Policy Approach

Labour market reform - Phase 1

In 1996, the Australian labour market was significantly altered after the election of the Howard Liberal government. In that year, the Workplace Relations Act was introduced, which saw a number of critical changes made to the labour market in Australia. At the time, union membership had fallen to 24% of all workers (by 2004 this figure had fallen to 20%, and today it is slightly lower than that). Given this, the government believed it was appropriate to decentralise the wage setting process, and encourage workers themselves to negotiate their own wage increases. This resulted in a number of fundamental changes to the way in which wage determination was carried out in Australia.

1. The Accord process was scrapped. Allowing unions to negotiate on behalf of employees, the majority of whom were not even members, was seen as an inefficient way to implement the wage fixing process in Australia.
2. Australian Workplace Agreements (AWAs) were introduced. This is an agreement that is found between employees and an employer at an individual level.
3. The Employment Advocate (EA) was created. The EA was a new body which was set up to ratify AWAs. Their job was to ensure that no employee ever lost any entitlements by going through this process. In effect, they act as a filter to ensure that any agreement that is reached is “fair”.
4. Certified Agreements (CAs) were introduced. The Australian government recognised that almost a quarter of all employees were still members of a union, and it was equally important to cater for them also. A Certified Agreement is one that is negotiated by a few workers on behalf of a larger number. This provides an opportunity for the unions to still be involved in the process. However, individual employees must still agree (by majority vote) to the CA before it will become law.
5. The Australian Industrial Relations Commission (AIRC) altered its role slightly. Whilst still an important body within the Australian economy, the AIRC was now primarily responsible for ratifying CAs, rather than setting wages for many of the workers in Australia.

Despite these changes, by 2005 the Australian economy was once again operating with a negative rate of labour productivity. It became apparent that further reforms to the labour market would be required if any further gains were to be seen. Accordingly, the federal government started a second wave of reforms, and introduced the "WorkChoices" labour market package.

Labour market reform – Phase 2

After the Workplace Relations Act in 1996, the federal government was open in their desire to implement further industrial relations laws as soon as the opportunity presented itself. In gaining a Senate majority at the 2004 election, the opportunity was handed to the government.

The government justifies the need for reform by looking at the way in which the demographic of the Australian economy is changing. In 2006, the first of the baby boomers turned 60. This will begin a wave of retirements that, coupled with falling birth rates, will see the participation rate in the Australian workforce fall over an extended period. As this situation occurs, we are also operating in a market that has seen much lower rates of productivity growth since 2000. After world leading results with the implementation of the Workplace Relations Act, the benefits now seem to have been realised. For these reasons, the government argues that further reform is necessary to ensure the long-term prosperity of the country.

On the other hand, the Labor Party and many other groups were keen to point out some other characteristics of the Australian labour market. Although real incomes have increased, we are also seeing the erosion of family time due to people working multiple jobs and the prevalence of unpaid overtime. In addition, although the growth in full time jobs has been positive recently, for a long time we have seen stronger growth in part time and casual positions. These relatively precarious forms of employment often do not allow people to take out loans (for example, to buy a house) nor to save for any other major purchases. The new laws may undermine these people to an even greater extent; those Australians who are least able to support themselves might find that they are even worse off.

In 2006, we saw some major changes to the way in which the Australian labour market operates:

1. Prior to 2006, the labour market operated with an enormous number of “awards”. These documents were legal contracts that dictated what the minimum conditions are for people in a particular workplace. As the number of awards increased each year, this information became almost impossible to navigate. The WorkChoices laws changed this to one, national system that applied to all people in Australia, significantly reducing the number of awards available to Australian workers.
2. The “no disadvantage test” was abolished. This test was put in place in 1996 to ensure that, on balance, no Australian worker would be worse off after negotiating their own pay and conditions.
3. The Fair Pay Commission was introduced. This new body as designed to oversee the changes that are made to the minimum wage in Australia. In the past, this decision was made by the Industrial Relations Commission after submissions by the government, employers and employee groups. After this change, this decision was made by the Fair Pay Commission based on their belief about what is best for the economy.
4. Unfair dismissal laws for people working in businesses with fewer than 100 employees were removed. This means that employees in small to medium businesses will not be protected in the same way as those in larger businesses. Despite this, it will still be unlawful to dismiss a person based on discrimination of any kind.
5. The actions of unions were more carefully controlled. For example, unions were no longer be able to engage in “pattern bargaining”. That is, they can not ask for the same pay and conditions at every workplace in a particular industry. Similarly, unions were no longer be able to enter a workplace unless they were invited. The right to strike was maintained, but the parameters within which a strike can commence are far more complicated. Although collective agreements will still be possible, they are obviously being discouraged – certain conditions (such as the manner in which disputes are resolved) were prohibited from being included in collective agreements. The minister was able to add to the list of prohibited items at any time.

The WorkChoices laws became law on April 1st, 2006. Significant debate followed, and ultimately the Howard government lost the federal election which was held towards the end of 2007.

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