Industrial Relation in Australia - Essay Example

Swarnambika S Academia Research Industrial Relation in Australia August 31, 2007 Industrial Relation in Australia Twenty years ago, 50 percent of all workers were members of a union. Today, the unionization rate is just 23 percent. Even in the public sector, once a bastion of union strength, union members are now in the minority. In an era of casualisation, computerization and feminization, deunionisation is probably the most significant change to have hit labor market over the past generation. A marker of the decline in union power is how rare strikes have become. The number of days lost to industrial disputes today is just one-quarter of its level in the early-1980s. In this, Australia is not alone. 1. Decline of Trade Union Coverage since early 1980s Declining unionization is a common pattern across the developed world. To understand the transformation, it is useful to briefly dismiss two common explanations for union decline. The first is that unions declined because workers' became more skeptical about them. In fact, attitudes tend to be a mirror image of union strength. When union membership swelled during the 1970s, Australians became more likely to tell pollsters that they thought unions had "too much power", and less likely to agree that unions had been "a good thing for Australia". Correspondingly, as unions waned during the 1990s, the fraction of people who thought that unions had "too much power" or that "Australian would be better off without unions" steadily decreased. Another argument that is sometimes made is that deunionisation was a result of the decline in real wages that took place under the Accord. Yet as David Peetz points out in his book Unions in a Contrary World, this explanation implies that unionization should have declined more during the 1980s (when real wages fell) than the 1990s (when real wages rose). In fact, the reverse is true - the biggest fall in unionization occurred during the 1990s. 2. Factors responsible for the decline The decline of Australian unions comes down to four factors: changes to the laws governing unions, more product market competition, rising inequality, and structural change in the labor market. The most significant factor in Australian deunionisation has been changes to the legal regime governing unions. Peetz points out that between 1990 and 1995, conservative governments in five out of six states introduced legislation aimed at prohibiting compulsory unionization (banning "closed shops"), encouraging individual bargaining, and making the transition to non-award coverage easier. In the late-1980s, more than half of all union members were required to be a union member as a condition of their employment. In the 1990s, freed from the requirement to belong, large numbers chose to opt out. Unsurprisingly, the unions hit hardest were the ones that were most reliant on compulsory unionism laws. The new regime was locked in place in 1996, when the newly-elected Howard Government virtually abolished compulsory unionism nationwide, and made it more difficult for unions to recruit and strike. The next most important driver of deunionisation has been raising competition. Spurred by microeconomic reforms, tariff cuts, and a revitalized Australian Competition and Consumer Commission, the markets for buying most products and services are now substantially more competitive than they were in the 1970s. When firms enjoy a monopoly or oligopoly position, it is easier for them to pay higher wages to their employees. Prices are higher in non-competitive markets, and in the jargon of economics, this generates "rents". These rents are then shared between employers (who enjoy higher profits than they would in a competitive market) and workers (who earn more than in a competitive market). When monopolies are broken down, and markets become more competitive, management has to start cutting costs. This places pressure on management to adopt stronger anti-union tactics in order to reduce the wage bill. The third explanation for falling union density is the growth in earnings inequality. To understand how this works, it is important to recognize that unions do not just aim for higher wages, but also for greater pay compression. This occurs through standardized pay schedules, and claims which request the same increase for all workers (e.g. $10 per week). Less pay dispersion within a company also makes it easier for unions to organize, as workers are more likely to make common cause with those who earn similar wages. 3. The most Significant factor explaining the decline The Australian unionism started to decline since 1976 as measured by a household survey. While membership held up during the 1980s, the density fell. During the 1990s membership has fallen rapidly, density even more rapidly. If the trend of the last six years was to continue, density would decline from its 28 percent level in 1998 to 15 percent by 2006, and zero by 2013. Both Peetz (1998) and Drago & Wooden (1998) attribute the decline to two main factors: firstly increased government and employer opposition to unions that resulted in a substantial reduction in the incidence of closed shops and compulsory unionism; secondly structural changes in the economy. According to Peetz, structural changes were the dominant factor in the decline of union density in the 1980s, while the reduction of compulsory unionism was the chief factor in the 1990s. Drago & Wooden attribute some of the 1990s decline to structural factors, but agree with Peetz that the reduction of compulsory unionism was a more important reason. Labor market deregulation means different things to different people in the policy debate. Some argue that it means the removal of all 'interventions' in the labor market, such as minimum wage laws, trade unions, occupational health and safety laws, leave provisions, and so on. Others think it refers to the decentralization of wage bargaining; for others, to the diminution of industrial tribunals. Some argue that they are for 'deregulation' but ironically, in practice, they advocate're-regulation' (for example in the case of having individual contracts replace awards or collective bargaining agreements) (Dabscheck, 1995 and Buchanan & Callus, 1993). There are many definitions, but for our purposes labor market 'deregulation' refers to the removal or marginalization of collective industrial relations institutions such as trade unions and industrial tribunals (and with them minimum wage laws, awards, occupational health and safety laws and collective bargaining agreements etc.) in favor of individual arrangements and a general 'free for all' in the labor market. This form of labor market deregulation (or re-regulation) has been described as a panacea for much of Australia's economic ills (particularly unemployment) since the mid-1980s. Dabscheck (1987) has written about the political economy of labor market 'deregulation' in Australia with the rise of the 'New Right'. A major criticism by the 'New Right' was that Australia's labor market institutions were run by the 'industrial relations club' and hence did not produce economic and employment outcomes that were in the public interest. 4. Withering of Trade Unions Decline in union membership and the rise of the non-union firm has prompted industrial relations research to move into previously uncharted territory. Although the union firm was relatively easy to locate and its inhabitants somewhat easy to identify, the more recent entity known as the non-union firm is much more likely to be "amorphous, decentralized, inaccessible," and as such their operations may be more difficult to critically analyze. However, research by scholars such as Foulkes (1980) and McLoughlin and Gourlay (1994) have provided important insights into the employment relations which underpin the operations of many large nonunion firms. Similarly Freeman's cross-country analysis, cited in Beaumont and Harris (1995), indicated that union decline during the 1980s resulted from the increased ability and motivation of managements to resist unions. (Beaumont & Harris, 1995; Foulkes, 1980; McLoughlin & Gourlay, 1994). These studies alert us to the fact that there are as many contingent variables which coalesce to induce employees to join trade unions as there are employer strategies which undermine this course of action. Peetz identified the use of both exclusivist and inclusivist management strategies used by decollectivizing employers. Exclusivist strategies include firms casualizing and outsourcing staff, and the outright refusal to negotiate with unions. Inclusivist strategies might involve the use of employee involvement schemes and other human resource initiatives. However the dichotomy between the two may not be clear-cut (Peetz, 2002). After a decade of reform, the recession of the early 1990's saw unemployment rates rising to levels as high as that experienced in the 1980s. At the same time policies to reform the labor market do seem to have had the desired effect of reducing the bargaining position of workers. The large rise in wage inequality which took place during the 1980's has been well documented (Freeman, 1993), while this occurred in most OECD economies, the largest effects were in the UK and US (OECD 1993, Freeman and Katz 1994, Lemieux, 1993 and Leslie and Pu 1996). Although part of this phenomena can be traced to technological change favoring workers with higher skills (though Katz (1992) argues there is no independent evidence that this effect is important and there has also been large increases in inequality between classes of workers with homogeneous characteristics), and the effects of increased international competition, the evidence suggests a large proportion of this is the result of changes in labor market institutions. Blanchflower and Freeman (1994) and Freeman (1993) both suggest that this may be directly related to labor market reform. Freeman and Pelletier (1991), Gosling and Machin (1995), Gregg and Machin (1994), and Leslie and Pu (1996) analyze the role of the decline in the power of organized labor on the wage structure and find it to be highly significant. This result has also been reproduced for the Australian case (Borland, 1996)). Freeman's (1990) examination of international movements in unionization rates illustrates the precipitous decline of unionization in the US and UK since 1970, and the OECD reports that it fell in many member countries during the 1980's (particularly the Netherlands and France). Card (1996) estimates at least twenty percent of changes in the variance of wages in the United States from the 1970s to 1987 is explained by the decline in unionization. Lemieux (1993) has estimated that 40 percent of the differences in wage inequality between Canada and the US can be accounted for by their different union densities. DiNardo, Fortin and Lemieux (1996) find that both de-unionization and falls in the real value of the minimum wage have had a significant and large impact on the increase in wage inequality in the United States. They conclude that 'labor market institutions are as important as supply and demand considerations in explaining changes in the US distribution of wages from 1979 to 1988.' Pontusson (1996) also finds that those OECD countries which experienced de-unionization in the 1980s were those which experienced large increases in wage inequality. Where total employment expanded by 18 per cent, jobs not requiring post-school training grew by just 4 per cent, and there was modest expansion in the number of jobs requiring tradesperson qualifications. One in five Australian employees had at least a university degree in 2005, compared to an incidence of one in eight in 1990. Perhaps changes in the industry employment structure 'drove' changes in the educational stock of the potential workforce. Others contend that 'skill-biased' technological change might explain both trends. The changed industry composition of the workforce is also a potential causal factor in the decline in union density rates which has been observed over a long period. On the latest estimates (August 2005), 1.91 million Australian employees were union members in their main job (ignoring multiple job-holding). Labor leaders have welcomed the news that this is the highest absolute number of unionists since 1998, an increase of about 70 thousand individuals over August 2004. In proportional terms, however, the 2005 figure represented a continued decline in density to 22.4 per cent of the workforce, down from 35 per cent in August 1994. After falling quickly in the second half of the 1990s, the rate of decline has slowed in the last five years, falling 2.1 percentage points from 2001-05 (McCallum, 2006). Union membership in 2005 was concentrated in four industries. In descending order of absolute membership size, these industries are: education, health, manufacturing, and retail trade. Along with construction, health was the only industry in which the absolute number of trade union members rose over the period 1994-2005 (by 28% and 18% respectively). Density rates were highest in the public service and communication services (both 43%), in personal services (40%), and in transport and storage (34%). Interestingly, several industries with large absolute union representation have insignificant workforce density rates, including both manufacturing and retail trade (both 7% unionized in 2005). Only four industries have high density and large membership. Using a minimum density rate of 25 per cent and a minimum unionized number of 100 thousand individuals as arbitrary thresholds, these four industries are: the public service, transport and storage, education, and health (McCallum, 2006). Even in these four sectors density was stagnant at best. One explanation may lie in the difficulties unions have faced in organizing what are all fairly rapidly expanding areas of employment. But hostile industrial legislation, in force at Federal level since 1996, is likely to also account for part of recent union experience. An important question is whether the current industrial changes might, contrary to their intent, help unions to organize those workers who become exposed to aggressive 'managerial prerogative'. References Beaumont, P., & Harris. R. 1995. "Union De-Recognition and Declining Union Density in Britain." Industrial and Labor Relations Review, Vol. 48, No. 3, 389-403. Blanchflower, D. G. & Freeman, R.B. 1994. 'Did the Thatcher Reforms Change British Labour Market Performance' in R. Barrell ed. The UK Labour Market: Comparative Aspects and Institutional Developments, Cambridge University Press. Borland, J. 1996. 'Union Effects on Earnings Dispersion in Australia, 1986-1994,' British Journal of Industrial Relations, 34(2), June: 237-48. Buchanan, J. and Callus, R. 1993. 'Efficiency and Equity at Work: The Need for Labour Market Regulation in Australia,' Journal of Industrial Relations, 35(4), December: 515-537. Card, D. 1996. 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