Is it all the fault of employers?

Politically, I think it is pretty smart of Abetz and the others to be fingering piss-weak employers for entering into costly and dodgy enterprise agreements.

And, of course, there is an element of truth to what is being said.  But most economists would argue that management quality is endogenous – in other words, we get the managers we deserve in the context of the environments in which they work (legislative and regulatory rules, product market conditions, government assistance, etc.)

There is no doubt that there would have to be considerable changing of the guards in management ranks if we are to diverge from IR club-like behaviour – most managers are neither willing or inclined to fight for the best outcomes for the company and shareholders.

The case of CRA/Rio is an interesting example.  Historically, this company was a fully paid up member of the club, although BHP was even more embedded than CRA.  But a change of leadership at the top and some new ideas meant that something of a managerial revolution took place in the 1990s.  This took a lot of time, many managers were sacked and a great deal of patience (and some legal battles).

And bear in mind that commodity prices were at very low levels when this was taking place. The high level objective of the company was to run only mines and operations that were in the bottom quartile of the relevant cost curve.

There were two basic premises as far as employee relations were concerned, according to the new thinking.  Individual employees should feel loyalty to the company, rather than the union, and this loyalty should be reciprocated by the company.   And individual contracting, rather than collective deals, was the preferred arrangement.

It would be fair to say that CRA/Rio had the most success in non-coal mining.  There were some gains in coal mining and aluminium smelting, but they were much more modest.

But with surging commodity prices, it is fair to say that management at the company became complacent and a very large number of concessions were waved through in the past ten years which would not have been allowed in the late 1990s/early 2000s.   And, of course, the Fair Work Act has been very facilitative to the unions getting a foot back in the door.

The point I want to make here is about the importance of individual contracting. People will tell you that statutory individual agreements under the Workplace Reform Act and then WorkChoices never reached much beyond 2 – 3  per cent of employees.  But the real issue is that the mere presence of the individual agreement option significantly conditioned collective bargaining.

The unions always knew that if they pushed things too far, an exasperated manager would threaten to shift to individual bargaining, potentially picking off the better employees for superior deals.  In this way (as well as constraints on the content of agreements through the prohibited content clauses under the law), some sort of reason prevailed in respect of at least some collective enterprise agreements.  Without individual agreements and virtually no constraint on the content of agreements, unions have had a seriously upper hand since the FWA became operation (2010).

And if you think it is easy for a company to simply stick with the award and refuse to bargain, just take a look at the fate of Cochlear.  The unions simply refuse to give up the fight and are prepared to damage the company in any way they can, with picketing, etc. I’m just surprised the company hasn’t simply upped stakes and shifted the plant to Singapore.

 

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32 Responses to Is it all the fault of employers?

  1. Fred Furkenburger

    While management perhaps should take some of the blame you have to remember that it is hard to “negotiate” with both hands tied behind your back (with IR laws) and with someone who considers that they are above the law. Managements job is to keep the business going. When the unions threaten to close you down (and we know they can get away with murder here) then you are sort of stuck between that proverbial rock and a hard place.

  2. Gab

    It’s pretty tough going up against extortion and blackmail when trying to run a business.

  3. H B Bear

    But most economists would argue that management quality is endogenous …

    Careful Judith. Don’t want to upset the carpet munchers.

  4. Armadillo

    The unions definitely need to be subjected to harsh penalties (including gaol time) for intimidation and stand over tactics. However, I can also see a benefit in having companies facing similar penalties. If you are working in a large company on a salary of 200k plus (say Thesis or Lend Lease), are you really going to risk destroying your life and that of your family by going to gaol just for the sake of ‘keeping the industrial peace’? At the moment, its pretty much just fines as I understand it (and very few of these rorts get discovered). It’s only shareholders money and probably justifyable in their own minds that because they win the contract, shareholders will make money. You would think that employees would be much more inclined to take any incidents of ‘intimidation’ directly to authorities if this sort of stuff is a criminal offence.

  5. craig2

    Between 50 and 70% of management positions are taken by the wrong people, for example, in-name or results only type managers and there are other styles of managers as well. If the hiring company cannot place the right people in the right positions, what hope has the business got when negotiating with the unions?

  6. Myrddin Seren

    Judith

    Managers need the support of the Board if they are going to take on entrenched union bloodymindedness and the IR Club.

    Not everyone has the support and cash flows for a fight like Charles Copeman did .

    The owners via the Board have to empower the management – not bounce managers who can’t keep the unions happy.

    We can see regular examples where the opposite is true – any price paid to obtain union ‘calm’ – as long as that cost can be passed on.

    The collective members of the Directors Club are the ones who have some explaining to do about the benefits of appeasement.

  7. Stateless, free and happy

    ” this loyalty should be reciprocated by the company. ” and there lies a major problem.

    Unions protect poor workers. Owner-managers protect good workers. But many managers look after their own ass and often punish good workers at the expense of shareholders.

  8. Jim Rose

    Unions are or are not yesterday’s bogy.

    • Thomas Holmes compared counties close to the border between states with and without right-to-work laws to find that the cumulative growth of employment in manufacturing in the right-to-work states was 26 percentage points greater than that in the non-right-to-work states.

    • John DiNardo and David S. Lee compared establishments where US unions won and lost the union certification elections by one vote. The effect of unions organizing a single establishment was zero in terms of wages, productivity, etc.

    A perfectly balanced sample showing that econometrics does not resolve anything.

  9. Mk50 of Brisbane, Henchman to the VRWC

    Judith, this is part of the picture. My family has a very long history with CRA. In the 60s-early 80s it was a mining company run by engineers, with a focus on cost effective mining and return on investment over the medium to long term. In the 80s the upper management echelons were taken over by accountants. Ably supported by lawyers the damned near ruined CRA as the upper management view shifted to short term return on investment and maximum return on investment. They came very close to destroying CRA before the coup replaced them and they went back to teh older management model.

    The accountant-lawyer view greatly empowered the unions and ceded both loyalty and a hell of a lot of control. The result was financial disaster in the medium term and there simply were no long term prospects for the company. it was not going to survive that management model.

    Strangely enough, the accountant-lawyer era saw remuneration for senior management soar – they were in essence looting the shareholders.

    Funny that.

  10. Andrew of Randwick

    This is crap from an economist in an ivory tower:

    “most managers are neither willing or inclined to fight for the best outcomes for the company and shareholders”

    If you do, you will be replaced with someone “who can get on with the unions”.
    So fight to the death for a deal that changes the earnings per share by a cent or two, OR just say yes to what ever keeps the show on the road, and preserve you career. I think in economics that is called ‘preferences”.

    “most managers (unless given unconditional, guaranteed and public support from their Boards and CEO’s, which includes personal protection and extra security for low level harassing) are not stupid and will accept outcomes that do not rock the boat”

  11. stackja

    The election of 2007 was the time for this discussion. But the ALP/unions and Heather Ridout decided to end any chance of proper reform.

  12. Simon

    I’ve worked in a lot of companies big and small where the managers started as underlings, in a lot of cases they either agree with penalty rates or have absolutely no idea that there could be another way. There are a lot of people out there who have taken effective pay cuts just so they can be salaried and have weekends off. No statistician ever killed anyone crunching numbers well into the night but a lot of truck drivers do. In some types of work overtime penalties are the only really effective way of pushing a company to do the right thing by its employees and the general public. As for Sunday and night time penalties they can be removed easily, open all businesses and government services (e.g. courts, licensing centres, schools, banks etc.) 24 hours a day 7 days a week and it becomes easily arguable that there is no penalty required. Otherwise your telling some people that they have to be more dedicated to their careers than their compatriots who receive the same pay without having to do the horrible parts.

  13. Andrew of Randwick

    Simon – I don’t want to address your points.
    .
    Instead I will tell you a story. Employees get paid normal time rates plus allowances:
    + Excess wet
    + Excess dust (yes you can have both)
    + Excess noise
    + Confined space
    + 15 mins for shift handover at start of shift
    + 15 mins for shower at end of shift
    Now union says their members are tired of having to fill out allowance claims on timesheets every day, and the 15 mins are being counted as hours (overtime bans come into play) – so let’s just roll all the allowances into a higher normal time rate and simplify things. Agreed.
    Two years later the union says “our members are working time they are not being paid for and their conditions are horrible they need allowances”.
    But what about 2 years ago? “Well that was then and this is now”.

  14. Dan

    The funny thing is. All those allowances and penalty rates push you up into higher tax brackets. You could work 60 hours in a week (overtime every weekday and work Saturday) and only be $200 better off.

  15. Rohan

    Politically, I think it is pretty smart of Abetz and the others to be fingering piss-weak employers for entering into costly and dodgy enterprise agreements

    Abetz could have gone in harder. Almost without fail, businesses rolled aver and played dead when Gillard changed the IR laws. The lack of support the coalition received on Workchoices was breathtaking, especially considering the benefit it had to the economy and the resultant increase to our quality of life. So Australian business as a whole, largely has itself to blame.

    Now we’re stuck with a truly regressive IR scheme that’s in danger of almost singlehandedly derailing our economy.

  16. GC

    … fingering piss-weak employers ….

    Call it as you see it Judith – love it!

    And well picked up in your research for exposing it – we weren’t about to hear it from the ABC or Fairfax

  17. I am the Walrus, koo koo k'choo

    More competition please.

    Let the managers be piss-weak. They and their union playmates can tell their stories walking when their overcharging companies get walloped by leaner, hungrier competitors.

  18. I am the Walrus, koo koo k'choo

    There’s a lot of talk at the moment about the coming job apocalypse as everyone’s position gets sized up for possible replacement by an algorithm or algorithm-run machine.

    The first to go will be the frackwits who thought they could bully for themselves wages above their productivity.

    Rio Tinto is completely mechanising its mining operations. Completely. Goodnight CFMEU.

    Just deserts.

  19. nerblnob

    so let’s just roll all the allowances into a higher normal time rate and simplify things. Agreed.
    Two years later the union says “our members are working time they are not being paid for and their conditions are horrible they need allowances”.

    And so the ratchet turns … with us it used to be “differentials”.
    Job A is more skilled than Job B and gets paid more. Union protests this inequality and campaigns to get Job B’s pay up. Now Job A complains that they’ve lost their differential and despite being more qualified are only paid as much as Job B who’ve had a pay rise while they’ve had none. How unfair is that? And so it goes on.

  20. Tel

    No statistician ever killed anyone crunching numbers well into the night but a lot of truck drivers do.

    You clearly underestimate the power of Canberra.

  21. sabrina

    Craig2 is right.
    Was there any unionised labour in Babcock & Brown which failed and screwed many investors? I bet it was unionised management. What about City Pacific, HIH, Enron or Arthur Andersen?
    Given the opportunity, some management or labour unions screw common people.

  22. Jim Rose

    the evidence of a private sector union wage premium is weakening see http://www-personal.umich.edu/~jdinardo/dinardo_for_printing2.pdf

  23. yackman

    From my experience at a factory operational level it comes down to whether the top levels are prepared to back you when the cash flow ceases for an indeterminate period during a strike. No site manager can go out on a limb unless the ground has been well prepared through to senior management and the gain deemed to be worth the losses.

  24. Tel

    There’s a lot of talk at the moment about the coming job apocalypse as everyone’s position gets sized up for possible replacement by an algorithm or algorithm-run machine.

    People will use their political power when they run out of economic power, and although many workers can indeed be replaced with a five line perl script, so far the machines haven’t won the right to vote. Technology is the ultimate test of supply side economics, because new technology should always increase supply, however the world is non-linear and change always hurts someone… thus technology reliably fails the test of a Pareto improvement. The people worse off tend to swear long and loud, while the people better off (if they are smart) keep quiet about their windfall. Nothing is as it seems.

  25. Tel

    Given the opportunity, some management or labour unions screw common people.

    So you are saying that economic actors can be self interested at times. Hmmm, that’s a deep and meaningful theory, many insights could come from that.

  26. .

    Technology is the ultimate test of supply side economics, because new technology should always increase supply, however the world is non-linear and change always hurts someone… thus technology reliably fails the test of a Pareto improvement.

    So what?

  27. .

    Jim: Evidence of the premium or the value of the premium?

  28. .

    Was there any unionised labour in Babcock & Brown which failed and screwed many investors?

    Yes, the CFMEU backed the carbon tax etc.

    Nice try, Princess Moonbeam.

  29. Basil

    I find it very distasteful when women swear. I’m sorry, but I do, unless it is in exceptional circumstances which I am only too ready to forgive . In actual fact, whether the culprit is male or female, I associate it with a deficiency in English expression which a good education, such as I’m sure you had, Judith, would preclude. Judith, please desist in future. That way I might be able to follow your argument through to its conclusion.

  30. Mater

    If you do, you will be replaced with someone “who can get on with the unions”.

    I have witnessed the relegation/removal of a number of good middle Managers who eventually took a stand against the Unions for the benefit of the company, the shareholders and the public. Apparently, they lacked the required interpersonal skills.
    The sad irony is that there was no stop-work meeting to mark THEIR passing!

  31. Tel

    Dot, when a new technology hits a marketplace, Say’s Law would indicate that since people have more products to offer each other for trade, there should be more trade. However, inevitably some poeple miss out in the process and for these people they actually have less to offer because because whatever they were selling before is no longer valuable. Thus, supply increases but trade as a whole can either increase or decrease depending on how you measure it (remembering that no fully objective way exists of aggregrating human activity into a single number) .

    Thus, improving supply does not guarantee overall growth, at least not until the process of retraining, redeployment, etc balances out structurally.

  32. .

    More stuff is produced, aggregate wages go higher and there is more traded.

    This isn’t dependent on Pareto efficiency.

    Thus, improving supply does not guarantee overall growth, at least not until the process of retraining, redeployment, etc balances out structurally.

    This is the production function.

    Y = f (K, L, T, a… )

    You seem stuck on the idea that production increases always entail Pareto losses, which you’ve somehow morphed into overall losses of output or growth.

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