Academic journal article The Economic and Labour Relations Review : ELRR

Wage Bargaining and the Efficiency Dividend in Public Enterprises

Academic journal article The Economic and Labour Relations Review : ELRR

Wage Bargaining and the Efficiency Dividend in Public Enterprises

Article excerpt

1. Introduction

One of the most important features of the sustained effort to achieve better economic performance in Australia over the past decade and a half has been the continuing process of microeconomic reform. An important part of this process has been the efforts of both Federal and State Governments to improve the operational efficiency of their trading enterprises. A number of notable improvements have occurred which have contributed to the emerging importance of appropriately distributing the so-called efficiency dividend.

The efficiency dividend in a public enterprise refers to the overall economic gain which occurs when the enterprise in question improves its performance in transforming its productive inputs into outputs of goods and/or services. It occurs in response to improved productivity performance by all relevant parties including the owner (ie. the Government), the management team and the workers. Notable examples of improved practices by each of these agents include corporatisation and deregulation, pursuit of best practice benchmarking and quality management, and greater attention to workplace flexibility, multi-skilling and training. The issue of distributing the efficiency dividend concerns who benefits economically from the enhanced performance of the public enterprise. Although it is widely agreed that the beneficiaries should include all the key players including the owner (ie. the Government which expects greater dividend payments), the producers of the output (ie. the workers and management who expect higher wages and salaries), and the consumers (ie. the corporate and/or household sectors which expect better quality output at lower prices), it is not widely agreed how this distribution should be decided.

The achievement of an appropriate distribution of the efficiency dividend which accrues to public enterprises constitutes a vital part of the microeconomic reform process. This is the case because an inappropriate distribution of the dividend carries a significant risk of alienating key contributors to the microeconomic reform process and it also risks impeding the economy's rate of capital accumulation. The purpose of this paper is twofold. First, it reviews the methods currently available to measure the efficiency dividend in public enterprises and points to their relative strengths and weaknesses. These measures include single factor productivity, total factor productivity and performance indicators. Second, it demonstrates that inappropriate use of these measures by management and/or workers during the wage bargaining process can lead to the emergence of misunderstandings about the extent of the efficiency dividend and how it ought to be distributed. It is appropriate here to emphasise that this paper does not seek to derive new theoretical or empirical results on the measurement of productivity and/or performance in public enterprises. Rather, the focus is on the policy issue of what is implied by the currently available measures of productivity and performance for the appropriate distribution of the efficiency dividend in public enterprises. This latter point constitutes the main contribution of the paper.

The paper is structured as follows. The next section tackles the first objective of the paper by summarily describing the alternative ways of measuring the efficiency dividend. Section 3 points to the importance of achieving an appropriate distribution of the dividend and spells out the implications of alternative measures for the wage bargaining process. The final section summarises the main arguments which are presented in the paper and draws together the conclusions.

2. Measuring the efficiency dividend

The purpose of any economy is to add value to its endowment of resources by converting them into outputs of goods and services, and to affect the efficient exchange of these outputs amongst alternative uses. Economists employ two concepts of efficiency to evaluate an economy's performance. …

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