Submission to Fair Work Australia on Minimum Wages - Assignment Example

Economics Assignment Name of Student Institution Date Explain the role of the Fair Work Commission in regulating the Australian labour market. Fair Work Commission is an independent workplace relations tribunal in Australia. It is an independent statutory agency that performs both administrative and judicial roles, conducted by separate divisions. The commission started operating in 2009 when it assumed the functions of the Australian Industrial Registry, the Australian Industrial Relations Commission, the Australian Fair Pay Commission as well as some functions of the Workplace Authority (Fair Work Act, 2009). This national workplace relations tribunal was created to oversee Fair Work in the labour market with the power to make minimum wage orders, vary awards, determine unfair dismissal claims, approve agreements, and make orders on different issues to facilitate dispute resolution between employees and employers (Barnes & Lafferty, 2010). The rationale for labour policy is that all bargaining between employees and employers have to be subject to agreement that meet particular legislated conditions. Also, the employers must give consent to collective bargaining where most employees have expressed interest in bargaining collectively. Fair Work Commission is empowered by the labour policy to ascertain the extent of support required for collective bargaining (Moore, 2008). Collective bargaining involve a quasi monopoly and it implementation should be in the interest of the public interest. Australia has experienced collective bargaining induced inflationary wage increase before, especially in the mid 1970s. This had great effects on both employment and economy. Although it is argued that wage increases under labour should be productivity-determined to avoid possible risks, it does not mean that employees are subject to exploitation by individual employers (Role & O’Donnell, 2013). Instead, where collective bargaining occurs in an organization it should be conducted thorough market or normal legal processes. Therefore, employees are protected ordinary contract and the common law while employers are legally obliged to adhere to contracts including aspects of agreed wages and conditions of work. Under collective bargaining, The Fair Work Commission may require an employer to disclose relevant information to facilitate the process. However, this could impose costs on employers making it hard for them to agree on an appropriate going rate, especially if the Fair Work Commission used an interventionist approach requiring continued meetings and disclosure of information (Moore, 2008). Fair Work Commission has the responsibility to regulate minimum wage in the labour market in Australia. The Fair Work Act (2009) has set out the minimum wage objective to be used by The Commission in reviewing its annual minimum wage (Australia Council of Social Services, 2010). According to Healy and Richardson (2006) to establish and maintain fair minimum wage, the Fair Work commission considers the competitiveness and performance of the country’s economy. These include business competitiveness and viability, productivity, employment growth and inflation. The Commission also ensures that it provides a comprehensive array of fair minimum wages to employees on training, junior employees and employees with a disability. It also aims at enhancing social inclusion through more workforce participation by considering the relative standards of living as well as the needs of the low paid (O’Brien & O’Donnell, 2007). However, the requirement that the Commission provides a safe net for low paid employees makes it difficult for the entity to arrive to a decision that may increase wages below inflation. Still, the Commission is required to balance this provision against the need to achieve full employment as well as competitiveness in the entire economy. In deed, the Fair Work commission has extensive minimum wage role which include annual update of minimum wage rates concerning all awards under the system of award (Healy, 2010). Unfair dismissal is the workplace is an issue that faces many employees in the country. The Fair Work Commission was established to handle the issues unfair dismissal and individual agreements in Australia’s labour market (Chapman, 2006). The Commission requires both individual and collective agreements between employers and employees to comply with compulsory minimum standards covering leave and hours of work. These standards must be observed especially by the employer not unfairly dismiss employees on unreasonable grounds. The labour policies had previously removed exemptions for small businesses from unfair dismissals, and widened the requirements for regulatory standards. Economists argue that the increase in regulation is likely to restrain the flexibility of the labour market (Moore, 2008). However, revised laws give employees more protection from unfair dismissal, including those in small businesses within Australia. Labour legislates to prevent industrial action throughout the life of an agreement as well as action to support an industry wide agreement. The Fair Work Commission is meant to oversee industrial disputes among employees and employers. According to the labour policy statement, the Free work Commission has the power to stop industrial action as well as determine the settlement of the same (Moore, 2008). However, union may bargain demands over the issue under controversy. This has the ability to give room for strike concerning any issue contemplated by union officials, even when a connection to wages and conditions of employment is not required (O’Brien & O’Donnell, 2007). Discuss the importance of national competition policy since 1995 and the role of the Australian Competition and Consumer Commission. The national competition policy dates from 1906 when enactment of the first Federal law to deal with restrictive practices took place in Australia. By then, it was called Australian Industries Preservation Act 1906 that sought to prevent monopolization as well as other activities which destroyed Australian industries by unfair competition (Kain, Kuruppu, & O'Sullivan, 2001). The National competition Policy (NCCP) objectives are to reform government monopolies, elimination of legislative restrictions concerning competition, separation of government’s business and regulatory functions and adoption of pricing reforms to offset the public ownership benefits which the government business enjoys. The NCCP has brought reforms in business sector in terms of trade practices, competitive neutrality and local laws. Compliance strategies to trade practices have been developed and businesses are aware of their obligations in conducting business activities. The policy prohibits councils from engaging in conduct considered to be in violation of competition code that protects consumers. Currently, councils cannot misuse regulatory power to destroy a competitor in a market where it is a supplier and a regulator. Also, they cannot use profits from monopoly doings to subsidize other activities purposely or with the intention to damage a competitor (National Competition Policy and Local government, 2002). Thus, the public is protected from monopolistic tendencies of local governments by emphasizing fair completion across the market. Through the NCCP, councils have been able to review existing legislations by removing or justifying restrictions on competition through local laws. The policy require councils to ensure that their guidelines and policies that inform their application does not in any way restrict competition unless the goals of the council can only be realized by restricting competition (Kain et al., 2001). In addition, councils have to demonstrate that the advantages of the restriction to the society clearly overcome the costs. Competitive neutrality is an aspect of NCCP which emphasizes elimination of distortions in resource allocation that occur out of public ownership units involved in important business functions. This means that it prevents government businesses from enjoying net competitive advantage due to their ownership in public sector. Therefore, it can be argued that NCCP protects public interest from unfair business dealings. It has contributed to efficient allocation of resources, economic and regional development, employment and investment growth, social welfare and equity obligations, and community service obligations (National Competition Policy and Local government, 2002). Australian Competition and Consumer Commission (ACCC) is an independent statutory authority and the body that enforces the national trade practices and consumer protection law in Australia. The Commission administers the Prices Surveillance Act 1983 and the Trade Practices Act 1974 (TPA). However, it has more responsibilities under other legislation (Scerni, 2006). TPA objective is to promote the welfare of Australians by encouraging competition and fair trading as well as protecting consumers from exploitation. The goals of ACCC include; (a) efficient and effective use of resources, (b) inform the community concerning Trade Practices Act and its applicability to business and consumers, (c) improve market conduct, (d) promote competition in regulatory activities, and (e) ensuring compliance with the Trade Practices Act by addressing inquiries and complaints as well as monitoring market conduct (Australian Competition and Consumer Commission, 2011). However, the ACCC has general responsibilities that relates to the development of codes of conduct in business sectors. The Commission encourages and gives assistance to business industry to establish standards that promote a better environment for fair business dealings (Scerni, 2006). The reforms in the taxation system that involved introduction of consumption tax have impact on prices of commodities in the country. This provides an opportunity to businesses in taking advantage of the tax to increase prices so as to realize high profit margins. ACCC intervenes to protect consumers from price exploitation (Australian Retailers Association, 2000). The TPA gives the ACCC various powers and functions to control price exploitation. Price exploitation arises when if the price for a commodity is unreasonably high in regards to tax system and other factors like suppliers’ costs as well as demand and supply conditions. The Commission has the power to prevent and remove price exploitation by issuing a notice stating a maximum price to be charged for particular commodities at a given period. It can also do this by monitoring prices to determine the effect of tax system, and identify cases of price exploitation (ACCC, 2011). According to Australian Retailers Association (2000) the Commission also protects consumers from misleading and deceptive conduct. The Commission works in coordination with the Australian Retailer’s Association and other consumer groups to make sure that businesses are devoted to reduce confusion among consumers. ACCC is aware that compliance costs have to be considered when assessing changes in price that arises from tax system. Therefore, it encourages businesses to recoup net additional and reasonably incurred compliance costs instead of being reflected in prices for goods and services. The amended guidelines recognize the need for businesses to average impacts of cost and tax across a line of products. However, averaging leads to prices that does not meet consumers’ and Commission’s expectations (Australian Retailers Association, 2000). Therefore, the Commission ensures that businesses adhere to restrictions on the use of averaging. As indicated earlier, the policy that underpins the Trade Practices Act encourages competition, but this competition should not be a cost to society. The Act acknowledges this by issuing asymmetries in information in consumer markets via the consumer protection provisions (Scerni, 2006). It also provides a process through which anti-competitive conduct is authorized. The ACCC may authorize these conducts to the benefit of the public. If the ACCC authorizes a specific conduct, it gets immunity from the action of the court. In addition, individuals affected the decisions of ACCC concerning authorization may look for independent review of the determination by the Australian Competition Tribunal (ACCC, 2011). Therefore, it means that the ACCC is not the final arbiter of net public benefit in the process of authorization. Discuss the changes in, and structure of the Australian financial system that led to the deregulation of the financial system in the 1980s. For the past few decades, structural transformation in the Australian financial system has been rapid. The system has developed substantially in assets and volumes of activity, has become much more open and competitive and has undergone some important shifts in market shares (Wooden, 2000). This system essentially sought to obtain its monetary as well as supervisory goals through direct restraints on the activities of the banks. In the intermediaries sector, processes of transformation have been evident. This includes the interaction between regulatory policy as well as financial novelty. The banks in Australia lost market share to less heavily institutions, a tendency eventually gave impulsion to the move to deregulate. In addition there was a shift in the economics of production of banks, traditional financial services known as unbundling (Wooden, 2000). In the management of funds, policy changes in taxation areas and compulsory contributions have had a significant impact on the structure of the industry. Additionally, the system sought to introduce technology which brought significant transformation in the system such as minimizing cost of many information-intensive financial activities and making accessible a wide range of new products and delivery system. Notwithstanding the historical differences between the intermediaries and fund management, this has brought increasing areas of overlap between them (Edey & Gray, 1996). For instance, banks have become more active in funds management business through subsidiaries, and funds management institutions have become more active in traditional bank business for instance mortgage lending. This posed a challenge for regulators as to where the suitable regulatory boundaries between the distinct groups of institutions. The deregulation was introduced in order to promote greater competence through improved competition and sustaining confidence and stability in financial system (Edey & Gray, 1996). Deregulation in 1980s involved shift from regulating various financial activities indirectly in order to achieve public sector financing, monetary policy and sectoral assistance goals. An approach used gave banks and other financial institutions greater freedom to react to competitive market indicators as well as customer requirements. This was subject to achieving minimum prudential standards meant to guard depositors and sustain financial system stability (Westpac Banking Corporation, 1996). According to the Reserve Bank of Australia (1995) the main aspects of financial deregulation involved macroeconomic aspect and the floating and exchange rate policies. The later were associated with exchange controls abolition. Another financial policy involved full implementation of a tender system that was used to sell debt to the public. This occurred due to the need to finance the budget deficit at market rates. Another aspect of change in financial system was focused on financial intermediaries, more so banks, with the intention to enhance competition. The main changes in policy involved the elimination of both credit guidelines and interest rate controls, as well as entry of foreign banks (Hanrahan, 2007). These policies led to a surge in credit and boom in asset prices contributing to economic cycle in Australia. Prior to deregulation of the financial system in the 1980s, governments chose to use banking system to achieve monetary policy objectives. Therefore, governments imposed restraints on banks which included limits on the maturity of deposits for paying interest and controls of interest rates that bank offered on their deposits as well as charge on particular loans (Davis, 2007). These restraints led made banks ration available funds for lending. In turn, controls of lending rate made banks in the country cheaper sources of funds compared to building societies and finance companies. This, in stead led to an increase in the bank borrower demand which further exacerbated the loan demand and supply imbalance (Westpac Banking Corporation, 1996). Removal of both lending and interest rate controls made bank customers begin receiving competitive market-related rates based on their deposits. They were also given different deposit products. Also, interest was paid on cheque accounts as bank depositors became sensitive to interest rates. This led to a shift in balances out of accounts which paid a low or zero interest rate to more yielding accounts. In addition, removal of lending controls put banks in a position to meet the increased the borrowing needs of Australians (Westpac Banking Corporation, 1996). In turn, customers started getting benefits of access to funds and even lower cost borrowing. Therefore, changes in the Australian financial system created an environment where lower income earners were not allowed to borrow from banks and were in stead forced to borrow from expensive alternative sources. In addition, housing loan borrowers in a position to get finance from banks were compelled to boost their borrowings from extra expensive mortgages or individual loans from credit unions, banks and financial companies (Hanrahan, 2007). The financial system was also characterized by increased depositor cross-subsidization of lending meant for housing and others functions. There were increased ceilings of interest rate on bank deposits which implied that customers interested in having high yield had to look for higher rates from risky financial institutions away from the banking system. On the other hand, customers interested in greater security or owned cheque accounts were forced to maintain their funds in low or no interest bank deposits. The financial system in 1980s was also characterized by little or no price competition between banks (Westpac Banking Corporation, 1996). According to the Reserve Bank of Australia (1995) most of the criticisms in Australia concerning deregulation involved events that occurred in the transition period between the old and new regime. This phase experienced unforeseen outcome in form of a boom and bust in asset price. However, this is an experience that did not only affect Australia and was not extreme in regards to the standards of OECD countries. All in all, deregulation in 1980s brought about efficiency in economy, improving pricing of financial services to customers. It also led to increase in competitiveness of the markets for financial services while enhancing system stability. References Australian Competition & Consumer Commission. (2011). Australian Competition and Consumer Commission (ACCC) submission regarding Consultation Paper 145 Australia equity market structure: Proposals. Australian Council of Social Services. (2010). Submission to Fair Work Australia on minimum wages, Strawberry Hills: Australia. Barnes, A., & Lafferty, G. (2010). The Fair Work Act: As Good as It Gets?. The Economic and Labour Relations Review, 21(1), 1-12. Chapman, A. (2006). Unfair Dismissal Law and Work Choices: From Safety Net Standard to Legal Priviledge, Economic and Labour Relations Review 237. Davis, K. (2007). Financial regulation: trends and prospects. Melbourne Review: A Journal of Business and Public Policy, The, 3(1), 35. Edey, M, L., & Gray, B. (1996), The evolving structure of the Australian financial system Economic Research Department, Reserve Bank of Australia. Fair Work Act, (2009) (Cth) Hanrahan, P. (2007). Australian Financial Sector Regulation: Improving the Process of Regulatory Change. Healy & Richardson, (2006). An updated profile of the minimum wage workforce in Australia. National Institute of Labour Studies. Healy, J. (2010). The minimum wage workforce in Australia: extending the evidence. National Institute of Labour Studies. Kain, J., Kuruppu, I., & O'Sullivan, N. (2001). Australia's National Competition Policy: its evolution and operation. Parliament of Australia, Parliamentary Library. Macfarlane, I.F. (1995). Financial Deregulation: Past promise – Future Realities, Sydney. Moore, D. (2008). The Case for Minimal Regulation of the Labour Market. ECONOMIC ANALYSIS & POLICY, 38(1). National Competition Policy and Local Government, (2002). A revised statement of Victorian Government policy. O’Brien, J. & O’Donnell, M. (2007). From Workplace Bargaining to Workplace Relations: Industrial Relations in the Australian Public Service under the Coalition Government’ in Marilyn Pittard and Phillipa Weeks (eds), Public Sector Employment in the Twenty-First Century 127. Roles, C. & o’Donnell, M. (2013). The Fair Work Act and Workforce voice in the Australian Public service, Adelaide Law Review 34. Scerni, S.D. (2006). The Complementary Role of Competition and Consumer Policy: The Australian Experience. The Australian Retailers Association, (2002). The Role and Functions of the Australian Competition and Consumer Commission, 1st Annual Retail Congress. Westpac Banking Corporation, (1997). Impact of deregulation on the Australian Financial system. Wooden, M, (2000). The transformation of Australian industrial relations. The Federation Press Read More