RDP 9404: Wage Dispersion and Labour Market Institutions: A Cross Country Study 2. Australian Labour Market Institutions: an Overview

The Australian system of wage determination is unique among the systems found in industrial countries. Historically, it has tended to be highly centralised and has been characterised as a complex and varying mixture of compulsory arbitration and collective bargaining. Since the early years of this century, federal and state arbitral tribunals, which were established as independent judicial authorities under parliamentary acts, have played a key role in wage determination.

After a period of evolution away from a formal centralised wage setting system which started in the late 1960s, centralisation was reaffirmed in 1983 following an agreement between the Government and the Australian Council of Trade Unions (ACTU). Under the Prices and Incomes Accord, which came into effect in September 1983, unions agreed that they would make no wage claims beyond those which were agreed to under the Award System. Under the first version of the Accord, wages were indexed to a measure of the cost of living with the implication that there was little scope for relative wage changes.

The Accord endured several episodes of economic turmoil in the 1980s; this may have been in part because it was relatively more subtle than the automatic indexation systems which had been adopted by other countries. For example, the first renegotiation of the Accord took place in September 1985 in the context of a sharp fall in the terms of trade and the consequent depreciation of the Australian dollar. The parties agreed to discount the effects of the fall in the exchange rate on the CPI in order to preserve a real depreciation, and so reduce the negative effects of the fall in the terms of trade on employment.

Changes made to the Accord in 1987 increased the scope for adjustment of relative wages. It was agreed that the wage indexation process should be abandoned and that, implicitly, relative wages would be permitted more scope for change. A two-tier system of wage fixation was introduced. The first tier distributed a flat wage increase to all workers, with emphasis on low wage earners and nation-wide adjustments. The second tier required parties to enter primarily enterprise level negotiations to try to offset the cost of pay increases to employers by making the enterprise more competitive through restructuring and other efficiency enhancing changes.

In August 1988, the two-tier system was modified to give a prominent role to the Structural Efficiency Principle. This change formally linked part of the two-stage wage increases to the willingness of unions to cooperate in implementing measures to improve productivity. An emphasis was placed on strategies which would enhance microeconomic efficiency and reduce the problem of restrictive work practices.^[1]

The main change to the institutional structure of wage fixing was the introduction of the Industrial Relations Act (1988), which was designed to provide a more effective legislative framework for award restructuring, workplace reform, and settlement of industrial disputes. The Industrial Relations Act is seen as having formally laid the foundations for more decentralised wage setting.

Proceedings of the 1990–91 National Wage Case revealed a broad consensus among employers and unions on the need to facilitate efficiency at the enterprise level. There was, however, strong reluctance to accept this policy direction on the part of the Industrial Relations Commission (the federal quasi-judicial body which arbitrates national wage increases). After initially rejecting the change in policy, the Commission formally accepted enterprise bargaining and, since October 1991, enterprise bargaining has been in place officially. In practice, the wage bargaining system has not changed profoundly. While the proportion of wage and salary earners covered by enterprise agreements has increased to about one fifth of total earners during the first half of 1994 from about one tenth during the same period a year earlier, a large proportion of the enterprise agreements were determined at the industry level (for example negotiations took place at the Commonwealth government and the metal trades industry levels). This has raised questions about the actual extent of the change in the wage bargaining system.

As it now exists, the Australian wage bargaining system is a hybrid of centralised and decentralised systems. While the opportunity for enterprise bargaining exists, the centralised wage setting infrastructure remains in place.

Footnote

These included policies to help encourage skill-related career paths, eliminate impediments to multi-skilling and broaden the range of tasks that a worker might be required to perform. [1]