Academic journal article The Economic and Labour Relations Review : ELRR

Collective Bargaining and the Labour Market Flexibility Debate in New Zealand: A Review

Academic journal article The Economic and Labour Relations Review : ELRR

Collective Bargaining and the Labour Market Flexibility Debate in New Zealand: A Review

Article excerpt

1. Introduction

Academics with an interest in New Zealand's industrial relations system have had plenty to write about over the last decade as politicians have implemented significant reforms to a century old system. In 1984, a newly elected Labour Government embarked upon a programme of incremental reforms to the industrial relations system. Compulsory conciliation and arbitration had been the hallmarks of the New Zealand system for nearly a century, but Labour made arbitration voluntary, thereby threatening the viability of the multiemployer award system. Later, immediately following the 1990 election, a newly elected National Government abolished the process of conciliation and replaced it with a system of competitive individualised contracting through the Employment Contracts Act 1991. The industrial conciliation and arbitration framework, which had been the basis of industrial relations for almost a century, was completely dismantled and New Zealand had adopted its own Wagnerian model of labour relations (Boxall, 1990).

These legislative changes were driven by a worldwide debate the 'flexibility' debate concerning the effectiveness or otherwise of the country's labour market regulation. The primary focus of the debate was the claim that the institutions of the labour market were an important constraint on economic growth. The labour market was argued to be inefficient and unable to adjust to the changing economic climate. In this paper we review the flexibility debate in the New Zealand context and catalogue the reforms that were inspired by the debate. We review the empirical evidence of rigidity, particularly as it related to collective bargaining, over the period 1984-1990, and demonstrate that New Zealand's labour market institutions displayed an important degree of flexibility over that period. Such a showing was, however, insufficient to overcome the folklore of 'rigidity' and the employment contracts legislation was enacted with the aim of achieving even greater efficiency and flexibility within the labour market and the bargaining process.

2. The Labour Market, Flexibility and Collective Bargaining

The labour market comprises a complex set of institutions, customs, organizational rules and personal contacts. The function of the labour market is to assist workers and employers to find each other, and then to help them form productive employment relationships. Economists refer to these processes as "coordination". As we all know however, coordination is not always successful. Some examples: when we live in times of high unemployment such as we do currently, all workers seeking employment cannot find jobs; changing product markets or consumer demands may mean that employers need workers with different skills, or fewer workers; irrespective of the economic climate, some employers may not be able to find workers with the skills they require. When coordination is unsuccessful and fails, employers and workers try to find solutions to these problems. Economists refer to these efforts as "adjustment". Employers, for example, who find that their activities are constrained by being unable to recruit workers to fill specific vacancies can adopt a number of adjustment strategies. They may retrain or redeploy their existing workers; they may increase wages on offer to attract job seekers; they may increase the hours of work of their existing workforce; or they may improve the efficiency of the production process (Blandy and Richardson, 1982). Adjustment strategies available to workers unable to find employment for example, could include retraining or relocation to a city where work is available. A wide range of possible behavioural responses is shown in Table 1.

Labour market flexibility refers to the speed, extent and appropriate direction of adjustment. Flexibility therefore describes the efficiency of coordination, and hence the effective use of resources within the labour market (Standing, 1986). …

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