Australia: Labor, Finance and Industry Competition - Essay Example

Australia: Labor, Finance and Industry Competition Name: Tutor: Course: Date: Introduction The aim of this essay was to establish the role of fair work commission, effect of deregulation in Australian financial system in the 80s and the importance of national competitive policy. Fair Work Commission is an independent body mandated to enforce and regulate provisions relating to termination of employment, minimum wages and employment conditions, dispute resolution, industrial action and enterprise bargaining (Williams, 2014). Changes and structures in the Australian financial sector deregulation process of 1980s were geared to remove controls over the interest rates and gave banks a degree of freedom to compete (Harper, 1985). The development of the National Competition Policy process was meant to embrace the broader public policy direction that drew on consultation and coordination machinery of the Commonwealth led the process (Arup & Wishart, 2002). The essay has found the adoption of Fair Work Act has improved productivity in the Australian labor market. Deregulation brought efficiency in the financial sector while national competition policy provided an equal platform for government and private sector companies. The role of Fair Work Commission in regulating the Australian Labor Market The Fair Work Commission (FWC) is a tribunal of Australian industrial relations created by the Fair Work Act 2009. The Fair Work Act 2009 gave the commission important functions to regulate industrial relations and employment in Australia (Teicher et al. 2012). Some of the functions included handling claims for unfair dismissal, approval of enterprise agreements, dispute resolution, fixing minimum wage and varying and setting of modern awards (Sloan, 2009). Regulation of labor market in Australia is important because labor is a basic input to its economic activity. Labor input flexibility, quality and availability influences investor decision making while efficient labor market ensures labor is achieved at least cost, resilience to shocks, provides incentives for training and innovation and allocated to its best use (Forsyth & Stewart, 2009). Australia intervenes to a higher degree to achieve social policy objectives and offset perceived market failures especially with regard to minimum wages. Labor market regulation are mainly on the areas of compliance, wage bargaining, minimum wages (and conditions), employment protection and right to strike/dispute settlement (Sloan, 2009). Regarding unfair dismissals provisions, FWC removes the very substantial small-and-medium sized enterprises exemption and gives twelve month probation to small employers and six months to larger employers. Small Business Fair Dismissal Code is a defense for Compliance and reinstatement is usually preferred over compensation (Forsyth & Stewart, 2009). The Fair Work Commission in accordance with s.156 of the Fair Work Act 2009 reviews all modern awards after every four years. After 1 January 2014, the Commission commenced the first four annual reviews of modern awards called the Review. On claims for unfair work dismissal, 2339 claims were lodged between July 1 and September 19 2009 and 1268 claims lodged in the same period in 2008 (Wilkinson et al. 2012). Unfair dismissal laws affect the incentives to hire and raise the cost of firing. Workers prepay severance costs on long-term unemployment to compensate for return to tenure (Wilkinson et al. 2012; Sloan, 2009). On bargaining rules, the statutory agreement stream for individuals was abolished hence affirming the presumption of collective bargaining. Forsyth and Stewart (2009) argues that Fair Work Commission provides that the union is a default bargaining representative where employees will have right to a bargaining representative where agreements are based on consultation terms and individual flexibility (Sloan, 2009). The competitiveness and performance of the Australian economy affects the minimum wage criteria as is influenced by employment growth and inflation, viability, business competitiveness and productivity (Sloan, 2009). FWC has placed Australia as the highest minimum wage in the world at AUD $14.31 hourly rate (ppp) (ABS, 2010). It promotes social inclusion through workforce involvement especially on the needs of the low paid and relative living standards. The equal remuneration principle for work of comparable or equal value is fair and just for employees with a disability, trainees and juniors. Modern awards is now considered as a common rule and do not apply to high income earners (over AUD$100,000) but eliminates respondency (Sloan, 2009). In 2007 and 2008, the budget of Fair Work Ombudsman was $46 million and $70 million respectively but increased in 2009-2010 to $134 million (ABS, 2010). In 2008 and years later, staff levels increased by 41 percent as compared to the previous years (Sloan, 2009). The commission ensures high compliance given the gap between outcomes and legislative intent. Australia has large formal sectors and high compliance (ABS, 2010). Compliance relies on trade union enforcement in the case of pre-work choices. Since small and medium sized enterprises follow award prescriptions loosely, Fair Work Ombudsman has been dramatically ramped up with compliance. Substantial and cumulative penalties have since been associated with the recovery of under-payment of allowances and wages (Williams, 2014). Under FWC, the timing and size of economy is less clear but the direction of the economic effect is clear. Structure and changes of the Australian financial system that led to the deregulation of the financial system in the 1980s Australia’s financial system from World War II until late 1970s was heavily regulated with regard to pricing, type and quantity banking services based on a two-tier financial system. At the start of the period after the war, banking was largely synonymous with financial intermediation (Merrett 1991). However, the financial system in the early 1980s was deregulated causing a major policy redirection. Since the focus was on banks, controls weakened their position and ability to meet customers’ needs. The financial system during this period saw banks rapidly lose market share to about 40 per cent as compared with 70 per cent witnessed in the early 1950s (Lewis & Wallace, 1997). Unregulated intermediaries started providing finance when controls become ineffective (Gizycki & Lowe, 2000). Australian dollar exchange rate came under pressure as Bretton Woods discontinued arrangements international capital flows. Unable to get access to credit, many creditworthy potential borrowers saw the financial system as inefficient with little innovation and wide interest spreads (Macfarlane, 1991). The financial regulation up to the early 1980s was restrictive of market forces to maintain security and stability of the financial market. However, the approach resulted in reduced market and economic efficiencies, inhibited growth and impeded on the competition (Merrett, 1991). The changes lead to interventionist mechanisms such as disclosure requirements and prudential standards away from restrictive market forces. The changes also enhanced competitive neutrality between different entities, and reduced barriers to entry and assisted to increase competitive pressures (Lewis & Wallace, 1997). Edey (1996) argues that the degree of regulation was adjusted to correspond to the level of market failure risk. For example, the powers of prudential regulation were less interventionist for investment products but strongest for deposit-taking institutions. Innovation and efficiency have since improved since the regulatory changes were introduced in the early 1980’s demonstrating the probable benefits of attaining a balance between stability and competition (Gizycki & Lowe, 2000). In 1986, when controls on banks were removed, exchange rate had been floated and foreign banks entered the Australian financial system. Bank interest rates were kept below market levels as the government-imposed ceilings maintained tight monetary conditions by restricting bank loans (Edey, 1996). However, banks seeking short-term funds were prevented by maturity restrictions from entering the market. Harper (1985) argues that the important cause of deregulation was internationalization of markets, technological advances and the advent of inflation to the disadvantage of the banks. On the contrast, Non-Bank Financial Institutions (NBFIs) which were less regulated offered more flexible financial instruments and higher rates of return (Williamson, 1982). Banks were pushed in favor of deregulation by rapid advances in information-processing and changes in technology that extolled the opportunities for financial innovations and development of close substitutes for bank services by NBFIs (Williamson, 1982). Finally, the demerits of bank regulation were exacerbated by increased global financial markets integration and access by companies to more accessible and cheaper funds from offshore financial markets than the regulated banks. The consequences of these changes to the Australian economy saw regulated institutions perceive the benefits as being outweighed by the costs of the regulated status (Harper 1985). It was obvious that banks were going to seek the removal of their regulations and least reflects the extension of the scope of the regulations. Financial institutions found that alternative unregulated markets and new products on the regulatory system that would evolve to cope with the impact of the economic changes (Macfarlane, 1991). Importance of national competition policy since 1995 and the role of the Australian Competition and Consumer Commission In the 1990s, micro-economic reform programs had gathered pace and became increasingly evident that the development of a competitive national economy, and further economic reform scope had been limited by the existing Federal competition policy arrangements. In a competitive international setting, the government of Australia has ensured that consumers get the best deal from competition through the legislation of The Trade Practices Act (Arup & Wishart, 2002). However, the Act does not include some areas of the Australian economy such as professions, State public sector businesses, the private sector, and Commonwealth enterprises (Ezrachi, 2012). The National Competition Policy also works closely with the Council of Australian Governments (COAG) and the Special Premiers Conferences to forge a common agreement on its direction and scope (Chris & Lionel, 2014). The policy extended the reach of the Trade Practices Act 1974 (TPA) to Territory government businesses State and unincorporated businesses for competitive conduct rules to apply to all Australian business activities (Ezrachi, 2012). Nationally significant infrastructure can be accessible to third parties while government businesses, under competitive neutrality competing with private businesses do not enjoy unfair advantages. Ezrachi (2012) opines that the policy increases competition through extending prices surveillance arrangements to Territory government and State businesses and restructuring of public sector monopoly businesses. The benefits for the consumer scope expansion of the Trade Practices Act ensures cheaper electricity, cheaper road and rail fares and potentially lower professional fees (Chris & Lionel, 2014). As agreed by the Council of Australian Governments, the formation of ACCC was critical in the implementation of reform program on national competition policy (Kain et al. 2003). The Commission being an independent statutory authority, administers the Prices Surveillance Act 1983 and the Trade Practices Act 1974 (TPA) with additional roles under other legislation. As set out in the legislation, the objective of the TPA is to provide for consumer protection, promote fair trading and competition and enhance the general welfare of Australians (Arup & Wishart, 2002). The TPA has been amended under the national competition policy reform program apply to virtually all businesses in Australia, so that, competitive conduct is relevant in the State Territory legislation (Kain et al. 2003). The TPA covers third party access to facilities of national importance, unfair market and anti-competitive practices, product safety/liability, and mergers or acquisitions of companies. The Commission is the only agency with the mandate to enforce TPA and the only national agency handling competition matters associated Territory/State legislation (Arup & Wishart, 2002). The Commission under the Prices Surveillance Act plays key roles in promoting pricing functions (Ezrachi, 2012). It monitors prices, profits and costs of a business or an industry and consequently report findings or results to the Commonwealth Minister responsible (NLA, 1995). The commission vets under prices surveillance the proposed price increases of any business organization placed and hold inquiries into related pricing matters or practices and report the results to the Minister (Arup & Wishart, 2002). The ACCC handles public inquiries and complaints from a network of offices in all capital cities as well as Tamworth and Townsville. ACCC staff does not give legal advice but provide guidance to consumers and business on their obligations and rights under the law. The Territory and State consumer affairs agencies are complemented by the Commission's consumer protection work that mirror Consumer Affairs Division of Treasury and legislation of their jurisdictions (Cooper et al. 2012). Conclusion The essay has established that fair work commission enforced and regulated provisions relating to termination of employment, minimum wages and employment conditions, dispute resolution, industrial action and enterprise bargaining. The changes and structures of Australian financial system in 1980s removed controls over the interest rates and gave banks a degree of freedom to compete increasing their efficiency and responding to customer needs (Lewis & Wallace, 1997). The development of the National Competition Policy process embraced the broader public policy direction that drew on consultation and coordination machinery of the Commonwealth led the process (Ezrachi, 2012). The essay concluded that Fair Work Commission improved productivity and fairness in industrial relations in the Australian labor market, deregulation engendered efficient financial sector and national competition policy provided an equal platform for government and private sector companies (Sloan, 2009). 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Why Financial Deregulation? ANU Discussion Paper, No. 132,October, Australian National University, Canberra. Kain, J., Kuruppu, I., & Billing, R. (2003). Australia's National Competition Policy: Its Evolution and Operation. Economics, Commerce and Industrial Relations Group. Canberra. Lewis M. K. & Wallace R. H. (1997). The Australian Financial System: Evolution, Policy and Practice, Addison Wesley Longman. Macfarlane, I. (1991). The Deregulation of Financial Intermediaries, Proceedings of a Conference, Reserve Bank of Australia, Sydney, 20-21 June. Merrett, D.T. (1991). Financial Institutions Under Pressure: Are the Right Lessons Being Learnt from the 1890s?, Economic Papers, vol. 10, March, pp.1-10. National Library of Australia. (1995). APAIS 1994: Australian public affairs information service. National Library Australia. Sloan, J. (2009). Fair Work Commission: Assessing the economic impact of Fair Work Australia. 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