The National Tertiary Education Union, of which I’m a member, has nominated today as a day of protest against the government’s Industrial Relations reforms, but has left it up to members how to make their protest. For me, the obvious thing to do is to get to work on my long-promised analysis. I’ve written most of a draft, and I hope to get the rest done this evening, but in the meantime, I thought I’d give a short statement of how I see the relationship between industrial relations institutions and inequality, which is my central concern.
Employment relationships are complex, but the outcome of bargaining over employment depends on two main factors. The first, is the state of the labour market. The second is the balance of bargaining power. Usually, but not always, the state of the labour market is more important, but it’s largely determined by exogenous macroeconomic shocks originating not in the labour market but in the financial sector or the world economy.
The 19th century starting point for employment relationships was one in which the employers (then called ‘masters’) held the upper hand, both because they were more powerful than individual employees and because the state and the common law was at their command. Not surprisingly, the outcomes included very high levels of inequality. By the middle of the 20th century, the rise of legally protected trade unions, and government intervention through the arbitration system had changed the balance of power dramatically. In combination with the full employment that characterised the long boom after World War II, this produced a great reduction in inequality. Unfortunately, there were plenty of instances where unions abused their power, setting the stage for the subsequent reaction.
In most of the English-speaking countries we’ve seen, since about 1980, a move back towards the 19th century system, with ’employment at will’ based on individual bargains between workers and employers becoming the standard form of employment relationship. The US was furthest in this direction at the beginning of the period, and went even further over the 1980s and 1990s. The UK and New Zealand made the most radical changes (as on many topics, I don’t have good information about Canada). Although Australia experienced substantial changes (decline in union membership, enterprise bargaining replacing awards and so on) the shift here has been less dramatic.
The associated outcomes speak for themselves, I think. This is evident both from comparisons over time and from comparisons between countries. The Figure below from Smeeding (2001) illustrates developments over time.
The next figure gives more detail on developments in the US since 1970, where declining rates of unionisation and a general shift towards even more extreme forms of neoliberalism have produced a dramatic shift in the distribution of income. Low-income families have experienced almost no income growth since 1970. Wages for workers with high-school education or less have actually fallen, but this has been offset by longer hours of work and increased female participation.
The big question is whether this growth in inequality has been offset by stronger employment growth. The evidence here is decidedly mixed. Until the present business cycle, beginning in the early 1990s, there was little evidence to support it. For most of the past decade, however, the English-speaking economies have outperformed those of the Eurozone and Japan. It’s still too early to judge whether this is merely the outcome of cyclical timing, or whether there is a sustainable gain in employment here. My view, based on the huge current account deficits being run by all the English-speaking countries is that a severe cyclical correction lies ahead. Only when the macroeconomic imbalances have been resolved will it be possible to make a clear judgements