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The following OECD assessment and recommendations summarise Chapter 5 of the Economic Survey of Australia 2006 published on 31 July 2006.
Contents
What will be the effect of the recent reform to industrial relations?
Industrial relations arrangements have evolved gradually from a prescriptive, very complex, set of rules, largely set by a judicial body, the Australian Industrial Relations Commission (and its state equivalents), to a much more flexible system, with many enterprise and individual agreements. However, the Commission, in setting awards, continued to restrain bargaining over working conditions. The WorkChoices Act, which came into effect in March 2006, moves the industrial relations arrangements towards a simpler, national system. It also established a new, independent body, the Fair Pay Commission, which will set and adjust a single minimum wage for adults, wages for award classification levels and for youth wages. Its first decisions will be taken shortly. The government now sets minimum conditions for leave and maximum ordinary hours of work, which together with the wages set by the Fair Pay Commission constitute the Australian Fair Pay and Conditions Standard. Also the number of matters that are included in federal awards has been reduced. Overall, the system has been simplified, leaving more room for bargaining and has streamlined the process of making workplace agreements. But the system is still complex: federal legislation runs to nearly 700 pages, distinct federal and state systems remain, and businesses have complained about compliance costs.
The new system of industrial relations will need some time to bed down before its effect on aggregate bargaining outcomes can be fully appreciated. Opponents fear that greater flexibility will lead to widening income inequality and poverty. Despite these concerns, the rationale for maintaining the award system should be questioned now that the WorkChoices Act provides for the setting of national minimum standards in terms of wages and working conditions. Therefore, these awards should be either gradually phased out subject to these minimum standards or substantially rationalised further in terms of their number and content. Developments in the minimum wage will depend on the decisions of the Fair Pay Commission. Its remit has a strong emphasis on the employability of the low paid. The minimum wage is high in international comparison and the number of low skilled who are long-term unemployed or disabled is also high, thus raising concerns about the adverse effects of the minimum wage on labour demand for the low skilled. At the same time, the minimum wage is a blunt tool to enhance fairness, as more than half of the low paid live in families with income above the median. Therefore, the adequacy of incomes from working should be addressed through other social policy instruments such as changes in income tax rates and thresholds at lower incomes or an employment-conditional tax credit, while maintaining the system of separate taxation of each spouse. Finally, there remains considerable room for the up-skilling of the low paid, through a strengthening of the vocational education and training system.
The federal minimum wage is high in international comparison
Minimum wage as a percentage of median wage
1. Basic metal industry classification C14.
Source: OECD database on minimum wages, May 2006.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
The complete edition of the Economic Survey of Australia 2006 is available from:
- SourceOECD for subscribing institutions and many libraries
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OLISnet, under "Publication Locator", for government officials with accounts (suscribe)
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Additional information
For further information please contat the Australia Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by David Turner and Vivian Koutsogeorgopoulou under the supervision of Peter Hoeller.
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