Fair or Unfair Work Commission?

8th June 2014

Another year and another Annual Wage Review decision lifting Australian minimum wages. Is this yearly ritual of claim, counter claim and pseudo economic analysis really contributing to the economic welfare of Australians or is there a better way to provide a fair and just safety net of minimum wages and conditions?

Prominent economist and commentator Judith Sloan recently described the Fair Work Commission (the Weekend Australian 7 June 2014) as a relic of a bygone era in which industries were protected, the financial system was regulated and a majority of workers belonged to trade unions. She suggests that most members of the Commission live in some sort of parallel world whilst employers struggle to make payroll and a decent return on the capital and effort involved in running businesses. As a veteran of thirty years working in the field of employee relations advising businesses and representing both employers and trade unions, I find it very hard to disagree with Professor Sloan.

The institution that rose from the ashes of Work Choices to once agains take a central role in regulating Australia’s employment conditions has failed to grasp the fundamental change in the Australian labour market and has shown little willingness to embrace the diverse realities of the modern Australian economy. In many respects the Commission lead by Justice Ross and for that matter, his immediate predecessor, Justice Guidice, harks back to the era of the Wages and Incomes Accord of the 1980’s and early 1990’s before Prime Minister Paul Keating sanctioned enterprise bargaining in federal law.

It is undoubtedly very easy to criticise, however there are at least two aspects of the Commission’s operations that illustrate my point. The first is the Annual Wage Review and the second is the Review of modern awards.

The main contributors to Australia’s national income growth are labour productivity, labour utilisation, foreign income flow and our terms of trade. Professor Roy Green of the University of Technology Sydney, speaking at the 2013 SEEANZ Conference in Sydney, explained Australia’s challenge very succinctly. Our terms of trade have been the major contributor to income growth over the past 13 years. When the mining boom subsides we need substantial improvements in labour productivity and utilisation to continue to grow our national income to pay for our standard of living. This means structural reform including to our labour markets. There was barely a mention of this in the Annual Wage Review decision this year.

The decision focused on relative living standards of award reliant employees, aggregate GDP, inflation and national unemployment levels to justify across the board increases to all award wages. The Commission failed to acknowledge the lopsided contribution of minerals and energy exports, the high value of the Australian dollar and the impact on the industries exposed to imports, the so called two-speed economy. Even if one were to accept the reasoning for a higher national minimum wage, there is no justification for extending the increase to every award covered employee.

Secondly, the Commission is yet to complete a two year transitional review of modern awards whilst the obligatory four-yearly review commenced in January this year. Although the transitional review was supposedly limited to technical adjustments, the Commission found sufficient grounds to reduce the age for adult wages to 20 years rather than 21 and increase apprentice wages, whilst steadfastly refusing to reduce weekend penalty rates in line with modern consumption and living patterns.

Even the structure and content of the modern awards is rigid and inflexible. There is barely a term of the 122 modern awards outside of the wage classifications, that is designed uniquely to suit the economic circumstances of individual industries. Whether working as an engineer, storeman, a printer, nurse or shop assistant, the arrangement of hours, penalties and loadings are essentially the same. It begs the question as to what benefit there is in industry based awards if industry performance and circumstances are ignored. Unfortunately, the Commission is no hurry to answer that question as the four-yearly review is scheduled to continue through to 2015.

In the meanwhile, emerging enterprise tend to work outside of the realm of the Commission applying innovative business methods and flexible work practices to compete and succeed. Unfortunately, anecdotal evidence suggests that businesses competing in older industries exposed to international competition and high labour costs are increasingly ignoring the awards, which puts them at risk. It would be refreshing if someone decided to do something to improve this situation. Now that would be fair to everyone.