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** l i b e r a l Party N a t i o n a l Part y

Award R e s t r u c t u r i n g

Issued by-

Mr Peter Reith MI*

Shadow Minister for Indus trial Relations

Canberra

13 April 1989

CONTENTS

PAGE

EXECUTIVE SUMMARY

BACKGROUND 1

INTRODUCTION 1

AWARD RESTRUCTURING - THE COALITION'S APPROACH 2

- FOCUS ON THE ENTERPRISE 2

- ISSUES FOR NEGOTIATION * *4

THE BROADER REFORM PROCESS 6

THE ACTU BLUEPRINT 7

- LIMITING THE AGENDA 7

. - A NEW SET OF RIGIDITIES 8

- PAY INCREASES NOT BASED ON PRODUCTIVITY 9

- WILL THE ACTU'S BLUEPRINT GIVE US THE SKILLS WE NEED? 10

CONCLUSION 12

EXECUTIVE SUMMARY

Australia's productivity record under Labor has been appalling. This is the real reason why living standards have been falling.

The Coalition believes that our industrial relations system needs fundamental reform if we are to improve our productivity performance. .

Award restructuring can play a role in improving labour market flexibility. Indeed the restructuring of awards has been a major plank in the Coalition's industrial relations policy since 1986.

However the Coalition is totally opposed to the ACTU's plan for award restructuring. This plan has been given full endorsement by the Federal Government.

The ACTU's blueprint for award restructuring is based on a "top down" approach, in contrast with the "bottom up" approach of the Coalition.

It seeks to limit the agenda for change to classification and training issues, excluding other critical issues such as working time arrangements, thereby seriously reducing the scope for * productivity enhancement.

By extending the concepts of supplementary payments and service increments, and by creating direct linkages between classifications in unrelated awards, the ACTU's plan will further centralise and regulate the wage system.

Far from reducing the likelihood of wage break outs this will further strengthen those defects in the system that make wage break outs a problem in Australia.

The ACTU's plan does not provide for wages to be based on productivity.

It will further entrench notions of comparative wage justice.

Nor will the ACTU's proposals assist in creating a more skilled workforce. Wage relativities will be compressed between the skilled and the unskilled, employees will be encouraged to move between firms, and there will be too much emphasis placed on the

acquisition of formal credentials.

This will reduce both the ability and incentive for employers to provide relevant, quality training, while increasing the incentive for employees to obtain paper qualifications at the expense of more appropriate skills.

Overall, the ACTU plan will make the labour marke rigid and inflexible. Its implementation will lead substantial across the board pay increases while doing enhance productivity.

The process of award restructuring - if it is to be successfu must focus on the enterprise.

This is necessary to ensure that changes are made that are relevant to the needs of the individual enterprise.

Changes negotiated at the enterprise level also are far more likely to be implemented successfully.

Diverse outcomes will permit the best firms to get a competitive edge, thus encouraging firms to improve their industrial relations.

There should be no externally imposed restrictions on what changes can be negotiated as part of award restructuring. The following however should be considered as issues for negotiation:

- working time arrangements - award/union coverage - methods of remuneration, including the introduction of performance related pay. * '

- staffing arrangements, eg. limitations on the use of part time and casual labour - multi-skilling - skill related career paths

Award restructuring - even if successfully implemented - should only be seen as one part - and by no means the most important part - of a much larger agenda of industrial relations reform. Other matters that need serious attention are greater freedom for employees, changes in dispute prevention and settlement, the promotion of enterprise level agreements, and changes in union

structure.

AWARD RESTRUCTURING

Background

The Australian industrial relations system is one of the major reasons why this country's productivity performance has so consistently been worse than most of our trading competitors. Australia's productivity record under the Accord has been

abysmal. The annual rate of productivity growth since Labor took office has been very low. Indeed, over the last few years, total factor productivity has actually been falling.

As the table shows Australia's productivity growth has been consistently below the OECD average. Moreover the productivity gap between Australia and the rest of the world is growing.

TOTAL FACTOR PRODUCTIVITY

Average % increase p.a.

1960-73 1974-79 1980-86 1987-90 - .

(est.)

Australia 1.8 0.6 0.4 - 0 . 2

OECD Average 2.8 0.7 0.6 1.2

Source: OECD, Economic Outlook, December 1988.

The appalling productivity record under Labor is the real reason why Australian living standards have been falling, both in absolute terms, and relative to other countries.

Introduction

At least at the level of rhetoric, the Government has come to accept the Coalition's argument that we need to improve labour market flexibility as a way of raising productivity. The Government has endorsed the ACTU's blueprint for award

restructuring as the way forward in achieving this aim. The Coalition on the other hand believes that Australia needs far more fundamental reform of the industrial relations system. Moreover while the Coalition believes that genuine award

restructuring can play a role in improving labour market flexibility, the ACTU's blueprint overall is likely to increase rather than decrease the degree of rigidity in the system.

The Coalition supports award restructuring. Indeed the introduction of more flexible awards has been a major plank in the Coalition's policy since 1986.

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The Liberal and National parties' industrial relations policy specifically commits the Coalition to encouraging and facilitating the restructuring of awards on an industry or enterprise basis. Under a Coalition Government, wages policy would-be designed so as to make higher productivity a central

objective. In particular there would be an emphasis on the eradication of restrictive work practices, the introduction of flexible working arrangements, and improved training and skill formation.

The Coalition however has a number of very serious concerns with the ACTU's award restructuring plan. While there may be some positive aspects to the plan, these are outweighed by a number of very serious negatives. Overall the plan, if implemented, would not contribute to higher productivity. Instead, under the guise of micro-economic reform, it would make our industrial relations even more inflexible and centralised.

There is also a serious concern about the pace of change. It must be understood that we are in a world where our competitors are constantly striving to increase their productivity and (as indicated above) are doing so faster than us.

The August 1988 National Wage Case decision awarded pay ris.e^ of 3 per cent and $10 in exchange for unions agreeing to "co-operate positively" in a fundamental review of their awards. The Commission is currently reviewing progress with restructuring negotiations.

It is clear from this review that one effect of the ACTU's blueprint has been to stall progress with award restructuring negotiations in all but a few industries. This effectively means that 1988-89 has been a wasted year as far as the implementation of award restructuring goes.

Award Restructuring - The Coalition's Approach

Focus on the Enterprise

The Coalition believes that the process of award restructuring should continue and extend the enterprise focus of the second tier.

Award restructuring should not be seen as an end in itself. Rather it should provide a means towards the real objective - the restructuring of the enterprise to make it more efficient and productive, and as a consequence provide greater job satisfaction

and better remuneration and conditions of employment for employees.

The first step in the process should be for firms individually (or in conjunction with their employer organisation) to assess how work would best be organised and carried out in their own workplaces if this objective is to be met. The next step would

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be to examine what changes to awards would be necessary to achieve this result.

Management should seek to involve the workforce as much as possible in this process. This is essential to ensure employee trust and commitment to change. At the same time it would enable management to make full use of the often untapped well of

expertise that employees possess concerning the operations of the firm. As part of this process it is essential to stress that there are real benefits to both employers and employees from effective restructuring.

There should be no externally imposed restriction on the scope of changes sought. The agenda for change should be determined at the enterprise level.

This is important for a number of reasons. First, what is important to one enterprise may be quite irrelevant to another - even in the same industry.

Secondly, by devolving the locus of decision making you increase the chances of getting maximum commitment from the people who will be directly involved in implementing the changes - employees and middle management. Changes imposed from outside the .

enterprise, even if they are good in theory, have less chance 'of successful implementation than changes developed at the workplace level.

Finally, there are benefits in diversity. Firms should compete in industrial relations as much as in other aspects of their operations. This is not going to happen if they all possess the same classification structures, working time arrangements, payment systems etc..

Decentralising award restructuring to the enterprise level, would allow the more go ahead firms to obtain better outcomes more quickly. In this context it is interesting to note that the South East Queensland Electricity Board (SEQEB), which in many

respects has adopted the sort of approach to industrial relations the Coalition is advocating, has already altered its classification structures to introduce multi-skilling. As the Industrial Relations and Management Letter put it last year:

"While other employers are sitting around for national wage case decisions and for employer bodies to convene meetings on how to go about restructuring job classifications in their industry, SEQEB has got its act together and is first cab off

the rank in the restructuring stakes"

SEQEB of course because of its special statutory framework is able to operate largely free from the constraints of the centralised system and to proceed at its own pace without being dragged back by lowest common denominator considerations.

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Issues for Negotiation

While there should be no externally imposed restrictions on the changes that can be negotiated as part of award restructuring the following agenda gives an indication of the issues that should be considered as part of the process.

Working time arrangements - This may well be the most important area of change for many enterprises. The Confederation of Australian Industry published a booklet in 1988 entitled Flexibility of Working Time in Australia which provides a useful

summary of award provisions which limit flexibility in this area. The booklet points to the following areas for modification of award provisions:

. changes to traditional notions of standard hours (for example by spreading standard hours of work over periods such as a month or a year, rather than a week, with a high degree of flexibility in allocating work hours within the stated period);

. introducing specialist "weekend shifts" (with employee consent provisions as part of the package); * »

. removing the 8 hour a day limit on the ordinary working hours which may be worked (allowing 12 hour shifts for example);

. reducing the times at which penalty rates apply;

. increasing the spread of hours (ie. getting away from the concept that it is only "normal" to work between 8.00 am and 5.00 pm).

There could also be changes to enable greater flexibility in relation to starting and finishing times, breaks, leave arrangements, and "rostered days off".

Changes in working time arrangements could be used to achieve continuous production or the tailoring of labour availability to those times when it is most needed. Many Australian businesses are not able to use their capital as efficiently as their overseas competitors because of restrictions inherent in existing

rigid working time arrangements.

Multi-skilling - Compared to many countries overseas Australian industry tends to "pigeonhole" workers into narrowly defined jobs. Much greater efficiency could be achieved by broadening the range of tasks workers are able to perform. This would also

lead to more satisfying jobs. It will not be possible however fully to get rid of such demarcation barriers without major changes in union structure (see below).

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Staffing arrangements - Changes in this area could be used to inject much greater flexibility into the labour force to deal with peaks and troughs in demand. This includes restrictions on the use of part time, casual and contract labour. There is also

a need to deal with restrictions on the ratio of apprentices to tradesmen, restrictive staffing levels and restrictions on the duties of supervisors and managers.

Skill related career paths - Changes in classification and training arrangements could be used to encourage employees to use and upgrade their skills. Current classification structures do not provide enough incentive for employees to take part in post

apprenticeship training. There is a serious problem with "wastage" whereby many skilled tradesmen leave their trade, often within a few years of completing their base level training. There is also a problem with employees being locked into unskilled jobs with no access to training.

Award coverage - Most Australian awards are based on the occupation/union of the employees covered, rather than the activities of the employer. This has two consequences. First, it means that most employers are respondents to a multiplicity of awards. Secondly, it means that most employers are respondents to awards that cover a large number of employers many of whom 'may not even be in the same industry. This creates enormous obstacles to effective enterprise level bargaining on award

issues. The problem is exacerbated even further by common rule awards in the State jurisdictions. With such awards it is almost impossible for individual employers to make an input into revising award provisions.

There are a number of ways this issue can be tackled, including the creation of appendices to parent awards, which set out particular matters for individual companies; the creation of enterprise awards; or the simplification of major awards, so that

they only deal with basic conditions, with more specific matters covered by enterprise level agreements, including individual contracts of employment. Greater flexibility in awards could be achieved by breaking down paid rates awards into minimum rates awards.

Methods of remuneration - One option that should be examined as part of award restructuring is the introduction of performance related pay. This could be done on either an individual or a group basis. There are a whole range of possible gain sharing arrangements - eg. lump sum productivity bonuses, individual merit payments, profit sharing and employee share schemes etc..

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The Broader Reform Process

It must also be fully understood that award restructuring is only part of. a much broader agenda for reform of the industrial relations system. Even if award restructuring were to be successfully implemented along the lines proposed by the Coalition it would still only be one step along the path of reform. Award restructuring certainly does not represent a "new

industrial revolution" as some of its more enthusiastic supporters have claimed.

Other key areas include the following:

Greater freedom for employees - The current system of making awards and industrial agreements effectively disenfranchises the two thirds of private sector employees who do not belong to unions. Indeed employees in the vast bulk of Australian

companies are not unionised. Yet under the current system award changes can only be effected through negotiations with unions or by arbitration. A genuinely free system would give all employees the right to negotiate directly with their employers on their terms and conditions of employment. Moreover employees would be

free to choose whether or not to join a union and would have _ greater choice over which union would represent them.

Dispute prevention and settlement - Australia suffers from a far higher level of industrial disputation than most of its major trading partners. We have the absurdity of a "compulsory" system of arbitration which is effectively only binding on one side. Nor is there any effective method of enforcing industrial agreements. There is a need to introduce effective compliance provisions to deal with industrial action in defiance of arbitration decisions and industrial agreements.

Enterprise level negotiations - We need to make enterprise agreements, rather than externally imposed, centralised awards, the primary basis for determining wages and conditions.

Union structure - The aim should be to consolidate union coverage in individual enterprises so that employers face single enterprise bargaining units. Unfortunately the new Industrial Relations Act will do nothing to encourage this. While it will

lead to more union amalgamations, and therefore to a smaller number of unions overall, these will not be structured on enterprise or industry lines. Companies will continue to have to deal with a multiplicity of unions - except that those unions will now be larger and more powerful.

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The ACTU Blueprint

In late 1988 the ACTU Executive endorsed a detailed blueprint for award restructuring. This has now received the support of the ACTU special unions conference and the Federal Government.

There are three main elements in the ACTU's approach.

The first is to introduce supplementary payments into all minimum rates awards to raise the minimum rates in those awards.

The second is to introduce broadbanding by establishing six to eight skill levels across each industry. There would be explicit linkages between key classifications in all the major awards. For example, the rate for a fitter in the metal industry award would be directly related to the rate for a carpenter in the

building industry awards.

Finally, there would be opportunities to move through these skill levels by undertaking training. There would also be increments within particular classifications based on years of service.

The Coalition's approach differs fundamentally from that of the ACTU in two key areas. First the Coalition believes that productivity should be at the heart of award restructuring. Secondly the Coalition rejects the concept of a

"blueprint" and puts the focus on the enterprise. The Opposition's approach is based on encouraging employers and employees at the workplace level to determine how working arrangements etc. should best be restructured. This "bottom up" approach is in sharp contrast to the ACTU's "top down" strategy which essentially seeks to impose a centrally determined blueprint on the parties.

Limiting the agenda

As part of the ACTU's attempt to control the restructuring process it has directed its affiliates to limit the range of issues on which they should negotiate to those concerning classification and training.

The Industrial Council of the Confederation of Australian Industry has condemned this attempt to restrict the scope for review of awards as "negative and irresponsible". According to the CAI the ACTU's approach:

"...represents an extremely limited agenda for reform. It would not adequately address the need for changed ways of utilising labour within enterprises. The ACTU is clearly trying to restrict the scope of reform and in so doing is

attempting to deny opportunities to achieve significant productivity and efficiency gains within Australian enterprises."

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For many enterprises, classification and training arrangements may already be quite satisfactory. For example, the banking industry and large parts of the public sector have only recently revised their classification systems. On the other hand there may be major productivity benefits to be gained by dealing with

issues such as changes in shift arrangements, greater freedom to use part-time employees or contractors, lifting staffing restrictions etc.. Yet all these would be excluded from the award restructuring process if the ACTU gets its way.

There is a real concern that the issues that are of most significance in the metal industry are dictating the agenda for the whole economy. There is no doubt that the classification system in the metal industry award is a mess and it is clearly a high priority in that industry to change that system by reducing

the number of classifications. However this is by no means a universal problem. In many awards the number of classifications is simply not an issue. Yet the ACTU's blueprint basically seeks to apply what is happening in the metal industry throughout the

rest of the economy.

A new set of rigidities

The ACTU's proposal to restrict the range of issues that may be dealt with as part of award restructuring could mean that many enterprises remain stuck with an unsatisfactory status quo. Some aspects of the ACTU's plan however could actually make an unsatisfactory situation worse - as it would replace one set of

rigidities for an even tighter set.

The ACTU plan does not involve the abandonment of traditional comparative wage justice concerns. Indeed, the overall effect of the ACTU plan would be to increase the degree of centralisation and regulation of the wage system. There would be very little scope for negotiations at the enterprise level. For example, rather than allowing each company to develop classification

structures or training arrangements appropriate to its own requirements, all employers would have to conform to centrally determined provisions. The only scope for enterprise discussions would be on the details and timing of implementation.

The system would be made even more rigid by providing direct linkages between key classifications in major awards. This would mean that if one award moved, then all awards linked to it would also have to move.

At the same time the ACTU's plan promotes the use of supplementary payments to absorb and institutionalise overaward payments and by generally seeking to make minimum rates awards more like paid rates awards (eg. by the inclusion of service

increments). The likely effect of this would be to import the sort of inflexibility that now exists in the public sector into the private sector.

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While there would be some changes in wage relativities in the short term arising from the ACTU's restructuring plan, the strategy in the long run seeks to cement into place a highly rigid.structure of relativities.

This involves moving in precisely the wrong direction. We need a much more flexible wage system that will take into account the needs of different industries and enterprises.

A system which locks in relativities between a number of major awards will merely create a position where a movement in one award, or even one classification, can trigger a flow on across major sectors of the economy. This would simply take us back to

the worst features of past approaches to wage fixation based on comparative wage justice. It will make wage break outs more likely.

Even the Treasurer has said publicly (in the Financial Review after the 1988 May Statement) that the time has come for an industrial relations system based on differential wage increases in different industries according to varying economic circumstances. It is not clear whether he supports the ACTU's wages plan because he does not fully understand its implications,

or because he has changed his mind on the need for a more * flexible system.

Pay increases not based on productivity

The ACTU's blueprint provides for substantial across the board pay increases as part of the restructuring process. These pay increases would not be related to productivity improvement either generally or at the enterprise level.

The first restructuring increase would be based on a willingness to change job titles and to undertake training as required. For most workers this will be worth at least $15. A further $15 will be based on a preparedness to undertake a wider range of duties.

These may, or may not, contribute to improved productivity.

On top of this $30 across the board increase, supplementary payments will be introduced into all minimum rates awards. For employees receiving only the award rate of pay these will be worth between $30 - $50. These payments are designed to lift the

position of workers receiving nothing or little in the way of overaward payments and would not be linked to any changes in work requirements.

Thus pay rises flowing directly from award restructuring under the ACTU's plan could be worth as much as $80 a week - before tax cuts. The quantum of these pay increases would not be linked to changes in productivity.

The Coalition supports pay rises where these are based on genuine improvements in productivity. However it is opposed to across the board pay rises that fail to take account of the differing economic circumstances of particular enterprises.

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Will the ACTU's blueprint give us the skills we need?

One of the aims of the ACTU's blueprint is to increase Australia's record in relation to skill formation. There is little doubt that in some parts of industry progress is being held back because of a lack of properly trained workers.

Yet there must be some real doubt as to whether the ACTU's approach would actually achieve the objective.

There is general agreement that Australia needs to place less emphasis on external mobility in the labour market (ie. where employees move between firms) and increase the degree of internal

mobility (where employees move within firms eg. by retraining). In fact the current high level of external mobility is a major deterrent in the way of firms increasing their training effort - it is well known that some firms are reluctant to invest in

training if they think that as soon as they have trained a worker he or she is likely to leave.

Yet the ACTU's approach seems designed to increase the emphasis on external mobility even further. The main focus of the ACTU's approach is on developing common classification structures with progress through classifications based on the obtaining of externally accredited, formal qualifications.

Common classification structures are clearly linked to high rates of external mobility. This was recognised by the NLCC's 1987 report on labour market flexibility which saw standardised classification systems in awards, together with immigration, as

leading to reliance on external mobility.

Common classification systems across awards are now being sought by the unions specifically to facilitate external mobility. Guidelines issued by the Amalgamated Metal Workers' Union make it clear that it is the policy of that union to pursue award

restructuring across all the industries that it coverss

"This will ensure that tradespeople will be able to move from industry to industry without the complication of classifications or qualifications which differ from state to state or award to award."

The emphasis on formal qualifications, like the push for common classifications, is also designed to emphasise external rather than internal mobility. Formal qualifications are really only relevant to external labour markets ie. where employees move between firms. Moreover experience both in Australia and overseas suggests that an emphasis on external qualifications

runs the risk of "credentialism".

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As Richard Blandy and Susan Hancock wrote in the September 1988 edition of The Australian Bulletin of Labour:

"The actual processes by which career paths are formulated will ... be important to the likelihood of success in raising productivity. A process based essentially on the acquisition of formal qualifications would provide

incentives mostly for the accumulation of credentials, the relevance of which to effective contributions in particular workplaces might be obscure. There is enough experience of this phenomenon in the public sector to caution against a

bureaucratic approach to skilling."

Allowing firms to develop their own career paths is far more likely to create skill formation activities appropriate to the needs of the individual enterprise. As Blandy and Hancock write, informal assessments within the firm itself are particularly

important where the skills being learned are associated with the introduction of new technologies, new products or new forms of work organisation.

They go on to write:

"There are usually no formal courses covering such ' training. Rewarding qualifications will skew skill-acquisition away from the informal learning of many relevant, often cutting-edge, skills towards the accumulation of certificates whose skill-content may be irrelevant and antiquated for the actual work being done."

Aside from the issue of formal accreditation, and common classification structures, there is another reason why the ACTU's plan is likely to decrease the amount of relevant training.

According to Bruce Chapman the relatively compressed pay structure in Australia has decreased incentives for on-the-job training. (Chapman 1987: Some Micro and Macro Implications of the Australian Labour Market System). This is because firms in Australia are forced to pay relatively high wages to workers

undergoing on the job training. However the training is useful to other firms who will seek to "buy" the workers by luring them with higher wages. According to Chapman it becomes a rational strategy for firms to reduce the time workers spend learning and

increase the time workers allocate directly to production in the training period.

Yet the ACTU's strategy will actually worsen this situation. Supplementary payments are explicitly designed to compress relativities further - by reducing the gap between the high paid and the low paid. This will have the effect of reducing even

further the incentive for employers to provide - or for employees to undertake - on the job training.

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Finally, while the ACTU's objective of providing career paths for workers is sound in theory, its approach would not lead to a more skilled workforce. By emphasising externally accredited, formal gualifications, and common classifications across industries and

enterprises, and by further compressing relativities, it would further*tip the balance in favour of external mobility over internal mobility. There would be even less incentive for employers to provide quality on the job training. Instead there will be much more emphasis on acquiring paper qualifications that may well be irrelevant to the firm's needs.

Conclusion

Award restructuring has the potential to significantly improve the flexibility of the labour market. However it could also be used to reduce flexibility. The ACTU's plan will make the labour market even more rigid and inflexible. The Government seems

determined to ensure that award restructuring will become a vehicle for gaining substantial across the board pay rises while doing nothing to further productivity.