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Chapter Eight
“Let it be granted, then, that as a rule workman and employer should make free
agreement, and in particular should freely agree as to wages; nevertheless there
is a dictate of Nature more imperious and ancient than any bargain between
man and man, that the remuneration must be enough to support the wage-
earner in reasonable and frugal comfort. If through necessity or fear of a worse
evil, the workman accepts harder conditions because an employer or contractor
will give him no better, he is the victim of force and injustice.”
Rerum Novarum (1891)
1 This chapter draws substantially from Richardson, S., (1999), “Regulation of the Labour Market”, in Richardson, S.
(ed), Reshaping the Labour Market, Cambridge University Press, Melbourne.
Why Regulate the Labour Market?
fallen from 88 per cent in 1960 to 62 Four hundred years ago, workers in
per cent in 1995); Britain who felt that the pressure for
• rising extremes of working lower wages had become intolerable
hours— both very long and very called on the government “… to appoint
short; certain grave and discreet persons to view
the straitness of works, [and] to assess rates
• rising insecurity in employment,
for wages according to the desert of their
through growth of part-time/
works”.2
casual/contract work in place of
continuing full-time jobs; and
The Australian industrial tribunals can
• a substantial rise in the inequality be seen as the contemporary
of wages, which is particularly embodiment of such grave and discreet
pronounced for men. persons.
• legal minimum wages which the need for workers to accept any
varied with the demands of the job terms, legal or not, because they had no
(and, for much of the period, with alternative source of income: the welfare
the sex of the worker); system increasingly came to provide a
• hours of work and other minimum ‘reservation wage’, below which
conditions of employment workers need not sink.
determined by independent
tribunals; Over the past twenty years there have
been three significant developments
• a substantial positive role for trade which have altered the system described
unions; above.
• tariff protection, which provided
an opportunity for firms to pay The first is the reduction in the
these wages and remain profitable; protection of capital and product
• wages which were sufficient to markets from international competition,
enable a full-time male employee and an increase in competitive pressures
to maintain himself and his family in domestic markets. Employers have
adequately according to the responded by seeking to reduce the
standards of the day (but were regulated restraints on the terms on
inadequate to enable a woman to which they employ their workers.
maintain a family);
The second is the blurring of the
• basic levels of support through the
distinction between households which
social welfare system for those
rely on earned income and households
who were unable to provide for
which rely on social welfare payments.
themselves due to old age,
Government financial support for
unemployment or disability; and
children, students and the costs of rental
• with the exception of payments for housing has been extended to families
dependent children, those in which rely predominantly on earned
employment and those in receipt of income. This intersection has been
social welfare payments were seen enlarged by the fall in the real earnings
to be distinct groups. of low wage, fully employed, men over
the past 20 years. Working families are
For those in employment (especially full- increasingly finding themselves eligible
time males), this system produced a for means tested social welfare benefits,
relatively fair and adequate pay partly because their incomes have been
structure, restrictions on the employers’ falling and partly because the range and
rights to command and the employee eligibility conditions of social welfare
self-confidence that came with a robust benefits has been expanding.
trade union movement. The trade
unions, among other things, played an The third is the decline in the strength
important role is ensuring that regulated and coverage of trade unions and the
pay and other conditions of employment expansion of employer prerogative in
were enforced in practice. This, together the determination of the conditions of
with the expansion of the social welfare employment.
system, removed two major sources of
harsh treatment of workers. One was One result of these changes has been the
the ‘race to the bottom’, whereby firms gradual replacement of the wage
which adhered to award conditions determination system by the social
might be put out of business by those welfare system as the instrument for
which breached them. The other was protecting the living standards, if not
Why Regulate the Labour Market?
State equivalents, are kept secret, all and many little ones have remained
revealed only to the Workplace stuck in the mud - swamped, not lifted,
Advocate. It is also regrettable that by the incoming tide. I am unconvinced
employee ombudsmen and advocates that the tide has risen faster for those
can, at least in some jurisdictions, act countries with less regulated labour
only upon the complaint received by an markets. What is clear is that the
individual. uneven tide has propelled forward the
biggest and fattest boats the fastest.
But the employment relation is about Economic growth which rewards the
more than wages. A second reason for already affluent with still higher
regulation is to enhance the dignity of incomes, while diminishing the incomes,
the employee, by reducing the extent of dignity and prospects of many at the
the employer’s power to direct. The bottom, is not worth sacrificing
master: servant relation, or one where important social values for. The purpose
the employer has a wide domain over of the economy is to enhance the well-
which arbitrary power may be exercised, being of the people. It is not the purpose
has no place in a decent and socially of the people to provide the lowest cost
egalitarian society. Unless trade unions inputs for the economy. An already rich
are strong, it is the State which must nation should give a high purpose to
place limits on the employers’ power ensuring that work is adequately paid, is
over workers. not physically harmful, and enriches the
human capacities of the people who do
it. It is not progress to have a workforce
8.6 Conclusion in which increasing numbers are paid
Less regulation of the labour market is too little and are afraid, insecure, and
almost certainly associated with (and treated as readily disposable.
most probably causes) more inequality
in earnings and lower relative wages for Good institutions will not substantially
those at the bottom of the pay inhibit growth. But they will also pay
distribution and those who are not attention to who is benefiting from that
main-stream workers. Its consequences growth. There is nothing in unregulated
for employment, unemployment and markets which ensures that the gains
productivity are most uncertain. from growth are reasonably fairly
Deregulation thus involves a very distributed or that the costs of change
probable increase in inequality and a are tolerable for those who lose. That
very uncertain gain in efficiency and has been the function of the industrial
employment. For this reason alone, tribunals and the trade unions, as well as
regulation can be, and in the view of the government more directly. Ill-treatment
author, is, justified. It may well be of workers must not be allowed to
justified even if it could be shown to become profitable, or the forces of
reduce efficiency, because the competition will ensure that it spreads.
distribution of the dividend as well as its The economic environment has not
size are each to be taken into account in changed so much that the best we can do
assessing the consequences for overall to enhance the well-being of the
welfare. To repeat, market outcomes can workforce is to stand by and watch the
be perfectly efficient and perfectly market at work. The market alone will
disgusting. not remove unemployment and nor will
it ensure that the distribution of its
Over the past twenty years the rising product is fair and that the experience of
tide of economic growth has not lifted all work is enriching rather than shrivelling
boats. The big ones have risen fastest of
Why Regulate the Labour Market?
References
Bland, A.E., P.A. Brown, R.H. Tawney, (eds), (1914), English Economic History: select
documents, G. Bell and Sons, London.
Castles, F. and D. Mitchell, (1993), “A radical world of welfare: the welfare state and
equality in the English-speaking family of nations”, in F. Castles (ed), Families of
Nations: Patterns of Public Policy in Western Democracies, Dartmouth.
Chapman, B., (1999), “Could increasing the skills of the jobless be the solution to
Australian unemployment?”, in S. Richardson (ed), Reshaping the Labour Market,
Cambridge University Press, Melbourne.
Gregory, R., E. Klug and Y.W. Martin, (1999), “Labour market deregulation, relative
wages and the social security system”, in S. Richardson (ed), Reshaping the Labour
Market, Cambridge University Press, Melbourne.
McCarthy, P., (1969), “Justice Higgins and the Harvester Judgment”, Australian Economic
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