7.6 The Effects of Labour Market Regulation
There is now acceptance by many that the freeing up of the labour market had
been a major factor in the success of the Australian economy, particularly for
small business. Nevertheless, important inflexibilities remain and have been
strengthened since 2007, particularly minimum wages and penalty rates,
which mainly apply to the services sector: the biggest employer of part-time
and casual workers. Also, the difficulty (or inability) of adapting workplace
agreements to changing circumstances, as in the Toyota case, seriously affect
an economy’s ability to adjust to change.
Setting minimum award wages for the various occupations and industries,
and imposing the same minimums on allfirms within an industry, it is
argued, severely impedes the efficient adjustment offirms necessary for a
well-functioning market economy. Further, most awards set down the hours
during which standard hourly rates of pay apply and the premium (or penalty)
that has to be paid for hours outside this. These penalties may constrainfirms,
particularly where demand reaches peaks outside standard hours. Extending
the range of hours over which standard pay rates apply and, more generally,
abolishing limits on working arrangements again leads to greaterflexibility.
Imposing blanket conditions acrossfirms impedes functionalflexibility.
Enterprise and individual bargaining are often objected to by those more
concerned with equity rather than efficiency. It is argued that these act to
protect workers in weak bargaining positions, who are likely to be lower-paid
workers. The evidence shows that the relative pay of low-paid workers is
higher in Australia than in most industrialized countries (Lewis 2006).
Increased labour marketflexibility would be expected to cause a decline in
the relative pay of low-paid workers. Critics of individual contracts extend the
argument that the ability of individuals to bargain for wages and conditions is
far less than for workers as a whole.
Awards now essentially have relevance for a (relatively large) minority of the
workforce who are not able to bargain for better pay and conditions. However,
although the award system only applies to about 20 per cent of the workforce,
its impacts are important. It has been argued that it affects the most disad-
vantaged in the labour market through increasing unemployment (Lewis
2005), has adverse impacts on Australia’s service sector (Lewis 2014), and
raises wages of many workers by providing a‘floor’for wage bargaining in
many non-award agreements (Lewis 1997).
Compliance costs, such as unfair dismissal payouts, have a disproportionate
impact on small businesses because, as a percentage of wages, compliance
costs are higher for small businesses. Mean compliance costs, as a percentage
of turnovers of the smallestfirms, have been calculated at more than six times
that of the largestfirms and more than twice that of the medium-sizedfirms
Phil Lewis