworkplace relations. 6 The central objective, according to the then-Government was to encourage the further spread of workplaceagreements in order to increase productivity and hence the living

1 John Howard,Media Release: WorkChoices A New Workplace RelationsSystem, p.1.2 Michelle Grattan, New Senate, New Era: Federal Politics,The Age, Insight , 25June 2005, p.1.3 The Hon. Paul Munro, Changes to the Australian Industrial Relations System:Reforms or Shattered Icons? An Insiders Assessment of the Probable Impact onEmployers, Employees and Unions,UNSW Law Journal , Vol.29(1), p.133.4 Work Choices covered industrial relations nationally, but not state and councilemployees. Victoria was an exception to this, as that state had earlier referred its IRpowers to the Commonwealth.5 Stephen Bell and Brian Head (eds),State, Economy and Public Policy in Australia, Oxford University Press, South Melbourne, 1994, p.144.6 Kevin Andrews MP,Hansard , Wednesday 2 November, 2005, p.17.


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standards of working Australians. 7 For the Howard Government, Work Choices was not merely aneconomic argument, it is a moral argument, with the new laws to create a good society and a

brighter future. 8

How successful was Work Choices in achieving the goals set out for it? The Howard Government laidout a set of criteria for the legislation to be judged by, listing economic bene ts, industrial bene ts, andmoral bene ts. Increased and improved productivity, exibility, work-life balance and fairness are listed

by Minister Andrews as the expected outcomes of Work Choices. 9

The key bene ts of the legislation according to the Howard Government were: 10

Increasing workplace productivity

Securing genuine minimum wages and conditions for workers

Encouraging agreement making

Creating a new simple, fair and exible workplace relations system

The increase in workplace productivity is the primary criteria against which the Work Choices laws willbe assessed. The remaining key bene ts were purported as means to increase productivity, althoughancillary bene ts were promised, as noted above.

This essay does not consider the introduction of the fairness test in May 2007, when the Minister forWorkplace Relations Joe Hockey stated that WorkChoices was a damaged brand; 11 or the Forward

with Fairness amendments in early 2008 that phased out AWAs (amongst other things). Furthermore,it concentrates primarily on the period 2005-2007, covering the introduction of the WorkChoices Bill

in 2005 and passing into law in December 2005, the start of the laws effects with regard to AWAs inMarch 2006 and prior to its major amendment in May 2007.

The importance of productivityWhy is productivity so central in this discussion of Work Choices? Productivity is considered amongstneo-liberal economists as the key driver of economic growth and health: Ultimately, its the key issue

determining the rise and fall of Australias fortunes. 12 The higher an economys productivity, the higher7 Kevin Andrews MP,Hansard , Wednesday 2 November, 2005, p.17. See also Employment, Workplace Relations and EducationLegislation Committee, The Senate,Provision of the Workplace Relations Amendment (Work Choices) Bill 2005, Report , November 2005,

p.5.8 Kevin Andrews MP,Hansard , Wednesday 2 November, 2005, p.17-18.9 Kevin Andrews MP,Hansard , Wednesday 2 November, 2005, p.23.10 Kevin Andrews MP,Media Release, 26 May 2005, p.211 AAP, We got it wrong on WorkChoices Hockey,Sydney Morning Herald , 22 May 2007, available online: http://www.smh.com.

au/news/national/we-got-it-wrong-on-workchoices--hockey/2007/05/22/1179601392434.html, accessed 10 November 2008.12 Andrew Charlton,Ozonomics: Inside the myth of Australias economic superheroes, Random House Publishing, South Australia,

2007, p.24.


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that countrys standard of living (measured in GDP).

The rst justi cations for Work Choices focused on increasing productivity. Indeed, the second keybene t of Work Choices encouraging agreement making is cited by the Government Senate Reportas having a clear correlation between productivity growth and the use of workplace agreements. 13 Similarly, the goal of a simple, exible and national workplace relations system has the ultimate goal ofincreasing productivity growth, through decreasing red-tape and increasing workforce participation, forexample.

Background to Work ChoicesThe Work Choices legislation was and remains highly controversial, politically, economicallyand industrially. Although it survived a high court challenge, sponsored by the New South WalesGovernment and supported by every State and Territory government and the Australian unionmovement (Australian Council of Trade Unions, ACTU), the Work Choices laws are considered as akey reason for the defeat of the Howard Government in November 2007.

There were many criticisms of the new IR laws, not just from the union movement, but from businessgroups, legal groups and community organisations. Criticism was leveled at use of the corporationspower and the constitutionality of the laws. Unions criticised the laws as draconian and unfair forworking people. Church groups and welfare organisations criticised the laws as being unjust and givingexcessive powers to employers to remove working conditions. States criticised the laws as infringing onstate rights, as well as reducing industrial rights for workers.

Some business groups complained that the laws were complicated and created a great deal of red-tape. Even the H.R. Nicholls Society, a conservative think-tank that initially supported many of the WorkChoices changes said on 13 November 2007 that to describe Work Choices as complex is of coursea gross understatement. 14 Finally, Work Choices attracted concerns from international organisationssuch as the International Labour Organisation (ILO) on the grounds that the laws breeched Australiasinternational obligations, or even the Australia-US Free Trade Agreement. 15

Of course, Work Choices was also widely supported by business groups and conservative think tanks,especially the Australian Chamber of Commerce and Industry (ACCI), Australian Industry Group (AIG)and Business Council of Australia (BCA). Large employers also supported the laws, such as Telstra andthe Commonwealth Bank. In mid 2007 a coalition of supportive business groups formed the BusinessCoalition for Workplace Reform and established a ghting fund to pay for television advertisementssupporting the laws. 16

13 Employment, Workplace Relations and Education Legislation Committee, The Senate,Provision of the Workplace Relations Amendment (Work Choices) Bill 2005, Report , November 2005, p.714 Des Moore, HR Nicholls Society Inc,Workplace policy is defning issue, November 2007, available online: http://www.hrnicholls.com.au/articles/hrn-moore6.php, accessed 7 November 2008.15 Australian Parliament House,Work Choices Bill Digest , 2 December 2005, p.12.16 Kathie Muir,Worth Fighting For: Inside the Your Rights At Work Campaign, UNSW Press, Sydney, 2008, p.152.


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What was changed under WorkChoices? WorkChoices made extensive and profound changes to Australias

workplace relations system. The use of the corporationspower marked a profound shift in government intervention into

workplaces, with legislation and regulations dictating whatemployees and employers could and could not do down to minute

detail. According to the Government, the key elements of thelegislation were:

A single national workplace relations system

The Act used the Constitutional powers in section 51 (xx)(Foreign corporations, and trading or nancial corporations

formed within the limits of the commonwealth) to overrideexisting state industrial relations systems. This left only asmall category of employees not covered by the Federal

system, including state employees and council employees.

Creation of the Australian Fair Pay Commission A wage-setting body, the Australian Fair Pay Commission

(AFPC) was created to replace the AIRC for employees on Awards.

Reform of the Australian Industrial RelationsCommission

The role of the Commission was greatly reduced, with afocus on dispute resolutions. Compulsory powers to force

conciliation and arbitration were removed. Additionally, amodel dispute resolution process was mandated, creating

strictures on how disputes under Awards and collectiveagreements could be handled by the AIRC and disputing

parties.

Legislated minimum pay and conditions standards

Minimum wages and conditions were legislated for therst time through the corporations power, rather than

being contained solely in Awards, collective agreementsor individual agreements (common law agreements and

AWAs). These ve legislated minimums, including minimumwage, annual and sick leave, parental hours and maximumordinary hours of work became the minimum allowed

conditions for any form of workplace agreement. Two of theve minimums did not cover casual employees.

Increased role for individual statutory agreements

The role of individual statutory agreements (AWAs) wasexpanded so as to override other workplace agreements.

AWAs did not need certi cation to come into force, merelylodgment with the Of ce of the Employment Advocate

(OEA, later renamed). Further, previous safeguards on AWAs (the no disadvantage test) were removed. Also

allowed were green- elds agreements, where employerscould unilaterally create collective agreements prior to


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the hiring of any employees and that did not require theinvolvement of a union. 17

Extensive prohibited content for collective agreements

A great number of matters were prohibited from collectiveagreements, such as the use of contractors, pay-rolldeduction of union dues and paid training for uniondelegates. Financial penalties were introduced for inclusionof prohibited content.

Simplifed Federal Awards

Awards were simpli ed, particularly through the removalof prohibited content and by adhering to the ve legislatedminimum standards. Long service leave, superannuationand notice of termination of employment were removedfrom Awards.

Reform of unfair dismissal

Protections from unfair dismissal were removed becausethey acted as a brake on job creation in Australia. 18 Businesses that employed 100 employees or more becameexempt from unfair dismissal laws, and for the remainderof employees, six months of continuous employment wasrequired before an unfair dismissal claim could be pursued.

Additionally, operational requirements such as no longerneeding a job to be done, also removed unfair dismissalprotection.

Restrictions on industrial action

All forms of industrial action were restricted to bargainingperiods, with a compulsory secret ballot required beforeprotected industrial action can take place. In another rst,third parties could seek to suspend industrial action, even ifnot directly affected. Additionally, the Minister was given thepower to arbitrarily end protected industrial action. Commonlaw tort remedies were also allowed for unprotectedaction, meaning that employers could pursue costs againstindividual employees or unions for unlawful industrial

action.

Changes to freedom of association

Restrictions on union right of entry to workplaces wereintroduced, making it more dif cult for union of cials toenter a workplace to speak to members and non-members.

Changed compliance regime

The Of ce of Workplace Services (later renamed) wascreated to ensure that the law was followed on matterssuch as industrial action, use of right of entry laws and the

ve legislated minimum conditions.

17 Kevin Andrews MP,Hansard , Wednesday 2 November, 2005, p.20.18 Kevin Andrews MP,Hansard , Wednesday 2 November, 2005, p.21.


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In May 2007, amendments to WorkChoices introduced a fairness test to AWAs. This had the effectof reintroducing elements of the previous no disadvantage test for some AWAs, and required that all

AWAs be assessed by the OEA (re-named the Workplace Authority).

Increasing workplace productivity WorkChoices sought to increase workplace productivity. Proponents of WorkChoices stated that

individual contracts deliver higher productivity. When productivity increases, companies are morewilling and able to pay higher wages, resulting in a win-win for company and employee. 19 This essaydoes not consider the various criticisms of the productivity concept; it also notes that de nitions and

measures of productivity vary greatly. For the purposes of this essay, the Productivity Commission isconsidered authoritative.

What is productivity?Simply put, productivity is ratio of outputs (measured in the national accounts) to inputs (labour,

materials, etc). 20 It is a supply-side measure capturing technical production relationships betweeninputs and outputs. But, implicitly, it is also about the production of goods and services that are desired,

valued and in demand. 21 Productivity is important to the discussion around workplace relationsbecause productivity data are used to investigate the impact of product and labour market regulations

on economic performance. 22

A June 2007 con dential brie ng for then-Opposition Leader Kevin Rudd noted the dif culties in

19 David Peetz, Hollow Shells: The Alleged Link Between Individual Contracting and Productivity Growth,Journal of AustralianPolitical Economy , Edition 56, 26 March 2007, p.32.

20 Andrew Charlton,Ozonomics: Inside the myth of Australias economic superheroes, Random House Publishing, South Australia,2007, p.24.

21 Productivity Commission,Productivity Primer , available online: http://www.pc.gov.au/research/productivity/primer, accessed 11November 2008.

22 OECD,OECD Compendium of Productivity Indicators, 2008, p.11, available online: http://www.oecd.org/dataoecd/6/3/40605524.pdf, accessed 11 November 2008.


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assessing productivity, particularly because it is dif cult to measure the intensity of inputs. 23 Thebrie ng also noted that annual and quarterly measures of productivity are volatile, and that measuringproductivity over cycles is a more widely accepted gauge. The Reserve Bank Governor Glen Stevenssaid: Over short periods, productivity is not an easy thing to measure, and that short-run relationshipcan have a lot of slack. 24

Productivity is measured by aggregating labour productivity and capital productivity. Labour productivityde ned as output per united of labour input (typically measured in hours of work), while capitalproductivity is ef ciencies gained through capital stock (such as machines). 25 Multifactor productivityis not widely used but is technically a better measure of productivity performance than labourproductivity, 26 and simply put is productivity improvements gained from better training, education,management practices and operational processes, rather than better machines or longer workinghours.

The Australian Productivity Commission also notes the uncertainty of accuracy in measuringproductivity. The best that can be gleaned is productivity trends over cycles of six or so years. 27

The Productivity Commission measurement of cyclical productivity growth over both short and longterm time-frames demonstrates a slowing down in recent times. Figure 1 shows the ABS estimates of

productivity, aggregating multifactor productivity (output per combined input of labour and capital) andcapital deepening (increases in the capital-labour ratio). 28

23 Tim Dixon, John OMahoney and Ankit Kumar,Leaders Meeting/Policy Brief: Productivity and the national accounts, 15 June2007, p.824 Glen Stevens, RBA Governor, Of cial Committee Hansard, Standing Committee on Economics, Finance and Public Administration, 21 February, 2008, p.16.25 See OECD,OECD Compendium of Productivity Indicators, 2008, available online: http://www.oecd.org/dataoecd/6/3/40605524.pdf, accessed 11 November 2008.26 Tim Dixon, John OMahoney and Ankit Kumar,Leaders Meeting/Policy Brief: Productivity and the national accounts, 15 June2007, p.9.27 Productivity Commission,Issues in measurement of industry productivity , available online: http://www.pc.gov.au/research/productivity/estimates-trends/issues, accessed 7 November 2008.28 Productivity Commission,Longer-term trends, available online: http://www.pc.gov.au/research/productivity/estimates-trends/


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Figure 1: Long-term productivity growth 29

This shows that productivity growth was highest during the 1993-1999 period, with multifactor productivity growth during this time a

full percentage point higher than the previous average.

Also evident is that capital deepening growth has been stable formost of the time shown in Figure 1, with the exception of 1984-

1989 (a period of low productivity growth), at just over 1 per cent.

Figure 2 shows more recent trends in productivity growth anddemonstrates that multifactor productivity growth has been steadily

declining, and that labour productivity has increased only slowly.Despite this, output growth has continued at around the long-term

average.

trends, accessed 7 November, 2008.29 Productivity Commission,Longer-term trends, available online: http://www.

pc.gov.au/research/productivity/estimates-trends/trends, accessed 7 November, 2008.


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Figure 2: Short-term productivity growth 30

While this decline in the average of productivity growth can beattributed to drought in the agricultural sector, there have beensubstantial declines in industry and market sector productivitygrowth.

Nevertheless, caution is needed when looking at such a shorttime period; the slowing of productivity growth in 2004-07 couldbe made up over the cycle. It should be re-emphasised that in

this essay, the unreliable nature of short-term productivity growthgures is recognised.

Individual Australian Workplace Agreements andproductivity growthIndividual statutory workplace agreements are the primaryinstrument through which Work Choices would increaseproductivity. The logic followed by the Howard Government wasthat if enterprise level agreements introduced by the KeatingGovernment increased productivity, then individual agreements

an even more personalised enterprise-level agreement wouldfurther increase productivity. 31 Through AWAs, individual payincreases would be linked to productivity increases, simultaneouslyimproving labour productivity and preventing wage rises to owthrough from one enterprise to other industries. 32

Former Prime Minister Paul Keating, architect of the enterprise

30 Source: Productivity Commission,Recent movements, available online: http://www.pc.gov.au/research/productivity/estimates-trends/recent-movements, accessed 7November, 2008.31 Employment, Workplace Relations and Education Legislation Committee, TheSenate, Provision of the Workplace Relations Amendment (Work Choices) Bill 2005,Report , November 2005, p.xi.32 Employment, Workplace Relations and Education Legislation Committee, TheSenate, Provision of the Workplace Relations Amendment (Work Choices) Bill 2005,Report , November 2005, p.2.


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level workplace relations changes, claims that the high productivitygrowth from 1993 onwards was a result of removing the centralised

wage xing system of Awards, and the introduction of enterprisebargaining:

If you go to 200 or 300 people in a factory or 200 or 300 people in a workplace and come to a three or four year

bargain to the improve productivity and share it betweenwages and pro ts youve got a good chance of getting

productivity from the whole enterprise. But if you just takeone person at a time, bring them into the boss of ceand cut their wages theres no chance of getting any

productivity. Thats why trend productivity is now rapidly onthe way down.

The end result is that we double trend productivity so thatreal wages grew through the 90s at 2 per cent a year, 10

years of 2 per cent is 20. You hear Mr Costello talking about20 per cent in real wages.

But since 2000 real wages have been going down, so the20 per cent increase came out of the Labor Party and the

Labor Partys policies. Its nothing to do with WorkChoices.Individual workplace agreements go to 3 per cent of the

working community. The rest of the community are workingon enterprise bargains. 33

To demonstrate Mr. Keatings point about the relationship betweenenterprise agreements and productivity, Figure 3 below shows that

industries with high levels of enterprise agreements (and other

agreements) and low levels of reliance on Awards enjoy high levelsof productivity. This does not, of course, mean that enterpriseagreements were responsible for high productivity (although they

could be), simply that industry sectors with high productivity growthalso had a low proportion of Award workers. For example, the

cultural and recreational sector had low productivity growth andrelatively low incidence of Award workers.

33 Lateline transcript, ABC,Paul Keating on the lead-up to the Federal Election, 7June 2007, available online: http://www.abc.net.au/lateline/content/2007/s1945485.htm,

accessed 7 November 2008.


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Figure 3: Relationship between Award coverage andproductivity growth 34

Arguing the connection between Work Choices andproductivity growth

In September 2007, a few months after Mr. Keating made theabove remarks, the Australian Chamber of Commerce and Industryrelease a review entitled WorkChoices Good Signs for theEconomy , claiming that productivity growth has picked up: 35

Productivity is a key indicator of whether a reform has proved bene cial for the economy. It is productivity thatmakes it possible to secure affordable and sustainedincreases to living standards.

While it is too soon to say de nitively that WorkChoiceshas increased productivity, the evidence so far is verygood. Figure 1 [Figure 4 below] shows what has happenedto labour productivity growth in the ve quarters sinceWorkChoices commenced.

On all of these measures, productivity growth sinceWorkChoices has equalled or bettered the historicalaverage. It has been particularly strong compared to the

past ve years. 36

34 Employment, Workplace Relations and Education Legislation Committee, TheSenate, Provision of the Workplace Relations Amendment (Work Choices) Bill 2005,Report , November 2005, p.8.35 ACCI,Review: WorkChoices Good Signs for the Economy , September 2007,No. 151, p.136 ACCI,Review: WorkChoices Good Signs for the Economy , September 2007,No. 151, p.1


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The ACCI puts this increase in productivity down to decreasedincidents of strikes (particularly in the building industry), and

enterprise level workplace agreements (AWAs). 37

Figure 4: ACCI table of productivity growth sinceWorkChoices 38

The ACCI review notes that no multifactor productivity data wasavailable by 2007, although Figure 2 above demonstrates thatthere was negative growth on an annualised basis in 2006-07

while WorkChoices was in effect. Overall, the ACCI concludes thatWorkChoices had:

a bene cial contribution to strengthening the Australianeconomy. While assessments over a longer economic

cycle are not yet possible, the short to medium results areexcellent on any objective analysis. 39

Similarly, the Business Council of Australia, representing the chiefexecutives of Australias top 100 companies, states:

The experience of BCA Member companies has been thatgreater exibility in agreement making, and speci cally

the ability to better align performance with terms andconditions, has resulted in diverse bene ts including: high

levels of, and strong growth in, productivity 40

The BCA submission also noted of AWAs:

While they represent a small proportion of total agreements,

they have played an important role in driving greaterexibility and improved enterprise productivity and

performance in key sectors of the economy. 41

The Business Council used the mining sector as the main basis forits assertion that individual agreements improve productivity:

37 ACCI,Review: WorkChoices Good Signs for the Economy , September 2007,No. 151, p.2

38 ACCI,Review: WorkChoices Good Signs for the Economy , September 2007,No. 151, p.239 ACCI,Review: WorkChoices Good Signs for the Economy , September 2007,

No. 151, p.940 Business Council of Australia,Submission to the Senate Inquiry into the

Workplace Relations Amendment (Work Choices) Bill 2005 , 8 November, 2005, p.541 Business Council of Australia,Submission to the Senate Inquiry into theWorkplace Relations Amendment (Work Choices) Bill 2005 , 8 November, 2005, p.7


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The mining sector has led most other sectors in theadoption of more exible workplace arrangements as labourmarket deregulation has progressed. The mining sectorhas a very low reliance on awards and a very high relianceon more exible agreements including AWAs. In fact,around 50 per cent of mining sector employees coveredby Federal agreements are on AWAs, while in some parts

of the sector AWA coverage is as high as 80 per cent.Greater exibility in workplace arrangements in the miningsector has delivered signi cant bene ts. It has supportedgreater innovation; greater accountability for performance;high levels of productivity as well as sustained, strong

productivity growth; high levels of wages; and outstandingreturns to shareholders. Australias competitiveness hasbeen sustained by ongoing strong productivity growth inthe mining sector averaged around 6 per cent per annum,outpacing all other sectors in the economy. 42

The high level of individual agreements in the mining sector asa whole is seen as proof of the close link between productivitygrowth and AWAs, an assertion that the ACCI agrees with. Figure 3also demonstrates that the low level of Award usage in the miningsector correlates with high productivity.

The BCAs assertions are disputed by academic David Peetz,Professor of Industrial Relations at the Grif th University BusinessSchool:

First, there is nothing remarkable about mining have a highrate of productivity growth over the period for example,

labour productivity in the Canadian mining industry alsooutstripped that in the rest of that economy. Indeed, in thehighly unionised Australian coal industry, labour productivityalso grew by 6 per cent per year between 1993 and 2003,the same rate quoted for the mining sector as a whole. Soit does not appear that individual contracting has drivenlabour productivity gains in mining.

Secondly, the story is incomplete because, as theProductivity Commission (PC) pointed out, the miningindustrys period of strong multi-factor productivity growthwas from 1982-83 to 1992-93. From 1992093 to 2001-02,multi-factor productivity growth was low. The seeminglystrong growth in labour productivity in mining after 1992-93 was due almost entirely to capital deepening that is,replacing jobs with machines. 43

As more data about the period 2005-2007 comes to light, theclaims relating to productivity growth in the mining sector arefurther open to scrutiny. The Australian Bureau of Statistics andthe Productivity Commission suggest that multifactor productivitygrowth decreased, and that productivity growth may be moreconnected to the increase in hours worked:42 Business Council of Australia,Workplace Relations: Action Plan for FutureProsperity , February 2005, p.24-25.43 David Peetz, Hollow Shells: The Alleged Link Between Individual Contractingand Productivity Growth, Journal of Australian Political Economy, Edition 56, 26 March2007, p39-40.


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In mining, multifactor productivity has been trending lowerover recent years as the increase in world mineral priceshas boosted the demand for additional labour and capitalto expand production capacity while lags have meant thatthis new production capacity has only just started to comeon stream. Over the three years to 2006-07 as whole, the

number of hours worked in mining increased by 39 per cent

and the volume of capital services consumed increased by24 per cent, while the volume of mine output has risen byonly 14 per cent. Mining subtracted around 0.2 per cent peryear from multifactor productivity growth over this period. 44

Although the Howard Government and supportive peak businessgroups asserted at individual agreements such as AWAs improve

productivity growth, these claims are not generally supported byevidence.

AWAs were never widely used, even during their height in late2006. A survey conducted in August 2007 found that AWAs

operated in no more than 19.5 percent of workplaces, behindcollective agreements (union and non union) at 48.3 percent andcommon law agreements at 17.9 per cent. 45 AWA operation prior

to Work Choices was even more limited, at less than 9 per cent byearly 2005; with the no disadvantage test, there were few reasons

to not use another form of workplace agreement. A similar surveyfound the level of AWA use to be much lower, with registered

individual agreements (AWAs) ranging from 4.7 percent in 2006,increasing to 6.6 percent in 2007 and then decreasing to 5.6 per

cent in 2008. 46 Over the same period, collective agreements (unionand non-union) rates were respectively 21.7 percent, 21.1 percent

and 22.9 percent.47

The 2006 Annual Report of the Department of EducationEmployment and Workplace Relations (DEEWR) stated that

the ve industries with the highest use of AWAs are: 1) retail; 2)accommodation, cafes and restaurants; 3) property and business

services; 4) manufacturing; and 5) mining. 48 A statement on theNational Accounts in December 2007 stated:

Labour productivity in the market sector fell by 0.3 percent in the December quarter and is at over the past

year. Annual productivity growth in the market sector hasaveraged around 1 per cent over the past three years,

44 Productivity Commission,Recent movements, available online: http://www.pc.gov.au/research/productivity/estimates-trends/recent-movements, accessed 7

November, 2008.45 Australian Human Resources Institute,Work Choices: Its Impact within

Australian Workplaces, Survey Findings, 23 August 2007, p.20.46 Brigid van Wanrooy et al, Australia At Work , Workplace Research Centre,

University of Sydney, October 2008, p.22-23, available online: www.australiaatwork.org.au, accessed 9 November, 2008.

47 Brigid van Wanrooy et al, Australia At Work , Workplace Research Centre,University of Sydney, October 2008, p.22-23, available online: www.australiaatwork.org.

au, accessed 9 November, 2008.48 DEEWR, Chapter2: Performance information: Outcome 2,2005-06 DEEWR

Annual Report , 2006, available online: http://www.annualreport.deewr.gov.au/2006/chapter2_2/0601.htm, accessed 10 November, 2008.


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which is less than half the long-run average. 49

The ABS estimates on multifactor productivity growth for 2005-06 on the ve standout industries do notsupport the conclusion that AWA saturation improves productivity growth. As Figure 5 demonstrates, all

ve industries showed low, negative or zero multifactor productivity growth.

Figure 5: Australian Bureau of Statistics annual compound multifactor productivity changes 50

The ABS concludes that overall productivity growth in areas such as mining, accommodation, cafesand restaurants and retail were due to growth in capital services and hours worked. 51 Similarly,Productivity Commission gures for 2006-07 shows that despite ACCI and BCA claims that productivitygrowth increased as a result of, or with the help of, Work Choices, short-term productivity growth,particularly multifactor productivity growth, was down.

This indicates that Work Choices could have been successful in improving one measure of productivitygrowth hours worked. As we will see, increased hours worked was a key feature of the principleinstrument of Work Choices: Australian Workplace Agreements.

49 The Hon. Wayne Swan, National accounts December Quarter 2007,Media Releases No.12 , 5 March 2008, available online:http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2008/012.htm&pageID=003&min=wms&Year=&DocType=0, accessed10 November, 2008.50 Brian Pink, Information Paper: Experimental Estimates of Industry Multifactor Productivity, Australian Bureau of Statistics,2007, p.9.51 Brian Pink, Information Paper: Experimental Estimates of Industry Multifactor Productivity, Australian Bureau of Statistics,2007, p.17.


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Genuine minimum wages and conditionsThe introduction of WorkChoices changed Australias wage-

setting regime from a commission that tested capacity to pay, toone where Parliament could legislate to set the minimum wage.

Since the Harvester decision in 1907 until Work Choices, minimumwages were set both on economic and comparative wage justicegrounds. 52 Paul Keating emphasised the transformations in wage

setting under Work Choices:

Let me make this clear, the Liberals decided that theywouldnt use the conciliation and arbitration power [in the

Constitution].

Under that power of the constitution you always needed acommission who tested capacity to pay and comparativewage justice. Theyve now used the Corporations powerand the High Court for the rst time as validated its use.

That means a Federal Government can now legislate the

wage and the conditions.53

International advice from organisations such as the Organisationfor Economic Cooperation and Development (OECD) had

argued from 2002 that Australias minimum wages (awards) wererelatively high. 54 The priority recommendation by the OECD

was to reduce minimum cost of labour that is, reduce minimumwages.

The economic argument underpinning this recommendation isthat high minimum wages decreases employment, particularly

employment of the low-skilled. 55 For example conventionalwisdom states that a ten per cent increase in the minimum

wage induces a one to three percent increase in unemploymentamongst young workers. 56 The Howard Governments explanatory

memorandum on the Work Choices Bill used this argument:

Continued reform will unlock further gains in productivityand promote employment growth. Wage setting

arrangements which pay greater attention to economicconsiderations are likely to facilitate entry into the labour

market for the more disadvantaged job seekers. 57

Lowering minimum employment costs increases employment52 HR Nicholls Society, Submission to the Fair Pay Commission, 28 July 2006,

p.253 Lateline transcript, ABC,Paul Keating on the lead-up to the Federal Election, 7

June 2007, available online: http://www.abc.net.au/lateline/content/2007/s1945485.htm,accessed 7 November 2008.

54 OECD Economics Department, Country Notes (Chapter 3): Australia,Economic Policy Reforms: Going for Growth 2005 , p.59, available online: http://www.oecd.

org/dataoecd/48/62/34473158.pdf, accesed 10 November 2008.55 OECD Economics Department, Country Notes (Chapter 3): Australia,Economic Policy Reforms: Going for Growth 2005 , p.58, available online: http://www.oecd.

org/dataoecd/48/62/34473158.pdf, accesed 10 November 2008.56 Andrew Seltzer, Policy Forum: Minimum Wages, An Evaluation of the

International Evidence on the Employment Effects of Minimum Wage Legislation,The Australian Economic Review , Vol.30, No.2, 1997, p.208.

57 House of Representatives, Workplace Relations Amendment (Work Choices)Bill 2005: Explanatory Memorandum, 2005, p.8.


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by ensuring that low-skilled workers are not priced out of thelabour market. 58 A 2008 OECD policy brief also puts forward thiseconomic argument:

in order to protect the most vulnerable wage earnersbetter and help them into work, a strategy combiningminimum wage moderation and the introduction ofemployment-linked bene ts should be considered. 59

The ACCI submission 2006 submission to the Australian FairPay Commission states that There is very substantial evidenceshowing that mandated minimum wages set at high levels (asin Australia) cause adverse effects, particularly for lower skilledpersons seeking employment in the labour market. 60 It was alsoasserted that Australias minimum is clearly above moderatelevels. 61

With the creation of the Australian Fair Pay Commission, theHoward Government sought to:

ensure that the AFPC will meet its primary objectiveof promoting the economic prosperity of the people of

Australia by having regard to:

the capacity for the unemployed and low paid toobtain and remain in employment;

employment and competitiveness across theeconomy; 62

In the economic framework of the Government and its supporters,the capacity for the unemployed and low paid to obtainemployment equates to lowering in real terms, or freezing,minimum wages. The above quote is repeated in the WorkplaceRelations Act, section 23, which governs the AFPCs wage-settingparameters, mandating by law that the Commission seek as aprimary goal the setting of a minimum wage in such a way as toincrease employment through wage moderation. 63

The Howard Governments Regulation Impact Statement for WorkChoices also focused on minimum standards and their link toproductivity, arguing that minimum wages set through safety nets

rather than agreement making can have a negative impact onproductivity (through decreased workforce participation):

Establishing genuine minimum wages and conditions will58 House of Representatives, Workplace Relations Amendment (Work Choices)Bill 2005: Explanatory Memorandum, 2005, p.12.59 OECD, October 2008 Policy Brief, Economic Survey of Australia, 2008 p.860 ACCI, Chapter 8: Minimum Wages Effect on the Economy,Submission toFair Pay Commission 2006 Review , July 2006, p.139.61 ACCI, Chapter 8: Minimum Wages Effect on the Economy,Submission toFair Pay Commission 2006 Review , July 2006, p.139.62 House of Representatives, Workplace Relations Amendment (Work Choices)Bill 2005: Explanatory Memorandum, 2005, p.11.63 AFPC, Australian Fair Pay Commission Functions, May 2008 p.3, availableonline: http://www.fairpay.gov.au/NR/rdonlyres/A3392145-D160-4FEE-99BF-06FF214AF786/0/Australian_Fair_Pay_Commission_Functions_revised_160508.pdf,accessed 10 November, 2008.


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assist in achieving increased labour market participation. At present, low skilled workers or theunemployed may be priced out of the labour market. Australia has the highest ratio betweenthe minimum wage and median wage in the OECDcurrently 58.8 per cent Furthermore,

Australia has thousands of minimum wages through the award system. Wage increasesachieved through safety net adjustments, unlike those achieved through agreement-making, are

not based on productivity improvements. Moreover, large award wage increases can adverselyimpact upon employment opportunities for unemployed people and the low paid, pricing them

out of the labour market.64

AWAs as an instrument to reduce the minimum cost of labour

The use of AWAs also lowered or put a freeze on wage growth. Data released by the Departmentof Education, Employment and Workplace Relations on 20 February 2008, after the 2007 Federal

Election, showed that:

The analysis [of Workplace Authority data between April and October 2006] revealed the so-called protected award conditions that were most frequently removed:

70 per cent removed shift work loadings

68 per cent removed annual leave loadings

65 per cent removed penalty rates

63 per cent removed incentive based payments and bonuses

61 per cent removed days to be substituted for public holidays

56 per cent removed monetary allowances

50 per cent removed public holidays payment

49 per cent removed overtime loadings

31 per cent removed rest breaks

25 per cent removed declared public holidays

64 Australian Parliament House,Work Choices Bill Digest , 2 December 2005, p.26.


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The limited data revealed that 75 per cent of the 1487 AWAs sampled did not provide for aguaranteed wage increase. 65

The removal of these conditions was linked by proponents of AWAs, such as the ACCI as resulting inan improvement in productivity as a result of using more exible employment contracts. 66 Inef cientwork practices such as penalty rates, shift-work loadings and overtime were removed in AWAs, withbusinesses self-reporting that labour productivity were at signi cantly higher levels compared tocompetitors. 67

It should be noted that removal of the above Award conditions may not reduce an employees take-home pay in dollar terms; the usefulness of AWAs was in their ability to reduce costs for the employer,and to make it easier and cheaper to increase hours worked per week (essential for labour productivitygrowth).

ConclusionWere the Work Choices laws successful in their aims? Did productivity increase? There can be littledoubt that short-term productivity gures are not reliable, and that cyclical trends give a much moremeasured picture of productivity growth.

The Work Choices laws, in so far as AWAs are concerned, were scaled back signi cantly followingthe 2007 Federal Election. AWAs remain in effect until they expire, although no new AWAs can beentered into. The economic effects of AWAs will continue to be felt for some time, albeit not in any greatmeasure, and with most AWAs lodged after the fairness test disallowing many provisions that enabled

Award conditions to be removed. Additionally, AWAs were never the dominant type of workplaceagreement. It is therefore dif cult to determine the effects of AWAs on productivity growth during thetime that they were in force.

Changes in productivity growth across markets and industry sectors, particularly in the short short-termcannot be correlated with Work Choices. National and even sectoral productivity growth (or lack of it)

can also be attributed to other factors than workplace relations.68

For example: infrastructure, skills65 DEEWR, Media Release: AWA Data the Liberals claimed never existed, DEEWR Media Centre, 20 February 2008, availableonline: http://mediacentre.dewr.gov.au/mediacentre/AllReleases/2008/February/AWADatatheLiberalsClaimedNeverExisted.htm, accessed10 November 2008.66 ACCI, Chapter 8: Minimum Wages Effect on the Economy,Submission to Fair Pay Commission 2006 Review , July 2006,p.189.67 ACCI, Chapter 8: Minimum Wages Effect on the Economy,Submission to Fair Pay Commission 2006 Review , July 2006,p.189.68 ACTU,The Economic and Social Impact of Increased Investment in Vocational Education and Training An ACTU Discussion


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and training, health care and prevention, innovation and newtechnology, federalism and jurisdictional arrangements, and

government red tape. 69

As noted, criticisms relating to Work Choices were many, andthe workplace relations laws are widely attributed as one of the

main factors in the Howard Government losing the 2007 FederalElection. There are many elements to Work Choices and the

changes the laws made, which have not been examined in thisessay. For example, the role of changes to unfair dismissal laws on

changes to workforce participation; restrictions on industrial actionon days lost to strikes or other workplace disputes; the debate

around Federalism or the social justice effects of the introduction ofthe ve minimum legislated conditions. Work Choices was a major

microeconomic change, and much of the legislative package will beleft intact by the Rudd Governments Forward with Fairness policy.

John Howard promised to unleash a new burst of productivitygrowth with the introduction of Work Choices. The role of industrial

relations and workplace reform in changing productivity growthis debatable, and not conclusively demonstrated by either the

Howard Government, or its business peak-body allies, prior to andafter the enactment of Work Choices.

Productivity growth in the mining sector can be attributed to otherfactors than workplace relations, as most multifactor productivitygrowth occurred during the period of the Accord and introduction

of wide-spread enterprise bargaining (see Figure 5). After theintroduction of Work Choices, productivity growth could be

attributed to increased hours worked.

The effects of Work Choices on unreliable short-term productivitygrowth gures demonstrate that there was no immediate

productivity growth as a result of the laws (see Figure 2). Overthe cycle, the effects will be more clear, although as noted,

Work Choices and AWAs never penetrated signi cantly into theworkplace in so far as workplace agreement making is concerned.The signi cant legislative changes enacted with the fairness test

also make evaluations dif cult.

The real productivity growth effect of Work Choices thereforemay not be known with any great certainty or clarity. Claims that

they would unleash a burst of productivity growth cannot besubstantiated.

Paper , May 2007, p.8, 14-15.69 Andrew Charlton,Ozonomics: Inside the myth of Australias economic

superheroes, Random House Publishing, South Australia, 2007, p.26.


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Bibliography AAP, We got it wrong on WorkChoices Hockey, SydneyMorning Herald , 22 May 2007, available online: http://www.smh.com.au/news/national/we-got-it-wrong-on-workchoices--hockey/2007/05/22/1179601392434.html, accessed 10 November 2008.

Australian Chamber of Commerce and Industry, Review: WorkChoices Good Signs for the Economy , September 2007, No. 151, Sydney.

____, Chapter 8: Minimum Wages Effect on the Economy, Submissionto Fair Pay Commission 2006 Review , July 2006.

Australian Council of Trade Unions, The Economic and Social Impact ofIncreased Investment in Vocational Education and Training An ACTUDiscussion Paper , May 2007.

Australian Fair Pay Commission, Australian Fair Pay CommissionFunctions , May 2008, available online: http://www.fairpay.gov.au/NR/rdonlyres/A3392145-D160-4FEE-99BF-06FF214AF786/0/Australian_ Fair_Pay_Commission_Functions_revised_160508.pdf, accessed 10November, 2008.

Australian Human Resources Institute, Work Choices: Its Impact within Australian Workplaces, Survey Findings , 23 August 2007.

Kevin Andrews MP, Hansard , Wednesday 2 November, 2005, Canberra,Parliament House.

_____, Media Release , 26 May 2005.

Australian Parliament House, Work Choices Bill Digest , 2 December2005.

Stephen Bell and Brian Head (eds), State, Economy and Public Policy in Australia , Oxford University Press, South Melbourne, 1994.

Business Council of Australia, Submission to the Senate Inquiry into theWorkplace Relations Amendment (Work Choices) Bill 2005 , 8 November,2005.

____, Workplace Relations: Action Plan for Future Prosperity , February2005.


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Andrew Charlton, Ozonomics: Inside the myth of Australias economicsuperheroes , Random House Publishing, South Australia, 2007.

DEEWR, Chapter2: Performance information: Outcome 2, 2005-06DEEWR Annual Report , 2006, available online: http://www.annualreport.

deewr.gov.au/2006/chapter2_2/0601.htm, accessed 10 November, 2008.

____, Media Release: AWA Data the Liberals claimed never existed,

DEEWR Media Centre, 20 February 2008, available online: http://mediacentre.dewr.gov.au/mediacentre/AllReleases/2008/February/ AWADatatheLiberalsClaimedNeverExisted.htm, accessed 10 November

2008.

Tim Dixon, John OMahoney and Ankit Kumar, Leaders Meeting/PolicyBrief: Productivity and the national accounts , 15 June 2007 (unpublished).

Employment, Workplace Relations and Education Legislation Committee,The Senate, Provision of the Workplace Relations Amendment (Work

Choices) Bill 2005, Report , November 2005.

Michelle Grattan, New Senate, New Era: Federal Politics, The Age,Insight , 25 June 2005.

House of Representatives, Workplace Relations Amendment (WorkChoices) Bill 2005: Explanatory Memorandum , 2005, Australian

Parliament House.

John Howard, Media Release: Work Choices A New WorkplaceRelations System (2005).

HR Nicholls Society, Submission to the Fair Pay Commission, 28 July2006.


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Lateline transcript, ABC, Paul Keating on the lead-up to the FederalElection , 7 June 2007, available online: http://www.abc.net.au/lateline/content/2007/s1945485.htm, accessed 7 November 2008.

Des Moore, HR Nicholls Society Inc, Workplace policy is de ning issue ,November 2007, available online: http://www.hrnicholls.com.au/articles/hrn-moore6.php, accessed 7 November 2008.

Kathie Muir, Worth Fighting For: Inside the Your Rights At WorkCampaign , UNSW Press, Sydney, 2008.

The Hon. Paul Munro, Changes to the Australian Industrial RelationsSystem: Reforms or Shattered Icons? An Insiders Assessment of theProbable Impact on Employers, Employees and Unions, UNSW LawJournal , Vol.29(1).

Organisation for Economic Cooperation and Development, OECDCompendium of Productivity Indicators , 2008, available online: http://www.oecd.org/dataoecd/6/3/40605524.pdf, accessed 11 November 2008.

____, Economics Department, Country Notes (Chapter 3): Australia,Economic Policy Reforms: Going for Growth 2005 , available online: http://www.oecd.org/dataoecd/48/62/34473158.pdf, accesed 10 November2008.

____, October 2008 Policy Brief, Economic Survey of Australia , 2008,Sydney Australia.

David Peetz, Hollow Shells: The Alleged Link Between IndividualContracting and Productivity Growth, Journal of Australian PoliticalEconomy , Edition 56, 26 March 2007.


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Brian Pink, Information Paper: Experimental Estimates of IndustryMultifactor Productivity, Australian Bureau of Statistics , 2007.

Productivity Commission, Issues in measurement of industry productivity ,available online: http://www.pc.gov.au/research/productivity/estimates-

trends/issues, accessed 7 November 2008.

____, Longer-term trends , available online: http://www.pc.gov.au/

research/productivity/estimates-trends/trends, accessed 7 November, 2008.

____, Productivity Primer , available online: http://www.pc.gov.au/research/productivity/primer, accessed 11 November 2008.

____, Recent movements , available online: http://www.pc.gov.au/research/productivity/estimates-trends/recent-movements, accessed 7

November, 2008.

Andrew Seltzer, Policy Forum: Minimum Wages, An Evaluation of theInternational Evidence on the Employment Effects of Minimum Wage

Legislation, The Australian Economic Review , Vol.30, No.2, 1997.

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February, 2008.

The Hon. Wayne Swan, National accounts December Quarter 2007,Media Releases No.12 , 5 March 2008, available online: http://www.

treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2008/012.htm&pageID=003&min=wms&Year=&DocType=0, accessed 10 November, 2008.

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australiaatwork.org.au, accessed 9 November, 2008.


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About Alex White Alex White is a Masters of Public Policy and Management candidate at the University of Melbourne,Victoria, Australia. During his studies, he focused on water and climate change policy. He has astrong understanding and appreciation for the magnitude of the climate change challenge facing

Australia and the world.

Alex has been an Executive member of the University of Melbourne Graduate Student Associationsince 2007, and was Treasurer in 2008.

He is the Campaigns Coordinator for the National Tertiary Education Union (Victorian Division),where he is responsible for the unions strategic planning, organising and campaign activities. Alexhas rsthand experience in planning and running campaigns, lobbying and advocating for NTEUmembers, and engaging and activating workers and the community.

Alex White is the National Secretary of the Labor Environment Action Network, a national networkwithin the Labor Party working to raise awareness about climate change and improve the FederalGovernments climate change policy.

He is also a founding director of Creative Unions, a new non-pro t organisation committed tostrengthening the trade union movements communication strategies and design.

www.alexwhite.org


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Were the Work Choices laws successful intheir aims? Did productivity increase?

Was Work Choices aroadblock to productivity

increases?

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Workchoices Roadblock to Productivity

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