Is industrial relations reform the road to recovery in monopsonistic labour markets?

Abstract

This article considers the national industrial relations policy aspects of the economic recovery agenda in Australia, in the context of the theory of monopsonistic competition, employment and productivity. This framework acknowledges the employer ability to exercise discretion in the setting of wages. The proposed reforms were unlikely to lead to any increase in economic growth through higher labour productivity or employment. Proposed agendas in enterprise bargaining, greenfields agreements and award simplification (as well as union regulation), would principally have reduced labour costs and incomes. In many circumstances, allowing employers to offer lower wages may lead to fewer filled jobs, higher labour turnover and absenteeism and lower employment. The incentive on employers to improve labour productivity may fall. Proposals to more energetically punish wage theft may have had the opposite effects, but these were abandoned by the government despite support from the other parties. In the end, the only part of the reform agenda to pass Parliament concerned changes to the definition and treatment of casual employees, but casual employment grew strongly before the Bill took effect, the crisis the Bill was meant to solve eased before the Bill was passed, and even if successful the changes would have done little to boost labour productivity.