Bosses' IR ads make dodgy claims

August 24, 2007

The National Business Action Fund Limited, a collection of some of the largest business peak groups in Australia (including the Australian Chamber of Commerce and Industry (ACCI) and the Business Council of Australia (BCA)), launched a series of ads earlier this month, aimed at scaring voters away from supporting parties that did not support the
Coalition's IR "reforms".

The ads lean on a study carried out by economic modelling firm Econtech to argue that failing to embrace workplace reform will increase interest rates by 1.4%, lower gross domestic product (GDP) by 4.8% and decrease employment by 316,000 over four years. Australia would fall from the eighth to the 14th ranked economy in the world if the Howard government's Work Choices laws are reversed, the ads argue.

The business message is a pretty simple one, crafted by Liberal pollsters Crosby/Textor who designed the ads. If the Coalition is not returned, the ads argue, the economy will falter, unemployment will rise, your standard of living will fall and the sky will cave in. The one novelty of the ads is the attempt to give them the credibility of associating their claims with the "independent economic research" of Econtech, in its report The Economic Effects of Industrial Relations Reforms Since 1993, published in July for the ACCI.

From the beginning the ad campaign has been divisive, even among business itself. The "independent" verification of the ads' claims didn't impress the National Farmers Federation, the Australian Industry Group or the Master Builders Association, all of which refused to contribute funds for the ads. As a result, business groups like the Victorian Chamber of Commerce and Industry are pressuring small business to contribute money for the ads, using the federal government's $40 million slush fund provided to business groups to promote Work Choices as a lever, according to the August 18 Sydney Morning Herald.

Yet even the "independent economic research" used by Econtech as the basis for its predictions, is open to question. One of its central claims is that a move away from decentralised wage fixing (enterprise level bargaining and individual contracts (AWAs)) to industry-wide bargaining would increase inflation. Ross Gittens, economics editor of the SMH, dismissed this prediction in his August 22 column. "If we did move to a less flexible wage system, wouldn't that lead to higher interest rates? No", he argued, "if it did it would only be temporary… (So much for the independent modelling the government keeps quoting)."

Gittens, along with the Econtech report, does argue, however, that a return to a more centralised wage fixing system (Econtech specifically targets industry-wide agreements, that is, pattern bargaining), would lead to greater unemployment. The Econtech report argues that "systems focussed on industry-wide bargaining … may yield the worst employment
outcomes". The reason is that "strong industry-based trade unions may have the ability to push wages above levels consistent with worker productivity". The result, they argue, is to "price" low-skilled workers out of the market, therefore leading to greater unemployment.

If this "independent economic research" sounds familiar, it's because it should. It's the same argument used by the federal government to establish the (un)Fair Pay Commission in 2006 – that if (minimum) wages are set too high, unemployment will grow, as the marginal cost of employing low-skilled workers is, to bosses, simply too high. In neither case is the assertion supported by evidence.

There can be no question that the lower wages brought about by Work Choices have increased profits. Qantas profits, for instance, increased by over $200 million to $719 million in the 2006/07 financial year according to the August 18 Courier Mail. This was largely as a result of the operations of its low-cost, low-wage Jetstar arm, in which AWAs are a mandatory condition of employment.

Qantas executives simply cut routes covered by the carrier and replaced them with Jetstar flights. No new jobs were created, just transferred from higher-paid to lower-paid jobs. And as a result, Qantas profits ballooned.

Telstra profits also increased by 2.9% to $3.275 billion during the 2006/07 financial year, at the same time as the company was cutting staff. Econtech's assertion that companies will employ more staff if they are cheaper simply isn't borne out by the facts. Cheaper workers simply lead to greater profits. The economy-wide increase in employment (306,000 according to the business ads) over the last few years can just as likely be attributed to the resources-led boom, rather than "workplace reform".

The Econtech report does not just support lower wages, however. It also argues that making jobs less secure has increased employment. Basing its conclusions on a 2002 survey of 1800 bosses, combined with a 2005 federal treasury round-up (so much for the report's "independence"), it argues that the removal of unfair dismissal protection from practically all Australian workers has increased productivity by 2.4% across the economy. The reverse, it argues, is therefore also true – reinstating protection against unfair dismissal would reduce economy-wide productivity by a similar amount, causing a massive slump in employment (316,000 jobs by 2010), lowering GDP by $57 billion and causing real wages to fall.

Econtech's conclusions couldn't have suited the Coalition better if PM John Howard had written them himself. But are they credible? The report itself charts the increase in labour productivity in Australia from 1984 to 2005. Labour productivity increased by almost 40% in this time, the highest rate of increase being in the years from 1993 to 2000, a period when workers enjoyed unfair dismissal protection across the country. The report's assertion that labour productivity would fall if these protections were reintroduced therefore seems flimsy at best.

In the end, the main barrier, according to the Econtech report, to a prosperous economy is the continuing influence of unions. "In summary", the report asserts "the international studies generally provide support for the conclusion that high union density and … industry-wide bargaining have adverse impacts on employment." Get rid of unions (and therefore any protection for worker's wages and conditions), unemployment will stay low and we'll all be better off. Do you still think the report is "independent"?

While the National Business Action Fund, Econtech and the federal government have all consistently attempted to present this latest bosses' campaign in defence of Work Choices and the Howard government as the result of "independent economic research", the fact is that it is essentially just an anti-union rant. The report cherry picks selected studies to justify its pre-formed conclusion that union power, higher wages and more secure jobs will destroy the economy, raise interest rates and lower employment. As a piece of political theatre, this latest series of ads and the "research" that underpins them is to be expected in an election year. As a serious attempt to provide "independent" analysis of the Australian economy however, it simply doesn't rate.

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