Freeman on WorkChoices

I guess I might have made it to this post by Richard Freeman on WorkChoices as both the blog he wrote it on and another blog that it was reproduced on are on my blog reader (now featuring 477 unread posts!) But thanks to Helen for linking to it in the earlier thread on George W Bush and Alan Greenspan.

Richard Freeman is a serious guy – even if he puts a bit of effort into looking unusual in a moustache and hat and writes about “kangaroo stew, platypus pie, and other delicacies from down under” and our system of arbitration where labour market decisions are made by ‘whigged judges’.

Anyway, here he is on WorkChoices.

It is filled with government-mandated cannots — restrictions on the freedom of business and labour to negotiate contracts. For example, firms and workers cannot: provide for payroll deduction for union fees indicate how a future agreement should be renegotiated… enable a union to participate in a dispute resolution procedure in its own right restrict or regulate the conditions of independent contractors and labour hire workers provide a remedy for unfair dismissal on the basis that it is harsh, unjust or unreasonable and so on, for over 600 pages. One part empowers a government minister to set aside contract provisions that do not fit with the purposes of the law.

This is not Mrs. Thatchers labour-law reforms nor conservative deregulation to allow labour and management freedom to negotiate. Small wonder that it roused the near unanimous opposition of labour economists and labour-relations experts regardless of political ideology. It is the first major government effort since the early days of unionism to undermine collective action by workers and to regulate labour contracts in ways that increase the power of business relative to workers.

A lot of this is fair enough – if somewhat hyperbolic. But it was introduced with a very high minimum wage which people tend to discount. It may be that the ‘Fair Pay’ Commission will undermine that wage, but so far it hasn’t done that. Freeman doesn’t mention this.

I liked Freeman’s list of four ‘dos’ of labour law.

  • First, the law should encourage efficient bargaining that is, bargaining that leaves no money on the table. Per the Coase theorem, this means clear and simple regulations so that labour and management can bargain for maximum efficiency even as they fight over distribution. A few basic rules regarding the property rights to employment and workplace decisions in place of rules that are hundreds of pages of micro-managed dos and dont dos.
  • Second, economics suggests keeping government officials out of the workplace bargaining. Hayek may have been a curmudgeonly conservative terrified by a now obsolete socialist threat, but he was right about lodging decisions with the people who have local information (subject to some concern about externalities). We want workers, unions, and management to have the scope to experiment with alternative contract provisions. We would encourage diversity on the notion that one shoe does not fit all feet. If your firm wants to include a clause in a contract that provides a remedy for harsh, unjust, or unreasonable dismissal of workers, you should have the right to do so.
  • Third, we would strive that the parties covered by the code agree on the rules rather than seek to impose them without major public support. If there is one lesson from human resource management, it is that workers participation in decisions — their voice at workplaces — is critical for a healthy and productive workplace. The Workchoices legislation is based on an outmoded control-and-command view of how workplaces operate. It is alien to the world in which firms operate on the basis of partnerships, group incentives, team production, profit-sharing, and employee-share ownership.
  • Fourth, economics suggests that any labour code build in some insurance for the protection of workers, even though such insurance may cost a bit of economic output. How much insurance to give workers is a matter of political debate and the weighing of alternative costs and benefits. The more leftwing view can be represented by the following statement: Perhaps modest economic inefficiency is cost worth paying for if it prevents blatantly unfair behaviour by employers. The rightwing view is: Perhaps some unfair behaviour by some employers is cost worth paying if it gets more jobs. Different analysts can subscribe to either of these statements and remain true to the economics of weighing benefits and costs.

That third point about command and control points to one of the great shortcomings of this government in its lack of real interest in policy – it’s default to command and control options. The aboriginal intervention being a classic case. Tasmanian hospitals, school flagpoles and on it goes. Hardly a day goes by these days without a bit more of it.

And this is a government that likes to portray itself as sympathetic to the liberal ideas of Friedrich Hayek.

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Andrew Norton
Andrew Norton
16 years ago

“And this is a government that likes to portray itself as sympathetic to the liberal ideas of Friedrich Hayek.”

Much as I have criticised the government for being too big and interventionist, I would not rate them very negatively for hypocrisy. I don’t think any current Liberal Minister is a declared Hayekian, and I doubt many would have more than an impressionistic idea of what Hayek said. Certainly you will find more in Liberal statements condemning the unions than you will praising Hayek or any other market thinker.

As I pointed out in my article on big government conservatism, much of the ‘big government’ policy is in fact quite consistent with party ideology.

Bring Back CL's blog
Bring Back CL's blog
16 years ago

I like his four dos as well.

Perhaps workchoices is doggydos

Fred Argy
Fred Argy
16 years ago

I read and re-read his first three “economic” principles and could not work out how they would be best translated into policy and how they serve as a practical critique of Howard’s IR system. Too abstract for policy advisers.

The fourth principle is at the heart of the equity/efficiency trade-off. Freeman rightly does not attempt to tell us how to resolve it. He is virtually saying it depends on one’s values. I agree on that point. But in some of his papers, Freeman argues that the efficiency/employment costs of regulation have been been exaggerated and that labour market laws can be a win/win.