Critically evaluate the following statement The wages policy adopted by the ALP Federal Government is a hybrid of theoretical approaches and aims to benefit the interests of both employers and wage and salary earners. This approach has not achieved its aims. The ALP government has adopted a multifaceted approach to constructing an outline to wage and salary setting. The movement to “collective agreement making will be available under the ALP proposal,” (Retail Times 2008) which means that individual agreements will be abolished, which was part of the policy for WorkChoices under the liberal government.
There are clear differences between the two theories, Neoclassical and Institutional, both of which can be argued are present within the current approach to wage setting. The possible combination of both of the theories illustrates the more recent wage setting agenda that is being applied by the current ALP government. The central idea of the neoclassical theory has two main objectives in regards to wages and salaries, these are demand and supply.
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As stated in the (Lecture notes Week 2 slide 7 2010) the neoclassical theory “can be understood through the interaction of the demand for labour (or how much employers are willing to pay), and the supply of labour (or how much workers are willing to accept). ” The neoclassical theory determines wages through the natural interaction of supply and demand and the “supply of labour depends on the willingness of individuals to provide labour to the market at different levels of real wages. (Lecture notes week 2 slide 14 2010) Intervention within the labour market is a large part of setting wages and also with the level of engagement for decentralised wage fixing, which is a large focus of wage systems that are underpinned with the neoclassical theory. In regards to approaches to intervention, neoclassical theory does not support intervention as it is believed to create market “imperfections” so consequently a more individual approach is established. In contrast with this theory, Institutional theory can be understood through a more straight forward approach, basically through more orthodox market principles.
Institutional theory is a multifaceted concept that draws from all parts of the labour force, not just supply and demand. The theory acquires information for constructing the wage setting from a vast range of sources including political, sociological, economical and parts of industrial relations. The institutional theory focus’ heavily on organizations within the labour market as well, and this reinforces the idea that the institutional theory encourages intervention.
The theory supports collective agreements and union bargaining, and only an individual agreement if it will favour the employee. Rather than perceiving unions as an imperfection they believe that they are a natural development “as a means of ensuring that goals of social equity are met. ” (Lecture notes week 2 slide 29 2010) The “regulation involves the imposition of restraints on the actions of employers and/or their workers ??? the shape of such regulation, does however, vary with the intellectual, ethical and political climate of the time. (Lecture notes week 2 slide 29 2010) This statement implies that the regulation of the market must be adjusted to the different elements that can occur with each individual. The purpose of having an intervening body is so that “institutions determine the structure and existence of labour markets, which in turn determine their behaviour and performance. ” (Buchanan, Wanrooy, Oxenbridge, Jakubauskas 2010 p. 27) Intervention is a significant part of the institutional theory in that “whatever the efficiency properties or claims of the market it cannot be relied upon to produce a distribution of earnings that is fair and guarantee those on the lowest earnings a standard of living relevant to the standards of the day” (Richardson, 1999: 23). Wage setting, under institutional theory, cannot only be determined by supply and demand but a more broad concept is undergone which is seen as a more complete way to approach wage setting but is not “guaranteed to provide equitable wage outcomes. (Lecture notes week 2 slide 30 2010) The wage models that intuitional theory supports are rigid models, for this to occur wage growth needs to be small, large wage changes are rare “and lots of unchanged wages were frequent then the evidence of wage rigidity” (Mclaughlin 1992 p. 8) This idea of rigid wage models is reflected in the current Australian labour market where “the typical analysis of a minimum wage law explicitly starts with the assumption of “a competitive labour market” (Buchanan, Wanrooy, Oxenbridge, Jakubauskas 2010 p. 27) and then shows how demand and supply via self-interest, market competition, and the Invisible Hand leads to an efficient welfare maximising configuration of prices and quantities. ” (Buchanan, Wanrooy, Oxenbridge, Jakubauskas 2010 p. 427) In regards to wage policy the two theories are vastly different, and a hybrid of the two approaches would be a difficult concept to incorporate in one consistent policy to benefit both employees and employers.
The current ALP’s outline to wage setting policy can be argued that it is founded heavily on institutional theory. According to the ACCI (Australian Chamber of Commerce and Industry), which should be noted that this institution is a governing organisation to represent business at a national level, an overview of certain workplace relation policies was outlined and many points made in regards to the ALP party, in relation to wage setting and agreements.
These were mainly based on institutional theory fragments. The ALP’s policy in respect to individual agreements is to abolish AWA’s (Australian workplace agreements) and to “ban any statutory individual bargaining. ” (ACCI 2007 p. 2) In accordance with this the introduction of only collective agreements was allowed with the exception of “Common law agreements above $100,000 per year not award regulated. ” (ACCI 2007 p. ) The move towards centralised bargaining agreements which is in alignment with the ALP’s polices “has become an important mechanism for wages policy and a centralized system of labour market regulation for much of the twentieth century” (Lansbury, Wailes ; Yazbeck 2007 p. 630) This results in employees having more power to have a higher wage as “they (AWA’s) only provided moderate wage increases each year whereas enterprise bargaining could provide significantly higher increases” (Lansbury, Wailes ; Yazbeck 2007 p. 35) The recent centralisation of the labour market could be argued that it could result in becoming increasingly unproductive for both employees and employers alike. Having constraints on the market and the capacity for slight individual bargaining could be detrimental, “Competition in labour markets was promoted through deregulation (or altered regulation in favour of less centralised wage setting arrangements) and the reduction in the monopoly power of trade unions. (Lecture notes week 3 slide 2010) Although the ALP government has centralised the labour market they have still allowed some individual aspects which reflect a neoclassical element. An example of this is that the ALP is allowing individual agreements to still be made for individuals earning over $100, 000 where “a facilitation clause in awards will allow individually written agreement to the variation of some but not all award provisions. ” (ACCI 2007 p. ) This reflects the notion of the hybrid approach that the ALP government is taking in its wage setting and industrial relations. The government in the past decade, under the Howard government, has definitely incorporated a hybrid approach of both the neoclassical and institutionalist theories, “the Howard Government grafted new processes and institutions onto the existing system. Yet, even though the institutional features of the former award-making system remain, they have been severely weakened. ” (Lansbury, Wailes & Yazbeck 2007 p. 2) This demonstrates that while the institutional ideas were in place some were replaced by more neoclassical ideals through the Howard government. The recent ALP policies have attempted to centralize the market where they will gradually bring back a more institutional approach. With Fair work Australia the ALP government has attempted to conduct a more centralized industrial relations system. The new tribunal under Fair Work Australia has set and adjusted the minimum wage and awards and the use of this organisation is evidence of the continued centralisation of the market.
In conjunction with this new legislation put in place by the ALP which relies on “good faith bargaining principles to prevent enterprise level management from exploiting their power to define the scope of negotiations and to determine working conditions unilaterally. ” (DEEWR 2008) The introduction of the new safety nets which comprise of 10 national employment standards not only benefits the employee by protecting them but also the employer, where they can reach an agreement where both parties are able to have their say based on ‘good faith bargaining’.
Consequently, the labour market appears to reflect the “hybrid systems which incorporate aspects of both the old collectivist model and the new individualistic approach. ” (Russell D. Lansbury & Nick Wailes & Clare Yazbeck 2007 p. 12) In connection with this, forced bargaining is allowed under the ALP policy, where “unions can, if supported by a majority of employees, force an employer to bargain on union demands for wages and conditions above minimum standards. ” (ACCI 2007 p. ) This type of intervention from an institutionalist’s position can be contrasted with that of a more neoclassical policy from the coalition, where there is “no compulsory bargaining and bargaining above minimum standards only by a free choice of both employer and the employees/union. ” (ACCI 2007 p. 3) Minimum wages are also an issue that takes on a more institutional theoretical approach where the ALP abolished the Australian Fair Pay Commission and returned minimum wages to the compulsory arbitration body.
Minimum wages can pose many problems for employers for example, setting a high minimum wage could “reduce the youth employment rate, “” (Watts p. 143) as it would discourage employers to hire young workers. The aim of a minimum wage is to ensure that there is a “effective safety net of fair and enforceable minimum wages’, and to have regard to the desirability of ‘attaining a high level of employment’, (Isaac 2007 p. 419) This idea, in theory, is an effective means to make certain of economic growth and security by assisting the “‘capacity of the unemployed and low paid to obtain and remain in employment. ‘ (Isaac 2007 p. 19) However it can be argued that a rigid setting of a high minimum wage, which is predominantly an institutional theory, could “affect competitiveness within the labour market, where unemployment and unskilled labour could increase,” (Harbridge R, Walsh P 2000 p. 19) due to employers not wanting to pay more in wages. Another point which portrays the hybrid approach that the ALP has projected is through the ACTU (Australian Council of Trade Unions) who performed an inquiry into the Fair Work Bill 2008 and stated that “the Bill gives employees a right to request flexible working conditions, and/or extended parental leave.
However, this right is rendered nugatory by the fact that the employer may deny the request on ‘reasonable business grounds’ and the refusal cannot be reviewed in any forum. ” (ACTU, 2009, p. 61) The government intervention is in favour for the employees with the option for a request of flexible working conditions, and/or extended parental leave. In conjunction with this the Bill allows for employers to deny the requests so therefore a free choice of the individual is an option. This reflects a neoclassical deal as there is no definite governing body to hear any cases for the denied requests and employers are able to make decisions on a case by case approach. This overall approach to wage settings and policies that the ALP government has constructed is evidently a hybrid approach, but more recently has adopted mostly elements of institutional theory via the Rudd government. These include the continued centralisation of the labour market and the abolishment of the individual awards.
The policies adopted by the ALP in theory will potentially benefit the interests of both the employers and employees, although it is not possible to benefit everyone in all aspects. With employers having to pay more to the employee for minimum wage, their rights within the workplace and accommodating to the safety net imposed by the ALP party, it could be seen as detrimental for the employer. Evidently with the composition of the hybrid system it does aim to benefit both the employee and the employer. Nevertheless as stated by (Buchanan, Van Wanrooy, Oxenbridge, Jakubauskas 2008 p. 5) “our institutional arrangements involving awards working in conjunction with collective agreements offer major strengths and dynamism necessary for flourishing in the future. ” The overall outcome for the labour market could markedly be a profitable system for both the employee and employer with the proposed hybrid approach at this point in time. In contrast with this theory there is little evidence to support the idea that, even with the hybrid approach, both the employee and employer would be in a more beneficial position with the approach taken by the recent ALP government.
With the recent election just passed the new government’s policies will reveal which way that the wage setting policies will be founded on in the future. To make the policies favourable for both the employee and employer the ALP government needs to continue with the hybrid approach and incorporate both theories in different circumstances within the labour market so that all stakeholders are benefited in the long term.