Topic 4 - Microeconomic policies Flashcards
What are microeconomic policies?
Refers to policies that are aimed at individual industries, and seeks to increase aggregate supply by increasing efficiency and productivity of producers
These focus on the LONG TERM IMPACTS
WHat is the overall aim of MER?
The overall aim of MER is to encourage the efficient operation of markets and increase aggregate supply by raising productivity, improving flexibility, and responsiveness to change, making the eco more adaptable to change and encouraging Australian producers to take on ‘world best’ practices
Does MER influence D or S?
It influences S, and supply side issues
Why are MERs important?
MERs are important because many of Aus’s eco problems are caused by structural factors that cannot be addressed through macroeconomic policies which simply aim to manage the level of eco activity. `
WHat is structural change?
Structural changes refer to shifts in the pattern of production that reflects changes in tech, consumer preferences, global competitiveness, and other factors. It results in some products, processes and even entire industries disappearing while other emerge
How can structural change by caused? (2)
Market induced - caused by changes in consumption patterns, tech dev, demographic factors etc.
Government induced - caused by changes in training policies, industry or environental regulations
What is allocative efficiency?
Allocative efficiency refers to the economy’s ability to shift resources to where they are most valued and can be used most efficiently
What is technical efficiency?
Technical efficiency refers to the eco’s ability to produce the max level of output from a given quantity of inputs
what are product markets?
the product market is the marketplace where final goods or services are sold to businesses and the public sector
WHat are factor markets?
a factor market is a market where factors of production are bought and sold.
What is deregulation?
Simplification or removal of rules that constrain the operation of market forces, and it aims to improve the efficiency of industries. Excessive deregulation imposes additional costs, constrains eco growth and undermines competitiveness, leads to market failure and eco instability therefore effective dereg involves a balance between policy goals
What are the different sectors we should know the impact of MER reforms on? (4)
Financial sector - Factor Market
Agricultural industries - product market
Transport industries - Product market
Telecommunications industries - Product market
What were the measures implemented for reform in financial sector?
Floating of the AUD
Removal of the RBA’s direct monetary controls over banks
Use of open market operations by RBA to conduct MP
Removal of barriers to foreign banks entering Aus
What were the impacts on reform in the financial sector? (4)
↑ comp between institutions in the Aus financial system→ allocative efficiency as better allocation of funds
Less stable ER as after dereg through market forces the ER was set
Before dereg in 1972, CA surplus of 2.3%, post-dereg: ↑ in debt due to opening up to international financial markets→ CAD 5.3% of GDP in 1981
Dereg leads to banks taking too many risks with depositor’s money, and has been attributed to as the cause of the GFC
WHat were the effects of reform in the agricultural industry? (3)
Dereg in the agricultural sector has created more competition in markets for farm produce
With dereg, monopolies ended, and farmers were given new incentives to innovate and diversify their outputs
High Productivity growth due to advances in farming technology and chemicals
What were the forms of reform in the Aus transport industries? (2)
Aus’s domestic aviation industry was deregulated in 1990, ending the Two Airline Policy that since 1952 had seen the aviation industry divided between two companies. Several airline businesses have entered the Aus aviation market since 1990. However, the main airline groups are; Qantas/Jetstar and Virgin Australia.
Rail: The efficiency of the rail freight industry has been improved by a range of reforms over the past decade. 1997 establishment of Australian Rail Track Corporation (ARTC) to manage interstate rail. ARTC sells freighting rights to private firms to transport their own cargo. (less monopolising of railway systems)
What were the effects of the reforms in the transport industry ( kinda sketch)
Allows for more competition, and slowly ceasing monopolies in these industries
What were the effects of the reforms in the telecommunications industry?
Prevented a monopoly from the initial telstra monopoly, followed by the Telstra Optus Duopoly.
These were deregulated to increase competition and promote innovation
(Note, Telstra was the dominant business in the industry) Despite the market being opened up in 1990, it led to new telecommunications businesses entering the market and reducing costs, yet Telstra still held the largest market share for landline calls and telecommunication
What are 2 examples of reforms to public trading enterprises?
Corporatisation of PTEs and Privatisation of PTEs
What is a public trading enterprise?
also known as gov business enterprises
What is corporatisation of PTEs?
Making state owned businesses operate using more efficient management structures from the private sector
What is the aim of the corporatisation of PTEs?
Aims to encourage PTEs to operate independently from the govt, as if they are priv business enterprises i.e. eliminating political/ bureaucratic supervision and making managers accountable for enterprise performance and establishing clear managerial objectives
Purpose of corporatisation is to increase efficiency, competition, improve management and pricing behaviour
WHat is the privatisation of PTEs?
Privatisation is when the govt sells PTEs to the private sector → actually become private enterprises, either in whole or in part . Govts have implemented privatisation to raise one-off rev, ↑comp + force efficiency:
What are examples of privatisation of PTEs?
Medibank Private, NBN, Lotto, Qantas and more
What is the purpose of privatisation?
Helps gov saves money and increase efficiency through opening up the market. It also allows for one off revenue, which can be used to find a budget deficit
What is the National competition policy?
Aims to promote competition in markets so that firms increase efficiency and lower prices for consumers (product market reform). It was formed in 1995
What is the national competition watchdog?
The national competition watchdog is Australian Competition and Consumer Commission (ACCC)
What is part of the National Competition Policy? (5) just some
govts agreed to implement reforms that would increase comp in the sectors where they operated monopolies, such as electricity, gas, water and rail transport
Govt also agreed to remove special provisions that gave publicly owned enterprises an advantage over private sector competitors (competitive neutrality principle)
Workable competition - to achieve IC, no of firms may need to decrease –> remaining firms can operate on larger scale –> lowest possible LRAC
Converted practices are also banned; they include actions such as sending price information to competitors, even if there is no formal agreement to collude to raise prices
Business are banned from reducing competition in the market by lowering prices, refusing to supply goods or services or other behaviours
What acts are outlawed under the Competition and Consumer Act 2010?
Monopolisation - firm uses its dominant market position to eliminate competition eg through temporary price cutting
Price discrimination - firm sells the same type of g/s in different markets at different prices (for reasons not related to diff. costs e.g. for transport)
Exclusive dealing - firm sets conditions for S that exclude retailers from dealing with other competitors
Collusion and market sharing - firms get together to fix prices or agree on a market sharing arrangement that reduces effective comp between firms
What are labour market policies?
The labour market policy covers public interventions in the labour market aimed at reaching its efficient functioning and correcting imbalances. The primary target groups are those people unemployed or employed at risk of involuntary job loss.
What was the traditional regulation of labour market? (Prior to Fair Work Act)
Aus has traditionally regulated its labour market through a mix of federal and state laws, with significant overlaps between the two different systems.
What did the traditional regulation of labour market involve into?
Over time, Aus developed separate industrial relations system - with six different state systems plus the federal system
WHat were the industrial relations policies?
These systems establish minimum wages and conditions for employees through a system of industrial awards for employees, based on their industry or their occupation. Some awards are made at a Commonwealth level, while others could be made at a state level.
What happened with industrial relations which caused the movement to a singular national workplace relations system?
Inefficiency of separate state and federal systems –> fair work act 2009 creation
What are the roles of the national system in labour market policies?
Enforcing the Fair Work Act, which covers 9/10 workers in Aus, however WA is the only state that has not referred any powers to the federal government
Commonwealth replaced most state based awards with simpler federal awards, and also established a national system of occupational health and safety legislation, replacing separate state systems
What are the roles of the state system in labour market policies?
State and territory regulation of the labour market is now limited mostly to state gov employees and to a smaller range of specific issues such as the regulation of workers’ compensation, public holiday and long service leave.
What are the dotpoints under; ‘the national system for determining’?
minimum employment standards
Minimum wages
Awards
Enterprise agreements
Employment contracts for high income earners
What are the national employment standards?
These are a set of 11 minimum entitlements for employees covered by the Fair Work Act 2009, and applies to all national system employees and employers.
It creates a safety net entitlement for all national system employees.
What are some examples of provisions included in the national employment standards?
Maximum weekly hours of work
Right to request flexible working arrangement
Leave
Notice of termination and redundancy pay
What are the max weekly hours of work under the NES?
38 hrs
Explain ‘right to request flexible working arrangements’ as part of the NES
Parents or carers may request a change in working arrangements to assist them for caring for a child, such as changes to start and finish times, split shifts, job sharing and working from home. Employers can only refuse on ‘reasonable business grounds’
Explain ‘Leave’ as part of the NES
Employees have the right to paid annual leave, public holidays and carers and compassionate leave. They further have the right to unpaid parental, community service and long service leave
Explain ‘Notice of termination and redundancy pay’ as part of the NES
Employers are required to give between one and four weeks of notice of a job termination, determined by how long a person has been employed. Workers are also entitled to redundancy pay, determined by duration of employment
What is a national minimum wage? What is the importance?
A minimum wage is the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract
A national minimum wage provides a safety net for any employee not covered by an award, and prevents the DOYW being too bad
What is the national minimum wage in Aus 2023?
National minimum wage- As of 1 July 2023, minimum wage is $23.23 per hour. An increase of 5.75%
What are the dotpoints under; ‘the national system for determining’?
minimum employment standards
Minimum wages
Awards
Enterprise agreements
Employment contracts for high income earners
What are awards? (4)
Awards are a set of pay conditions that are specific to an employee’s work or industry sector
They provide a safety net of minimum wages and conditions
Instead of having a single minimum wage rate, Aus has different minimum pay rates in different awards
Modern awards extend the protections of the NES, with provisions tailored to the needs of the specific industry or occupation. Includes types of employment, arrangement for when work is performed, superannuation, overtime and penalty rates, annualised wage or salary arrangements, allowances, leave related matters, and more
What are the dotpoints under; ‘the national system for determining’?
minimum employment standards
Minimum wages
Awards
Enterprise agreements
Employment contracts for high income earners
How many awards are there? WHat was the reduction from prior to the Fair Work Act?
There are 121 awards now, which is a reduction from 4300 awards prior. However, some states continue to operate some awards
They are mainly based on an industry classification as opposed to occupational classification
What is the individual flexibility agreement (IFA)? WHat does it include
It is a new clause in the modern award which:
ENables individual employees and employers to vary the effect of an award to meet their individual needs without negotiating a separate agreements
Clause must leave employee better off and can only vary certain specific award terms such as overtime rates, penalty rates and leave loading
It may be rejected and no discrimination may ensue as a cause of it
What are enterprise agreements?
Enterprise agreements are workplace agreements which are negotiated between employer and a group of employees, usually through a union
All agreements must comply with NES and cannot offer pay rates below that mandated by the equivalent award
Why might bargaining discussions for enterprise agreements happen?
Employers can be required to engage in bargaining discussions if a majority of employees vote in favour of seeking a collective agreement
What is a common law contract?
A common law contract is an individual agreement between an employer and individual employee that sets out pay and conditions for work.
These are commonly used by small businesses and high income earners not covered by awards
However, employers must still comply with all award requirements that apply to employees
Why do common law contracts exist?
This is because awards are done to provide safety nets for low income earners, however, hgih income earners dont need as much protection, so they have higher freedom of negotiation
For what wages do modern awards not apply to an employee?
For people earning over $162 000 a year (set in 2022-23)
So what is the main provisions in the agreements that a high income earner makes with an employer?
A common law contract which is an individual agreement
What is an industrial dispute?
Industrial dispute occurs when employers or employees take action to disrupt the prod process in order to highlight a disagreement b/w employers and employees
Disputes can arise because of disagreements over issues such as changes to wages, work conditions, business restructuring and specific actions of employers that employees consider wrong or unfair.
What forms of industrial action can arise out of industrial disputes?
Strikes, where employees withdraw their labour and refuse to work
Work bans, where employees refuse to undertake a certain aspect of their work
Lockouts, where employers refuse to give employees access to their workplace until agreements are reached
What are industrial relations?
Industrial relations refers to the laws, conventions and institutions that help regulate workplaces
What are the two main forms of dispute resolution in Aus?
Conciliation and Arbitration
What is conciliation as a form of dispute resolution?
Firms and employees meet to discuss their differences in presence of third party (such as industry tribunal) who attempts to bring parties to an agreement.
Tribunals do not legally impose a resolution, but once the parties reach an agreement, they may undertake proceedings with the tribunal to formally implement the agreement
What is arbitration as a form of dispute resolution?
This is where industrial tribunal hands down a legally binding rule to firms and employees.
This occurs after the tribunal has given both parties a chance to state their arguments
Used where conciliation is unsuccessful to resolve disputes and return employees to work
Do employers and employees attempt to resolve disputes themselves? Why?
Yes, due to costs associated with conciliation and arbitration
What are the only 3 things that the FWC only intervenes with?
Compulsory dispute settlement terms
bargaining in good faith
resolving industrial action
Why would the FWC intervene with ‘Compulsory dispute settlement terms’?
FWA requires all awards and enterprise agreements must include a term explaining the process the parties will adopt if they have a dispute relating to their agreement. Outlines that if parties cannot resolve by themselves, they must refer it to a 3rd party org
Why would the FWC intervene with ‘Bargaining in good faith’?
Obliges employers and employees to adhere to certain provisions when at the bargaining table. It aims to reform the conduct of negotiations. Aim of bargaining rules is to put pressure on both parties to reach an agreement
If some FWC obligations arent fulfilled, then the FWC can make legally binding orders (although those are rarely issued)
What are some examples of good faith obligations? (4/6)
Participating in all meetings
Disclosing relevant information
Giving genuine considerations to all proposals
Refraining from conduct that would undermine collective bargaining
Why would the FWC intervene with ‘resolving industrial action’?
Industrial action is only permitted during process of enterprise bargaining
FWC able to intervene to suspend/terminate industrial action if special circumstances exist (when significant threat to the economy, or for extended periods of time)
What are the benefits of effective dispute resolution processes? (4)
Help to resolve disputes that have become deadlocked between employers and employees, reducing the length of strike action
Faster resolution can limit the damage of industrial action to firms (stops prod and undermines profits) and employees (loss of work and income)
Can balance the interests of employers and employees
An economy can avoid disruptions to supply that can cause damage to other sectors of the economy or to its international rep if supply delays from a strike cause disruption to trade
What is a centralised labour market?
A centralised labour market is one which wages and other labour market outcomes are primarily determined by a govt, or a govt-appointed tribunal such as the Fair Work Commission
What is a decentralised labour market?
A decentralised labour market is one where wages and other labour market outcomes are determined at an enterprise/workplace level between an employer and an employee
Market forces of supply and demand for labour, as well as the individual firm’s capacity to pay, play a greater role in determining wage increases→ ensures more flexibility
WHat is Australia’s current labour market? (centralised or decentralised?)
Aus is a hybrid of both, as it has centralised aspects such as a minimum wage and awards set out, however, it also has decentralised aspects through having the opporuntitiy for enterprise bargaining and invidual contracts
WHat are the arguments in favour of decentralisation?
More efficient allocation of resources
Promotes productivity
Keeps UE at a lower rate in times of negative shocks (wage flexibility)
Explain ‘promotes productivity’ as a argument for decentralisation
Employees are given the incentive to work more efficiently as they can be rewarded directly for their productivity improvements through arrangements at the workplace level
A centralised wage determination system means employees are already guaranteed uniform wage increases, regardless of whether or not they improve their skills → no incentivisation to improve productivity
Explain ‘more efficient allocation of resources’ as a argument for decentralisation
Firms that are more efficient can pay more and therefore attract higher skilled employees
In contrast, centralisation can slow down the pace of structural change. If the same wage increases across all industries, wages in one industry are less likely to change significantly in comparison with other wages in another industry. This means profitable/growing industries are less likely to attract more high skilled labour from less profitable and declining industry- slowing structural change
Explain ‘Keeps UE at a lower rate in times of negative shocks (wage flexibility)’ as a argument for decentralisation
Assists the LM to adjust when economy is adjusted by negative shocks
E.g. if recession causes fall in AD, a flexible labour market can allow fall in wages while keeping people in jobs
This may help minimise job losses or minimise decrease in firms’ profits during downturn
What are the arguments against decentralisation? (4)
Decentralisation increases wage dispersion→ greater inequality
May increase vulnerability to emergence of wage-push inflation when EG is strong and LM is close to full E
Centralised wage determination provides govt with an additional policy tool to use in achieving its eco objectives such as lower inflation and reduced UE- e.g. restrain wages growth to avoid cost push inflation
Enforcement of wage entitlements becomes more difficult under a decentralised system
Explain ‘decentralisation increases wage dispersion’ as a argument against decentralisation
Workers doing the same job in different industries may receive different pay rates and working conditions
Wage reflects bargaining power of employees, thus industries or firms where unions have less power are less likely to achieve wage increases
Low-skilled workers are easier to replace and so have less ability to demand pay rises
All contribute to greater inequality
Explain ‘increases vulnerability to emergence of wage push inflation when EG is strong and LM is close to full E’ as a argument against decentralisation
When full employment, supply of labour is limited, and employers have no alternative except to listen to demands by employees
Bargaining power in demanding substantial wage rises leads to inflationary spiral
What are the purposes of education, training and employment programs?
These policies aim to increase participation in the workforce, improve the productivity of the workforce and prepare workers for future changes in the labour market.
What are labour market programs?
These aim to improve people’s readiness for the labour market and increase participation and productivity
It essentially assists the u/e in gaining employment and increases incentives to work and reduces reliance on welfare, ultimately increasing the LFPR
What do labour market programs address?
Many of these programs address the individual circumstances that might make it harder for a person to find suitable work, including; a disability, mental illness, language barriers or having been out of the paid workforce for a long period of time
What are environmental management policies?
Environmental Management Policies are designed to address environmental sustainability issues such as preservation of natural environments, addressing pollution and climate change, and managing the use of renewable and non-renewable sources. They aim to influence the behaviour of individual households, businesses and industries.
What are targets as a form of environmental management?
Targets are short term goals which the government seeks to achieve in order to make progress towards longer term objectives in relation to environmental protection.
What are regulations as a form of environmental management?
These are the traditional policy tools for achieving environmentally sustainable goals. Regulations are rules and laws that govern eco behaviour by either:
Prohibiting a person from doing something that causes environmental damage, such as littering or producing polluting chemicals
Specify how a good or service is produced or consumed, such as rules and environmental procedures relating to agricultural or mining techniques
What are market based policies as a form of environmental management?
Market-based policies involve financial incentives or disincentives (subsidies or taxes respectively) to influence the behaviour of households and firms and discourage environmentally damaging activities
Explain how market based policies work
These policies aim to address failures in the price mechanism by changing market price and quantity demanded and supplied. Through these policies, positive and/or negative externalities of the production and consumption of G+S are taken into account, thus influencing the market.
Market-based response include levying a tax or fee on production that is approximately the same as the environmental costs associated with this economic activity- shifts supply curve leftwards, increasing the market price and reducing the amount consumed in the economy
Likewise, govts can provide subsidies to consumers or producers to encourage production of environmentally beneficial G+S- subsidies are grants provided by govt to producers with aim of reducing costs of production and promoting environmentally beneficial activities
What are international agreements as a form of environmental management?
Agreements across countries to ensure collective action for environmental management.
Collective action through international cooperation is necessary for environmental management polices as nations cannot successfully address global environmental problems on their own.
If other nations are not willing to impose strict environmental regulations on their own economy, individual nations are often reluctant to impose them too
What are the 3 limitations of eco policies?
time lags
global influences
political constraints
What is a policy time lag? What are the types?
Refers to the time lag from when govs implement policies to when it generates results. Two types:
Implementation time lags
Impact time lags
WHat are implementation time lags?
Implementation time lags exists when it takes time for the govt to make change to or to introduce new policies
What are impact time lags?
Impact time lags exists where it takes time for a new policy or a policy change to have an impact on the eco
What is the implementation and impact time lag of MP?
Short term implementation time lag, as once the deciison is made by the RBA, it has an instant effect on CR.
BUT 6-18 months impact time lag (time it takes for transmission mech + change consumer/business behaviour). Thus medium term impact time lag.
What is the implementation and impact time lag of FP?
Medium term implementation time lag (annual budget)
Short term impact time lag (impacts felt in a few months)
What is the implementation and impact time lag of MER?
Implementation time lag long term (because it takes few years of extensive planning + negotiating change with support of states and territories) - a few years
Impact time lag Long term (up to 20 years). Structural change takes a while as resources are allocated to diff sector and full effect on costs, business profits etc is felt later
What are the political constraints for implementing eco policies?
A Gov can face difficult trade offs in making decisions that are consistent with their commitments and compatible with eco conditions, and that will be passed through Parliament
For example, a gov relies on public support, own political party support etc, and needs to satisfy them using eco policies –> vested interests
On top of that, there are special interest groups (lobbyists) which attempt to influence gov policies bc of potential financial impact. For example, unions are close to Labour
What are the global constraints for implementing eco policies?
Conditions in global eco have more immediate impact on us bc globalisation. It can be hard for govs to pursue diff policies to those being adopted in the IBC and RBC
Overseas IR: rising in other countries means more attractive to save there than here → outflow of funds + ↓AUD → inflation + undermine confidence ∴ must respond to changes in IR overseas
IBC: hard for one eco to grow in global downturn bc ↑growth = ↑Ms but ↓Xs (other countries can’t afford to buy) → ↑CAD → force govt to slow down eco risking more severe recession
Int Orgs - WTO can influence individual trade policies. It can place trade sanctions on those countries who dont obey obligations. On top of that, there is the Washington consensus, which is not bbeneficial for all countries
G7/G20 having a growing scope –> big influence over global eco –> hard for smaller countires to adopt diff macro stance to those adopted by the bigger ecos
