by Nick Wailes & Russell D. Lansbury

I. The types of flexibility introduced

A. Forms of Flexibility: Definitions and Outline

In common with most developed countries, Australian public policy in industrial relations has become dominated by efforts to increase labour market flexibility. As noted by McCallum and Ronfeldt (1995 :7):

"....[L]abour flexibility has found near universal acceptance as a panacea for the assumed inefficiency of Australian workplaces and preexisting forms of labour market regulation and come to dominate debates concerning the future of industrial relations policy. Indeed, it is no exaggeration to suggest that the 'imperative' of labour flexibility has become an article of faith among employers, governments and unions."

In Australia, as in other countries, it has been generally accepted, almost uncritically, that greater labour market flexibility is a necessary precondition for improved product market efficiency (Rimmer and Zappala, 1988: 564). However, despite general acceptance of the need to introduce policy changes to increase labour market flexibility, some differences have remained over what type of changes ought to be made to achieve this goal.

The following sections outline changes that have been made to the Australian system of industrial relations with a view to increasing labour market flexibility. It argues that the changes introduced in Australia since the late 1980s can be broadly grouped into three patterns: managed decentralism (1987-1991); coordinated flexibility (1991-1996); and fragmented flexibility (1996 on) (Davis and Lansbury, 1997). Each of the patterns can be associated with a different understanding of the relationship between collective bargaining and labour market flexibility. The positions taken by the social partners towards these issues will be examined in part II.

Differences in approaches to the relationship between collective bargaining and labour market flexibility reflect broader theoretical disagreements about the nature and sources of labour market flexibility. The following sections refer to the effects changes in industrial relations policy have had on labour market flexibility using generally accepted definitions of the different (and sometimes conflicting) types of labour market flexibility. Five main sources of labour market flexibility may be identified and described as follows:

1. External numerical flexibility relates to the ability of a firm to adjust its level of labour inputs to accommodate changes in demand. Changes which remove restrictions on or which lessen costs associated with redundancy and termination, and changes which facilitate growth of temporary, short-term and part-time contractual arrangements, as well as the emergence of externalization strategies are said to increase external numerical flexibility. Section 1.2 below addresses changes that have been introduced in Australia at a national level which potentially impact upon external numerical flexibility.
   
   
2. Internal numerical flexibility refers to a firm's ability to adjust the quantity and timing of labour input, varying the number and pattern of working hours rather than changing the number of employees, to meet variations in demand. Changes associated with the determination of working time, calculation of working hours in reference to longer time periods; and adjustments to overtime and shift working patterns are said to impact upon the level of internal numerical flexibility. Section 1.4 below details changes in Australia which have had an impact on this aspect of labour market flexibility.
   
   
3. Wage flexibility refers to the ability of a firm to vary wage levels according to criteria of ability to pay and productivity. A distinction is often made between downward wage flexibility associated with efforts to minimize wage costs and upward wage flexibility where firms can link pay levels to productivity improvements. Changes associated with the indexation of wages and minimum wage levels; the level (national, industry and enterprise) at which wage determination takes place in an economy; changes in pay, grade and skill structures and pay for knowledge schemes; the linking of pay to performance including gain-sharing and special bonus schemes; and rationalization of total elements of remuneration are said to be amongst the factors which can have an impact on the level of wage flexibility at the economy-wide and individual firm levels. Section 1.3 below details changes introduced in relation to these areas, which have been achieved as bargaining has become more decentralized in Australia during the 1980s and into the 1990s.
   
   
4. Functional flexibility refers to the ability of the firm to deploy workers between tasks as demand for different types of labour changes. Flexibility of this nature depends on two factors. First, functional flexibility depends on the range of tasks workers can perform. Changes associated with the training of workers and the range of skills they possess affect functional flexibility in this regard. Secondly, functional flexibility is related to the ability of firms to deploy labour to different tasks to meet changes in demand. Changes associated with how jobs are defined and the nature of demarcation between different categories of workers, and work organization in general, affect this second dimension of functional flexibility. Section 1.5 below details the nature and source of changes associated with these aspects of labour market flexibility in Australia during the 1980s and 1990s.
   
   
5. Procedural flexibility relates to the processes by which changes are introduced at the firm level to facilitate adjustment to changes. Procedural flexibility is generally taken to refer to the specific mechanisms for consultation or negotiation over aspects of internal labour market flexibility at the level of the firm (Rimmer and Zappala, 1988: 568). Section 1.5 briefly addresses developments of this nature which have been designed to facilitate the introduction of changes in the internal functioning of firms to meet changes in demand.
   
   
6. Procedural flexibility can also be taken to refer more broadly to the ability of management to introduce changes in the conditions and organization of work (McCallum and Ronfeldt, 1995:6). Procedural flexibility refers to the extent to which regulatory mechanisms facilitate ongoing change (Stewart, 1993: 103). This conception of flexibility regards the removal of a broad range of external impediments to managerial action as important in improving overall economic performance. The potential clash between all forms of external labour market regulation and procedural flexibility, defined in this broader sense, remains one of the major sources of disagreement about the appropriate relationship between collective bargaining and labour market flexibility between the social partners in Australia. The discussion in Chapter 2 explores this issue in more detail.

It should be noted that the changes outlined in this report are those which have occurred at a national (federal) level. Changes made in the various state jurisdictions, while important and largely unexplored in the Australian literature, are excluded for the sake of simplicity. However, the federal jurisdiction has a significant influence on all employees in Australia and changes at the national level have for the most part either reflected or determined developments at the state level. Therefore, it is assumed here that exclusive concentration on the federal jurisdiction provides a good overview of changes in Australia at all levels during the 1980s and 1990s.