Chapter 15 - Aggregate supply policies in action

Question 1

What is the labour market?

Answer 1

The Labour Market is where wages and conditions are determined. Conditions of employment include hours of work, annual leave and when breaks may be taken.

Question 2

How did the labour market previously​ function?

Answer 2

Before 1985, Australia’s Industrial relations system was centralised in nature. Award (minimum) wages were set by a central body (called the Australian Industrial Relations Commission) after submissions from different stakeholders. A centralised system of industrial relations did little to promote productivity growth and the efficient allocation of resources.

The first steps towards decentralisation occurred in the early 1990’s with the promotion of enterprise bargaining agreements (EBAs).

Question 3

What is the definition of Enterprise Bargaining Agreements?

Answer 3

An Enterprise Bargaining Agreement (EBA) consists of a collective industrial agreement between either an employer and a trade union acting on behalf of employees or an employer and employees acting for themselves.

Question 4

What is the Fair Work Act (2009)?

Answer 4

Fair Work Act (2009): demise of WorkChoices, return bargaining power to employees and increased fairness.

The Government is therefore seeking to maintain the role of EBAs in the determination of wages and conditions in Australia, but there is considered to be a need to protect workers from excessive exploitation (it is more equitable than WorkChoices). Key Features;

• establishment of Fair Work Australia to oversee the industrial relations system and to vary awards, make minimum wage orders, approve agreements and determine unfair dismissal claims.
• The establishment of 10 National Employment Standards to provide a safety net that will cover things like maximum weekly hours of work, leave, public holidays, notice of termination and redundancy pay and the right to request flexible working arrangements.
• The creation of modern awards to streamline and simplify the thousands of awards currently in existence.
• Revised unfair dismissal laws where employees of small businesses (less than 15 employees) cannot claim unfair dismissal within their first year with that employer and employees of larger businesses cannot do so within six months.

The focus on collective bargaining agreements (under the Fair Work Act) effectively returned some power to employees and provided added scope for union representatives to be a party to negotiations via a role as a bargaining agent.​

Question 5

What is the Workplace Relations Act?

Answer 5

Workplace Relations Act (1996):​ individual contracts, reduced power of the unions and simplified awards

Question 6

What is the WorkChoices Act?

Answer 6

WorkChoices (2006): the Australian Fair Pay Commission was established and wages and conditions were to be determined by the impact that they would have on economic growth and employment. Modifications to ‘unfair dismissal’ laws and the abolition of the ‘no disadvantage test’.

Question 7

How labour market reform initiatives help to lift AS levels.

Answer 7

Generally speaking, as the industrial relations system becomes increasingly ‘flexible’, each employees wages and conditions are more closely determined by their individual contribution to the enterprise.

Any reduction in real unit labour costs will improve supply conditions for businesses, boost productive capacity of enterprises and increase the nation’s AS levels.

Question 8

What are the advantages of a decentralised labour market?

Answer 8

• If an enterprise was experiencing economic hardship, a flexible system would permit re-negotiation of wages, thus easing labour costs for the business and protecting jobs.
• Allow businesses and employees to tie productivity and performance to wage increases
• Increase the freedom and flexibility of small businesses to fire employees without reason.
• Employees are more accountable for their individual performance.

There are clear benefits for productivity and efficiency by helping to reduce the real unit labour costs of labour, but is has negative consequences for fairness and equity as some employees may have reduced wages.

Question 9

What is the Fair Work Amendment Bill?

Answer 9

The Fair Work Amendment Bill (2014/15) achieved a new provision that applications for protected (legal) industrial action, such as strikes, can only be sought or granted once enterprise bargaining is underway and a majority of the workforce supports industrial action.

Question 10

Weekend penalty rates

Answer 10

“Penalty rates have a legitimate role in compensating employees for working long hours or at antisocial times. However, Sunday penalty rates for hospitality, entertainment, retailing, restaurants and cafes are inconsistent across similar work, anachronistic in the context of changing consumer preferences, and frustrate the job aspirations of the unemployed and those who are only available for work on Sunday. Rates should be aligned with those on Saturday, creating a weekend rate for each of the relevant industries.” - Productivity Commission.

Question 11

MRPs and the achievement of Government Goal’s

Answer 11

• Economic Growth & Low Inflation: increases in productivity due to MRPs effectively reduces the average costs of production for businesses, thus helping to achieve low inflation and economic growth.
• External Stability: MRPs work to improve the BOMT, reduce the CAD and lower NFD pressures. This is because higher efficiency and productivity improve Australia’s International Competitiveness thus increasing net exports (X-M).
• Equity in the Distribution of Income: short-term negative effects due to restructuring and ‘squeezing’ more out of the labour force, long-term benefits in low inflation, economic growth and external stability.
• Living Standards: in the long-term MRPs increase the living standards of Australians through higher real GDP per capita (material) and a greater efficiency in the use of resources and less strain on the environment (non-material)

Question 12

Budgetary Policy tax initiatives or tax reform (overview)

Answer 12

Tax incentives are often designed to encourage entrepreneurial behaviour and innovation and further investment in capital in order to lift the nation’s productive capacity, as well as provide motivation for economic agents to increase effort and productivity.

• Tax Concessions
  
  • ​​175% R&D tax concessions
• Rebates
• Accelerated Depreciation Allowances​
  
  • Increasing the threshold under which depreciable assets of small businesses can be instantly written off from $1,000 to $6,500
• Alterations to direct taxes (company & personal taxes)
• Reducing the compliance costs for businesses
  
  • ​​Removal of the Carbon Tax and Minerals Resource Rent Tax (2014/15)