Labour Market Efficiency and Fairness: Agreements and the Independent Resolution of Difference

Abstract

It is now settled that we need to get beyond WorkChoices by Moving Forward with Fairness. But what does this mean? In particular, what does it mean if we are interested in improving efficiency, effectiveness and equity in the Australian labour market? As an election manifesto, the ALP's policy on labour law was, understandably, strong on rhetoric and light on detail. A paper this length cannot overcome the 'details' problem. Instead, it clarifies the key issue of institutional design that should guide the impending legislative changes. This is: facilitating dynamic agreement making supported by a strong system of independent resolution where agreement cannot be reached and which also sets national labour market standards. The argument is straight forward. Any effective system of labour law must engage with the two asymmetries at the heart of the employment relationship: inequality of bargaining power before a worker is hired and uncertainty of performance once they are engaged. The former favours the employer, the latter the worker. These inequalities change over time. Differences arising from these asymmetries underpin the need for ongoing agreement making. Not infrequently, however, agreement cannot be reached. While each of the plenary papers differed, all four agreed that, over the last century, Australia has devised a dynamic system for independently resolving such 'deadlock' situations. These tribunals have succeeded because they have kept most industrial or workplace relations issues out of parliament and the courts. This argument is developed by answering the following connected questions: * What are the fundamental problems any system of labour law must deal with? * What does the latest research on labour market arrangements and economic performance tell about institutional design? * What guidance do the plenary papers offer in moving the debate on labour law reform forward? * What do recent experiences with enterprise bargaining reveal about problems to avoid? The Fundamental Problem: Labour as a Factor Production Labour law was once regarded as an arcane area of interest to only a small group of specialists. In recent times, however, it has become a matter of intense public interest. If policy debate is to mature we must move beyond rhetorical claim and counter-claim. Instead, analysis must be built on clear conceptual foundations. These can be traced back to the distinctive nature of labour as a factor of production. As Brown and Nolan have noted, what underlies industrial or workplace relations 'is the inherently controversial nature of the employment transaction (Brown and Nolan 1988: 340). This arises from two asymmetries (Fox 1974: 190). The first arises from the inequality of bargaining power between the parties before the contract is made. While many employees have few options to them other than to sell their labour, employers are, generally speaking, not so constrained (Fox 1974: 190). The second asymmetry arises from the peculiar nature of labour as a commodity (Biernacki 1994). An employer hires a worker's potential to perform, not the actual performance of work itself. This inequality of uncertainty means that while workers are sure of their wages once hired, the output an employer receives is open-ended because only workers know how diligently they apply themselves on the job (Braverman 1974: 52-58; Fox 1974: 183-189; Brown and Nolan 1988: 340). For the sake of brevity, the first inequality will be referred to as the 'external inequality', and the second the 'internal inequality'. While the first tends to disadvantage the employee, the latter creates major problems for the employer. Labour law as a distinct realm of jurisprudence primarily emerged to redress the inequality of bargaining inherent in the open labour market. Initially this took the form of limited recognition for unions by granting them immunity from suit for civil and criminal conspiracy (Deakin and Wilkinson 2004: ch 4). …