Submission 167 Australian Council of Trade Unions Workplace Relations Framework Public inquiry

Bridges or traps?

The other justification for the widespread use of non-standard employment has been the argument that it provides a stepping stone for entering the labour market. In the same way that some economists have suggested that low pay is less of a problem if it is transitory,⁶⁰ so too has casual work been seen as a stepping stone into permanent employment. The logic of this argument is that a casual job is preferable to unemployment. In their study of this issue Buddelmeyer and Wooden found that among men, workers were ‘better off accepting casual work rather than remaining unemployed’. For women, on the other hand, ‘we find that unemployment has the edge over casual employment when it comes to enhancing the probability of permanent employment 1 year onwards’.⁶¹ Using similar data, but with different modelling approaches others have argued that casual employment is more of a trap than a bridge.⁶² In his modelling of the transitions for casuals across various labour market states, Watson considered a range of factors, including demographic, locality and job attributes and concluded:

“In terms of the bridge / trap debate, the unconditional probabilities [ie. raw probabilities] … suggest that the conclusion drawn depends on how one evaluates the labour market outcomes. The bridge metaphor weighs up permanent outcomes against the avoidance of joblessness: more casuals end up in permanent jobs than jobless. By contrast, the trap metaphor emphasises the patterns of continuing casualisation and intermittent joblessness experienced by most casual workers. In looking at the conditional probabilities [ie. those based on modelling various factors] … it is clear that the characteristics of casuals jobs, in themselves, are a major factor in perpetuating this kind of work. It seems reasonable to conclude that casual jobs do indeed operate as labour market traps, and they are actually crafted to do so.”⁶³

In other words, achieving the kind of flexible labour market which employers have sought over the last 30 years has come at a cost of intermittent employment for many of those workers engaged as casuals. Both in the patterns of underemployment discussed earlier and in these difficult labour market transitions one can see clearly that many casual workers have had to bear the costs of employer flexibility.

What do these findings about labour market transitions and cost-shifting mean for sound industrial relations policy? The ‘bridge proponents’ operate from within the framework of methodological individualism, where solutions for particular individuals are seen as social solutions. They lack an understanding of the labour market as a wage structure⁶⁴ in which the locations, not the incumbents, should be the basis for sound industrial relations policy. In other words, while attempts to improve the circumstances of disadvantaged individuals should not be avoided, they should not come at the expense of the structure itself. This is the domain where industrial relations policy has always been strong, since it favours institutional arrangements which are generally neutral. By contrast, social security interventions into the labour market are rarely neutral but entail judgements—often moral in nature—about particular groups of individuals. A familiar refrain from some economists—that most low wage workers live in middle income households—is premised on the assumption that these individuals don’t need adequate pay.⁶⁵ Leaving aside the question that a great many low paid workers do in fact depend crucially on their wages, this line of reasoning is specious. Its end point would be the proposition that certain jobs in the economy are only available to certain groups of people, namely those in a household with a second income. While the Australian industrial relations system began with the concept a male breadwinner, by the late 1980s this archaic conception of the worker was gone and most progressive industrial relations policies were aimed at eliminating the residues of gender discrimination within the labour market. Another variation on this theme has been the recent attack on Sunday penalty rates which has used the argument that many of these jobs are held by students who are living at home, and therefore they don’t need the extra money which the current loadings provide.

Policy directives based on assumptions of “individuals” choosing casual, fixed term contract, “flexible”, labour hire engagements fail to recognise sectoral differences within and across industries. Rather than being based on choice many “non-standard” forms of employment are all that is on offer.⁶⁶ Rather than being short term “holiday jobs” or part-time flexible jobs allowing women to meet their caring duties, many non-standard jobs are full time and ongoing.⁶⁷

The cornerstone of good industrial relations policy should be that all potential workers should be entitled to a job with decent pay and conditions. Tolerating sub-standard jobs for some categories of people—such as ‘second earners’ or ‘students living at home’—returns policy to the Victorian era where sweatshops were common and child labour widespread. There has traditionally been an exception made to this neutrality in the form of junior rates and disability employment services. These exceptions are generally catered for within the current industrial relations framework, with discounts intended to take account of productivity differences based on the particular circumstances or age of the individual. However, leaving aside arguments about precisely where the boundaries and tapers within those discount mechanisms lie, this concession to the characteristics of the individual is based on accepted community standards that are morally neutral and which concern genuine productivity differences.

Wages

Returning to this analysis of the business cycle, the flexibility of the industrial relations system was also evident during the boom. Between 2002 and 2008 the economy grew strongly, buoyed by the construction phase of mining exports, particularly in Queensland and Western Australia, and strong residential property construction and sales, particularly in Sydney and Melbourne. Unlike previous booms there was no wages ‘breakout’, nor any large increases in inflation. There are a number of reasons why price inflation has been largely eliminated from the Australian economy since the early 1990s: the recession of 1991 ‘purged’ the inflationary pressures of the late 1980s while global competition since then has kept the prices of tradeable goods in check. (Asset inflation, particularly in residential property, has been a different matter and housing affordability has become a major social problem.) At the same time, one of the mechanisms which could feed into inflationary pressures—wage cost spikes—has been controlled by the industrial relations system.

Historically, Australia has moved between different phases in its wage setting arrangements—ranging between centralised and decentralised at different times—but a common feature prior to the 1990s was the ‘transmission belt’ phenomenon, whereby high wage bargaining outcomes in one sector percolated through the labour market via a system of award flow-ons.⁶⁸ Thus over-award payments, reflecting boom conditions in one sector, could influence wage outcomes in other sectors of the economy, irrespective of the profitability of enterprises in the weaker sectors. With the spread of enterprise bargaining since the mid 1990s this phenomenon has disappeared, and high wage outcomes have now been ‘quarantined’ within those enterprises, or sectors, where profitability has made them affordable. Figure shows this long-term view and illustrates Borland’s observation that in the mid-to-late 1990s Australia shifted to a ‘lower-inflation environment where wage growth seems less sensitive to demand conditions’.⁶⁹

Figure : Wages and inflation, Australia 1950 to 2014

Shaded areas show periods of economic boom. The y-axis shows annual percentage changes. Male AWE is male full-time average weekly ordinary time earnings. Data spliced from several ABS series: ABS 6302001; Reserve Bank of Australia Historical Spreadsheets, 4-17; ABS640101

The ability of the economy to grow in a fashion which is sustainable, particularly without excessive price inflation, does not necessarily require a decentralised wage setting system, such as enterprise bargaining. After all, similar outcomes were achieved in the 1980s under the ACTU-ALP Wages and Income Accord, a highly centralised system. Rather, there are many dimensions of economic life which fall outside the reach of the industrial relations system, particularly employment and investment. Both of these showed better performance under the Accord in the late 1980s than they did under enterprise bargaining during the 1990s. When it comes to issues of income distribution, the industrial relations system remains centre stage and one of the achievements of the last twenty years has been the maintenance of real living standards for the majority of the working population. This contrasts sharply with the experience of the United States where even median earnings have declined over the last 30 years.⁷⁰