7 October 1999

I thank the Committee for the opportunity to explain my submission on this Bill.

The submission does not examine the various specific amendments proposed. Rather, it outlines a general framework for considering the Bill.

The Institute for Private Enterprise promotes policies to increase living standards and employment within an equitable framework.

With our highly regulated labour markets, Australia's economic performance over the long run compared with most other OECD countries has been, at best, mediocre. Moreover, although growth has improved in very recent years, our labour market performance has been disappointing and suggests the need for more radical reform.

Between 1994-95 and 1998-99, GDP per head grew at about 3 per cent per annum but our unemployment rate only fell from 8.9 per cent to 7.6 per cent, compared with the OECD average of 6.8 per cent, the US rate of 4.5 per cent and the UK rate of 6.2 per cent.

Over the same period, the proportion of our working age population (15-64 year olds) employed remained virtually unchanged at around 67-67.5 per cent. By contrast, the proportion employed in the less regulated labour markets of the US and the UK increased to levels even further above Australia's. Since the mid 1960s our employment rate has simply fluctuated around the 67 per cent level, whereas the US rate has increased by a staggering10 percentage points.*

Of course, considerable care needs to be taken in interpreting international comparisons. The Netherlands, for example, is often quoted as a successful low unemployment, regulated labour market. However, the disguised unemployment reflected in the large numbers on disability pensions (about one in seven adults) is usually overlooked. A qualification also needs to be made about the US' low unemployment rate - but for the opposite reason that its relatively ungenerous social security system puts more pressure on people to work.

However, even after allowing for such qualifications, it is difficult to avoid the conclusion that the less regulated labour markets in the countries which are most like us have been operating much more efficiently than our highly regulated market.

If in 1998 we had had the same proportion of our working age population employed as in the US, the UK and New Zealand, we would have many thousands more in employment and many thousands fewer unemployed. Specifically, using the US model our employment would have been 755,000 higher, using the UK model 430,000 higher and using the New Zealand model 218,000 higher.

The higher employment levels of those countries have been achieved despite their much larger ethnic minorities with lower average literacy and numeracy rates than here. Moreover, the UK and New Zealand have social security systems which are at least as generous as ours. Overall, Australia has the potential to employ a higher proportion of its working age population than these countries with less regulated labour markets.

My argument that there is considerable scope to lift our performance derives importantly from an analysis of the three main factors contributing to economic growth. I refer here to inputs of capital, labour and technology. Inputs of technology account for about two-thirds of economic growth and the extent to which they occur depends significantly on whether a country has institutional arrangements that are conducive to innovation and risk taking.

It is undeniable, I submit, that Australia's labour market institutions have been highly interventionist and risk deterring. The regulatory authorities have consistently intervened to set employment conditions rather than allow employers to negotiate with workers to achieve conditions consistent with innovatory and other economic requirements. Those authorities have also tended to favour trade unions against employers.

Given the extent of intervention, the surprise is that our employment and unemployment positions are not worse. Some point to the fact that Australia's most important source of jobs, small businesses, effectively operate in many cases outside the regulatory system. To that extent, this is an indictment of the system and strengthens the case for being rid of it.

The argument is sometimes put that, even if our system does keep unemployment relatively high and employment relatively low, there are favourable offsetting "social" effects and that the regulatory system is an intrinsic part of Australia's egalitarian, "fair go" approach. Frankly, Mr Chairman, this is a load of nonsense spouted by people who ought to know better. My submission outlines the main arguments trotted out in support of this proposition and suggests that none really stand up to close scrutiny. I would particularly emphasise the point that it is not the AIRC's awards that protect the living standards of the low paid but the social security system.

I emphasise that I am not proposing a simple laissez-faire approach to the employment relationship. The common law provides a well tried and coherent alternative that offers protection to both employers and employees from abuses of that relationship. If we were to combine the common law and the voluntaristic dispute-settling system operating in the UK for the past twenty five years, we could escape the employment-deterring consequences of the third party interventionism and compulsory conciliation and arbitration involved in our present arrangements.

In conclusion, I ask that the Committee consider this Bill against the urgent need for Australia to reduce labour market regulation to a minimum and, in particular, to change the existing role of the AIRC to that of a voluntary advisor and mediator providing services to both employers and employees, with those on low incomes being eligible for subsidised or free access.

I thank the Committee for its attention.

* The ABS does not publish employment rates for 15-64 year olds, which is the OECD standard. However, it provided me with estimates showing that between August 1995 and August 1998 our employment rate for 15-64 year olds fell slightly from 67.5 per cent to 67.2 per cent. ABS estimates (which differ slightly from OECD estimates) show an employment rate around 65.5 per cent in the mid 1960s.