Ideas@TheCentre

Time to abolish awards

The ghosts of Work Choices still haunt the Coalition on industrial relations policy. The Coalition’s recent labour market reform policy was timid and politically driven: It addressed issues of union accountability and corruption, while failing to make significant inroads to prominent flexibility concerns.

Australia’s outdated and onerous award system is at the heart of the issues confronting the labour market.

Awards were the centrepiece of Australia’s industrial relations system and the bedrock of the Aussie ‘fair go’ in the 20th century. But in today’s modern, competitive market, awards are burdensome, restrictive, and redundant; they are the relics of a Byzantine IR system and ought to be abolished in favour of a simple minimum standard for all employees.

Awards set minimum pay and working conditions on an industry-wide basis. There are layers upon layers of minimum wages, restrictions on working hours, penalty and overtime rates, and other allowances and conditions.

There have been reforms to the award system. Most recently, Labor’s Fair Work reforms simplified and reduced the number of awards down from 3,715 state and federal awards to 122 modern awards. This was a positive step, but minimum wages and conditions (particularly penalty rates) have increased significantly in the new awards. Small businesses in particular have borne the brunt of these cost hikes.

Award wages, and particularly penalty rates, have become a significant cost hurdle and barrier to employment. Businesses in the retail and hospitality sectors are increasingly shutting their doors on weekends and public holidays because they cannot afford to pay the exorbitant wage costs mandated in awards. When firms close their doors nobody wins – employers lose business, workers lose jobs, and consumers cannot access services.

It is possible to achieve greater labour market flexibility, create more jobs, and ensure employees retain acceptable minimum standards.

The Fair Work Act introduced a comprehensive set of statutory entitlements available to all employees. This safety net, made up of a federal minimum wage and 10 National Employment Standards, is one of the most generous among the world’s richest countries. In 2011, Australia’s federal minimum wage represented 54% of the median wage and ranked fifth highest among OECD nations. Australia’s annual leave and holiday entitlements also compare favourably against other wealthy nations.

It is high time we abolished the award system in favour of a single standard for all employees.

Alexander Philipatos is a Policy Analyst at The Centre for Independent Studies and author of Relics of a Byzantine IR System: Why Awards Should Be Abolished, released 23 May 2013.