1

Work Choices
a roadblock to
A paper by Alex White
Was
Productivity?
2
November 2008
Paper by Alex White
Bachelor of Arts (Hons),
University of Melbourne
Masters of Public Policy and Management (candidate),
University of Melbourne
University of Melbourne, Victoria, Australia
Email: Alexander.White@alumni.unimelb.edu.au
Web: www.alexwhite.org
Twitter: www.twitter.com/alexanderwhite
Facebook: www.facebook.com/alexanderwhite
LinkedIn: http://www.linkedin.com/in/alexanderwhite
This work is licensed under the Creative Commons Attribution-
Noncommercial-Share Alike 2.5 Australia License.
3
A critical assessment of the Work Choices laws in
addressing its stated aims and objectives
Introduction
The 2005 legislation, Workplace Relations Amendment (Work
Choices) Act represented one of the most fundamental shifts in
industrial relations laws and Commonwealth-State relations since
Federation. With the principle aim of Work Choices to unleash
a new burst of productivity growth,
1
John Howard described
industrial relations reform as an article of faith for the Coalition
parties.
2
This article of faith statement was also allegedly
repeated in a speech to the 2005 Liberal Party Federal Council,
3

although this appeal to ideology was not repeated in later public
statements.
Using the corporations power in the Australian Constitution
(Section 51(xx)), Work Choices sought to introduce a single
national workplace relations system, overriding most state
industrial relations systems.
4
This in itself was remarkable, upheld
by the High Court; until Work Choices it was widely believed that
the Commonwealths direct role in industrial relations was limited
by Section 51(xxxv),
5
limiting powers to make laws to conciliation
and arbitration for the prevention and settlement of industrial
disputes beyond the limit of one state.
Work Choices elevated individual statutory agreements (Australian
Workplace Agreements, AWAs) as the pre-eminent form of
workplace agreement, with enterprise level workplace agreements
(collective agreements) and state and Federal Awards relegated
to lesser status. The arbitration system, encapsulated by the
Australian Industrial Relations Commission (AIRC) that had been
a feature of the Australian workplace relations system since 1904
had its role greatly reduced, with new Offces and Commissions
responsible for overseeing the application of workplace
agreements, setting of minimum wages and settling of industrial
disputes.
When introduced to Parliament in November 2005, the Minister
for Employment and Workplace Relations, Kevin Andrews MP
said: the Workplace Relations Amendment (Work Choices) Bill
2005 moves Australia toward a fexible, simple and fair system of
workplace relations.
6
The central objective, according to the then-
Government was to encourage the further spread of workplace
agreements in order to increase productivity and hence the living
1 John Howard, Media Release: WorkChoices A New Workplace Relations
System, p.1.
2 Michelle Grattan, New Senate, New Era: Federal Politics, The Age, Insight, 25
June 2005, p.1.
3 The Hon. Paul Munro, Changes to the Australian Industrial Relations System:
Reforms or Shattered Icons? An Insiders Assessment of the Probable Impact on
Employers, Employees and Unions, UNSW Law Journal, Vol.29(1), p.133.
4 Work Choices covered industrial relations nationally, but not state and council
employees. Victoria was an exception to this, as that state had earlier referred its IR
powers to the Commonwealth.
5 Stephen Bell and Brian Head (eds), State, Economy and Public Policy in
Australia, Oxford University Press, South Melbourne, 1994, p.144.
6 Kevin Andrews MP, Hansard, Wednesday 2 November, 2005, p.17.
4
standards of working Australians.
7
For the Howard Government, Work Choices was not merely an
economic argument, it is a moral argument, with the new laws to create a good society and a
brighter future.
8
How successful was Work Choices in achieving the goals set out for it? The Howard Government laid
out a set of criteria for the legislation to be judged by, listing economic benefts, industrial benefts, and
moral benefts. Increased and improved productivity, fexibility, work-life balance and fairness are listed
by Minister Andrews as the expected outcomes of Work Choices.
9
The key benefts of the legislation according to the Howard Government were:
10
Increasing workplace productivity
Securing genuine minimum wages and conditions for workers
Encouraging agreement making
Creating a new simple, fair and fexible workplace relations system
The increase in workplace productivity is the primary criteria against which the Work Choices laws will
be assessed. The remaining key benefts were purported as means to increase productivity, although
ancillary benefts were promised, as noted above.
This essay does not consider the introduction of the fairness test in May 2007, when the Minister for
Workplace Relations Joe Hockey stated that WorkChoices was a damaged brand;
11
or the Forward
with Fairness amendments in early 2008 that phased out AWAs (amongst other things). Furthermore,
it concentrates primarily on the period 2005-2007, covering the introduction of the WorkChoices Bill
in 2005 and passing into law in December 2005, the start of the laws effects with regard to AWAs in
March 2006 and prior to its major amendment in May 2007.
The importance of productivity
Why is productivity so central in this discussion of Work Choices? Productivity is considered amongst
neo-liberal economists as the key driver of economic growth and health: Ultimately, its the key issue
determining the rise and fall of Australias fortunes.
12
The higher an economys productivity, the higher
7 Kevin Andrews MP, Hansard, Wednesday 2 November, 2005, p.17. See also Employment, Workplace Relations and Education
Legislation Committee, The Senate, Provision of the Workplace Relations Amendment (Work Choices) Bill 2005, Report, November 2005,
p.5.
8 Kevin Andrews MP, Hansard, Wednesday 2 November, 2005, p.17-18.
9 Kevin Andrews MP, Hansard, Wednesday 2 November, 2005, p.23.
10 Kevin Andrews MP, Media Release, 26 May 2005, p.2
11 AAP, We got it wrong on WorkChoices Hockey, Sydney Morning Herald, 22 May 2007, available online: http://www.smh.com.
au/news/national/we-got-it-wrong-on-workchoices--hockey/2007/05/22/1179601392434.html, accessed 10 November 2008.
12 Andrew Charlton, Ozonomics: Inside the myth of Australias economic superheroes, Random House Publishing, South Australia,
2007, p.24.
5
that countrys standard of living (measured in GDP).
The frst justifcations for Work Choices focused on increasing productivity. Indeed, the second key
beneft of Work Choices encouraging agreement making is cited by the Government Senate Report
as having a clear correlation between productivity growth and the use of workplace agreements.
13

Similarly, the goal of a simple, fexible and national workplace relations system has the ultimate goal of
increasing productivity growth, through decreasing red-tape and increasing workforce participation, for
example.
Background to Work Choices
The Work Choices legislation was and remains highly controversial, politically, economically
and industrially. Although it survived a high court challenge, sponsored by the New South Wales
Government and supported by every State and Territory government and the Australian union
movement (Australian Council of Trade Unions, ACTU), the Work Choices laws are considered as a
key reason for the defeat of the Howard Government in November 2007.
There were many criticisms of the new IR laws, not just from the union movement, but from business
groups, legal groups and community organisations. Criticism was leveled at use of the corporations
power and the constitutionality of the laws. Unions criticised the laws as draconian and unfair for
working people. Church groups and welfare organisations criticised the laws as being unjust and giving
excessive powers to employers to remove working conditions. States criticised the laws as infringing on
state rights, as well as reducing industrial rights for workers.
Some business groups complained that the laws were complicated and created a great deal of red-
tape. Even the H.R. Nicholls Society, a conservative think-tank that initially supported many of the Work
Choices changes said on 13 November 2007 that to describe Work Choices as complex is of course
a gross understatement.
14
Finally, Work Choices attracted concerns from international organisations
such as the International Labour Organisation (ILO) on the grounds that the laws breeched Australias
international obligations, or even the Australia-US Free Trade Agreement.
15
Of course, Work Choices was also widely supported by business groups and conservative think tanks,
especially the Australian Chamber of Commerce and Industry (ACCI), Australian Industry Group (AIG)
and Business Council of Australia (BCA). Large employers also supported the laws, such as Telstra and
the Commonwealth Bank. In mid 2007 a coalition of supportive business groups formed the Business
Coalition for Workplace Reform and established a fghting fund to pay for television advertisements
supporting the laws.
16
13 Employment, Workplace Relations and Education Legislation Committee, The Senate, Provision of the Workplace Relations
Amendment (Work Choices) Bill 2005, Report, November 2005, p.7
14 Des Moore, HR Nicholls Society Inc, Workplace policy is defning issue, November 2007, available online: http://www.hrnicholls.
com.au/articles/hrn-moore6.php, accessed 7 November 2008.
15 Australian Parliament House, Work Choices Bill Digest, 2 December 2005, p.12.
16 Kathie Muir, Worth Fighting For: Inside the Your Rights At Work Campaign, UNSW Press, Sydney, 2008, p.152.
6
What was changed under WorkChoices?
WorkChoices made extensive and profound changes to Australias
workplace relations system. The use of the corporations
power marked a profound shift in government intervention into
workplaces, with legislation and regulations dictating what
employees and employers could and could not do down to minute
detail. According to the Government, the key elements of the
legislation were:
A single national workplace relations system
The Act used the Constitutional powers in section 51 (xx)
(Foreign corporations, and trading or fnancial corporations
formed within the limits of the commonwealth) to override
existing state industrial relations systems. This left only a
small category of employees not covered by the Federal
system, including state employees and council employees.
Creation of the Australian Fair Pay Commission
A wage-setting body, the Australian Fair Pay Commission
(AFPC) was created to replace the AIRC for employees on
Awards.
Reform of the Australian Industrial Relations
Commission
The role of the Commission was greatly reduced, with a
focus on dispute resolutions. Compulsory powers to force
conciliation and arbitration were removed. Additionally, a
model dispute resolution process was mandated, creating
strictures on how disputes under Awards and collective
agreements could be handled by the AIRC and disputing
parties.
Legislated minimum pay and conditions standards
Minimum wages and conditions were legislated for the
frst time through the corporations power, rather than
being contained solely in Awards, collective agreements
or individual agreements (common law agreements and
AWAs). These fve legislated minimums, including minimum
wage, annual and sick leave, parental hours and maximum
ordinary hours of work became the minimum allowed
conditions for any form of workplace agreement. Two of the
fve minimums did not cover casual employees.
Increased role for individual statutory agreements
The role of individual statutory agreements (AWAs) was
expanded so as to override other workplace agreements.
AWAs did not need certifcation to come into force, merely
lodgment with the Offce of the Employment Advocate
(OEA, later renamed). Further, previous safeguards on
AWAs (the no disadvantage test) were removed. Also
allowed were green-felds agreements, where employers
could unilaterally create collective agreements prior to
7
the hiring of any employees and that did not require the
involvement of a union.
17

Extensive prohibited content for collective agreements
A great number of matters were prohibited from collective
agreements, such as the use of contractors, pay-roll
deduction of union dues and paid training for union
delegates. Financial penalties were introduced for inclusion
of prohibited content.
Simplifed Federal Awards
Awards were simplifed, particularly through the removal
of prohibited content and by adhering to the fve legislated
minimum standards. Long service leave, superannuation
and notice of termination of employment were removed
from Awards.
Reform of unfair dismissal
Protections from unfair dismissal were removed because
they acted as a brake on job creation in Australia.
18

Businesses that employed 100 employees or more became
exempt from unfair dismissal laws, and for the remainder
of employees, six months of continuous employment was
required before an unfair dismissal claim could be pursued.
Additionally, operational requirements such as no longer
needing a job to be done, also removed unfair dismissal
protection.
Restrictions on industrial action
All forms of industrial action were restricted to bargaining
periods, with a compulsory secret ballot required before
protected industrial action can take place. In another frst,
third parties could seek to suspend industrial action, even if
not directly affected. Additionally, the Minister was given the
power to arbitrarily end protected industrial action. Common
law tort remedies were also allowed for unprotected
action, meaning that employers could pursue costs against
individual employees or unions for unlawful industrial
action.
Changes to freedom of association
Restrictions on union right of entry to workplaces were
introduced, making it more diffcult for union offcials to
enter a workplace to speak to members and non-members.
Changed compliance regime
The Offce of Workplace Services (later renamed) was
created to ensure that the law was followed on matters
such as industrial action, use of right of entry laws and the
fve legislated minimum conditions.
17 Kevin Andrews MP, Hansard, Wednesday 2 November, 2005, p.20.
18 Kevin Andrews MP, Hansard, Wednesday 2 November, 2005, p.21.
8
In May 2007, amendments to WorkChoices introduced a fairness test to AWAs. This had the effect
of reintroducing elements of the previous no disadvantage test for some AWAs, and required that all
AWAs be assessed by the OEA (re-named the Workplace Authority).
Increasing workplace productivity
WorkChoices sought to increase workplace productivity. Proponents of WorkChoices stated that
individual contracts deliver higher productivity. When productivity increases, companies are more
willing and able to pay higher wages, resulting in a win-win for company and employee.
19
This essay
does not consider the various criticisms of the productivity concept; it also notes that defnitions and
measures of productivity vary greatly. For the purposes of this essay, the Productivity Commission is
considered authoritative.
What is productivity?
Simply put, productivity is ratio of outputs (measured in the national accounts) to inputs (labour,
materials, etc).
20
It is a supply-side measure capturing technical production relationships between
inputs and outputs. But, implicitly, it is also about the production of goods and services that are desired,
valued and in demand.
21
Productivity is important to the discussion around workplace relations
because productivity data are used to investigate the impact of product and labour market regulations
on economic performance.
22
A June 2007 confdential briefng for then-Opposition Leader Kevin Rudd noted the diffculties in
19 David Peetz, Hollow Shells: The Alleged Link Between Individual Contracting and Productivity Growth, Journal of Australian
Political Economy, Edition 56, 26 March 2007, p.32.
20 Andrew Charlton, Ozonomics: Inside the myth of Australias economic superheroes, Random House Publishing, South Australia,
2007, p.24.
21 Productivity Commission, Productivity Primer, available online: http://www.pc.gov.au/research/productivity/primer, accessed 11
November 2008.
22 OECD, OECD Compendium of Productivity Indicators, 2008, p.11, available online: http://www.oecd.org/dataoecd/6/3/40605524.
pdf, accessed 11 November 2008.
9
assessing productivity, particularly because it is diffcult to measure the intensity of inputs.
23
The
briefng also noted that annual and quarterly measures of productivity are volatile, and that measuring
productivity over cycles is a more widely accepted gauge. The Reserve Bank Governor Glen Stevens
said: Over short periods, productivity is not an easy thing to measure, and that short-run relationship
can have a lot of slack.
24

Productivity is measured by aggregating labour productivity and capital productivity. Labour productivity
defned as output per united of labour input (typically measured in hours of work), while capital
productivity is effciencies gained through capital stock (such as machines).
25
Multifactor productivity
is not widely used but is technically a better measure of productivity performance than labour
productivity,
26
and simply put is productivity improvements gained from better training, education,
management practices and operational processes, rather than better machines or longer working
hours.
The Australian Productivity Commission also notes the uncertainty of accuracy in measuring
productivity. The best that can be gleaned is productivity trends over cycles of six or so years.
27

The Productivity Commission measurement of cyclical productivity growth over both short and long
term time-frames demonstrates a slowing down in recent times. Figure 1 shows the ABS estimates of
productivity, aggregating multifactor productivity (output per combined input of labour and capital) and
capital deepening (increases in the capital-labour ratio).
28
23 Tim Dixon, John OMahoney and Ankit Kumar, Leaders Meeting/Policy Brief: Productivity and the national accounts, 15 June
2007, p.8
24 Glen Stevens, RBA Governor, Offcial Committee Hansard, Standing Committee on Economics, Finance and Public
Administration, 21 February, 2008, p.16.
25 See OECD, OECD Compendium of Productivity Indicators, 2008, available online: http://www.oecd.org/dataoecd/6/3/40605524.
pdf, accessed 11 November 2008.
26 Tim Dixon, John OMahoney and Ankit Kumar, Leaders Meeting/Policy Brief: Productivity and the national accounts, 15 June
2007, p.9.
27 Productivity Commission, Issues in measurement of industry productivity, available online: http://www.pc.gov.au/research/
productivity/estimates-trends/issues, accessed 7 November 2008.
28 Productivity Commission, Longer-term trends, available online: http://www.pc.gov.au/research/productivity/estimates-trends/
10
Figure 1: Long-term productivity growth
29
This shows that productivity growth was highest during the 1993-
1999 period, with multifactor productivity growth during this time a
full percentage point higher than the previous average.
Also evident is that capital deepening growth has been stable for
most of the time shown in Figure 1, with the exception of 1984-
1989 (a period of low productivity growth), at just over 1 per cent.
Figure 2 shows more recent trends in productivity growth and
demonstrates that multifactor productivity growth has been steadily
declining, and that labour productivity has increased only slowly.
Despite this, output growth has continued at around the long-term
average.
trends, accessed 7 November, 2008.
29 Productivity Commission, Longer-term trends, available online: http://www.
pc.gov.au/research/productivity/estimates-trends/trends, accessed 7 November, 2008.
11
Figure 2: Short-term productivity growth
30
While this decline in the average of productivity growth can be
attributed to drought in the agricultural sector, there have been
substantial declines in industry and market sector productivity
growth.
Nevertheless, caution is needed when looking at such a short
time period; the slowing of productivity growth in 2004-07 could
be made up over the cycle. It should be re-emphasised that in
this essay, the unreliable nature of short-term productivity growth
fgures is recognised.
Individual Australian Workplace Agreements and
productivity growth
Individual statutory workplace agreements are the primary
instrument through which Work Choices would increase
productivity. The logic followed by the Howard Government was
that if enterprise level agreements introduced by the Keating
Government increased productivity, then individual agreements
an even more personalised enterprise-level agreement would
further increase productivity.
31
Through AWAs, individual pay
increases would be linked to productivity increases, simultaneously
improving labour productivity and preventing wage rises to fow
through from one enterprise to other industries.
32
Former Prime Minister Paul Keating, architect of the enterprise
30 Source: Productivity Commission, Recent movements, available online: http://
www.pc.gov.au/research/productivity/estimates-trends/recent-movements, accessed 7
November, 2008.
31 Employment, Workplace Relations and Education Legislation Committee, The
Senate, Provision of the Workplace Relations Amendment (Work Choices) Bill 2005,
Report, November 2005, p.xi.
32 Employment, Workplace Relations and Education Legislation Committee, The
Senate, Provision of the Workplace Relations Amendment (Work Choices) Bill 2005,
Report, November 2005, p.2.
12
level workplace relations changes, claims that the high productivity
growth from 1993 onwards was a result of removing the centralised
wage fxing system of Awards, and the introduction of enterprise
bargaining:
If you go to 200 or 300 people in a factory or 200 or 300
people in a workplace and come to a three or four year
bargain to the improve productivity and share it between
wages and profts youve got a good chance of getting
productivity from the whole enterprise. But if you just take
one person at a time, bring them into the boss offce
and cut their wages theres no chance of getting any
productivity. Thats why trend productivity is now rapidly on
the way down.
The end result is that we double trend productivity so that
real wages grew through the 90s at 2 per cent a year, 10
years of 2 per cent is 20. You hear Mr Costello talking about
20 per cent in real wages.
But since 2000 real wages have been going down, so the
20 per cent increase came out of the Labor Party and the
Labor Partys policies. Its nothing to do with WorkChoices.
Individual workplace agreements go to 3 per cent of the
working community. The rest of the community are working
on enterprise bargains.
33
To demonstrate Mr. Keatings point about the relationship between
enterprise agreements and productivity, Figure 3 below shows that
industries with high levels of enterprise agreements (and other
agreements) and low levels of reliance on Awards enjoy high levels
of productivity. This does not, of course, mean that enterprise
agreements were responsible for high productivity (although they
could be), simply that industry sectors with high productivity growth
also had a low proportion of Award workers. For example, the
cultural and recreational sector had low productivity growth and
relatively low incidence of Award workers.
33 Lateline transcript, ABC, Paul Keating on the lead-up to the Federal Election, 7
June 2007, available online: http://www.abc.net.au/lateline/content/2007/s1945485.htm,
accessed 7 November 2008.
13
Figure 3: Relationship between Award coverage and
productivity growth
34
Arguing the connection between Work Choices and
productivity growth
In September 2007, a few months after Mr. Keating made the
above remarks, the Australian Chamber of Commerce and Industry
release a review entitled WorkChoices Good Signs for the
Economy, claiming that productivity growth has picked up:
35

Productivity is a key indicator of whether a reform has
proved benefcial for the economy. It is productivity that
makes it possible to secure affordable and sustained
increases to living standards.
While it is too soon to say defnitively that WorkChoices
has increased productivity, the evidence so far is very
good. Figure 1 [Figure 4 below] shows what has happened
to labour productivity growth in the fve quarters since
WorkChoices commenced.
On all of these measures, productivity growth since
WorkChoices has equalled or bettered the historical
average. It has been particularly strong compared to the
past fve years.
36
34 Employment, Workplace Relations and Education Legislation Committee, The
Senate, Provision of the Workplace Relations Amendment (Work Choices) Bill 2005,
Report, November 2005, p.8.
35 ACCI, Review: WorkChoices Good Signs for the Economy, September 2007,
No. 151, p.1
36 ACCI, Review: WorkChoices Good Signs for the Economy, September 2007,
No. 151, p.1
14
The ACCI puts this increase in productivity down to decreased
incidents of strikes (particularly in the building industry), and
enterprise level workplace agreements (AWAs).
37

Figure 4: ACCI table of productivity growth since
WorkChoices
38
The ACCI review notes that no multifactor productivity data was
available by 2007, although Figure 2 above demonstrates that
there was negative growth on an annualised basis in 2006-07
while WorkChoices was in effect. Overall, the ACCI concludes that
WorkChoices had:
a benefcial contribution to strengthening the Australian
economy. While assessments over a longer economic
cycle are not yet possible, the short to medium results are
excellent on any objective analysis.
39
Similarly, the Business Council of Australia, representing the chief
executives of Australias top 100 companies, states:
The experience of BCA Member companies has been that
greater fexibility in agreement making, and specifcally
the ability to better align performance with terms and
conditions, has resulted in diverse benefts including: high
levels of, and strong growth in, productivity
40
The BCA submission also noted of AWAs:
While they represent a small proportion of total agreements,
they have played an important role in driving greater
fexibility and improved enterprise productivity and
performance in key sectors of the economy.
41
The Business Council used the mining sector as the main basis for
its assertion that individual agreements improve productivity:
37 ACCI, Review: WorkChoices Good Signs for the Economy, September 2007,
No. 151, p.2
38 ACCI, Review: WorkChoices Good Signs for the Economy, September 2007,
No. 151, p.2
39 ACCI, Review: WorkChoices Good Signs for the Economy, September 2007,
No. 151, p.9
40 Business Council of Australia, Submission to the Senate Inquiry into the
Workplace Relations Amendment (Work Choices) Bill 2005, 8 November, 2005, p.5
41 Business Council of Australia, Submission to the Senate Inquiry into the
Workplace Relations Amendment (Work Choices) Bill 2005, 8 November, 2005, p.7
15
The mining sector has led most other sectors in the
adoption of more fexible workplace arrangements as labour
market deregulation has progressed. The mining sector
has a very low reliance on awards and a very high reliance
on more fexible agreements including AWAs. In fact,
around 50 per cent of mining sector employees covered
by Federal agreements are on AWAs, while in some parts
of the sector AWA coverage is as high as 80 per cent.
Greater fexibility in workplace arrangements in the mining
sector has delivered signifcant benefts. It has supported
greater innovation; greater accountability for performance;
high levels of productivity as well as sustained, strong
productivity growth; high levels of wages; and outstanding
returns to shareholders. Australias competitiveness has
been sustained by ongoing strong productivity growth in
the mining sector averaged around 6 per cent per annum,
outpacing all other sectors in the economy.
42
The high level of individual agreements in the mining sector as
a whole is seen as proof of the close link between productivity
growth and AWAs, an assertion that the ACCI agrees with. Figure 3
also demonstrates that the low level of Award usage in the mining
sector correlates with high productivity.
The BCAs assertions are disputed by academic David Peetz,
Professor of Industrial Relations at the Griffth University Business
School:
First, there is nothing remarkable about mining have a high
rate of productivity growth over the period for example,
labour productivity in the Canadian mining industry also
outstripped that in the rest of that economy. Indeed, in the
highly unionised Australian coal industry, labour productivity
also grew by 6 per cent per year between 1993 and 2003,
the same rate quoted for the mining sector as a whole. So
it does not appear that individual contracting has driven
labour productivity gains in mining.
Secondly, the story is incomplete because, as the
Productivity Commission (PC) pointed out, the mining
industrys period of strong multi-factor productivity growth
was from 1982-83 to 1992-93. From 1992093 to 2001-02,
multi-factor productivity growth was low. The seemingly
strong growth in labour productivity in mining after 1992-
93 was due almost entirely to capital deepening that is,
replacing jobs with machines.
43
As more data about the period 2005-2007 comes to light, the
claims relating to productivity growth in the mining sector are
further open to scrutiny. The Australian Bureau of Statistics and
the Productivity Commission suggest that multifactor productivity
growth decreased, and that productivity growth may be more
connected to the increase in hours worked:
42 Business Council of Australia, Workplace Relations: Action Plan for Future
Prosperity, February 2005, p.24-25.
43 David Peetz, Hollow Shells: The Alleged Link Between Individual Contracting
and Productivity Growth, Journal of Australian Political Economy, Edition 56, 26 March
2007, p39-40.
16
In mining, multifactor productivity has been trending lower
over recent years as the increase in world mineral prices
has boosted the demand for additional labour and capital
to expand production capacity while lags have meant that
this new production capacity has only just started to come
on stream. Over the three years to 2006-07 as whole, the
number of hours worked in mining increased by 39 per cent
and the volume of capital services consumed increased by
24 per cent, while the volume of mine output has risen by
only 14 per cent. Mining subtracted around 0.2 per cent per
year from multifactor productivity growth over this period.
44
Although the Howard Government and supportive peak business
groups asserted at individual agreements such as AWAs improve
productivity growth, these claims are not generally supported by
evidence.
AWAs were never widely used, even during their height in late
2006. A survey conducted in August 2007 found that AWAs
operated in no more than 19.5 percent of workplaces, behind
collective agreements (union and non union) at 48.3 percent and
common law agreements at 17.9 per cent.
45
AWA operation prior
to Work Choices was even more limited, at less than 9 per cent by
early 2005; with the no disadvantage test, there were few reasons
to not use another form of workplace agreement. A similar survey
found the level of AWA use to be much lower, with registered
individual agreements (AWAs) ranging from 4.7 percent in 2006,
increasing to 6.6 percent in 2007 and then decreasing to 5.6 per
cent in 2008.
46
Over the same period, collective agreements (union
and non-union) rates were respectively 21.7 percent, 21.1 percent
and 22.9 percent.
47
The 2006 Annual Report of the Department of Education
Employment and Workplace Relations (DEEWR) stated that
the fve industries with the highest use of AWAs are: 1) retail; 2)
accommodation, cafes and restaurants; 3) property and business
services; 4) manufacturing; and 5) mining.
48
A statement on the
National Accounts in December 2007 stated:
Labour productivity in the market sector fell by 0.3 per
cent in the December quarter and is fat over the past
year. Annual productivity growth in the market sector has
averaged around 1 per cent over the past three years,
44 Productivity Commission, Recent movements, available online: http://www.
pc.gov.au/research/productivity/estimates-trends/recent-movements, accessed 7
November, 2008.
45 Australian Human Resources Institute, Work Choices: Its Impact within
Australian Workplaces, Survey Findings, 23 August 2007, p.20.
46 Brigid van Wanrooy et al, Australia At Work, Workplace Research Centre,
University of Sydney, October 2008, p.22-23, available online: www.australiaatwork.org.
au, accessed 9 November, 2008.
47 Brigid van Wanrooy et al, Australia At Work, Workplace Research Centre,
University of Sydney, October 2008, p.22-23, available online: www.australiaatwork.org.
au, accessed 9 November, 2008.
48 DEEWR, Chapter2: Performance information: Outcome 2, 2005-06 DEEWR
Annual Report, 2006, available online: http://www.annualreport.deewr.gov.au/2006/
chapter2_2/0601.htm, accessed 10 November, 2008.
17
which is less than half the long-run average.
49
The ABS estimates on multifactor productivity growth for 2005-06 on the fve standout industries do not
support the conclusion that AWA saturation improves productivity growth. As Figure 5 demonstrates, all
fve industries showed low, negative or zero multifactor productivity growth.
Figure 5: Australian Bureau of Statistics annual compound multifactor productivity changes
50
The ABS concludes that overall productivity growth in areas such as mining, accommodation, cafes
and restaurants and retail were due to growth in capital services and hours worked.
51
Similarly,
Productivity Commission fgures for 2006-07 shows that despite ACCI and BCA claims that productivity
growth increased as a result of, or with the help of, Work Choices, short-term productivity growth,
particularly multifactor productivity growth, was down.
This indicates that Work Choices could have been successful in improving one measure of productivity
growth hours worked. As we will see, increased hours worked was a key feature of the principle
instrument of Work Choices: Australian Workplace Agreements.
49 The Hon. Wayne Swan, National accounts December Quarter 2007, Media Releases No.12, 5 March 2008, available online:
http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2008/012.htm&pageID=003&min=wms&Year=&DocType=0, accessed
10 November, 2008.
50 Brian Pink, Information Paper: Experimental Estimates of Industry Multifactor Productivity, Australian Bureau of Statistics,
2007, p.9.
51 Brian Pink, Information Paper: Experimental Estimates of Industry Multifactor Productivity, Australian Bureau of Statistics,
2007, p.17.
18
Genuine minimum wages and conditions
The introduction of WorkChoices changed Australias wage-
setting regime from a commission that tested capacity to pay, to
one where Parliament could legislate to set the minimum wage.
Since the Harvester decision in 1907 until Work Choices, minimum
wages were set both on economic and comparative wage justice
grounds.
52
Paul Keating emphasised the transformations in wage
setting under Work Choices:
Let me make this clear, the Liberals decided that they
wouldnt use the conciliation and arbitration power [in the
Constitution].
Under that power of the constitution you always needed a
commission who tested capacity to pay and comparative
wage justice. Theyve now used the Corporations power
and the High Court for the frst time as validated its use.
That means a Federal Government can now legislate the
wage and the conditions.
53
International advice from organisations such as the Organisation
for Economic Cooperation and Development (OECD) had
argued from 2002 that Australias minimum wages (awards) were
relatively high.
54
The priority recommendation by the OECD
was to reduce minimum cost of labour that is, reduce minimum
wages.
The economic argument underpinning this recommendation is
that high minimum wages decreases employment, particularly
employment of the low-skilled.
55
For example conventional
wisdom states that a ten per cent increase in the minimum
wage induces a one to three percent increase in unemployment
amongst young workers.
56
The Howard Governments explanatory
memorandum on the Work Choices Bill used this argument:
Continued reform will unlock further gains in productivity
and promote employment growth. Wage setting
arrangements which pay greater attention to economic
considerations are likely to facilitate entry into the labour
market for the more disadvantaged job seekers.
57
Lowering minimum employment costs increases employment
52 HR Nicholls Society, Submission to the Fair Pay Commission, 28 July 2006,
p.2
53 Lateline transcript, ABC, Paul Keating on the lead-up to the Federal Election, 7
June 2007, available online: http://www.abc.net.au/lateline/content/2007/s1945485.htm,
accessed 7 November 2008.
54 OECD Economics Department, Country Notes (Chapter 3): Australia,
Economic Policy Reforms: Going for Growth 2005, p.59, available online: http://www.oecd.
org/dataoecd/48/62/34473158.pdf, accesed 10 November 2008.
55 OECD Economics Department, Country Notes (Chapter 3): Australia,
Economic Policy Reforms: Going for Growth 2005, p.58, available online: http://www.oecd.
org/dataoecd/48/62/34473158.pdf, accesed 10 November 2008.
56 Andrew Seltzer, Policy Forum: Minimum Wages, An Evaluation of the
International Evidence on the Employment Effects of Minimum Wage Legislation, The
Australian Economic Review, Vol.30, No.2, 1997, p.208.
57 House of Representatives, Workplace Relations Amendment (Work Choices)
Bill 2005: Explanatory Memorandum, 2005, p.8.
19
by ensuring that low-skilled workers are not priced out of the
labour market.
58
A 2008 OECD policy brief also puts forward this
economic argument:
in order to protect the most vulnerable wage earners
better and help them into work, a strategy combining
minimum wage moderation and the introduction of
employment-linked benefts should be considered.
59
The ACCI submission 2006 submission to the Australian Fair
Pay Commission states that There is very substantial evidence
showing that mandated minimum wages set at high levels (as
in Australia) cause adverse effects, particularly for lower skilled
persons seeking employment in the labour market.
60
It was also
asserted that Australias minimum is clearly above moderate
levels.
61
With the creation of the Australian Fair Pay Commission, the
Howard Government sought to:
ensure that the AFPC will meet its primary objective
of promoting the economic prosperity of the people of
Australia by having regard to:
the capacity for the unemployed and low paid to
obtain and remain in employment;
employment and competitiveness across the
economy;
62
In the economic framework of the Government and its supporters,
the capacity for the unemployed and low paid to obtain
employment equates to lowering in real terms, or freezing,
minimum wages. The above quote is repeated in the Workplace
Relations Act, section 23, which governs the AFPCs wage-setting
parameters, mandating by law that the Commission seek as a
primary goal the setting of a minimum wage in such a way as to
increase employment through wage moderation.
63
The Howard Governments Regulation Impact Statement for Work
Choices also focused on minimum standards and their link to
productivity, arguing that minimum wages set through safety nets
rather than agreement making can have a negative impact on
productivity (through decreased workforce participation):
Establishing genuine minimum wages and conditions will
58 House of Representatives, Workplace Relations Amendment (Work Choices)
Bill 2005: Explanatory Memorandum, 2005, p.12.
59 OECD, October 2008 Policy Brief, Economic Survey of Australia, 2008 p.8
60 ACCI, Chapter 8: Minimum Wages Effect on the Economy, Submission to
Fair Pay Commission 2006 Review, July 2006, p.139.
61 ACCI, Chapter 8: Minimum Wages Effect on the Economy, Submission to
Fair Pay Commission 2006 Review, July 2006, p.139.
62 House of Representatives, Workplace Relations Amendment (Work Choices)
Bill 2005: Explanatory Memorandum, 2005, p.11.
63 AFPC, Australian Fair Pay Commission Functions, May 2008 p.3, available
online: http://www.fairpay.gov.au/NR/rdonlyres/A3392145-D160-4FEE-99BF-
06FF214AF786/0/Australian_Fair_Pay_Commission_Functions_revised_160508.pdf,
accessed 10 November, 2008.
20
assist in achieving increased labour market participation. At present, low skilled workers or the
unemployed may be priced out of the labour market. Australia has the highest ratio between
the minimum wage and median wage in the OECDcurrently 58.8 per cent Furthermore,
Australia has thousands of minimum wages through the award system. Wage increases
achieved through safety net adjustments, unlike those achieved through agreement-making, are
not based on productivity improvements. Moreover, large award wage increases can adversely
impact upon employment opportunities for unemployed people and the low paid, pricing them
out of the labour market.
64
AWAs as an instrument to reduce the minimum cost of labour
The use of AWAs also lowered or put a freeze on wage growth. Data released by the Department
of Education, Employment and Workplace Relations on 20 February 2008, after the 2007 Federal
Election, showed that:
The analysis [of Workplace Authority data between April and October 2006] revealed the so-
called protected award conditions that were most frequently removed:
70 per cent removed shift work loadings
68 per cent removed annual leave loadings
65 per cent removed penalty rates
63 per cent removed incentive based payments and bonuses
61 per cent removed days to be substituted for public holidays
56 per cent removed monetary allowances
50 per cent removed public holidays payment
49 per cent removed overtime loadings
31 per cent removed rest breaks
25 per cent removed declared public holidays
64 Australian Parliament House, Work Choices Bill Digest, 2 December 2005, p.26.
21
The limited data revealed that 75 per cent of the 1487 AWAs sampled did not provide for a
guaranteed wage increase.
65
The removal of these conditions was linked by proponents of AWAs, such as the ACCI as resulting in
an improvement in productivity as a result of using more fexible employment contracts.
66
Ineffcient
work practices such as penalty rates, shift-work loadings and overtime were removed in AWAs, with
businesses self-reporting that labour productivity were at signifcantly higher levels compared to
competitors.
67

It should be noted that removal of the above Award conditions may not reduce an employees take-
home pay in dollar terms; the usefulness of AWAs was in their ability to reduce costs for the employer,
and to make it easier and cheaper to increase hours worked per week (essential for labour productivity
growth).
Conclusion
Were the Work Choices laws successful in their aims? Did productivity increase? There can be little
doubt that short-term productivity fgures are not reliable, and that cyclical trends give a much more
measured picture of productivity growth.
The Work Choices laws, in so far as AWAs are concerned, were scaled back signifcantly following
the 2007 Federal Election. AWAs remain in effect until they expire, although no new AWAs can be
entered into. The economic effects of AWAs will continue to be felt for some time, albeit not in any great
measure, and with most AWAs lodged after the fairness test disallowing many provisions that enabled
Award conditions to be removed. Additionally, AWAs were never the dominant type of workplace
agreement. It is therefore diffcult to determine the effects of AWAs on productivity growth during the
time that they were in force.
Changes in productivity growth across markets and industry sectors, particularly in the short short-term
cannot be correlated with Work Choices. National and even sectoral productivity growth (or lack of it)
can also be attributed to other factors than workplace relations.
68
For example: infrastructure, skills
65 DEEWR, Media Release: AWA Data the Liberals claimed never existed, DEEWR Media Centre, 20 February 2008, available
online: http://mediacentre.dewr.gov.au/mediacentre/AllReleases/2008/February/AWADatatheLiberalsClaimedNeverExisted.htm, accessed
10 November 2008.
66 ACCI, Chapter 8: Minimum Wages Effect on the Economy, Submission to Fair Pay Commission 2006 Review, July 2006,
p.189.
67 ACCI, Chapter 8: Minimum Wages Effect on the Economy, Submission to Fair Pay Commission 2006 Review, July 2006,
p.189.
68 ACTU, The Economic and Social Impact of Increased Investment in Vocational Education and Training An ACTU Discussion
22
and training, health care and prevention, innovation and new
technology, federalism and jurisdictional arrangements, and
government red tape.
69
As noted, criticisms relating to Work Choices were many, and
the workplace relations laws are widely attributed as one of the
main factors in the Howard Government losing the 2007 Federal
Election. There are many elements to Work Choices and the
changes the laws made, which have not been examined in this
essay. For example, the role of changes to unfair dismissal laws on
changes to workforce participation; restrictions on industrial action
on days lost to strikes or other workplace disputes; the debate
around Federalism or the social justice effects of the introduction of
the fve minimum legislated conditions. Work Choices was a major
microeconomic change, and much of the legislative package will be
left intact by the Rudd Governments Forward with Fairness policy.
John Howard promised to unleash a new burst of productivity
growth with the introduction of Work Choices. The role of industrial
relations and workplace reform in changing productivity growth
is debatable, and not conclusively demonstrated by either the
Howard Government, or its business peak-body allies, prior to and
after the enactment of Work Choices.
Productivity growth in the mining sector can be attributed to other
factors than workplace relations, as most multifactor productivity
growth occurred during the period of the Accord and introduction
of wide-spread enterprise bargaining (see Figure 5). After the
introduction of Work Choices, productivity growth could be
attributed to increased hours worked.
The effects of Work Choices on unreliable short-term productivity
growth fgures demonstrate that there was no immediate
productivity growth as a result of the laws (see Figure 2). Over
the cycle, the effects will be more clear, although as noted,
Work Choices and AWAs never penetrated signifcantly into the
workplace in so far as workplace agreement making is concerned.
The signifcant legislative changes enacted with the fairness test
also make evaluations diffcult.
The real productivity growth effect of Work Choices therefore
may not be known with any great certainty or clarity. Claims that
they would unleash a burst of productivity growth cannot be
substantiated.
Paper, May 2007, p.8, 14-15.
69 Andrew Charlton, Ozonomics: Inside the myth of Australias economic
superheroes, Random House Publishing, South Australia, 2007, p.26.
23
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27
About Alex White
Alex White is a Masters of Public Policy and Management candidate at the University of Melbourne,
Victoria, Australia. During his studies, he focused on water and climate change policy. He has a
strong understanding and appreciation for the magnitude of the climate change challenge facing
Australia and the world.
Alex has been an Executive member of the University of Melbourne Graduate Student Association
since 2007, and was Treasurer in 2008.
He is the Campaigns Coordinator for the National Tertiary Education Union (Victorian Division),
where he is responsible for the unions strategic planning, organising and campaign activities. Alex
has frsthand experience in planning and running campaigns, lobbying and advocating for NTEU
members, and engaging and activating workers and the community.
Alex White is the National Secretary of the Labor Environment Action Network, a national network
within the Labor Party working to raise awareness about climate change and improve the Federal
Governments climate change policy.
He is also a founding director of Creative Unions, a new non-proft organisation committed to
strengthening the trade union movements communication strategies and design.
www.alexwhite.org
28
Were the Work Choices laws successful in
their aims? Did productivity increase?
Was Work Choices a
roadblock to productivity
increases?
www.alexwhite.org