Academic journal article The Economic and Labour Relations Review : ELRR

Wages Policy and the 1991 National Wage Case: An Economic Perspective

Academic journal article The Economic and Labour Relations Review : ELRR

Wages Policy and the 1991 National Wage Case: An Economic Perspective

Article excerpt

1. Introduction

The National Wage Case decision of April 1991 appears to have brought to an end the process by which Wages Policy has been implemented in Australia since 1983. This process has been based on the Accord (a negotiated agreement between the Commonwealth Government and the ACTU on the parameters for union pay claims), and the detennination by the IRC, in regular National Wage Cases, of the principles under which it will make awards and ratify wage settlements.

Of course the demise of the Accord-based system has been confidently predicted on other occasions. The system has managed to survive by making sufficient adjustments in response to both changing economic circumstances, and to the strains of the various competing (and often conflicting) goals for Wages Policy.

It is argued here that it is the changing nature and priorities of the goals for Wages Policy that have this time provided a watershed, from where the future path of Wages Policy is uncertain.

2. The Changing Priorities for Wages Policy

The relationships between the various goals of economic policy-macroeconomic (high growth in aggregate production and employment, low inflation, balance of payments stability) and microeconomic (allocative and productive efficiency in resource use) are complex. Similarly complex are the interrelationships between the various policy instruments of government (Fiscal, Monetary, Industry, Exchange Rage, and Wages Policies), and the relative potential contribution of each to the achievement of goals is more complicated than the assignment of particular instruments to particular targets. (These issues are considered in detail in Stegman (1987)).

It is a useful and not misleading simplification, however, to see the principal goal of the Wages Policy initiated in 1983 under Accord I, as the control of inflation. As an alternative to fighting inflation "down the Phillips curve", with policy to restrict Aggregate Demand and consequent costs in unemployment, the incoming Labor Government viewed control of wage-induced inflation as more efficiently achieved through more direct control over the general level of wage outcomes.

The primacy of the goal of control over the general level of wages, and its rate of increase, implies the need for a centralised system, with norms or principles for wage increases applied generally, and strict limits on the ability of wage and salary earners to achieve increases outside the principles.

Lacking the constitutional power to itself directly control wages, the Labor Government has sought to implement a centralised wages policy through a negotiated agreement with the peak council of the union movement, and to then have the agreed parameters ratified by the IRC in its determination of National Wage Cases principles. Thus the Common wealth Government relies on the authority and standing of the IRC, the willingness of the IRC to incorporate the elements of Accord agreements in its determination of principles for National Wage adjustments, the consistency of the determinations of the yMous state and industry tribunals with National Wage Case principles, and the ability of the ACTU to provide compliance by its constituent unions with the "no extra claims" provision of wage awards.

The first major test for the Accord-based system came in 1985.

From 1983 to 1985 the system had proved successful in allowing both the pursuit of expansionary demand management policy and a winding back of the inflation rate. [Inflation averaged 6.9% p.a. over the period, compared with 10.3% p.a. for 1980-1982, employment grew strongly and the profit share of aggregate income recovered from its 1982/83 slump (See Stegman 1987)]. However by 1985 this pro-growth policy had run into the traditional problem for Australian policy makers - the Balance of Payments constraint.

Australia, with a high and inflexible import propensity, cannot sustain high domestic growth without commensurate growth in the value of its exports. …

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