Please note – this is a very long post. Bored readers are encouraged to wait a few days, when I will write some shorter fluff pieces. This argument a variant of “Capitalism needs a level of unemployment to work
This post is a response to a debate I had with Damien, examining the merits of unionism.
This is a multi-layered issue. At the most immediate and local level, the Federal Government’s Workchoices legislation appears to be deeply unpopular. Given that this piece of legislation is the major Federal policy initiative since 2004, and since it is also the major area of policy difference between the two parties, I think it is reasonable to say that the 2007 election hinges on how Australians want their industrial relations.
My opinion on the matter was that Workchoices served a number of interests for the Government, including centralisation of control on industrial matters, reducing the ranks of the Labor Party's financial support base (unions), maintaining corporate profits at a time of low unemployment by keeping down wages and conditions, and keeping wages from growing, and thereby slowing inflation. Contrary to much of the leftist blogosphere, I believe that blue-collar workers have recognised the threat to working conditions that Workchoices represents.
Consequently, I believe that Labor will be handed this election (narrowly) as a result of Howard’s foray into class warfare, and not because a few Liberal ‘Wets’ have decided that asylum seekers are important, after all.
In addition to the specific issue of Workchoices and the 2007 election, this debate has touched on the merits of unionism as a whole, and has implications for broader issues of the regulation or deregulation of the economy.
To present some context to the debate on ‘union power’, I will try to represent Damien’s theses fairly:
- ‘If unions get power and boost worker’s wages it boosts the cost of living (inflation) as businesses pass costs on to consumers. Plus now that labour is more expensive with greater union power it means that businesses can afford to employ less and so the unemployed stay poor.’
- ‘People on benefits from working Australians are also the most likely to be the poorest in Australia. So no.1 cause of being poor is no job. Giving them welfare handouts doesn’t cut it.’
- ‘Statistically there are well over 1 million Aussies that are either unemployed or would be ready for more work in 4 wks time if they could get it. That means we need to increase job supply…This may drop wages, penalties etc but then these benefits were only there excluding those that don’t have the benefit of work in the first place. This is especially true given the most unemployed are low skilled and low educated and so would benefit from some entry into the workforce at a lower pay.’
- ‘In fact, more than half on the minimum wage are from high income households, so dropping it will not greatly effect the poor.’
- ‘Economists predict that a 2% drop in real wages corresponds to a 1% drop in unemployment.’
- ‘[T]he enemy is wage increase which is not accompanied by productivity increases and the pre-1993 period made the increases easier to snowball.’
- Over recent years as the labour market has grown in flexibility so too has been a corresponding growth in productivity. Part of this has come from less reliance on awards and more on AWAs etc.
- ‘You can increase training to the hilt but it is no good if employment is too expensive for businesses to come to the table.’
‘There is nothing ‘magical’ about this whole process. It makes sense that a decrease in wage cost will provide more incentive for greater output from a business which means a greater demand for more employees.
The drop in union influence in Australia in recent years has seen greater productivity, real wage growth and unemployment decrease - see Access Economics report “Work Place Relations - The Way Forward”’
Addressing all of these points in detail would take something longer than a mere blog post, but I will try to sketch a few points in response.
It is curious that it is precisely now that the attack on unions has been ramped up, precisely at a time when many superficial readings of contemporary economics say that neo-liberal doctrine is the only game in town. Furthermore, it is should us as odd that the Howard Government introduced anti-union legislation precisely at a time of very high employment. Whilst employment levels have continued to increase, it is difficult to say that they are doing anything other than following a pre-existing trend.
Let us recall that unions emerged in response to the deregulation on 19th Century industrial capitalism. Each attempt at regulation of Western European industry was met with protest, and suggestions that industry would collapse should it have to incorporate child labour laws, limits to the working day, etc. Of course, capital ultimately did a good job of absorbing these faux-crises, and continuing to generate profit. The horrendous conditions of 19th Century industrial England, ably described in Das Kapital, had improved considerably within a couple of generations, thanks in large part to the trade union movement. In this sense, the union movement, far from being ‘anti-business’, actually served to maintain capitalism, merely taking the edge of its nastier aspects. For this reason, many early leftists regarded trade unionism as ‘counter-revolutionary’.
Today in Australia, union membership has clearly declined. About 50% of all Australian workers were unionists when Hawke came to power, compared to approximately 17% now. Nonetheless, it is worth remembering that unions are the largest political organisation in the country, with a membership that dwarves that of the combined numbers of all political parties. Australians will express, by democratic means, just what they think of workplace deregulation.
Deregulation & Unemployment
When we look at the behaviour of employers under conditions of deregulation, I see no reason to believe that ‘market forces’ serve anything other than the interests of employers. The tendency of employers to reform their behaviour, whether in terms of industrial relations, or, more recently, the environment, typically results as a consequence of pressure from within and without, and is usually met with significant resistance.
There are few truly ‘free’ markets to use as examples. Chile under Pinochet is arguably a case in point. Whilst Pinochet’s apologists hailed his economic ‘reforms’, many figures have suggested that, during his reign, the wealthy became very wealthy, whilst everybody else became poorer. It has taken the people of Chile a long time to recover from Friedman.
Little wonder, then, that employers’ advocates cry out for more ‘deregulation’. Yet there is still a persistent mystical strain in free-market thinking. Correlation is frequently mistaken for causation. For instance, when Damien says that ‘It makes sense that a decrease in wage cost will provide more incentive for greater output from a business which means a greater demand for more employees’, this is by no means self-evident. This is every bit as deterministic as vulgar Marxian economics, with the added obfuscation of a supposed causal link between incentive for ‘greater output’ and lower wages.
Similarly dubious assumptions are made by other agitators for deregulation. In a virulently anti-union paper, Gerard Jackson tells us that:
In the free market there is always a tendency for every factor of
to receive the full value of its product, especially labour. If
unions set wage
rates above the value of labour’s marginal product then
Again, there are some enormous assumptions made here – note the use of the terms ‘always’ and ‘every’. Absurdly, Jackson seems to miss the fact that if labour, as a ‘factor of production’ received its ‘full value’, then ipso facto the employer would cease to generate profit! No union in recent memory has set wages above the value of ‘labour’s marginal profit’, as this would self-evidently lead loss and downturn. The reality, of course, is that labour is almost never paid its ‘full value’. It is a question of ‘how much’ rather than ‘if’.
The extent to which labour is shortchanged is determined primarily by employers, and always with the profit motive in mind. When we speak of unions acting to shore up reasonable wage rates for workers, we are not speaking of paying workers beyond their value, since this logically cannot happen. We are merely talking about unions acting on behalf of their members to lessen the extent of the ‘shortchanging’ by which their labour is valued.
With the foregoing in mind, it cannot be held that unions ‘cause’ unemployment. Damien, and a variety of economists, repeatedly makes the weaker claim, namely, that unions maintain unemployment. By supposedly ensuring higher wages, unions act as a deterrent for businesses considering new staff.
This claim is as difficult to prove as it is to refute, as any statements here can only be based on the sketchiest of correlative evidence. There are always many factors determining unemployment – finding a single culprit is unlikely.
To submit this argument to a bit of reductio ad absurdum, the logical outcome of this thinking is an economic system like China’s, a much-feared ‘race to the bottom’.
Given that areas of staff shortage are generally for skilled, rather than unskilled employees, it seems unlikely to me that lowering pay and conditions will greatly assist employment of this latter group. A thousand lowly paid attendants of some sort will not fill a single vacancy in IT, teaching, medicine, etc. In reducing the pay and conditions of the lowly skilled, we are, in effect, depressing economic conditions, and run the risk of creating a ‘working poor’, all the more since Australia is experiencing conditions of relatively high employment. Let us note, also, that if Australia’s high employment rate has emerged as a result of ‘deregulation’, it has been that of the Hawke/Keating years, not Howard’s Workchoices. In an economic downturn, the latter legislation may facilitate great unemployment, given that employers are given the right to dismiss workers relatively easily, with few obligations by way of recompense. If the workforce has become increasingly casualised, surely this is in spite of the efforts of unions, rather than because of them.
I remain unconvinced that there is a substantial link between unions and the maintenance of unemployment. There is no evidence that this link exists in Australia. In countries such as Italy, where there are major differences in unemployment between regions, we also find that there are major differences in union membership between regions. The impoverished South is also the least unionized; the industrial North has a large, and, at time, militant union base.
In the US, the situation is different. Industrial law ensures that unions remain relatively weak. This weakness coexists with relatively low levels of unemployment in the US (I’m generalizing here, obviously the US is a big country). Nonetheless, even if we made the unsubstantiated assumption that deregulation and de-unionisation were responsible for this low unemployment, we still have to face the fact that the ‘working poor’ that has been created as a consequence by no means places the US in a better overall economic position. To be sure, employers are in a better position to profit, but the deregulators still need to explain why an unemployed Australian will almost certainly be in better economic health than a low-income American, and will quite likely have more money to put back into the larger economy. This is especially true when we observe that one of the artifacts of ‘deregulation’ in the US has been to drive down minimum wages in real terms over the past few decades. Hardly a success story, in other words.
In short, I don’t think that anyone can conclude satisfactorily that unionism maintains unemployment. Furthermore, I think we can conclude that ‘deregulation’ and the weakening of the union movement will almost certainly correspond with diminishing wages and conditions for those who are employed.
In some respects, this is a moot point for Australians. Workchoices, consisting of 1,200 pages of legislation, is the precise opposite of ‘deregulation’. None of this should surprise anyone who knows the Howard Government for its widespread use of corporate welfare and agrarian socialism. There are many compulsions built into the legislation, which even goes so far as to limit employers’ abilities to work constructively with unions in hammering out agreements.
Obviously, there is nothing in this legislation that remotely resembles a ‘level playing field’, or that allows worker and boss to be equal partners at the negotiating table. A boss can remove conditions and fire almost at will. The worker, on the other hand, does not even have the right to withdraw his or her labour! This is true even if the worker is attempting to negotiate for an AWA. Workchoices and deregulation are, I in this sense, two separate arguments. The main shared feature is anti-unionism.
Unionism and working conditions
I looked at some of the references provided in favour of the pro-deregulation, anti-union argument. I think that any attempt to correspond ‘reform’ in the economic sphere with reform in the industrial sphere must be met with strict limitations, but here is a brief look at some papers.
The 1998 article by Peter Dawkins argues for lower unemployment by way of lower wages and, to a much lesser extent, sustained economic growth. Whilst Dawkins says that there is ‘strong evidence’ that constraining wage growth will lead to increased employment, much of the paper is merely assertion. Dawkins himself acknowledges that, in the case of skilled workers, constraining wages (to minimise inflation) is actually likely to be antithetical to ‘market forces’ in a period of growth! Dawkins seems to presume that there are various disincentives to working, yet does not consider that reduced wages for unskilled workers may increase the disincentive to work. Moreover, he proposes that, in order to offset the impact of lower wages on the poor, we would need to implement a flat tax rate of 50% or more, particularly for higher-income earners. Again, this is hardly deregulation, and I can’t see Dawkins’ arguments winning much sympathy from the free-marketeers.
The article by Access Economics’ Charles Richardson, commissioned by the Business Council of Australia (itself a kind of union) is, like many in this field, entirely partisan in its sympathies. We would no more expect it to advocate against the interests of capital than we would expect ACTU media releases to argue against unions.
Overall, the paper reads more like a manifesto than an argument. A number of wild assumptions are made throughout the paper. For instance, consider the statement ‘fairness is better achieved through taxes and transfers than industrial relations policy’. Firstly, this statement is far from controversial, and is not exactly demonstrated by Richardson. Secondly, what precisely is Richardson proposing in concrete terms? A system of increased welfare to offset what would necessarily be a less fair industrial system? Notably, Richardson dismisses Australia’s long history of unionism, and workplace regulation (not all of which is directed toward ‘prosperity’ ends) as ‘mistakes’. This apparently ignores the fact that precisely these measures have given Australia one of the best standards of living, and standards or working, in the developed world.
In this climate of supposed deregulation, it should also be noted that, whilst workers are discouraged from collective bargaining, small businesses are encouraged to do the exact opposite. The Government’s own advertising material, aimed at business, avers that collective bargaining ‘enables businesses of all sizes to work together co-operatively’, and adds ‘flexibility’, ‘efficiencies’, more ‘power – without compromising individuality’, and ‘greater control and support when it comes to making the deal’. Are we supposed to believe that these benefits do not likewise exist for workers, as well as businesses?
These double standards are particularly galling when one considers Workchoices. AWA’s were already readily available to all workers under pre-existing legislation, but simply had a ‘no disadvantage’ test to dissuade employers from excessive shafting of workers. Even a year ago, they applied to only a tiny proportion of the workforce – about 3.1%.
Unskilled, poor and female workers are the most likely to be shafted under the new legislation. AWA’s tend to lower wages, and the above Griffith University study showed that women on AWA’s were working more than those on a collective agreement, but were receiving 5% less pay. When the Government were kind enough to share their figures with us, we learnt that 45% of AWA’s strip conditions to which workers would have been entitled under an award:
‘Conditions were stripped from the vast majority of the agreements examined,
and these included shift loadings (removed in 76 per cent of the agreements),
annual leave loading (59 per cent), incentive payments and bonuses (70 per
cent), and declared public holidays (22.5 per cent).'
This in a country where Australians already work long hours, already sacrifice much time with loved ones, and already have a poor ‘work/life balance’. One might have expected the free-market economists to place some value on these things also. Another study foung the new ‘no disadvantage test’ was ‘failing adequately to protect employees from a deterioration in their terms and conditions of employment’. Naturally, the Government no longer releases such data.
Unless the Government hopes that increased devaluation of females in the workplace will be some sort of backhanded incentive to more procreation, I can’t see the economic or societal benefits of such a manouvre. And this is another point that is missed by those with a narrow focus on ‘market forces’ and economic rationalism. Deregulation of the workplace can have a range of unintended consequences beyond the economic sphere, whilst unionism brings many non-economic benefits. At the broadest and most abstract level, a functioning union provides a democratic voice for workers and their interests, interests that are not worth less than those of business or various other lobbyists. It is no coincidence that from Saddam’s Iraq, to the former military junta of Indonesia, to Communist Poland, to contemporary Colombia, people with money and power violently persecute unionists.
At a more practical level, it requires fanciful leaps of the imagination to expect that workers’ OHS issues, for instance, can be ‘self-regulated’ by industry (or even Government, for that matter), or that any effective OHS system can emerge spontaneously simply by employers getting together and feeling charitable one day. Increased deregulation of the economic end of the workplace will correspond with increased deregulation of the OHS aspects too.
It is woth mentioning in passing that, for the individualists out there, there is nothing ‘individual’ about AWA’s whatsoever. An academic study found that AWA’s are used for 3 reasons: to foster employee/employer relations, reduce labour costs, and promote union avoidance. Far from offering more choice to workers, these authors found the opposite:
‘While it is possible for employers to utilise individual contracts to
foster closer ties with individual employees, the literature widely notes that,
in practice, there is generally not much that is “individual” about individual
agreements. In fact, individual contracts are often referred to “…as standard
packages, individually wrapped”. … [T]he widespread rhetoric of
“individualisation” has, in the practical sense, been accompanied with a general
trend towards greater standardisation of the employment contract.’
All in all, the evidence points to a widespread deterioration of working conditions subsequent to Workchoices and its ‘deregulation’. There are economic benefits, of course, but the evidence strongly suggests that these are reserved solely for employers.
I thought it may be useful to look at unionism under the aspect of productivity, and specifically, to challenge the myth that unionism equals reduced productivity, This is supposed to occur because unions impose work rules and conditions that make employers less efficient. There is significant evidence opposed to this myth.
For instance, Ron McCallum of Sydney University reported that, in the mining industry at least, there was no evidence that productivity was improved by moving workers onto individual agreements, and that managers largely sought such agreements for ideological, rather than economic reasons.
US researchers, among others, have argued that collective agreements give workers an incentive to improve productivity, by granting them a greater share in productivity gains:
literature points to the fact that
and high productivity are
certainly compatible. A recent study
broad swath of the literature,
concluding “a positive association
unions on productivity] is established for
the United States in
general and for U.S.
manufacturing” (Doucouliagos and
Laroche, 2003: 1).5
Earlier research also
came to similar conclusions. Brown and
373) found in looking at
manufacturing industries that
establishments are about 22 percent
more productive than those
that are not.”
Furthermore, the gains of productivity, which are not equally distributed at the best of times, are particularly inegalitarian under a de-unionised workplace system. In the three years from 2001 in the US, the above paper shows that corporate profits jumped by over 62%, whilst labour compensation grew by 2.8%. CEO’s are regularly given productivity-related wage bonuses, to the tune of millions, whilst such bonuses are supposedly ‘harmful’ to the economy if given to workers. This makes mock of arguments that contend that the economy is best served by anti-unionism. To say it again, a small minority receives economic gains – the rest work for them.
There are other economic and productivity benefits to unionism, such as lower turnover, which, in turn, means lower training and hiring costs.
Some papers have argued that the jury is still out on the positive correlation between unions and productivity, but, even here, where productivity gains are not achieved through unionization, it appears to be more reflective of the particular union (and workplace) in question than an inherent impossibility of the thing occurring.
International comparisons yield more evidence to suggest that the economic benefits of de-unionisation are dubious, at best. For instance:
‘The dramatic drop in unionization in the United States from 1979 to 2005 did not lead to faster productivity growth than in the seven largest European countries with union density greater than 60%. In fact, those countries' average annual labor productivity growth of 1.7% equaled productivity growth in the United States. Output per hour worked is higher in the Netherlands, France, and Belgium, where more than 80% of employees have union contracts (compared to the United States' 12% unionization).’
At the very least, we can safely conclude that unions do not harm productivity, and are likely to improve it.
I think I’ve outlined some good reasons to believe that unions are beneficial, not only to workers, but to the Australian economy as a whole. Many of the counter-claims do not, in my view, withstand scrutiny.
I understand the theory underlying the presupposition that unions drive up inflation, but in practice, I’m yet to see evidence for this happening in contemporary Australian politics.
Furthermore, the argument that unions are contributing to unemployment is also suspect. Even if we accepted it as true, it is the wages of unionized workers that is providing the unemployed with their sustenance. I assume that those who are pro-deregulation prefer private charity to public handouts. If this is the case, why do they wish to impede the ability of workers to distribute wealth privately?
Lowering of conditions and wages is likely, above all else, to result in the creation of a ‘working poor’, and create a concomitant drop in living standards. This is not desirable in Australia, a country which, for all of its faults, comes closer than most to being egalitarian, and being relatively free of overt class antagonisms.
I do not accept the notion that half of low-income/minimum wage earners are from high-income households. Those who are from such households are presumably the children or spouses of high-income earners, and not the sole providers to a family. In any case, undercutting the working conditions of women and children will eventually lead to reduced employment of breadwinners. Even now, we are all familiar with the phenomenon of employers working casualised teens to the bone from the age of 15, only to abandon them at 21.
Finally, the claim that productivity, so central to economic growth, is hindered by unionism is not supported by evidence. On the contary, the converse may be true.
We can readily understand why the likes of the HR Nichols society, or the Business Council, might advocate anti-union, de-regulatory policies. These groups are merely acting on behalf of their own interests. It is considerably more baffling that it should be thought appropriate for workers to be prevented from acting in their own best interests.
Many of the foregoing points are merely academic. Despite Howard’s claims, ‘union bosses’ have negligible influence over Labor policy. See the current nurses strike in Labor’s Victoria should you need any evidence of this.
Finally, I’d like to respond to one of the intertubes’ more belligerent commenters, who attempted the following counter-arguments to my earlier posts:
The benefits to employers of unemployment are obvious. The notion that economic growth creating a state of ‘equilibrium’ strikes me as almost theological. It is as if embracing ‘economic rationalism’ is akin to Jack planting his magic beans in the ground – miracles will just happen, take my word for it!
properly”, which is of course total utter bullshit.
As the economy grows and
more capital is invested in business more employment is generated until there is
a shortage of labour and what occurs is an equilibrium where everyone is
employed. This however doesn’t destroy the market place as businesses will
continue to compete for a persons labour.
Since when do you run an economy on feelings? Of course labour is a
commodity. I still don’t get why it is an axiom with left that economic
rationalisation is a bad thing.
Finally, it has always struck me as paradoxical that self-identified conservatives should be comfortable with the commodification of everyday life, and with the instrumentalisation of all human relations, where each individual is merely a means to somebody else’s end. One cannot worship two gods, and acolytes of the god of the marketplace inculcate consumerist values in everybody from a very young age. The conservatives look at the decay of contemporary society, with its grappling with fundamentalism, the trivializing of all human relations (including marriage, and parenthood), the reduction of humans, particularly women, as mere objects or ornaments, where any ‘experience’ is a mere consumer item, ready-made for purchase, where we see the prevalence of depression, and narcissistic pursuits of quick self-gratification. Having observed and decried these things, they find it easier to blame this on the sinister machinations of far-left ideologues than submit out social and economic systems to even a minutes’ scrutiny. Worship of the neo-liberal market place precludes both conservatism and radicalism – it is, strictly speaking, ‘liberal’.
This argument a variant of “Capitalism needs a level of unemployment to work