Productivity Commission’s mostly sound industrial relations advice falls short on public sector pay

Productivity Commission chairman Peter Harris launches the draft report on industrial relations last month. Photo: Alex Ellinghausen “The Productivity Commission could well ask Henry Ergas (pictured) if he has the intellectual decency to correct the false claims he has made against it.” Photo: Nic Walker

“The development of policy is never helped by the likes of Don Argus (pictured) throwing dead cats into the ring.” Photo: Arsineh Houspian

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Two independent, expert and thorough reports on Australian industrial relations, one under the last government and one under the present one, have come to broadly the same conclusions: that the country’s labour market performance and flexibility are relatively good and that, while some alterations to federal laws are warranted, wholesale changes are not.

As with the one to the previous government, the Productivity Commission’s draft report, released last month, has been greeted with squeals of protest from those who seem to think Australia’s economic salvation requires replacing existing laws with ones allowing an expansion of management powers and significant reductions in pay for those now on minimum rates.

Such protests sit uncomfortably with the generally accepted view of the well informed that, in the words of the commission: “there is little robust evidence that the different variants of workplace relations systems over the last 20 years have had detectable effects on measured economy-wide productivity”; andevidence from diverse sources, including the Employment Department, “could not show that the current minimum wage process delivered significant negative employment outcomes”. Indeed, the commission’s head, Peter Harris, is happy to quote The Economist magazine, saying international debate about minimum wages is “now largely between those saying that there are small negative effects and those who say that there are none at all”.

More than this, the protestations of some in the ranks of the bitterly disappointed don’t stack up in their own terms.

Let’s start with the Murdoch correspondent, Henry Ergas. He bases his “analysis” on an allegation that the commission’s report “opens with the claim that there is a serious imbalance between the bargaining power of employees … and employers”. The report does no such thing. Ergas’s claim is just not true; he’s made it up. The commission says: “Without regulation, employees are likely to have much less bargaining power than employers.””While there are hot spots … [there is] a reasonable balance between the relative power of the parties.””Bargaining is not always in the hands of employers.”

The commission is absolutely right. In most instances, the balance between employers and employees is probably reasonable but relative power can vary between industries and firms. Cleaners will generally be in a weaker position than workers in, say, coal-fired power stations, who are able to dramatically affect electricity supply. If Ergas has any doubts about that, he should try his hand for a couple of months at tidying up hotel rooms and then shovelling coal into power station furnaces – if he thinks he’s up to it, of course.

Anyway, after asserting the commission said something it didn’t, Ergas has the front to accuse it of “making mistakes” and questioning if it has the “intellectual honesty” to correct them. The commission could well ask Ergas if he has the intellectual decency to correct the false claims he has made against it. There’s no need, really, for it can take comfort that, on many matters, there’s a certain reassurance in being on the other side of the fence from any Ergasian stance.

Next comes Don Argus. He’s been a chairman of BHP Billiton and chief executive of the National Australia Bank. He’s quite properly called for a “rational debate” about industrial relations. Then he cruels his pitch by saying “if we don’t, we will finish up like Greece”.

It’s hard to know what Argus means. If he’s saying that industrial relations in Australia are headed in the direction of Greece’s, that’s rubbish. And it’s not a great way to try to contribute to a rational debate about anything.

The causes of Greece’s problems are complicated, some going back to the abuse of public sector employment shortly after the country shook itself free from the Ottoman empire in the 19th century and which has endured over the decades since. Australia has avoided these and other perils, like governments of colonels, that have landed Greece in its present predicament. Australia satisfies none of the preconditions necessary to turn itself into another Greece and it’s irresponsible to suggest it’s a realistic possibility.

Australia’s labour market is far freer than Greece’s and there’s no significant risk of Australia’s seizing up. It’s worth noting, however, that in Europe the Greek labour market is more flexible than those in France, Norway and Germany, and a little behind Italy’s. Working hours in Greece are among the highest in the OECD and higher than in Australia.

The problems of the Greek economy are irrelevant to industrial relations in Australia. The development of policy is never helped by the likes of Argus throwing dead cats into the ring. That’s no way to conduct an argument. The former businessman needs to lift his game or he’ll be left with no standing in the debate that the Productivity Commission wants on its report.

The prospects for that debate also have been damaged by the Labor Party and a few of its unions, which, quite without justification, have seized on the commission’s proposals about penalty rates and individual employment contracts to raise the political spectre of WorkChoices. In turn, this has sent shivers down the spines of Tony Abbott and his ministers as they fumble with their dot-point briefing notes instructing them to say “this is a report to government, not a report from the government”.

It looks as if the gradualist recommendations from the commission may well run into some heavy weather from a government presently as immobilised as a possum in a spotlight.

The good thing is that the commission’s draft report is sound. It has absorbed a whole range of opinions it has received, its analysis is rigorous and balanced, and it is now seeking comments on what it has laid on the table before issuing a final document.

Surprisingly, the commission’s report is far less convincing on bargaining in the public sector. This is its backyard. While it avoids comment on the current pay round in the Commonwealth, it says it “seeks to identify a preferred approach to future public service workplace arrangements”. It does not do so to any significant extent.

The report makes a good start saying “there are fundamental impracticalities in strongly linking pay and productivity in the public sector”. That’s right and, in most Commonwealth agencies, productivity simply can’t be measured.

The report goes on to say that, in any event, there “are several general concerns associated with directly linking pay to increases in productivity”. That’s right, too. While in an economy-wide sense it’s important to maintain a reasonable relationship between wages and productivity, linking pay and productivity increases at the firm or enterprise level is economic lunacy. Among other things, it rewards unproductive industries and their staff, and puts productive ones at a disadvantage because they will be less able to keep staff remuneration competitive; it may even threaten the viability of critical firms. It creates incentives to build up restrictive practices able to be used in bargaining and it encourages a union/staff view that no improvement can be made without a pay increase, a horrifying consequence for those keen to expand management powers.

The Productivity Commission says that reducing conditions of employment or longer hours have nothing to do with productivity and that “paying an employee to work more could harm” it. Exactly so. Public service agencies now engaged in such folly should give it away.

So the commission has made the federal government’s IR bargaining guidelines mandating a link between pay and productivity look as foolish as they deserve to be.

Yet, having successfully lined up the ducks on public sector bargaining, the commission’s analysis falls away to the extent that it makes no recommendations about it. The promised “preferred approach” is not identified.

A problem may be that the commission seems to be unaware of what is still the most sensible, convincing and intellectually rigorous document on public service remuneration: the early 1950s Priestley royal commission report in Britain. Over the past 60 years, there’s been nothing to surpass this report and the Productivity Commission should now get onto it. There should be a copy in the Public Service Commission’s library, where it could be either gathering dust or placed on an index prohibitorum of documents banned because they are inconsistent with prevailing ideology and dangerous because their logic is irrefutable.

Priestley thought pay and conditions in the public service should be such that “the interests of the community in general, of those responsible for administering the civil service and the individual civil servants themselves should be kept in balance”. Priestley says “a correct balance will be achieved only if the primary principle of civil service pay is fair comparison with the current remuneration of outside staffs employed on broadly comparable work”.

Such an approach, Priestley asserts, “looks after the ordinary citizens’ interests as a taxpayer” because if public servants are paid “what other responsible employers pay for comparable work, the citizen cannot reasonably complain that he is being exploited”. Similarly, Priestley says that as the public “casts a jealous eye on public expenditure” an official “is entitled to some guarantee that his just deserts will not be sacrificed to political expediency”.

Priestley also recommended that account be taken of internal relativities, both horizontal and vertical, including where outside work comparisons could not readily be made.

Both of these principles, designed to achieve a proper balance of competing interests and promote the efficiency and productivity of the public service by contributing to effective recruitment and motivation, have been thoroughly trashed in the Australian Public Service and wider Commonwealth employment. It’s more than time for these principles to be brought back and that’s what the Productivity Commission should be recommending.

When the Finance Department’s secretary, Jane Halton, can describe working an extra six minutes a day and removing the Christmas shutdown as “productivity measures” and try in part to justify a pay increase for her staff on the basis of moving into a flash new office, citizens can know that pay and conditions bargaining in the APS has hit rock bottom.

Adopting the Priestley principles would bring an end to such nonsense. It would enable the better realisation via a single enterprise bargain of the “One APS”, whose promotion always now rings hollow. It would allow the gradual evening-up of pay disparities between agencies that have arisen for no reasons other than chance. It would save tens of millions of dollars now wasted in the pointless transaction costs of agency-based bargaining. And it would bring better order to the mish-mash of classifications and levels across the public service now bedevilling its effective management.

The government need not wait for the Productivity Commission to do all these things. Their merits speak for themselves and they should be done now. As that’s unlikely, the commission’s final report must take up the cudgels.

Paddy Gourley is a former senior public servant. [email protected]杭州夜网speed杭州夜网

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