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Not the bad old days of IR but not so good either

Alexander Philipatos | The Australian | 06 December 2012

SINCE the introduction of the Fair Work Act, business and industry figures have been sounding alarm bells demanding increased flexibility and productivity in our industrial system.

At the same time, union leaders have indicated that the Fair Work Act did not go far enough in reversing the trend towards labour market liberalisation, describing the Fair Work Act as "Work Choices lite".

So who is right? Has Australia's industrial relations system become unworkable? Are the days of low productivity, restrictive work practices and excessive union power back?

Before we embark on further reform, we need to put industrial relations reform in context. A broad look at reform across the past 20 years shows the results are mixed. On the one hand, Australia's labour market is much more flexible than it was before reform started in the 1990s.

The highly regulated system of compulsory arbitration has given way to enterprise bargaining. In 1990, roughly half the workforce had their pay set by awards. By 2010 that figure had dropped to 15 per cent, and 80 per cent of workers were covered by individual or collective agreements.

In addition, the rigid award system has been repeatedly simplified. Awards used to number in the thousands and regulated a wide range of employment conditions. Today they serve as a safety net numbering just 122 and regulating a lot less of the employment contract.

Also, despite community perception in light of the large and public industrial disputes at Grocon and Qantas, strike action has declined markedly in the past 20 years. Australia's strike rate averaged 54 work days lost per 1000 workers from 1985 to 1993 before the first substantial reforms were introduced. The strike rate since 1993 has averaged just 13 days lost per 1000 workers, a 75 per cent reduction from its pre-reform level.

The large fall in industrial disputes has been one of the success stories of the reform era, and it is a testament to effective reforms brought about by Paul Keating and John Howard in the 90s and 2000s.

The reform era under Keating and Howard brought about a limited right to strike for the first time in Australia's history as well as effective penalties for illegal strike action.

The Fair Work Act has retained most of the changes in previous reforms (including the main changes of the Work Choices reforms) and, as a result, industrial disputes are at historically low levels.

One exception remains, however. The Fair Work Act gave unions a broader scope of matters over which they could strike, matters that would have been prohibited under Work Choices. Restrictions on outsourcing and the use of contract labour have become a concern for employers, who report that the Fair Work Act impedes their ability to hire suitable workers and contain cost. These matters were at the heart of the Qantas dispute and continue to hold significant sway in calls for reform.

But there are other restrictions that are causing problems.

The Fair Work Act has made the bargaining process more cumbersome and inflexible. The act ensures unions a place at the bargaining table, even in workplaces where there is a low level of union membership and the employer wishes to deal directly with employees.

Unions ought to have the right to represent workers, but this needs to be balanced with the needs of the business. It simply does not make sense that, in an economy where only 18 per cent of the workforce is unionised, unions are treated as the default bargaining representatives.

Changes to federal unfair dismissal laws have been contentious. Howard's Work Choices reforms in 2005 excluded businesses with 100 employees or less from unfair dismissal laws in an attempt to boost employment. The Rudd government scrapped these changes in 2009 and, predictably, claims have risen.

But perhaps more worrisome is the unfair dismissal process, whereby employers are increasingly complaining about the need to pay "go away" money to avoid a costly court hearing, regardless of the merits of the case.

Successive labour market reforms have sought to increase labour market flexibility. While there have been positive results, the Fair Work Act has reversed this trend. On most indicators, the Fair Work Act has reinstated or strengthened restrictions that were removed or relaxed by earlier reforms.

The government needs to look seriously at improving flexibility and addressing the significant, real problems in industrial relations. But, at the same time, Australia's industrial relations system has fundamentally transformed in the past two decades. Claims the Fair Work Act has turned back the industrial clock to the bad old days are simply not true.

Alexander Philipatos is a policy analyst at The Centre for Independent Studies and author of Back to the Bad Old Days? Industrial Relations Reform in Australia, released this week and available via cis.org.au.