Angus Taylor (Hume, Liberal Party) Share this | Hansard source

The big idea behind the Fair Work Amendment (Bargaining Processes) Bill 2014 is that productivity should drive wage negotiations and wage outcomes, and that this will balance real wage increases against ensuring low levels of unemployment. The bill will amend the Fair Work Act to ensure that, when approving an enterprise agreement, the Fair Work Commission must be satisfied that productivity improvements at the workplace were discussed during bargaining for the agreement. All of the existing enterprise agreement approval requirements under the Fair Work Act will be retained.

The bill also amends the Fair Work Act to provide further guidance and greater transparency regarding the circumstances in which protected action ballot orders can be made. It ensures that the Fair Work Commission must not make a protected ballot order where it is satisfied that the claims of an applicant for a protected action ballot are manifestly excessive or, importantly, would have significantly adverse impacts on productivity at the workplace. The idea that productivity should be at the heart of wage negotiations and wage outcomes is not a new one. We saw it, perhaps, at its best during the period of the prices and incomes accords. This idea was a bedrock of the accords driven by the Labor government in the 1980s, which were a considerable contributor to helping Australia out of its economic malaise at the time.

Let us have a little bit of a look at the importance of productivity, or doing things smarter—which is what we really mean when we are talking about productivity in the workplace. In the medium term and in the long term and to some extent even in the short term we know that productivity is absolutely central to our standard of living improving.

Paul Krugman, the well-known Nobel laureate economist—who is, I should say, very much not on our side of politics—has said:

Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.

The point here is that we want to raise wages. We on this side of the House want to raise wages. We do not want to reduce them. But we know, as Krugman points out, that if we want wages to go up we have to raise labour productivity. We know from years and years of economic research that, if wages go up faster than productivity, unemployment rises. This is a very basic result in economics. But let us go beyond the theory. Let us have a look at what some of the researchers have said.

I will look at a paper written by none other than the member for Fraser and published in the Australian Economic Review in 2003. At the time he was at the Kennedy school of government at Harvard University—a great institution. He did a very interesting piece of work where he looked at six increases in wages in Western Australia between 1994 and 2001 to look at the impact of wages going up faster than productivity—minimum wages were the focus—on employment. On six occasions between 1994 and 2001 the minimum wage in WA was increased by between 3½ per cent and over nine per cent. After each of these increases the employment to population ratio—the employment rate—in WA fell relative to the rest of Australia. He then shows—he does the econometrics on this—that a one per cent increase in the minimum wage reduces employment by about 0.13. In fact, in a later correction to the paper, he said that that number was too low—in fact it should have been higher.

The really interesting part of this is that the employment impact is most substantial amongst younger employees, where the fall in employment is almost three times higher. If you raise wages faster than productivity, then you raise unemployment for younger people at three times the pace of the rest of the economy. The member for Fraser is a good economist and many other economists have confirmed that result. For the most part their results have been even stronger than his, but directionally they have confirmed exactly what he found—so we know that if you raise wages faster than productivity you drive up unemployment.

It is very important to note that productivity comes from far more than just squeezing employees. We know that productivity comes from working smarter, above all. That is innovation—working smarter; finding cleverer ways of doing the same things. Australian businesses, when encouraged to do so, have been extraordinarily good at doing exactly this. We also know that productivity comes from investment—building the capital stock—in public infrastructure: in roads, rail and telecommunications, and from private sector investment, which we saw starting to fall away dramatically in the latter period of the Labor government.

Australia has been at its very best when it has been delivering rising wages aligned with strong productivity. In our great economic history since European settlement we have consistently avoided oversupply of unskilled workers, and we should continue to do so. In doing so, we have been able to achieve rising real wages aligned with rising productivity. Central to that have been very high levels of capital investment putting upward pressure on wages, and we should celebrate that—that has been absolutely central to the economic miracle of 200 years that we have seen in this country.

I spoke about unemployment, and, of course, at the heart of any wage negotiation is this issue of unemployment. But nowhere has this become worse, particularly in the Labor years, than in the case of youth unemployment. There is no question that youth unemployment was a disaster during the period from 2007 to 2013.

Given the money that the Labor Party claims to have spent on jobs and skill creation and skill development, and the number of programs they claim to have put into place, we might have expected that the track record would in fact be superb. But let us have a look at the facts. Between the time they got into government in 2007 and the time they left in 2013, there was a significant increase in youth unemployment. Note here that, in the four years leading up to the new Labor government in 2007, we saw a 13 per cent growth under the Howard government in youth employment. But between 2008 and 2013, we saw an eight per cent reduction in youth employment. So we went from a 13 per cent increase in employment to an eight per cent reduction in youth employment across the economy.

At the same time, we can look at youth participation rates. They were running merrily along between 2004 and 2008, rising from 70 per cent participation up to 71 per cent—nice work by the Howard government. But, from early 2008 through to 2013, there was a reduction in participation for younger Australians from 71 per cent to 66 per cent—a disastrous drop; a five per cent reduction across the time of the Labor government.

They might say, 'That is all right; we were putting them all into training.' But we also find that the youth unemployment rate went from nine per cent in January 2008 to 12.4 per cent by the end of 2013. What a shameful record of youth employment and youth unemployment we saw from the last Labor government. We know there are terrible hot spots in western and north-western Tasmania. It got to 21 per cent unemployment under the Labor-Greens alliance, destroying jobs in Tasmania; in Cairns it was almost 21 per cent again; in North Adelaide it was around 20 per cent; and in south-eastern Tasmania it was 19.6 per cent—a social and economic disaster.

So the question is: what are we doing to address this? And alongside what is being proposed in this bill, we are working hard to strengthen the economy—and we know that a strong economy equals strong jobs growth. We are negotiating free trade agreements. We are investing record dollars in public infrastructure. We are removing excess taxation. We are reforming training and education—reforming our vocational education and training system. And we are establishing world-class employment services.

But this is not all. This legislation asks the Fair Work Commission to consider whether productivity was part of the negotiations in coming to an enterprise agreement. But we need the Fair Work Commission to come to terms with the scale of this problem and begin to address it. Indeed, the old industrial relations club used to understand the role of productivity, as I said earlier. Former Prime Minister Bob Hawke understood that real wage hikes in the face of sluggish productivity are a disaster.

So what has the Fair Work Commission been doing? The short answer is that it has been making the situation worse, and is prioritising large wage hikes above jobs for young Australians, by not paying attention to productivity. This has been absolutely at its worst for the young in our population.

As I said, we all want rising wages; this is a bedrock of Australia's economic success. But you achieve rising wages by working smarter, investing more, building more infrastructure and improving our education system. You cannot simply raise wages in the absence of productivity gains.

I want to focus on two particular decisions made by the Fair Work Commission. The first was the modern awards review focused on apprentices, trainees and juniors of August 2013. A full bench of the Fair Work Commission handed down its decision on apprentice provisions in the two-year review of modern awards. It granted wage increases for first- and second-year apprentices, phased over a 12-month period. They effectively hiked the four-year wage structure for a junior apprentice who has completed year 12 from, in the first year, 42 per cent of full salary to 55 per cent, and, in the second year, from 55 per cent to 65 per cent. Effectively, what they were doing was significantly, sharply, increasing wages for first- and second-year apprentices, and, importantly, dissuading employers from wanting to take those apprentices on. The Fair Work Commission also decided that adult apprentices should receive 80 per cent of the fully qualified tradesperson's rate, which is a 10 per cent increase over what it previously was, and they passed on many costs of apprenticeships to employers, including such things as textbooks and travel costs.

This is an extraordinary conclusion, and it flies in the face of ensuring that wages track productivity. There is no question that this will be contributing to the unemployment of young people in Australia.

In a second decision, in March this year, a full bench of the Fair Work Commission granted an application by the Shop, Distributive and Allied Employees' Association to increase the rate of pay for 20-year-old retail employees from 90 per cent to 100 per cent of the adult rate—a 10 per cent wage increase. There is no argument to say that we have seen 10 per cent productivity gains during this time. So the impact of this decision, based on research we have seen from people such as the member for Fraser, must be to raise unemployment amongst young people.

This irresponsible bias, to ignore the basic economics of employment relationships, is a serious problem for young people, for employers and for Australia. The most disenfranchised in our population are the unemployed, and to increase the number of people who are out of employment through these sorts of decisions is a travesty.

It is time for the Fair Work Commission to recognise this, and to show some concern and compassion about the extraordinary increase in youth unemployment bestowed on us by the previous Labor government. Yes, we need to ensure that there is a strong economy with lots of job creation, strong support for job seekers and extensive support for training and education, but we are doing all of that. Now it is time for the Fair Work Commission to get real and confront youth unemployment.

This bill provides an opportunity to do exactly that by increasing the focus of the fair work legislation on productivity. I commend this bill to the House.

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