Transcript Chapter 24 - McGraw Hill Higher Education

Chapter 24
Prices and incomes policy
Enterprise bargaining
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
24-1
Lecture Plan
• Prices and incomes policy rationale
• Elements of incomes policy
–
direct and indirect controls over wages
• Recent Australian experience:
–
–
The Accord (Mark 1–8)
Features and achievements
• The Workplace Relations Act 1996 (Cwlth)
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
24-2
Prices and Incomes Policy Rationale
• Macroeconomic policy which attempts to control or
influence the level of wages in a manner consistent
with the economic and social objectives of the
community
• Rationale
–
–
–
A reduction in the rate of inflation
An increase in international competitiveness
A breathing space in the fight against inflation and
unemployment while other macroeconomic policies are
used to increase economic activity
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
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Elements of Incomes Policies
• Direct controls on wages: The Australian
government does not have the constitutional
powers for ceilings on wage growth
• Indirect controls over wages: Until the end of
1996, the Australian Industrial Relations
Commission (AIRC) was involved in the three main
methods of wage determination
–
–
–
Setting award wages
Collective bargaining
National wage cases
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
24-4
Recent Australian Experience: The
Accord
• Agreement between the Commonwealth
government and Australian Council of Trade Unions
(ACTU) on matters related to wages and incomes
(Mark 1–8)
–
–
–
–
Mark 1 (1983): full indexation
Mark 2 (September 1985): wage tax trade-off; introduction
of an employer-funded 3% superannuation payment
Marks 3–5 (1987–1989): shifted the focus of wage
negotiations towards improving productivity; the structural
efficiency principle
Mark 6 (February 1990): focus on enterprise bargaining
(cont.)
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Recent Australian Experience: The
Accord (cont.)
–
–
Mark 7 (March 1992): Encouraged the devolution of wage
fixation via bargaining at workplace industry levels
involving employees and their unions; safety net of
minimum award wages and conditions
Mark 8 (June 1995): Established guidelines for wagesetting in Australia between 1997–1999.
• Limited labour market reform:
–
–
The compulsory need to involve unions, when 70% of the
private sector was non-unionised
Any form of central interference, such as the ‘public
interest’ test, was counter to genuine enterprise bargaining
in a truly deregulated environment
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PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
24-6
Wages, Productivity, Profits,
Employment
• 1983to 1995: Decline in the wages share of GDP
from 64% to about 56%
• Labour productivity up by 1.5–2.0% p.a.
• Restoration of corporate profitability
–
The profits share of GDP up from 11.4% (1982–83)
to about 17.6% (end of 1995)
• Employment growth rate of 2.5% p.a. (1983 to 1990)
• Unemployment over 1983 to 1989 down from 9.9%
to 6.1%
• Reduction in industrial disputation
• The increased profit share of GDP (see next slide)
has encouraged the private sector to increase its
investment expenditure
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PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
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Wages and Profits as a Percentage of
Australia’s GDP
Source: Australian Federal Government Budget Papers, various years.
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PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
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International Perspective
• Above indicators show a definite improvement in
Australia’s labour market, e.g. the share of GDP of
wages versus profits, labour productivity,
employment growth rate, unemployment rate
• However, in international terms, Table 24.1 (p. 428)
reveals a below-average performance of the
Australian economy compared to major economies
and even smaller OECD countries
• This showed the need for further labour market
reform
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PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
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The Workplace Relations Act 1996
• AIRC’s compulsory arbitration powers limited to
making awards to set minimum entitlements in a
narrow range of allowable award matters and to
resolve emergency disputes
• Workplace focus in wage determination
• New system of Australian Workplace Agreements
and Certified Agreements
• Employment Advocate
(cont.)
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PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
24-10
The Workplace Relations Act 1996
(cont.)
• Lower role for trade unions
• Awards are stripped back
• Unfair dismissals cases based on a ‘fair go all
round’ test, with remedies restricted to federal
award workers and settled by the AIRC
• Penalties for strikes and secondary boycotts
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
24-11
The Future?
• The Coalition, re-elected for a fourth term, is
expected to try again to get a more radical agenda
through parliament
• No legislation will prove a panacea for the labour
market
• Economic factors drive change in the Australian
industry
• The role of prices and incomes as an antiinflationary policy will diminish in favour of
monetary policy
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
24-12