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Chapter 24 Prices and incomes policy

Chapter 24 Prices and incomes policy. The Workplace Relations Act. The Accord. Enterprise bargaining. 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)

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Chapter 24 Prices and incomes policy

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  1. Chapter 24Prices and incomes policy The Workplace Relations Act The Accord Enterprise bargaining

  2. 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)

  3. 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

  4. 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

  5. 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.)

  6. 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 wage-setting 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

  7. 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

  8. Wages and Profits as a Percentage of Australia’s GDP Source: Australian Federal Government Budget Papers, various years.

  9. 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

  10. 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.)

  11. 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

  12. 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 anti-inflationary policy will diminish in favour of monetary policy

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