Written in 1987
It was interesting to read the comment made in the March 1987 National Wage Case decision where it is stated:-
The most notable feature of the submissions put to the Commission both before, and since, the 23 December decision (which rejected the A.C.T.U.’s 6.7% wage claim) is the similarity in the approach adopted by the major parties. All recognised the serious economic situation and the need for restraint. All supported a two tier system and there was remarkable similarity in the content of the principles they proposed.
It is interesting to reflect on those words, because after the National Wage Case decision there was a vacuum of silence on the part of every major employer organisation when it came to supporting the Commission’s decision.
Those comments which reached the television and radio news were alarmist about the inflationary consequences of the National Wage Case decision. An innocent observer would think that the unions had scored another big win.
In private most employers nodded agreement that the two tier system was the best that could be achieved in all the circumstances and likely to cause significant wage restraint.
It is understandable that few of the major parties in the industrial relations scene have wanted to give an unqualified statement of support for the new system. There are many reasons for this, including the fact that the last National Wage Case decision represented a compromise in the positions put forward by the various parties. It was also an attempt to establish a workable new system.
Unfortunately, too many on the employer side have been intimidated by the shrill critics of the New Right who argue that the Arbitration Commission is often a hindrance to good industrial relations, that somehow there is a cliquey industrial relations club acting against the national interest.
It is for this reason that the National Wage Case decision and its implications have not received the good press that it deserves. And as many of us are aware in this audience, there has been a rethink in attitudes in many industries flowing from this decision and many prospective improvements in work arrangements arising from it.
I would like to present a union perspective concerning the Two Tier System, outline its strengths and criticise its opponents who ignore the many positive aspects of the new system, including its relevance to export growth.
First, let us look at where we are at and how we got there.
The two tier system did not suddenly emerge – it arose out of the experience of over a decade.
This period has been characterised by:
- high inflation in the middle 1970s onwards: wage increases chasing price rises;
- the failures of the 1981-1982 wage explosion which co-incided with the collapse of wage indexation;
- the failure of the then Liberal government to develop an incomes policy; and
- the A.L.P.-A.C.T.U. Accord of 1983.
The agreement on wages, prices and other issues which was struck by the A.C.T.U. and the A.L.P. in February 1983 is not only the centrepiece of the Federal government’s relationship with the Australian trade union movement, it also symbolises many things: the concern that the union movement has with looking beyond immediate “gains” to longer term strategies to improve the standard of living of the workforce; the realisation that the absence of an incomes policy would ensure the defeat of a Labor administration; the recognition that the union movement has a responsibility to minimise inflationary pressures on the economy and assist in employment growth.
The document states that: “Both parties acknowledge the importance attached to the goal of maintaining and gradually improving the living standards of all Australians. The achievement of this goal via an incomes and prices policy approach will require a suppression of sectional priorities and demands given economic realities and the priorities placed by both parties on simultaneously reducing unemployment and the inflation rate”.
- the decline in the balance of trade, substantial devaluation of the Australian dollar and the leap in inflation in 1985 led to the adoption of the Accord Mark II in September 1985 which included wage discounting;
- subsequently the further deterioration in Australia’s economic position has caused a further change in government policies, further demands for wage discounting and a more flexible incomes policy.
Although the Accord cites the need to maintain wages and the standard of living of ordinary workers there is no doubt that real wages have fallen by at least 4.5% over the last three years.
The Australian Bulletin of Labour last year commented that:
Despite the formal structures which bind centralised wage determined processes like the Accord, and which are often reinforced by the rhetoric of the representatives of the peak organisations which are parties to these processes, the reality of the consensual corporatist approach to economic policy formation in Australia, as evidenced in the data demonstrating our recent labour market experience under the Accord, is that wage determination is far more flexible than the formal processes would suggest. To repeat, it is difficult to imagine how any other institutional arrangement would have delivered such a macroeconomic real wage outcome. If real wage moderation was necessary for Australia over the past three years, then the Accord has delivered real wage moderation, and, it must be added, with a relatively low level of industrial relations discord.
The Economist in a wide ranging feature on Australia published in March this year observed that the Accord:
… boiled down to deal whereby the unions would settle for low wage increases in return for economic growth and, with it, government promotion of jobs; hence the fall in real wages that followed it, the surge in 1983-84 that helped make Australia’s the fastest growing economy in the world, the 600,000 new jobs and the concomitant low rate of unemployment. One reason that the accord has lasted much longer than one might have expected (and than business admits) is that it was negotiated not just with the top bods but with the 30 leading unionists (anyone, said the treasury minister, Mr Paul Keating, who might start a wage round); it was then sold back through the union movement.
So, this is the background. What about the arguments for change?
First of all its necessary to recognise what is realistically achieveable.
As Dr. Joe Isaacs, a former Deputy President of Conciliation and Arbitration Commission has said:
To be useful, economic policy must be workable, not merely ideally desirable. In this connection, the real difficulty with the economists’ approach on wages is that it is founded on a system where economic power is widely diffused, where the labour market works impersonally, and where decisions are made by individuals acting singly. In practice, the labour market is dominated by concentrations of economic power whereby wage fixation, whether by collective bargaining or arbitration, is a conscious administrative decision. Unions are part of such concentrations of power and, because they are an established and continuing fact of economic life, they cannot be assumed away as fictional elements in the labour market.
Let us now look at the National Wage Case decision. Inter alia the decision stated:
Some of the positive changes which we would expect from the application of the [restructuring and efficiency] principle include:
« there will be an examination of restrictive work and management practices in both the public and private sectors to identify areas of inefficiency and to develop means to overcome them: This objective is the subject of agreement between the A.C.T.U., the B.C.A. and C.A.I. and we endorse it;
« if improved efficiency and productivity require the introduction or extension of multi-skilling and broad-banding, these will be treated by the parties as an appropriate element in the restructuring exercise;
« similarly, there should be acceptance of the concept that the reduction of demarcation barriers may be essential to the success of an exercise; and,
« where new classifications are needed to give effect to the changes which have been introduced, the parties will seek an appropriate award variation.
It will be apparent from the changes we envisage that the responsibility for the successful application of the principle must be borne both by management and the workforce.
The Commission also laid down a number of strict tests in this area:
The Australian Manufacturing Council pointed out that considerable attitudinal and structural change will be necessary; we wish to emphasis that structural change will depend on changes in attitudes by all.
Although there was general acceptance of the need for the new principle, the parties recognised that in its application there could be inappropriate outcomes. We share that concern and repeat the warning given in the decision of 23 December, 1986 – the new principle must not provide a vehicle for bogus wage increases or other sham arrangements. The consequences that must be avoided include the following:
« it would be unacceptable for a plant restructuring exercise which was accompanied by labour force adjustments to have as its consequence a levelling-up of rates of pay. This could happen if priority was given to the maintenance of relativities;
« it would also be unacceptable for an agreement to be put forward in purported reliance on the principle in circumstances where there has been no genuine restructuring exercise;
« the objectives of the principle should not be confused with the obligation to fulfil normal work requirements. We do not consider that a restructuring and efficiency exercise is an appropriate description of changes leading to no more than compliance with terms of employment; and
« a restructuring and efficiency exercise may identify award classifications that are no longer appropriate, but it would be contrary to the purpose of the principle if obsolete award provisions were retained.
In the current metal industry negotiations there has been a seachange in attitudes. In a statement made by Deputy President Keogh on 12th May, 1987, concerning the metal industry negotiations, he commented:
There is a measure of agreement that the parties should pursue, as a longer term objective, a restructuring of the Metal Industry Award and the definitions of all classifications to allow for more efficient use of labour, multi-skilling and career paths for workers based on service, acquired knowledge, training and additional qualifications.
As part of that understanding the unions have agreed to discuss and implement by agreement a revised award and a wage structure which is applicable to the requirements of a metal industry over the next generation. This can only be to the benefit of Australian industry and exporters in particular.
Explicit with this acceptance has been a willingness to establish a wages system in which:
- the potential for demarcation is minimised;
- the opportunity is developed to directly relate increased productivity, training, skill formation and wage movements;
- a career structure for employees within industry is developed;
- a simplified system removing unnecessary classifications is achieved by broadbanding;
- multi-skilling is encouraged; and,
- the acquisition of additional skills and responsibilities is encouraged.
It is expected that when the parties are next before Mr Deputy President Keogh in December, a new Metal Industry Award will be jointly proposed incorporating these points. Already Mr Deputy President Keogh has recognised in his decision in early September the significant work practice changes in the metal industry leading to a 4% second tier rise.
One of the consequences of recent incomes policy experience is the increased commitment by the unions to a centralised system.
As the A.C.T.U. discussion paper Future Strategies for the Trade Union Movement observes:
If the union movement in Australia fails to accept its responsibility to preserve and advance the system of social regulations on behalf of all workers then the free market strategy of the New Right will ultimately prevail. This will imply a system where strongly unionised, strategically placed groups of workers are “bought off” and the cost passed on to consumers while poorly organised or placed workers have their “market” price driven lower and lower in order to prop up otherwise inefficient business and industries and in order to protect excessive profits.
In other words, the unified and overwhelming support of the Australian trade union movement to the centralised system is essential, particularly in these times in order to protect Australian workers’ standard of living.
Interestingly enough, a decade ago the most militant proponents of a collective bargaining approach – and the attitude of gaining whatever can be achieved from the employer outside of the arbitral system – were a number of militant unions. For example, the harshest critics of the wage indexation system from 1975 onwards was the leadership of the Amalgamated Metal Workers Union.
Times have changed. Nowadays at A.C.T.U. Special Unions’ Conferences former A.M.W.U. Assistant National Secretary and A.C.T.U. Assistant Secretary aspirant Laurie Carmichael lectures the delegates about the sense of the incomes policy and social wage approach of the A.L.P./A.C.T.U. Accord.
Mr Carmichael’s change of heart cannot be simply explained away by the recent relative economic weakness of the metal industry and the consequent weakening of the bargaining position of the A.M.W.U. It is also the case that Mr Carmichael and others influenced by him and by similar experiences no longer believe what they once did. It is more than a change in tactics, it is a complete change in approach.
As the preamble to the Accord says,
… It is with this experience in mind that both organisations have seen fit to try to develop a mutually agreed policy on prices and incomes in Australia for implementation by a Labor government. Such a policy offers by far the best prospect of enabling Australia to experience prolonged higher rates of economic and employment growth, and accompanying growth in living standards, without incurring the circumscribing penalty of higher inflation, by providing for resolution of conflicting income claims at lower levels of inflation than would otherwise be the case. With inflation control being achieved in this way, budgetary and monetary policies may be responsibly set to promote economic and employment growth, thus enabling unemployment to be reduced and living standards to rise.
In complete contrast to this approach is the argument put forward by the Opposition in the last election campaign that there should be the provision in the industrial relations system for “opting out” of the centralised wage structure. Such an approach in my view would completely destroy the current system.
The Liberal Party’s industrial relations policy states inter alia,
3.2 Where employers and their employees agree, they will be free to have wages and conditions of employment determined by an agreement between them instead of by an Award. Such an agreement may set out such wages and conditions of employment as are agreed upon between the employer and the employees.
The policy also says,
4.1 In implementing the proposed system using voluntary agreements a Liberal government will proceed upon the principle that employers and employees should have the freedom to have their industrial prescription determined by voluntary agreements if that is their wish.
5.2.2 The Act will be amended to give to voluntary agreements “the status of awards and,
The Act will also be amended to provide that the Commission will not have jurisdiction over those industrial matters that are covered by a voluntary agreement whilst the agreement is current.
What is left unaddressed in this policy is how a centralised wage system would co-exist with “opting out” arrangements.
Strangely enough there is a symmetry between the “militant” left approach towards the conciliation and arbitration system which was fashionable in the 1970s and the New Right approach as reflected in the Liberal Party’s current policy.
However attractive the theoretical arguments may be about the virtues of a free market approach to the regulation of wages, there is the prime requirement that a wages policy needs to be workable. Further, the criticism that the Accord and the centralised wages policy which emerged in 1983 is inflexible ignores the discounting of wage increases which occurred in 1985-1986 and the drop in the value of real wages over the last four years.
The December 1986 issue of the Australian Bulletin of Labor summarised a view reflected in the March 1987 National Wage Case decision as follows,
What, then, are the requirements for a new structure? It would seem that there are two basic requirements. The first is the need for the structure to produce a satisfactory (in terms of international competitiveness and domestic employment growth) macroeconomic real wage outcome. In this, the Accord as it has developed up until the present time, has produced such an outcome in that whatever the other problems facing the Australian economy, it is not in any way, shape or form a problem of excessive real wage growth. Through a series of both formal and informal devices real wages have fallen over the last two years…
Given the current institutional structure of industrial relations and wage determination in Australia, it would appear necessary for there to be a ceiling placed on the overall level of real wage growth. Of course, a central feature of the industrial relations, wage determination debate in this country is essentially about the appropriateness of this structure and power relations that it both implies and reinforces. However, given the structure, the ceiling placed on the second tier is an attempt to retain the discipline of appropriate real wage growth that has been a feature of the Accord.
The second requirement is a microeconomic one – to develop a means by which the wage structure can allocate labour efficiently across industries and occupations and, importantly, to develop a wage determination process which enhances the ability of firms and workers to adapt dynamically to changing economic circumstances, that is to adopt work practices and work organisation which increase productivity in the light of changing economic conditions. Presumably, the reason for the second tier, the band between the minimum flat dollar amount which applies to all workers, and the maximum percentage increase dictated by macroeconomic real wage considerations, is to enable relative wages to display more flexibility than they would under a uniform wage indexation (full or partial) rule.
The main weakness of the Liberal Party’s wages policy is that it is indifferent to its inherent contradictions. The policy was formulated before the March National Wage Case decision and does not give credit to the flexibility of the current centralised system. Their alternative is a Mad Max world of ‘barter town’ negotiations co-existing with the conciliation and arbitration system. Such co-existence is unlikely to last long.
The advocates of opting out seem to assume that wage outcomes would occur in a downward direction only. The reality however is that opting out would lead to opting out in favour of higher wage levels as well as lower levels. Indeed it is more likely, if choice is involved, that opting out will be in favour of higher wage levels rather than lower, leading again to higher aggregate wage movements. In reality wages are more flexible upwards than downwards.
It is only through a centralised system that government can have any effective input into wage fixation and aggregate wage movements.
Without an effective prices and incomes policy and given Australia’s inflation prone history over the past two decades, we would see the return to a cycle of boom and bust with strong growth leading to an escalation of wage demands and rising inflation, the consequent introduction of tight monetary and fiscal policies to contain wage increases and inflation leading to rising unemployment which inevitably leads to government stimulus for political reasons and a consequent further escalation of inflation and wages and economic ruin. It is precisely those consequences which the Accord processes are aimed at preventing. In so far as the Accord processes are successful – and I believe considerable progress is particularly being achieved in recent times – this will be of great value to the Australian economy and those directly dealing with Australia’s international competitors in manufacturing and other industries.