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Wednesday, 18 September 1985
Page: 683

Senator RICHARDSON —My question is directed to the Minister representing the Minister for Employment and Industrial Relations. I ask: Has the Minister's attention been drawn to the article by Ross Gittins in today's Sydney Morning Herald on wage fixing practices? Can the Minister inform the Senate of the implications of recent empirical reasearch on the United States wage fixing system, as reported by Mr Gittins, for the Government's prices and income accord?

Senator WALSH —I have seen the article by Ross Gittins on the study done by Freeman and Bell of labour market flexibility in the United States and the consequences of it. I have not yet been able to obtain the study, but I intend to do so. I am proceeding on the assumption, which I am sure is well justified, that the findings have been adequately and accurately reported by Mr Gittins. The study did show that between 1970 and the present there was an increasing gap between wages paid in the higher wage industries in the United States and wages paid in the lower paid industries. This flexibility was attributed to collective bargaining and decentralised wage fixing. That is in Accordance with Liberal Party dogma that that would happen in the free market.

However, the consequences of that confirmed flexibility in wage rates were quite different from those which the Liberal Party dogma asserts. The Liberal Party dogma is based on the theory that dying industries will pay lower wages, that labour will be shed from those industries, and that they will survive but at a lower level of total employment. At the other end of the spectrum, the industries which are vital and growing will pay higher wages, thereby attracting more labour and increasing the aggregate level of employment in those industries. That is not, however, what has happened in the United States. The Freeman and Bell study has shown that the industries which paid the highest wages in 1970-specifically Gittins cites coal and petroleum-are paying relatively higher wages than other US industries today but that employment has grown by less in those industries than it has in the economy in general. Gittins quotes Mr Howard in relation to Mr Howard's repeated demands to free up the labour market:

There is abundant evidence that those countries who led the world in recent years have had flexible labour markets. The United States is the prime example.

Gittins comments:

Well, it would be a good idea if Mr Howard and his Dry mates had a closer look at that abundant evidence, because it doesn't support their argument.

What has happened in the United States is that employment in those industries which paid relatively higher wages and which are paying relatively higher wages now has grown at a lesser rate than it has in the economy as a whole. When one looks at the particular industries-coal and petroleum-a more likely explanation, although this was not given by Gittins, is that the relatively higher wages and increasingly higher wages paid in those industries are a function of their capital intensity and the use of industrial muscle rather than of the deregulated labour market.

Such a conclusion is, of course, compatible with the disastrous experiment in deregulated labour markets over which Mr Howard presided as Treasurer when, in mid-1981, the Fraser Government formally decided to abandon centralised wage fixing and to leave it to market forces to sort out what happened to wages. What happened to wages was that they increased by 13 per cent in the first year and 14 per cent in the second year. That produced the greatest wages explosion Australia had seen since the oil shock of 1973. It produced double digit unemployment, double digit inflation, the highest interest rates we have ever seen, and the worst recession Australia had known for 50 years.

Senator Messner —Tell us about the real interest rates today.

Senator WALSH —Well, real interest rates were not all that high when the honourable senator was in government because inflation was so high. It would be scarcely possible to have high interest rates-

The PRESIDENT —Order! I ask the Minister to answer Senator Richardson's question.

Senator WALSH —Certainly, Mr President. Mr Gittins makes the point that Mr Howard had a good Methodist upbringing and needs a mission. That might be helpful to Mr Howard's moral welfare but, unfortunately, in economics and in economic management, religion and ideology ought to be eclipsed by rational analysis and empirical evidence. It would be a great pity, a tragedy if this dogmatist who is now leading the Liberal Party, who is so committed to a dogma based on an economic theory which he either does not understand or the empirical testing of which he is unaware of, who is guided in his economic policies not by rational analysis but by dogma, should ever become Prime Minister of the country and be given the opportunity to have a rerun of the disastrous economic and wages policies over which he presided in the dying years of the Fraser Government.