Shhhh! The workplace flexibility we’re pretending isn’t there

There’s a new orthodoxy among more independent-minded policymakers, one that has only emerged in explicit terms in recent months: Australia has a “flexible” workplace relations system, and it’s been helping the economy make the transition from the mining boom to a more traditional growth pattern.

It’s not a message conservatives, whether in politics, business or the media, want to hear.

In August, to the dismay of conservatives and business groups, the Productivity Commission issued a draft report on workplace relations concluding that “Australia’s labour market performance and flexibility is relatively good by global standards”. Indeed:

“The labour market has become more flexible, most notably through a greater tendency to adjust hours rather than employment during demand downturns, and the unresponsiveness of inflation to strong labour demand in leading sectors. Economywide wage breakouts and associated stagnation — the horror of the 1970s — seem as dated as floppy disks.”

And that was demonstrated while Labor was in office. As Crikey has pointed out in the past, that government managed an end to the resources boom without the usual Australian orgy of inflation, a boom and bust and a rapid rise in unemployment accompanies by a recession — helped by the exchange rate, the flexibility of the Fair Work Act and its own constant cutting of spending to offset falls in tax revenue.

The Reserve Bank is also now a fully paid member of the workplace flexibility club. The RBA has been pointing to low wages growth for some time, but this week deputy governor Phil Lowe went further in a speech to the Committee for Economic Development of Australia:

“We should not lose sight of the fact that our economy has shown considerable ability to adjust, and to do so in a way that has preserved both overall economic and financial stability. We have adjusted to the upside of a huge positive international demand shock without overheating and we are now adjusting to the downside while still managing to grow at a moderate rate. This is a significant achievement and is a testimony to the underlying flexibility of our economy. This flexibility should give us come confidence about the future.”

Lowe nominated three areas of flexibility in the economy: the exchange rate, which Lowe says “has now adjusted considerably”, monetary policy (which “is helping support growth in the overall economy even if it is not working in quite the same way as it once did”) and the labour market:

“Another element of the flexibility has been the labour market, both in terms of labour supply and wages. During the upswing, population growth picked up noticeably, partly due to a rise in immigration. This helped alleviate some of the pressures in the labour market that would have otherwise occurred, especially in areas where skills were in short supply. In the downward phase, population growth has slowed, again due to immigration. Aggregate wage growth has also moderated significantly. This has played some role in generating sufficient employment growth over recent times to keep the unemployment rate steady despite the below-average growth of the overall economy.”

For Lowe, “the missing ingredient continues to be a lift in non-mining business investment, where we are still waiting for convincing signs of a pick-up”. And that lift in investment can’t be generated simply from flexibility. “Ultimately we will be better off if increased investment is driven by high expected returns rather than by the low cost of finance or low wages. This is why the focus on improving the climate for business investment is so important. There is no magic bullet here, but surely the investment climate would be improved through a strong focus by both business and government on innovation, productivity, human capital and entrepreneurship.”

This is a very different message from the one on offer from business and many parts of the commentariat, that Australia’s real problems are an inflexible labour market and a high rate of corporate tax. Of course, a return to WorkChoices and corporate tax cuts would simply feed straight into business bottom lines rather than necessarily benefit the economy (remember, as predicted by Treasury, WorkChoices produced a slump in labour productivity, not an increase), just like less competition is good for business for bad for the rest of us.

It’s no coincidence that so far it is only the independent economic policymakers who are prepared to recognise the reality of workplace flexibility. It might be orthodoxy in Martin Place and with Peter Harris and co at the PC, but it’s heresy within the government, business and among their cheerleaders in the media. But the government should be grateful — workplace flexibility is a key reason why unemployment has only risen to 6.2% despite a marked slowdown in growth under the Coalition.

This article was originally published on Crikey.