Australia’s labour market arrangements are a long way from being optimal for a modern, dynamic economy, a new analysis commissioned by the Minerals Council of Australia has revealed.

The policy paper by Alex Sundakov and Michael Schur (from consultancy firm Castalia Strategic Advisors) starts with a simple proposition: labour market organisations behave just like every other economic institution. If they are not subjected to competition, they underperform.

A key feature of Australian labour market arrangements is that they empower union ‘insiders’ by design – through various default rights such as the right to act as a bargaining agent, the right to negotiate an award and the right to govern default superannuation funds. Whereas competition is considered critical to good performance in most parts of the economy, our workplace relations framework makes no such presumption when it comes to collective bargaining agents. 

The paper looks in detail at union effectiveness based on their ability as collective bargaining institutions to ensure workers capture a greater share of the economic pie or increase the size of the pie through greater productivity.  The evidence shows that:

Employee share of national income has not changed materially over time, despite changes in industrial laws and declines in union membership. Periods of supposed ‘pro employer’ policies did not enable employers to increase their share; similarly, periods of claimed ‘pro worker’ policies had no effect
At the industry level, employee share of income bears no relationship with union membership. The division of the pie does differ between industries, but is more likely to be explained by capital intensity, risk and skill shortages
Enterprise agreements do not consistently yield better earnings than individual agreements
Pay rises are similar across both union and non-union members.

Put simply, this evidence does not support an ideological fixation with intervention and regulation to correct for an imbalance of bargaining power. The authors note that the Fair Work Act has strengthened union rights and preferences, for example by removing the non-union enterprise bargaining stream originally introduced by the Keating Government in 1993. 

Sundakov and Schur stress instead the need to design labour market policy in a way that ensures collective bargaining institutions perform for the benefit of intended beneficiaries (in light of the so-called ‘principal-agent problem’). The paper cites the Royal Commission into Trade Union Governance and Corruption as highlighting some of the unintended consequences of protecting collective bargaining organisations from competitive pressures. 

The paper notes that while workers are free to opt out of union membership, this does not necessarily provide an opt-out from union coverage. While union membership has been declining, the proportion of workers covered by union-negotiated enterprise agreements has been increasing in Australia.

The authors stress that promoting competition for collective bargaining services is not an anti-union position. They cite evidence from the New Zealand experience in the 1990s where the removal of special protections led to a shakeout that ultimately benefited both workers and some trade unions.

The analysis of Alex Sundakov and Michael Schur underscores the need for a genuine, evidence-based debate on workplace relations reform.  This debate is too important to be left to the institutional insiders. 

You can download and read the paper here:

Download complete article

Download associated document