Sensible labour market regulation

The  Governor of the Reserve Bank gave an interesting talk yesterday focusing on the consumer and the likely path of consumer spending in the future.  He finished his speech with this reflection on productivity:

If we want to sustain the rate of growth of incomes, and hence lay the basis for a return in due course to the sorts of growth of spending seen in the golden period of 1995-2005, we will have to look elsewhere. As everyone in this room would know, there is only one source of ongoing higher rates of growth of real per capita incomes, and that is higher rates of growth of productivity. Everyone here also knows that it is now just about impossible to avoid the conclusion that productivity growth performance has been quite poor since at least the mid 2000s.

So everything comes back to productivity. It always does. It has been observed before that past periods of apparently easy affluence, conferred by favourable international conditions, probably lessened the sharpness of our focus on productivity. Conversely, the will to reform was probably most powerful when the terms of trade reached a long-term low in the mid 1980s. Those reforms ushered in a period of strong productivity growth.

The thing that Australia has perhaps rarely done, but that would, if we could manage it, really capitalise on our recent good fortune, would be to lift productivity performance while the terms of trade are high. The income results of that would, over time, provide the most secure base for strong increases in living standards.

When it comes to raising productivity, Stevens nominated ‘sensible labour market regulation’.  Always the diplomat, it is easy to infer however from this comment that he does not regard the current state of labour market regulation as sensible, given the poor performance of productivity.

Now the impact of labour market regulation on productivity is both direct and indirect.  It can hamper the ability of managers to run efficiently their workplaces, as well as alter the incentives to adopt innovations as well as the ability to implement them.  It can also be indirect – by undermining the ability to see through reforms in particular areas – in, say, health, education and infrastructure.  Without facilitative regulations, productivity-enhancing reforms in these areas are thwarted.  Just witness how the public teachers’ union (AEU) imposes all sorts of restrictions on the deployment of teachers which affect productivity.

Stevens’ speech comes on the same day that the BCA  found the courage to say something about the debilitating effect of the Fair Work
Act.  Not known for speaking out, the organisation is now making a number of specific complaints:

  • The JJ Richards precedent where protected action orders are available before any bargaining takes place;
  • The pursuit of ’employment security’ clauses by the unions which seek to restrict the use of contractors and labour-hire employees, clauses which are finding a sympathetic hearing among members of Fair Work Australia
  • Unions seeking ‘walk away’ money while threatening to use the General Protections in the act and accusing employers of victimisation
  • Excessive pay rises in some greenfields projects being used to lever excessive pay rises elsewhere

The Minister, Chris Evans – one of the more incompetent yet self-satisfied ministers in the goverment – has batted back the criticisms, welcoming ‘mature debate’ (sure) and citing the low level of industrial disputes (why strike if it is so easy to get a protected action order in the back pocket?), the number of agreements being higher than ever (indicating what?) and contained wages growth (just – because note very poor productivity).

I’m really looking forward to this ‘mature debate about our national industrial relations system.’

 

 

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8 Responses to Sensible labour market regulation

  1. rodney says:

    Retailers is in trouble for a number of reasons but one advantage they have over the net is that the customer (esp families) can browse and select at leisure particularly on weekends. Retail wages have been raised overall about 6% but weekend penalties have been increased dramatically. Cost disadvantages have exploded.

  2. JC says:

    Rodney:

    That’s not even the 1/2 of it. Commercial real estate… shops… were trading on muliples of 2.5% in decent locations. The potential fall out from that on capital values is a guided missile heading our way. Even if they go from 2.5 to say 4.5% yield that’s a 40% cut in value. That’s going to leave a mark.

    Retail is very rigid as a result of the regulation of the labor market. US retail to some degree is commission based.

  3. RodClarke says:

    Footsie droping like a stone in early trading.

  4. John A says:

    Productivity = producing stuff more efficiently = producing stuff with less labour = using more external power source/s to drive machinery, instead of using muscle power (human energy).

    Therefore, the carbon dioxide tax will be a direct attack upon the productivity of the economy, and should be opposed by every economist with any brains.

    Sorry to all the economists, but we must face the facts.

  5. Rafe says:

    “BCA on attack over union strike-first laws” is on p 4 of The Australian today (Wed) but I can’t find it on the Aust website. Union leaders replied with the usual rhetoric of workers rights.

    On the BCA website you can find the letter to the Minister earlier in the year with a long list of concerns.

    At the table where I was sitting at the Berijiklian breakfast there was some serious talk about robots. Companies can see that major investment in robots will work long-term as the cost of employing people becomes increasingly prohibitive.

  6. Warwick says:

    Interestingly, it is the RBA [and the Productivity Commission] and not the federal Treasury which seems to be identifying what should be our economic policy agenda. True or not, and for whatever reason, Treasury’s relinquishment of its traditional role will strengthen the perception that it no longer has the moral authority to be credible in the role.

  7. Rafe says:

    Has the Treasury gone bananas? But seriously, it seems that John Stone decided that Treasury lost the plot under the Howard/Costello rule, as suggested in some refs cited by Sinc in one of his chapters in the new CIS book on taxation. Hope to summarise the main points, can’t promise to do the whole book but that is the shortest chapter.

  8. Matt C says:

    Stevens’ reference to labour market regulation was a reference to past reforms, not a suggestion for future reforms.

    I responded to what I saw at Michael Stutchbury’s misrepresentation of the Governor’s answer here: http://mattcowgill.wordpress.com/2011/07/27/stutchbury-flicks-the-switch-to-ideology/

    I also responded to Judith Sloan’s contentions regarding the Fair Work Act and productivity here: http://mattcowgill.wordpress.com/2011/07/19/the-fair-work-act-and-productivity/

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