No need for sophistication when a simple visit to the Budget website will tell you the tax cuts were not “targeted” at low-paid employees.

So I effectively assumed away employment effects. On that premise, an enterprise-specific cut in wages to save an otherwise non-viable firm could be welfare-negative if the productivity or distribution effect are adverse.

I doubt you meant it in this way, but if you read your second para above – the para you quoted from your comment on Quiggin – if read literally says that lowering the wage to get more people in employment isn’t a welfare gain. Well it isn’t if money is your only criterion, but I thought you and I agreed that welfare should be interpreted more broadly than that. Speaking personally, I count moving someone from unemployment to employment as something that boosts human welfare a great deal. I say that out of my own values I guess, but it’s strongly supported by the happiness research. Unemployment is one of the major sources of reported unhappiness in our world.

Incidentally, I wonder if anyone has tried to use state of the art happiness research to calibrate these choices within an econometric model to say what elasticity of labour demand coupled with a wage fall would produce a net increase or decrease in happiness?

It would be a bit arbitrary in the calibration of the happiness effects around the tradeoff I guess – reduced wages v less unemployment – but it would be an interesting exercise to try.

“Of course its a good thing for a business to move from marginally non-viable to marginally viable but only if it does that through improved efficiency or better marketing skills or innovation – not if it does it by reducing the effective take home pay of workers per hour worked (via WorkChoices). In the latter case there would no net welfare gain for the community at large (and there could be a net welfare loss). If a company is free to reduce wage costs every time it runs into trouble it gives out all the wrong incentives e.g. discouraging effiiciency-enhancing measures.

On todays announcement, Howard may now have strengthened the safety net but it will still have lots of holes I suspect.”
,

Analysts generally talk in terms of numerical flexibility, functional flexibility, temporal flexibility and pay flexibility: in short, bosses’ ability to determine how many workers they employ, what they do, when they do it, and what they get paid for it. It doesn’t fo to focus solely on the last of these.

The first can be aided by allowing bosses to hire and fire at will (that is, as WorkChoices has it, letting bosses sack workers unfairly) but it can also be achieved through using “non-standard” labour, that is on call or fixed term labour taken on to fulfil specific tasks and then easily disposed of. Under WorkChoices – carrying on from the award simplification procedure initiated under the Coalitions 1996 legislation – the traditional limitations on bosses making use of this class of labour have become attenuated. That is, opportunistic use of casual labour and independent contractors has become harder to constrain through collective agreements (or, in the case of independent contracting, through State government legislation)

As for functional flexibility, the real battle was probably won back in the late 1980s, under the structural efficiency principle, broadbanding etc: all evidence of the adaptability of the old system, overseen by the AIRC, to new production techniques and imperatives. The new system, especially AWAs and non-union agreements enhance this process by giving management unilateral power to make changes to job duties. And working time: the radical abolition of the traditional working time regime is perhaps one of WorkChoices most potent weapons in reasserting managerial prerogative, aka flexibility.

All I meant by my comment was that the increase in the tax threshold (long overdue as it was) and the lifting of the income threshold for the 30% tax rate delivered reasonable tax cuts (certainly in terms of the proportion of taxes that would previously have been paid) to people at the bottom of the income distribution.

Fred – I don’t actually think that the Government made any of its changes to the tax/transfer system with a compensatory objective in mind. As far as Workchoices and welfare reform go, of course they wouldn’t bring in explicit compensation, because the official rhetoric is that those changes were only to people’s benefit. However I would still say that, whatever their objectives, the extra money they have put into the transfer system has had the effect of compensating people for whatever they may have lost in terms of market income, though probably in advance rather than after the event.

As with the tax comment above, I’m really thinking here in terms of the effect on individuals, too, not on the population as a whole. For example, the most recent relaxation of the allowance income test, while conceived as partial compensation for the changes being made to eligibility for (sole parent and disability) pensions, had the effect of significantly benefiting couples with one low wage earner. For a couple with one full-time minimum wage, the extra disposable income due to this change alone was in the order of $50 a week.

David – I also understand your concern about the link between income transfer policies and the creation of more low-paid jobs. But I don’t think you need to worry about policy leading labour market changes – the most we can hope for is that it more or less keeps up. I also agree that people who want to acquire skills should be helped to do so. But in the end, I suspect most unemployed and low-skilled marginal workers are not really interested in undertaking formal education or training, so the challenge of how best to help them acquire marketable skills remains.

“All this stuff about protecting workers who are paid well above the minimum wage etc…’

Excluding high paid workers from the protections of the system is not a new idea. Employees above a certain salary cap were always exempted from protection against unfair dismissal, and workers above a ceratin slaray cap were, I think, excluded from accessing the NSW IR Act’s unfair contracts jurisdiction.

Many of the early decisions about who should be counted as an ‘employee’ for the purposes of the NSW and Commonwealth arbitration statutes in the first decade or so of last century also tended to exclude white-collar/non-manual employees on the basis that such workers didn’t need protection but were perfectly capable of looking after themselves.

NG said:

“If we regulate the labour market it should be to protect those at the bottom…”

But I thought the tenor of proposals such as yours and possibly BG re letting the minimum wage fall and have welfare pick up the tab was that the lowest rungs of the labour market were those most in need of deregulation because of the supposed desiredf effect of pricing the low-skilled back into work. Thus those you think on the one hand most in need of protection are being targeted as the ones asked to bear the burden of structural adjustment?

And last years tax cuts were also well-targeted to low-paid employees.

How?

That was before 2006. In the case of WorkChoices, Howard made no mention of any compensation for low-paid workers. I expect it will happen to some extent in the next budget. If it does, I will again be happy to acknowledge and welcome. But note that the effects of WorkChoices and welfare to work are not just on incomes of low-paid workers and those on unemployment benefits. There is also a serious impact on their quality of life (such as more unpredictable hours and insecurity from threat of dismissal nd in the case of welfare recipients more harrassment. Fiscal compensation can do nothing to compensate for these effects.

Nicholas you take me to task on collective bargaining. I agree I may have overstated my argument a little. But let me give you my perspective on unions.

I agree that the most important role of trade unions today is still to collectively bargain to negotiate better deals for their workers if necessary through strike action. If they operate in quasi-monopolistic industries (and I am leaving out the public sector here) or perhaps in booming commodity export industries, they can still win above-average wage increases for their members at the expense of profits or CEO salaries or taxpayers or consumers.

But to the extent that they operate in tightly competitive markets, which is now true of the main part of the economy, unions know that employers have a limited wage capacity and that if they push too hard they will be out of jobs. Indeed they have every incentive to do productivity enhancing deals with employers. That does not mean that collective bargaining is dead in these sectors but it changes its focus. The role of unions in such situations is (a) to act as provider of services to their members to deal with complaints, breaches of workplace safety laws, pursue cases like James Hardie, offer legal advice etc. (b) work cooperatively with managers to lift productivity and (b) look after the most vulnerable workers ensuring they get a fair share of the limited surplus available for wages (effectively redistributing earnings within the enterprise).

In fulfilling these roles, unions will have a very limited capacity to significantly push up overall wage costs. On the contrary they might reduce them.

Union density is now down to 15% in the private sector. I doubt that it will increase much under Labor (as employees may well opt for non-union forms of collective bargaining and employers will still have access to other forms of individual bargaining). But even if it did increase significantly, market realities would greatly constrain the unions. Furthermore, unions ill have little ability to strike. So I really cannot see them as a serious threat to economic stability under a Labor Government.

All this stuff about protecting workers who are paid well above the minimum wage from being offered continued employment that is still well above the minimum wage but which has different (possibly worse) conditions. Preventing that seems like giving quasi property rights in jobs. If we regulate the labour market it should be to protect those at the bottom, not those who are doing OK and want to place obstacles in the way of any reductions in conditions. Human nature puts pretty hefty obstacles in the path of such a thing as the literature shows.

The unions (rightly) don’t much care about high flyers, while miners that use AWAs generally pay more than this. It would expose the hypocrisy of the Spotlights of this world that really are looking for ways to rip off their low-paid staff, and Gillard could rightly say “anyone commanding that sort of wage is going to be able to look after themselves”.

Text follows:

Individual agreements have always been widespread. Over 30% of all
employees are on common-law agreements, commonly referenced back to the
relevant award.

Registered statutory individual agreements, such as federal AWAs,
presently account for around 3% to 5% of agreements. The Democrats
argue that statutory protections provided in registered individual
agreements will nearly always be additional to and therefore superior to
common-law protections. While the basic architecture of pre-WorkChoices
AWAs was right and was based on the global no-disadvantage test
underpinned by the award, we were aware that there were flaws,
particularly with the regulation of the system. In 2005 the Democrats
set up a Senate inquiry to investigate these problems.

The new WorkChoices AWAs are much worse than pre-WorkChoices AWAs. The
global no-disadvantage test was abolished and replaced with 5 minimum
standards; AWAs can be approved before they are signed; and employers
can effectively get out of current awards and agreements, leaving little
choice to employees but to sign AWAs.

The Democrats argue that there is a place for registered statutory
individual agreements, as they can offer better protection, certainty,
and flexibility than common law agreements, but they must be properly
regulated – specifically they must be underpinned by a no-disadvantage
test based on the award (in other words no one is worse off), or in the
absence of an award, the minimum conditions (which need to be increased
- 5 is too few); negotiations must be genuine; there should be
mechanisms to ensure that employees are not coerced; and there must be a
national well resourced independent regulator to oversee and monitor
agreements.

End of text

On balance, I think I would favour a low-paid job plus income transfers over total reliance on welfare, which might be the only alternative for some people with marginal employability.

Me too, the trouble is, where exactly do you stop? It seems like a system that will need constant maintenance to keep in balance, and is biased toward generating all sorts of menial jobs, inhibiting the chances of the employee to train for something better (assuming that is what they want).

One problem with mixing individual industrial instruments and collective industrial instruments among people doing the same or similar jobs is administrative. How many different agreements does a business want to administer at the one time? And if people are actually negotiating their own agreements in the individual stream you would expect variations, otherwise what would be the point of having them?

AWA as they stand explicitly remove you from awards and collective agreements, so there is no option to go to another instrument if you no longer like the individual one. That is a substantial reduction in the individual’s bargaining power. Accepting an AWA is also often a condition of taking up a job – once again a reduction in the individual employee’s bargaining power.

Under those circumstances, a workplace with a mixture of AWAs and a collective agreement is a situation in which conditions are under threat. AWA workers will have reduced bargaining power. They might get a higher pay rise if they ‘trade-off’ conditions one year, but what about next time? The Collective Agreement workers are potentially in a stronger position to bargain depending on how many there are, but as conditions disappear among AWA workers it will become harder to keep them in the collective stream.

Paradoxically, the AWA workers will be better off if there is a Collective Agreement in their workplace because the two instruments potentially compete with one another. ‘WorkChoices’ explicitly stacks the deck in favour of AWAs in the ‘competition’ by making AWAs easy to get onto (by removing choices between agreements) and almost impossible to get off unless you quit your job.

You could, I suppose, come up with something called an AWA that is not compulsory in any way, and that you have the choice to swap for another instrument when it expires. You could also restore a ‘no disadvantage’ test for AWAs and Collective Agreements alike. Under those circumstances it seems pointless for a business to use AWAs at all, as they would differ so little from the Collective Agreement as to be hardly worth worrying about except for particular workers in particular positions with particular skills.

Though of course many would argue that the well being of a worker’s dependents is not the responsibility of any private company, but of the worker (and failing that, the public purse) – what we’ve seen recently is just a continuation of a long-term trend away from the notion of the family wage. Whether you view public transfers to top up low wages as ‘creeping welfare dependence’ is of course a matter of personal judgement. On balance, I think I would favour a low-paid job plus income transfers over total reliance on welfare, which might be the only alternative for some people with marginal employability.

ts a bit mean to suggest that there hasnt been a massive expansion of transfers for low-paid workers under this Government, especially for workers with children. Family assistance for low-income working families is now more generous than it has ever been and even

So for all the noise about de-regulation, we’ve merely transferred the responsibility for the well being of these people from private companies to the state directly. I’m puzzled as to why creeping welfare dependence in this case is such a great outcome when all it seems to do is subsidise via the welfare system the profit of private enterprise.