Telling Lies about IR: Productivity, The Fair Work Act & Proverbs 26:11
Tim Lyons, Assistant Secretary ACTU
It seems customary, when you are asked to address a gathering like this one, that the term “reform” appears in the title of the conference or at least a session. So I’m really pleased that on this occasion the organisers let me pick both topic and title, enabling me to using what I regard as that truly dismal verb.
I spent most of last week in Canberra at the Tax and Jobs Forums and after that experience the term “reform” is enough to make me reach for my revolver. “Reform” wins the prize for being the most debased term in Australian public life.
It has become so bastardised as to be devoid of any meaning, appended as it is to positions that are mere change, or simple opinion and narrowly self-interested, rather than progress or improvement.
The haphazard use of the term is as prominent in IR as it is in tax – if you believe the papers, key players in this field spend their lives constantly “calling for” more and more of it.
So I didn’t want to talk to you about “reform” and please feel free to heckle me if I use the term. But I did want to talk to you about productivity and its relationship to IR, and about the series of lies being peddled about the Fair Work system.
First to productivity.
Unions want Australian businesses to be economically sustainable and profitable precisely because we want a share of those profits for ordinary workers– put another way, there is nothing more pointless than arguing about how you share a surplus if there isn’t one there in the first place.
Trust me, I’ve tried it – and it’s a thankless task
A core objective of Australian unions – to ensure workers obtain a fair share of the gains from their work – brings with it an obligation on us, on ACTU and its affiliates – to understand the economics of our industries, including how employment and wealth are generated – and to deal seriously with this at a national, sector and enterprise level.
Productivity growth is extremely important; it is the primary means by which Australians’ incomes can grow over time.
We take this seriously, which is part of the reason we have today released a new report, Working by Numbers, that separates myth from reality on IR and productivity.
What the report reveals is that the consensus of credible figures, from the Treasury to the Productivity Commission to the Grattan Institute and others, is that the rate of productivity growth has been falling for at least a decade, for reasons almost entirely unconnected with labour law.
Australia experienced a productivity surge in the 1990s, with our productivity growth rate outstripping the rest of the developed world. This occurred at a time when our industrial relations systems were largely characterised by collective bargaining, underpinned by a strong award safety net, as now.
Australia’s rate of productivity growth began to fall in the late 1990s, and has continued to fall. It fell through the WorkChoices period.
Our productivity performance since the enactment of the Fair Work Act has been no worse than in the period before the Act took effect.
Reports of poor productivity performance under the Fair Work Act are either referring to the general slowdown in productivity growth – which is a problem which long predates the Act and therefore cannot be blamed on it – or more recently to the fall in productivity recorded in early 2011 (which was essentially an aberration caused by the natural disasters in Queensland that some people conveniently forget).
There are a number of potential explanations of Australia’s productivity slowdown. The prime suspects are the effects of the mining boom, and the effects of an OECD-wide slowdown in the rate of productivity growth.
Underinvestment in infrastructure and skills are also important factors, as is managerial complacency about productivity in the face of strong and rising profits in many sectors, and record terms of trade.
Australia’s relatively low productivity growth is a matter for concern.
However, this is a long term problem, and one that has been in place for at least a decade. WorkChoices didn’t fix it, and Fair Work hasn’t made it worse. Labour laws are not the cause of our productivity problems, and they’re not the solution.
How to accurately measure productivity is problematic (economic wonks love this debate and those of you who work with economists know that this question will bring them in off the long run-up). The simple measure of labour productivity (economic output per hour of labour worked) can be unhelpful, particularly over short periods of time.
There are also problems with putting too much emphasis on productivity growth without looking at the
bigger picture. For example, Australia had significant productivity growth in the 70’s – but also had a couple of recessions, the emergence of significant structural unemployment, and a couple of eye-watering bursts of inflation. So be careful what you wish for.
But if employers want to have a genuine discussion about productivity, about securing national prosperity and sharing it fairly, we are up for that.
But what we are not up for, and what we will fight, is a return to a Work Choices style prescription of lower wages and conditions and reduced rights at work.
Let’s be clear, such a model is not about productivity or “efficiency” at all but simply cost reduction – indeed there is significant evidence that cutting costs reduces the incentives for more efficiency.
Let’s re visit Work Choices for a moment.
Literally millions of workers were removed from the unfair dismissal protection regime.
In its last year or so, around 1000 workers a day were being put on AWAs (usually as a take it or leave it offer as a condition of employment). Around 70% removed shift loadings and annual leave loading, 65% removed penalty rates, and half removed public and overtime pay, and nearly a third removed rest breaks.
All of this simply cut peoples wages and removed their entitlements. Cutting wages and conditions and removing employment protections will not increase productivity. It didn’t under WorkChoices, and it won’t work if we try it again.
The real sources of sustainable productivity growth are increased human capital (including through education and training), increased physical capital (in the form of infrastructure and technology) an in innovation
To the untruths about the Fair Work Act.
In no particular order there is unfair dismissal, the general protections, industrial action, “strike first talk later”, and “individual flexibility”.
Unfair dismissal laws
These are said to be a giant weight on employment growth, with employers up and down the land too scared to employ. Well an employer who didn’t hire because of unfair dismissal laws would be an irrational one, and an employer association that fed such irrationality would be irresponsible.
Here’s the raw numbers. There were only around 11,000 claims made in 2010, less than pre-1996 despite the national system covering far fewer workers at that time. This is only around 1% of the terminations at the initiative of the employer.
There were 85 arbitrations, and only 15 reinstatements, meaning an employer’s risk of the tribunal reinstating a sacked worker is about 1 in every 70,000 dismissals.
By contrast there were around 15 000 business insolvencies and about 10000 fire incidents in commercial premises last year. In other words, a business is 50% more likely to go broke or about as likely to catch fire as it is to have an unfair dismissal.
To take another example, in this state there were around 9000 fair trading proceedings in VCAT, three times the number of unfair dismissals. And yet we don’t see “business too scared to trade because of VCAT” headlines.
The reality is there is no correlation, let alone causal link, between unfair dismissal laws and employment, either in aggregate terms or in particular industries. Many of you will remember the drop in unemployment in the year after the passage of 1993 Act that introduced unfair dismissal laws – these things weren’t linked, it was the economy roaring back to life after a recession that generated new employment.
But without unfair dismissal protection, workers are left with no rights about (perhaps mortgages and marriages aside) the most important contract they have. Workers without unfair dismissal protection have more rights about their dry cleaning contract than their employment contract.
The General Protections
A variety of employer groups – AMMA in particular – have complained that General Protections have caused an outbreak of untouchable union delegates, who bosses are too scared to say “boo” to.
Now the number of court proceedings is a useful, if perhaps imperfect, measure of the effect of a law, particularly a new one.
At the very least, if these laws are as draconian as alleged, we would expect to see some considerable evidence of their use by unions and their members.
But a glance at the report of the Federal Court reveals otherwise. The Industrial list has almost vanished without a trace, and last year mustered just 40 odd proceedings nationwide, a fraction of its former size, including under WorkChoices.
In fact, it’s now smaller than the Admiralty list, suggesting that the arrest of ships and demurrage are a bigger problem for Australian business than the general protections.
Meanwhile, the Federal Magistrates Court is functioning exactly as you would expect any small claims list to function – that court heard just 350 matters in the same year, overwhelmingly Award and Agreement compliance matters brought by Federal regulators (a lot of them uncontested).
If you read some newspapers you’d think that industrial Armageddon had descended on huge swaths of Australian industry.
Yet the reality is rather different. The average rate of industrial disputation under the Fair Work Act is 3.2 per 1000 workers, lower than under WorkChoices and less than a third of the rate under the pre-2006 Workplace relations Act.
To put that 3.2 in perspective, 53 in 1000 Australian injured themselves at work last year in some way. In other words an employee is 17 times as likely to hurt themselves at work than end up on strike.
In the year to the March 2011 Quarter (the latest for which both agreement and industrial action data is available) there were only 200 lost time disputes in the entire economy, effecting about 50000 workers and averaging just two working days lost.
In the same period, almost 7500 new collective agreements covering more than one million workers where finalised.
The reality is that industrial action is at trace levels in our economy as a whole and what does occur is a lawful function of the protected action system introduced by Keating Labor and tightened by the Coalition and retained by Rudd Labor.
Then there is the JJ Richards matter, or “strike first talk later” as its been inaccurately dubbed. This description conveniently ignores the key pertinent fact: the reason for the TWU’s resort to action in that case was the employer’s refusal to talk.
Now, no one on my side of a bargaining table has ever been able to reach an agreement with themselves.
Mercifully, since the repeal of the Employer Greenfield agreements, neither can anyone else, although perhaps that’s how the mistake started.
And so to the calls for “individual flexibility”. Now, it is generally considered sensible when calling for more of this to first carefully note that you are of course “not suggesting a return to WorkChoices ……… but”
A range of employer associations have now proposed that IFA’s be given some additional characteristics, including binding four year terms, the ability for them to be offered as condition of employment, broad subject matter and to have the effect of displacing the the
Award and any collective agreement.
Now this is probably sounding a very familiar to most of you – they are the key defining
characteristics of an AWA.
Such proposals are doubly dishonest.
First, they propose the AWAs be reintroduced and simply called something else, as if the name was the problem.
Second, it seeks to perpetuate the myth that AWAs were hand-crafted, bespoke, arrangements tailored to the specific needs of individual workers and their boss.
The reality was that at a given employer or even industry level they were almost always identical, take it or leave it offers, handed out at hiring or used to get workers to individually concede to things that they would not agree to collectively. In reality there were two types of AWAs although sometimes they overlapped – the ones that cut pay and conditions and the ones to
I will conclude with my personal favourite “the Fair Work Act takes us back decades / pre 1993.”
I’m not even sure how anyone can say that last one with a straight face. In fact journalists, if offered this line by an employer organisation should ask: “in that case would you agree to the reintroduction of the IR Reform Act 1993 in preference to the Fair Work Act” – then
listen for the crickets.
It’s said that every cult needs a founding scripture. In this case, very curiously indeed, it’s Paul Keating’s April 1993 speech announcing the adoption of enterprise bargaining as government policy.
There are some very remarkable fans of this speech – people not known for their reverence Labor in general or Keating in particular.
Google reveals that recently conservative columnists like Janet Albrechtsen , think tanks like the IPA , and Liberal frontbenchers past and present (including Peter Reith who is speaking later) have quoted it approvingly in support of arguments to repeal slabs of the Fair Work Act.
Which brings me to Proverbs 26:11 from my title. Because the line of Keating’s that I’m reminded of by those who call for a return to elements of WorkChoices (albeit to be cunningly something else) is not from the 1993 speech.
It’s his rather more pithy remark about John Howard’s tax policy – that it would be like a dog returning to its own vomit as a fool to their folly.
There is nothing in Keating’s speech that can be called in support of a WorkChoices agenda. In fact, the Fair Work Act reflects a number of the long term objectives set by Keating (including some that weren’t achieved under his or Howard’s watch) notably a genuine national system, a simplified system of modern awards, bargaining above a safety net, and limitations on the scope and incidence of arbitration.
What we do need to remember from Keating’s speech is what he says about the real drivers of national prosperity and rising incomes: about saving, education, workforce participation, skills, and investment delivering sustainable economic growth where the benefits are shared.