by Nick Wailes & Russell D. Lansbury

IV. The process of collective bargaining over flexibility

A. The traditional bargaining system

The traditional process of bargaining in Australia took place within the federal arbitration system. Figure 3 provides a simplistic depiction of the traditional award system in Australia. This diagram does not present enough detail with which to understand the complex interaction of market pressures with patterns of industrial regulation which went into determining the wages and conditions of Australian workers covered by the federal jurisdiction. However, it does show the key features that many identified as the primary sources of inflexibility in the Australian labour market.

The basic critique of the traditional bargaining system in Australia was that improvements in wages and conditions gained by workers who were well organized and had bargaining power quickly translated through the entire award structure. The argument can be summarized as follows. Workers in productive sectors of the economy were able to exploit their bargaining power to gain improvements in wages and conditions through over award (informal workplace) bargaining. These gains were generalized within industries and occupations through their incorporation into the awards which covered these workers (primary awards), such as the Metal Trades Award. These wages and conditions improvements flowed through to other sectors of the economy by alteration of other awards (secondary awards) by the Industrial Relations Commission using their standards of comparative wage justice and fair relativity. Therefore, gains made in sectors of the economy where labour was strong and employers were prepared to concede wage increases were quickly spread throughout the economy through the linkages that existed between awards.

These improvements in wages and conditions may have reflected labour market pressures and the capacity to pay of the productive sectors of the economy, in which over award bargaining took place. However, it was argued by many that the tendency of the award system to generalize these gains throughout industries and occupations, and across industries and occupations, resulted in a mismatch between the wages and conditions forced on less productive sectors of the economy and the capacity to pay of these sectors. This view that the traditional award system has produced wage and condition outcomes that are out of step with an efficient allocation of labour resources in the Australian economy have formed the basis of calls in Australia for increased labour market flexibility.

Many have argued that the tendency of the arbitration system to produce wages and conditions which did not reflect the conditions faced by different industries and sectors was mitigated by the favourable terms of trade for primary product exports and the insulating effects of the tariff protection regime in the period from the end of World War II until the late 1960s and early 1970s. However, decline in the terms of trade for traditional exports, it was argued, meant that Australia could no longer sustain a system which produced inefficient outcomes in the labour market.

The initial Prices and Incomes Accords (Mark I & II) which were negotiated between the ALP and the ACTU were essentially designed to overcome the tendency of wages and conditions to translate through the entire federal jurisdiction in a manner which did not reflect the demands of industry. It did so by eliminating the role played by over award bargaining in driving real wage growth. The initial Accords can therefore be characterized as an attempt to use informal bargaining between the state and the centralized union movement at a centralized level to overcome the perceived inflexibilities created by the traditional bargaining system.