The Economic Labour and Relations Review

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ELRR

Volume 18

Number 1

November 2007

The Economic And Labour Relations Review

Centre For Applied Economic Research Industrial Relations Research Centre

ISSN 1035-3046

Aims The Economic and Labour Relations Review is produced jointly by the Centre for Applied Economic Research and the Industrial Relations Research Centre at The University of New South Wales. The ELRR’s primary focus is contemporary issues, developments and policymaking in the fields of economics and labour relations. All opinions expressed in The Economic and Labour Relations Review are those of the authors and do not necessarily reflect the views or policies of the Centres. The Centres are not responsible for the accuracy of the data and information included in this publication, nor do they accept any consequences of their use. Any queries arising from the contents of this publication should be directed to the authors concerned.

Editors

Associate Professor P. Kriesler (Executive Editor) Dr. Anne Junor (Executive Editor) Associate Professor H. Bateman Professor M. Quinlan

Review Editor

Associate Professor G. Barrett

Editorial Committee

Professor P. Bohle Professor R. Green Professor R. Gregory Emeritus Professor G. Harcourt Associate Professor M. Johnson Professor W.F. Mitchell Professor J. Quiggin

Editorial Assistant

Jason Antony

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ISSN 1035-3046­

Errata Volume 17(2) Apologies to Emeritus Professor Harcourt (Cambridge) and to Dr Iain Campbell (RMIT) for printing errors in ELRR Vol. 17(2). The affected articles are: 1. Harcourt, G. (2007) ‘Markets, madness and a middle way revisited’, ELRR Vol. 17(2), pp. 1–10. Two paragraphs were lost from sections IV and V of this article. The corrected version of the article is reprinted in full at the end of the current issue (Vol. 18(1) ), but with the original pagination. Please refer to the version printed in this issue. The on-line version of Vol. 17(2) will contain the correct version. 2. Campbell, I. (2007) ‘Long working hours in Australia: Working-time regulation and employer pressures’, ELRR Vol. 17(2), pp. 37–68. Figures 1 and 3 (on pages 40 and 44 of the original) were truncated. Please replace these two pages with those at the end of this volume. The pagination is as in Vol. 17(2). Again, the on-line version of Vol. 17(2) will contain the correct versions.

The Economic and Labour Relations Review Volume 18 Number 1

November 2007

Contents Editorial Anne Junor

1

The Impact of Children on Australian Women’s and Men’s Superannuation Nick Parr, Shauna Ferris, Stéphane Mahuteau

3

Farewell to Tax Neutrality: The Implications for an Aging Population Susan St. John

27

Trade Union Responses to White Collar Off-Shoring Carolyn Penfold

53

War, Racism and Industrial Relations in an Australian Mining Town, 1916–1935 Sarah Gregson

79

Australian Skill Shortages: How the Howard Government Did Not Change its Mind Alan Montague, Judith Bessant

99

AWAs and Individual Bargaining in the Era of WorkChoices: A Critical Evaluation Using Negotiation Theory Peter Sheldon, Nancy Kohn

115

‘We’ve Got This New Legislation’: A Review Article on [email protected] and Other 2007 Reports on WorkChoices Diane Fieldes

143

Book Review by Braham Dabscheck

155

Editorial Welcome to The Economics and Labour Relations Review 18(1). This issue comes out in the weeks following the change of government in Australia in late November 2007. It consists of seven double-blind refereed articles that, taken together, provide a statement of record and an opportunity to take stock of several economic and industrial relations issues that have emerged in the past eleven and a half years, framed within a historical and international perspective. Among the issues facing the incoming government are the need to mobilise retirements savings in the face of demographic change, the need to repudiate xenophobic tendencies in public discourse, and the need to address labour market issues such as the skills shortage and industrial relations reform. These themes are pursued here through three ‘mini-symposia’. The first two articles have been worked up from papers given in July 2007 at a colloquium of superannuation researchers. They evaluate equity issues arising from twenty years of national retirement income and savings policies, and their tax treatment, in Australia and New Zealand. Parr, Ferris and Mahuteau jolt us into a recognition of the recency of superannuation access in Australia for many workers, and the serious ongoing disadvantage of women with family responsibilities, in terms of adequacy of retirement income. New Zealand has historically had a more adequate and gender-neutral non-contributory pension system, topped up by voluntary retirement savings schemes. St. John outlines a twenty-year experiment in that country, with a tax-neutral approach to superannuation and other forms of savings, and provides a critical assessment of the equity impacts of the 2007 retreat from tax neutrality. The second ‘mini-symposium’ deals with union responses to the use of offshore and migrant labour, both now and historically. In the first of the two articles, Penfold provides an international overview of how unions in Australia and overseas are currently grappling with the creation of global labour markets. Focusing particularly on the off-shoring of work involving information and communication technology, she argues that despite the difficulties of crossborder organising, some unions in the USA, Europe, Australia and India (as well as international organisations) are managing to build a global and inclusive approach to defending labour standards. The second article, by Gregson, argues that it is a mistake to see cross-ethnic solidarity as a recent development in the Australian labour movement. Gregson provides evidence from Western Australia, that in the period 1914–1934, there was a growing consciousness amongst mining industry workers (including returned soldiers) of the need to withstand attempts to foment racist exclusion of German and Southern European workers. The articles show unions (both now and then) as by no means free of xenophobia, but provide a nuanced account of past and present efforts within the labour movement to avoid ‘divide and rule’ management strategies.

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In the context of the December 2007 re-integration of the Australian education and employment relations portfolios, the next three articles provide a benchmark against which to measure the task facing the incoming Australian government. In relation to skills shortages, Montague and Bessant argue that the Howard government was late in recognising the severity of the problem. Analysing the measures in the 2006 Skills for the Future package, they argue that these measures were at best ‘too little too late’ and at worst misdirected. In the industrial relations field, the incoming government has stated that it will phase out Australian Workplace Agreements (AWAs) but allow existing agreements to run their course. Amidst reports of a last-ditch effort by some employers to encourage individuals to take up AWAs before the new legislation comes into force, Sheldon and Kohn show how limited are the choices of employees in the bargaining of these agreements. Sheldon and Kohn use negotiation theory to pinpoint, and give novel concreteness to, the sources of power imbalance in bargaining between employers and individual employees. Firstly, they argue that the replacement of industrial awards by weak minimum legislative protections effectively weakens individuals’ BATNA (best alternative to the negotiated agreement) and thereby erodes a precondition for effective bargaining. Secondly, by analysing the Howard government’s web advice to individual workers on how to negotiate an AWA, the authors show that this advice set individuals up to negotiate against their own interests, through a systematic ‘framing’ of the context in terms of integrative (rather than distributive) bargaining. Finally, Fieldes overviews evidence of a growing power imbalance between employers and employees by analysing the findings of fourteen empirical studies undertaken since the 2005 WorkChoices legislation. Fieldes argues that WorkChoices was not ideologically driven, but had a material basis as an expression of employers’ need to maintain profits through work intensification, flexible work times and long hours. If this is so, there will be an ongoing and undiminished need for the Australian Charter of Employment Rights, edited by Bromberg and Irving, and reviewed here by Dabscheck.

Anne Junor For the Editors

The Economic and Labour Relations Review Vol. 18 No. 1, pp. 3–26

The Impact of Children on Australian Women’s and Men’s Superannuation Nick Parr * Shauna Ferris * Stéphane Mahuteau * Abstract Using data from Wave 2 of the Household Income and Labour Dynamics in Australia (HILDA) Survey, this article examines how superannuation savings by women and men vary according to the numbers of children they have. The results show that for women there is a clear inverse relationship between the value of superannuation and the number of their children. Moreover, this inverse relationship persists after controlling for an extensive range of variables which may affect both number of children and superannuation. The analysis also shows that level of education, migrant status, being an employer or self-employed, marital status, age and sex are significantly related to an individual’s level of superannuation. The implications of the results for Australia’s public debate and possible policy responses are discussed.

Introduction This article examines how the retirement savings of Australian women and men vary according to the numbers of children they have. In Australia women have historically tended to participate in the labour force less and earn less income than men owing to a range of legal, economic and social barriers (Evans 1996). Despite the progressive removal of these barriers over time, women continue to earn less than men (ABS 2005). Women also have tended to have less superannuation than men (ABS 2001; Ferris and Olsberg 2001; Kelly 2006). One of the contributory factors to women’s lack of superannuation has undoubtedly been their loss of earnings as a result of having children (Chapman et al. 2001; Breusch and Gray 2004). The value of superannuation is second in importance only to the value of home equity as a component of household wealth in Australia, accounting for 16 per cent of total net worth (Marks et al. 2005). As such it represents an important source of financial security in old age. Superannuation has become a * Macquarie University

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major determinant of post-retirement consumption patterns and of government outlays on means-tested aged pensions. The prospective rapid growth of Australia’s post retirement age population should further enhance its importance in these respects (ABS 2006a). The HILDA survey presents a unique opportunity to analyse the variation of superannuation by the number of children on a per person basis, after allowing for confounding variables which are also likely to affect superannuation savings. Previous studies have investigated the distribution of superannuation contributions and average superannuation balances by age and gender. These studies have been based on various data sources such as superannuation funds membership, life insurance account balances, statistical reports from the superannuation regulator,1 surveys from the Australian Bureau of Statistics, and data from the Australian Tax Office2 (Brown 1994; Rothman 1995; ABS 2001; Clare 2004). However, the compilation of accurate data on the distribution of superannuation assets for individuals has been problematic, because many Australians hold multiple superannuation accounts spread across different funds and there are difficulties in linking the records from separate funds (ABS 2001; Kelly 2003). Furthermore, many Australians (especially younger Australians) have a poor knowledge of their own superannuation assets, which has led to significant under-reporting of superannuation assets in ABS surveys (ABS 2001, 2006b). Even where estimates of superannuation balances are available, there has previously been little information available on the distribution of assets according to social and demographic characteristics such as marital status, number of children, educational attainment, and migrant status. This paper firstly outlines the structure and historical development of Australia’s superannuation schemes. A survey of the literature on the economic effects of children and the patterns of fertility in Australia is then presented. We develop hypotheses on the paths through which having children may affect the value of women’s and men’s superannuation. The selectivity of childbearing patterns in Australia is described. A description of the data and our choice of statistical methods follows. After a descriptive analysis of the variation in women’s and men’s value of superannuation by their age and number of children, we then present the results of a multivariate analysis of the effects of children after controlling for a range of variables which are likely to affect both a person’s number of children and their superannuation. Finally we discuss the implication of the results for public policy in Australia.

The Development of Australia’s Superannuation System Australia’s current superannuation system operates through a complex combination of mandatory requirements and incentive-enhanced voluntary schemes. It has undergone profound changes over recent decades. Since the levels of superannuation savings we study reflect an accumulation over time and, as such, have been affected by conditions of the past, in order to understand their distribution it is necessary to consider the development of Australia’s superannuation system over the working lifetimes of the respondents.

The Impact of Children on Australian Women’s and Men’s Superannuation

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The Voluntary Superannuation System Prior to the 1980s, the provision of superannuation was not compulsory. However government tax incentives made superannuation a particularly attractive form of remuneration for people subject to high marginal tax rates. Superannuation coverage was relatively low — and uneven. High income earners were much more likely to have superannuation than low-income earners. White collar workers were more likely to have superannuation than blue collar workers. Public servants were more likely to have superannuation than private sector workers. Full time workers were more likely to have superannuation than part time workers (Foster 1988). Coverage rates were considerably lower for women than for men. In 1974, only 15 per cent of female employees were members of a superannuation scheme, compared to 41 per cent of men (Hancock et al. 1977). A government enquiry into the superannuation system in the late 1970s found that many superannuation funds discriminated against women, both directly and indirectly. Some schemes simply did not allow women to join at all — a 1972 survey reported that 21 per cent of all private sector schemes were confined to male employees. In some schemes, there were different eligibility rules for men and women — for example, men were allowed to join at age 21, but women were not allowed to join until age 25 (Hancock et al. 1977). In some public sector funds, only single women were allowed to join the fund. When a woman married, her employment status was changed to ‘temporary employee’; she would be paid a dowry benefit; and she would then be excluded from participation in the fund. Sometimes the rules were indirectly discriminatory — for example, many funds were set up for the benefit of full time employees only — part-timers (predominantly women) were not allowed to join. The Sex Discrimination Act was introduced in 1984, forbidding discrimination based on sex or marital status; but initially there was a blanket exemption for superannuation funds (Commonwealth of Australia 1984). Regulations requiring equal treatment in the provision of superannuation only became effective in the mid-1990s, subject to various transitional arrangements (although due to changes in social attitudes, many superannuation funds had already updated their rules before this date). How would current superannuation assets be affected by the past history of the superannuation system? Even if women did have superannuation coverage in the pre-compulsory era, it might not flow through to an increase in the current level of savings. At that time, fund members (whether male or female) would generally be entitled to withdraw their benefits in cash whenever they resigned from their job. However, people were generally only entitled to take a cash benefit on resignation, and, since they often left the workforce to look after children, women were especially likely to fall into this category. In 1987 the government introduced preservation requirements,3 which have been gradually tightened over the years. The preservation requirements are designed to prevent people from taking superannuation benefits in cash prior to retirement.4

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The Compulsory Superannuation System During the 1980s, the trade union movement became interested in obtaining superannuation benefits for their members. Some of the stronger unions began lobbying employers to provide superannuation benefits for blue-collar workers — even taking industrial action in support of their claims. At the time, the Labor Party (which had close ties to the union movement) was in government. They worked with the union movement to extend superannuation coverage. Essentially, this was done via the industrial relations system: industrial awards were negotiated which required employers to pay at least 3 per cent of wages into specified superannuation funds for most employees. Over the period from 1986 to 1991, superannuation coverage increased from about 40 per cent to about 80 per cent (Olsberg 1997). In 1992, the Labor government introduced the Superannuation Guarantee Charge (SGC) (Commonwealth of Australia 1992). This made it compulsory for employers to provide superannuation contributions for nearly all employees.5 The system was phased in over time. Initially, the minimum contribution was 3 per cent of salary or wages (for small employers) or 4 per cent (for large employers). However the rate was increased year by year until it reached 9 per cent in 2002.6 There are some exceptions. These include employees who earn less than $450 per month in one job,7 part-time workers under age 18, and selfemployed people. The $450 limit is likely to have a stronger impact on women, especially women with children, since they are more likely to work part time. There have been some concerns about compliance with the SGC requirements: there is evidence that some employers simply do not make the contributions which they should be making. The workers who are most vulnerable in this respect are those on the fringes of the labour market — people in low-paid and unskilled jobs, people in casual and part-time positions, people in jobs with high turnover (for example young people working in the hospitality industry), and migrants: that is, people who may be unaware of their rights or reluctant to complain for fear of losing their jobs. It seems likely that women, especially those with children, would be over-represented in this group, although of course it is difficult to obtain reliable statistics on non-compliance (Senate Select Committee on Superannuation and Financial Services 2001). The Australian Tax Office, which is responsible for monitoring and enforcing compliance, has reported many cases of non-compliance, especially affecting women (ATO 1999a, 1999b). Unions have also been active in pursuing employers who are tardy in making payments.

Additional Voluntary Contributions The current superannuation system is a combination of the old voluntary system and the new compulsory system. Some employers pay more than the minimum 9 per cent contribution for their employees.8 The higher level of contributions may be negotiated as part of an Enterprise Agreement, or as part of an Australian Workplace Agreement. Most superannuation funds would also allow employees to make additional voluntary contributions, out of their own pock-

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ets. In fact some of the long-established funds even require employees to make contributions, typically at say 3 per cent or 5 per cent of salaries. Most of the newer funds (e.g. those which have been established in the last decade) do not require employee contributions, but allow this as an option. However, relatively few people make additional voluntary contributions. Men are more likely to be making additional voluntary contributions than women (30.4 per cent of male jobholders were making personal contributions, compared to 21.4 per cent of women) (ABS 2001). The main reasons given for not making personal contributions are: cost and affordability; disinterest and lack of consideration or motivation; ineligibility; and preference for alternative investments or mortgages. In recent years the government has attempted to encourage more voluntary employee contributions by providing co-contributions. Whenever an eligible employee makes a voluntary contribution, the government also makes its own contribution into the member’s account. The amount payable depends on the member’s income and the amount of the member’s contribution. The maximum co-contribution is $1,500, which is payable when an eligible employee with income below $28,000 makes a contribution of $1,000. The amount of the co-contribution reduces to nil for a person with income above $58,000.9 The co-contribution (effective from 1 July 2003) was not introduced until after the wave of the HILDA survey which has been used in this research.

Spouse Contributions In 1996 the government decided to provide some tax incentives to encourage men to make provision for their stay-at-home (or low income) wives.10 Fund members who make Spouse Contributions are entitled to claim a tax deduction. The amount of the deduction depends on the amount of the superannuation contribution and the income level of the non-member spouse. The maximum tax deduction is $540, which applies when the contribution is $3,000 or more, and the spouse earns less than $11,800 per annum. No benefit is available if the spouse earns more than $13,800. When this policy was introduced, critics pointed out that this tax concession would be likely to be beneficial for the stayat-home wives of high-income husbands. When the family income is low, then it is less likely that the family would be able to afford to make extra contributions. The evidence to date suggests that this initiative has not been particularly effective in improving superannuation savings for women. The take up-rate has been quite low (Olsberg 2005).

The Implications of Children for Women’s and Men’s Superannuation Having children has a range of implications for family budgets and hence for superannuation contributions. Firstly, it reduces the wages and salaries earned by the family (it has ‘indirect costs’), particularly those of the female partner. According to Chapman et al. (2001) and Breusch and Gray (2004) the earnings women forego as a result of having children are substantial, with the majority of lost earnings being attributable to the first child. The reduction in women’s earnings resulting from having children would lead to reduced contributions

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in absolute terms being paid into their superannuation schemes by their employers and, where fund rules require employees to make personal contributions into superannuation funds, to women making reduced employee contributions as well. Eligibility for tax incentives for spouse contributions and (since 2003) for government superannuation co-contributions may also result from the child-related reduction of earnings. In addition, when women switch to part-time work, their employers may become exempt from compulsory superannuation contributions (since employers are not required to contribute for those earning less than $450 per month). Secondly, substantial additional expenditure is required to provide for additional children (Percival and Harding 2002; Henman et al. 2007). In combination with the reduced income of (usually) the female partner this reduces the funds available for other (non-child related) outlays including voluntary contributions into superannuation funds. Thirdly, parents of children may benefit from a complex range of government benefits which are payable. The more significant benefits are means tested on family income (Family Tax Benefit Part A) and on the income of the lower earning parent (Family Tax Benefit Part B) (McDonald 2001). There is also a means-tested benefit which partially covers the cost of childcare. With effect from July 2004, the Australian Federal Government introduced a substantial, flat-rate payment to the mothers of all newly-born children, known as the Maternity Benefit, and increased the amounts and income thresholds for eligibility for Family Tax Benefits. In doing so, it phased out a tax rebate based on the reduction of income following the birth of the first child, known as the Baby Bonus (Commonwealth of Australia 2004). The values of child-related government benefits, however, are considerably less than the direct and indirect costs which are incurred as a result of additional children. Fourthly, additional children may change a family’s preferences relating to the purchase of assets and to the risks presented by different investment strategies (Cobb-Clark and Hildebrand 2002). For example with a larger number of children a larger, more expensive house and family car may be preferred, life assurance may become a more attractive option, and there may be a preference for retaining funds in liquid assets which may be sold to cover future child-related outlays (education, weddings, etc.) rather than to have the funds locked up in superannuation. Fifthly, career breaks due to the arrival of children may lead to (unpreserved) superannuation benefits being cashed in.

The Selectivity of Childbearing When comparing the superannuation amounts of people with different numbers of children it should be remembered that different demographic subgroups of the population differ in their propensities to have children and, if they have children, in the numbers of children they have. In Australia there are differentials in fertility by birth cohort, socioeconomic status, ethnicity and marital status. Average numbers of children generally increase with age (Carmichael and McDonald 2003). Highly educated women tend to have fewer children on average and are much more likely to remain childless (Carmichael and McDonald 2003; Parr 2005, 2007). Aboriginal and Torres Strait Islanders continue to have

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a larger number of children on average than non Aboriginal and Torres Strait Islanders, although the gap has fallen markedly since the early 1970s (Gray and Tesfaghiorghis 1993; Taylor 2003). The average numbers of children of migrant women and Australia-born women differ little. However there is a wide variation in fertility between different overseas regions of birth. Women born in the Middle East, the Pacific islands and some of the less developed nations of South-East Asia tend to have relatively large numbers of children, whilst the family sizes of migrants from Europe and East Asia tend to be relatively small (Carmichael and McDonald 2003). Although the fertility levels of the never married have risen considerably since the 1970s whilst those of the married have fallen, married women still have considerably more children than never married women. The differences in numbers of children between women who are currently married and those who are separated, divorced or widowed are relatively small (Carmichael and McDonald 2003).

Data To investigate the impact of children on superannuation savings, we used data from Waves 1 and 2 of the Household, Income and Labour Dynamics in Australia Survey (or HILDA for short). Wave 1 of this nationwide, longitudinal survey was conducted in 2001 and Wave 2 between August 2002 and March 2003. The sample design employed a multi-stage cluster sample of households. Remote areas of the country were not sampled (Watson and Wooden 2002a, 2002b). Respondents were asked, firstly, for their various superannuation funds combined, to choose a range in which the valuation of their superannuation lies and then, secondly, to give a best estimate of the value within that range. The analysis presented here has been restricted to 3,833 males and 4,032 females aged 25–54 last birthday on 30 June 2002 who had not retired. Those aged less than 25 were excluded from the analysis because many below this age have yet to complete education and establish themselves in the labour force. The over-55s were excluded because the superannuation of many above this age will have been affected by retirement.

Method We estimate censored regression (Tobit) models, since a significant number (13.5 per cent) of individuals aged between 25 to 55 report a superannuation value of zero, indicating that either they have not been employed in Australia since 1992, or that they have been self-employed or in one of the categories which are exempt for superannuation contributions, described previously. The latent underlying model is given by:

(

yi* = β ' X i + ui , with ui : N 0, σ 2 *

)

where yi is the (unobserved) value of superannuation and X i a set of covari* ates, one of which the number of children. yi is censored to the left at zero, i.e. * we observe yi when the value is greater than 0 and 0 otherwise.

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This censored regression model is estimated by maximum likelihood where the censoring in zero is accounted for in the following log likelihood function11:

 − X i' β log L = ∑ log Φ  yi = 0  σ Where

 1  yi − X i' β  log +   ∑ σ φ σ  yi = yi*  

   

Φ (.) and φ (.) are, respectively, the Normal cdf and density.

In view of the well documented differences between men and women in income, labour force participation and superannuation, we incorporate a number of interaction variables between sex and other explanatory variables, including number of children and education, into the regression in order to capture this heterogeneity. Since the effects of some explanatory variables are likely to cumulate with age (i.e. over time) we also include interaction terms between age and other explanatory variables. The estimated parameters of the model correspond to the impact of each of the variables on the conditional mean of the un* * observed latent variable yi , that is E  yi X i  . However, this is not our primary interest. Rather we focus on the effects of each variable on the conditional mean of the observed superannuation values, that is E  yi X i  . Greene (1999) shows that the marginal effect of each variable k associated to the conditional mean of the observed dependent variable is simply the coefficient obtained for the variable weighted by the probability that the observation is non-censored:

∂E  yi X i    X i' β = β k × 1 − Φ  − mek = ∂X ik  σ 

   

Because of the non-linearity of the Tobit model, the slope coefficients then depend on the value of the X variables. A common practice is to report their value evaluated at the sample mean of X. These are the marginal effects we report in the result tables for continuous variables. Concerning dichotomous and interaction explanatory variables in the model, we recalculate the true marginal effects by evaluating the conditional mean for the two alternative values taken by the variables and taking the differences. Indeed, for such variables, the sample mean is meaningless and so would be the marginal effects evaluated at such points. Formally, the marginal effects of dummy variables are computed as follows and reported in the tables of results:

Marginal1 effect=E0  yi xi1  − E  yi xi0  Marginal effect=E  yi xi  − E  yi xi  







(( ) ( ))

( )( () ( ))

(( ))

(

(( )))L + Φ (α )×  x

 x0 '1β −+ σλ Φ1 α− i 1 −×Φ xαi 0' β L+ +σλ Φ α i +α = 1 − Φ α i1 Li +=Φ1α−i1 Φ ×  α xi1 i' β +L σλ Φ ααi0i × − α i0i  i  i i i

(

( ))

1

1

1

1

0

i

0 i

0 i

The Impact of Children on Australian Women’s and Men’s Superannuation

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1

where xi is the vector of sample means of all the variables in the regression 0 where the value of the dummy variable of interest is restricted to 1 and xi the vector of sample means of all the variables where the value of the dummy variable of interest is restricted to 0. It is to be expected that much of the effect of the number of children (and other variables) on superannuation is due to its effect on income. Income earned prior to and during the childbearing ages may also have affected the number of children. The HILDA data only provide information on income for the last completed financial year before the interview (2001–02). In an attempt to assess the role of gross income (including its interactions with age and sex) as a factor mediating the effects of other variables we present two models. Model 1 represents estimated effects of the number of children on superannuation after controlling for the selectivity of childbearing. Model 2 represents our estimates of the effects of the income-related variables and of residual effects of the number of children and other variables on superannuation after controlling for the effects of income.

Results Median Superannuation Value by Age and Sex: Figure 1: Median Value of Superannuation by Age and Sex Australia 2002 80000 70000 60000 50000 $

Male

40000

Female

30000 20000 10000 0 25-29

30-34

35-39 Age

40-44

45-49

50-54

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Median Superannuation Value by Age and Number

Figure 2: Medianof Value of Superannuation for Women by Age 2002 and Number of Children: Australian Females Children 80000 70000 60000

0

50000 $

1

40000

2 3

30000

4+

20000 10000 0 25-29

30-34

35-39

40-44

45-49

50-54

Age

Median Superannuation Value by Age and Number Figure 3: Median Value of Superannuation for Men by Age and Number of of Children:Children Australian Men 2002 120000 100000 0

80000

1 $

60000

2 3

40000

4+

20000 0 25-29

30-34

35-39

40-44

45-49

50-54

Age

Exploratory Analysis The median value of men’s superannuation exceeds that for women at all ages in the 25 to 54 range (Figure 1). For men the median value of superannuation increases steeply throughout the age range analysed, with the increase becoming progressively steeper as age increases. In contrast for women the increase is much flatter, and, indeed, between the 30–34, 35–39, 40–44 and 45–49 age groups, there is no increase at all. This would reflect the cumulative effects over time of women’s lower labour force participation rates, lower incomes, the previously discriminatory superannuation system, and possibly the absence of

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13

preservation requirements in the past having had a proportionately greater effect on women’s superannuation savings. For women within age groups there is a general decline in the median value of superannuation with an increase in the number of children (Figure 2). In each of the age groups considered, childless women have a higher median value of superannuation than women with other numbers of children. In each age group, women with four or more children have the lowest median. Indeed the median is zero or a little above zero for all ages. Whilst the median value of superannuation of women with one child is relatively high in the 30–39 age range, above the age of 45 it is relatively low. The variation within age groups in the median value of superannuation by the number of children is considerably less for men than for women (Figure 3). Moreover, for men there is no clear general pattern of variation with the number of children, except that in most age groups men with one child have a relatively low value.

Multivariate Analysis The HILDA data confirm the existence of the superannuation savings gender gap, as has been documented by other studies (Olsberg 2005). Average superannuation savings for women are much lower than those for men. However, the discrepancy cannot be entirely explained by the traditional female role in child care. Even after controlling for a range of variables, including age, number of children, education, birthplace, and marital status, according to Model 1 women have on average $10,858 less superannuation than men. It is to be expected that a major part of this residual effect of being a female may be attributed to the cumulative effects of women’s past and continuing disadvantage in the labour market both in terms of pay levels and access to higher ranking jobs associated with larger superannuation contributions. Model 2 shows that when one controls for the gross income from wages and salaries in 2001–02, the disadvantage of being a female is more than double that figure. Both women’s incomes and their superannuation contributions were lower in proportion to men’s in the past, and a control based only on current income is unable to capture this effect. The number of children is a strong determinant of the level of superannuation accumulated by women, as shown by the results of a test of the restricted model without the variables related to children against the unrestricted model with children. The first child reduces the superannuation value of both males and females, more so for females but not significantly more so. Starting from the second child, females bear the brunt of the cost in terms of considerably reduced superannuation values. The loss of superannuation for women increases rapidly with the second and third children, amounting to more about $30,000. The results appear consistent with our hypothesised effects of children reducing a woman’s income and hence employer superannuation contributions, whilst voluntary contributions by both the woman and her spouse are reduced by the direct costs of children, preferences for assets other than superannuation, and cashing-in of unpreserved superannuation savings when women left the paid workforce in order to meet family responsibilities. Men with two or three

6,403.36 5,849.05 6,707.40 8,123.84 5,803.85 11,403.82 283.87 13,602.91 335.90 17,321.10 429.49 15,903.87

-8,929.92 -27,943.45 -35,604.65 -44,440.14 -10,878.58 -51,386.47 1,703.15 -43,744.35 1,568.95 55,819.64 -1,564.99 43,046.85 *** *** *** + *** *** ** *** ** *** **

4,602.40 4,244.82 4,862.25 5,828.12

-9,119.34 * 738.88 662.62 -10,913.00 +

Coefficient

*** p< 0.001, ** 0.001 ≤p < 0.01, * 0.01 ≤p < 0.05 , + 0.05 ≤p < 0.10

Number of Children: None (reference) One Two Three Four or More Interaction of Female and Number of Children: None (reference) One Two Three Four or More Female Bachelor’s Degree Interaction of Bachelor’s Degree and Age Year 12 Interaction of Year 12 and Age Interaction of Female and Year 12 Interaction of Female, Year 12 and Age Migrant

Variable

Model 1 Standard Error

0.163 0.000 0.000 0.000 0.061 0.000 0.000 0.001 0.000 0.001 0.000 0.007

0.048 0.862 0.892 0.061

P-Value

-1,252.51 -16,794.09 -20,822.34 -26,866.29 -23,122.34 -38,803.65 1,086.37 -33,898.97 1,175.17 38,177.65 -1,059.84 46,157.72

-6,226.62 430.80 -1,921.62 -9,244.72

** ** *** *** *** *** * *** * * **

Coefficient

Table 1: Tobit Estimations on the Value of Superannuation (Marginal Effects)

0.844 0.005 0.002 0.001 0.000 0.001 0.001 0.012 0.004 0.032 0.017

0.003

15,549.11

0.163 0.917 0.685 0.101

P-Value

6,376.52 5,907.37 6,734.56 8,097.43 6,119.31 11,426.93 284.58 13,563.18 334.67 17,840.75 443.33

4,463.98 4,127.99 4,732.67 5,638.93

Model 2 Standard Error

14 The Economic and Labour Relations Review

16,037.70 433.36 15,863.17 393.14 24,036.54 686.56 33,740.13 993.05 26,728.86 652.54 29,976.57 698.31 3,869.92 6,371.73 8,985.84

2,603.09 309.63 34,384.62 -903.04 73,082.89 -2,228.28 -75,407.64 2,492.37 57,934.12 -1,570.50 -17,291.37 699.56 -37,255.12 15,202.22 16,483.39 *** * +

* * ** ** * * * *

382.14 22,345.27 543.02

-1,739.62 *** -56,142.75 * 1,634.12 **

Coefficient

*** p< 0.001, ** 0.001 ≤p < 0.01, * 0.01 ≤p < 0.05 , + 0.05 ≤p < 0.10

Interaction of Migrant and Age Interaction of Female and Migrant Interaction of Female, Migrant and Age Marital Status: Single (not previously married) reference Currently Married Interaction of Currently Married and Age Interaction of Currently Married and Female Interaction of Currently Married, Age and Female De Facto Interaction of De Facto and Age Interaction of De Facto and Female Interaction of De Facto, Age and Female Formerly Married Interaction of Formerly Married and Age Interaction of Formerly Married and Female Interaction of Formerly Married, Age and Female Self employed Interaction of Self Employed and Female Age

Variable

Model 1 Standard Error

0.871 0.475 0.030 0.022 0.002 0.001 0.025 0.012 0.030 0.016 0.564 0.316 0.000 0.017 0.067

0.000 0.012 0.003

P-Value

15,671.22 -325.37 36,435.39 -746.37 75,092.97 -2,440.52 -60,360.44 2,190.50 78,581.32 -2,314.87 -9,969.76 589.59 -18,756.88 17,266.32 16,668.92

*** *** ***

* + ** *** + * ** ***

-1,708.40 *** -48,598.38 * 1,344.56 *

Coefficient

Table 1: Tobit Estimations on the Value of Superannuation (Marginal Effects)

16,316.51 442.36 16,973.33 428.75 23,640.89 673.91 32,859.39 964.33 26,521.57 650.39 30,402.97 715.67 3,936.27 6,369.64 8,754.98

373.33 21,850.22 531.27

Model 2 Standard Error

0.337 0.462 0.032 0.082 0.001 0.000 0.066 0.023 0.003 0.000 0.743 0.410 0.000 0.007 0.057

0.000 0.026 0.011

P-Value

The Impact of Children on Australian Women’s and Men’s Superannuation 15

5635 -63715.19 -68164.76 8899.137 0.0000000 7604.16 0.0000000

*** p< 0.001, ** 0.001 ≤p < 0.01, * 0.01 ≤p < 0.05 , + 0.05 ≤p < 0.10

-207,767.65 +

No. obs: Log likelihood: Restricted LogL: LR-stat (restricted model vs. unrestricted): p-value: LR-stat of model with vs. model without children variables: p-value:

-425.98 + 4.09 *

Coefficient

Constant

Age square Age cubed Gross Income from Wages and Salaries 2001-02 Interaction annual gross wage in 2001-02 and Age Interaction annual gross wage in 2001-02 and Female Interaction annual gross wage in 2001-02, Age and Female

Variable

113,885.70

230.54 1.92

Model 1 Standard Error

0.068

0.065 0.033

P-Value * * *** ***

5180 -58279 -68164.76 19771.53 0.0000000

-199,423.73 +

-455.35 4.377 -0.916 0.038 0.394 0.000

Coefficient

Table 1: Tobit Estimations on the Value of Superannuation (Marginal Effects)

110,884.38

224.68 1.874 0.190 0.005 0.361 0.009

Model 2 Standard Error

0.0721

0.043 0.020 0.000 0.000 0.276 0.962

P-Value

16 The Economic and Labour Relations Review

The Impact of Children on Australian Women’s and Men’s Superannuation

17

children have slightly higher superannuation than childless men, but not significantly so. However, the overall effects of additional children on a couple’s superannuation will be negative, because the effect on the woman’s superannuation far outweighs the effect on the man’s. This is consistent with other research: a NATSEM study revealed that couples without children have higher average balances than couples with children (Kelly and Harding 2007). As one would expect, superannuation savings increase with age. The combined effects of age imply that the value of superannuation increases throughout the age range analysed, with a change of curvature around age 35 towards an increase of the slope. The cumulation of savings over time would be a major explanatory factor. The positive relation observed between age and earnings would also be important. Moreover, with retirement approaching, higher incomes, mortgages paid off, and some or all of the children having left home and gained their financial independence, people in the later stages of the age range analysed are likely to have made more voluntary contributions into their superannuation (ABS 2001; Kelly and Harding 2007). In contrast, at younger ages, individuals may be more likely to neglect issues related to superannuation as they relate to a distant future. The changes to Australia’s labour market and to its superannuation system over recent years would also have affected the superannuation differences between age groups. In particular, the lower superannuation coverage and contribution rates of the past would have reduced the extent of the increase in superannuation with age. The combination of the baseline effect and the related interaction with age shows that the effect of having a Bachelor’s or higher degree is negative below age 30 but positive and increasingly large thereafter. The initial loss attached to having a Bachelor’s degree or higher (assuming the average individual graduates at age 21), representing the average initial opportunity cost in superannuation terms of tertiary education, is about $10,000 to $15,000. Once the degree is obtained, positive returns to education kick in. Similarly, men having completed Year 12 incur an initial loss of superannuation but recover it with time. It may be that differences between Year 12 graduates and those who do not complete Year 12 in undertaking TAFE and other non-university post school qualifications contribute to the measured effect. The effect of a Year 12 education for women is the opposite to that for men. Indeed, women who completed year 12 have about $12,000 more superannuation than women who did not complete Year 12, and the difference does not change significantly with age. The combination of the baseline effect of being born overseas and the interaction term for age shows that, whilst towards the younger end of the age range analysed men who were born overseas have only slightly less superannuation than Australia-born men, their disadvantage increases steadily with advancing age. This result may be partly explained by a higher percentage of overseas born men at the younger end of the age range analysed having grown up or been educated in Australia. The negative slope obtained for the interaction with age reflects the changes to migrant selection over time: younger migrants are more likely to have been selected on the basis of more recent migration policies promoting skilled migration (Parr and Guo 2005). Stronger discrimination

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against migrants in the past may have been another factor. The accumulation of migrant superannuation disadvantage with increasing age may also reflect the cumulative effect over time of migrant disadvantage in the labour force. The superannuation disadvantage for female migrants is more pronounced than that for male migrants at younger ages. However, because of the positive interaction effect with age for females, in comparison to Australia-born women, migrant women’s superannuation deficit increases only slightly with increasing age. The reason we observe such a difference between male and female migrants is probably due to the fact that a larger proportion of the principal applicants for skilled migration are male, whilst a larger number of women migrate under family reunion schemes. Studies show that migrants entering Australia under Family or Refugee status fare relatively worse than other types of visa categories (Mahuteau and Junankar 2005, 2007). It may also reflect differences in gender roles within the family, with migrant women being more likely than their Australiaborn counterparts to withdraw from the labour force following childbirth. Although there are no significant differences between the superannuation levels of men who are currently married and men who have never married (and who are not in a de facto union), for women an initially higher value of superannuation among the currently married reduces with increasing age. The superannuation advantage of the married (after controlling for the effects of children and other variables) may reflect that household economies of scale allow more saving, including superannuation contributions, and that marriage may encourage planning for the future, including retirement. For men, the extent to which the separated, divorced and widowed (henceforth ‘formerly married’) have less superannuation than the never married increases with age, starting from the mid-30s. For women, the contrast between the formerly married and the never married is not significantly different from that for men. This may reflect the balance between the past superannuation advantage resulting from the marriage and disadvantageous effects of sole parenthood on income and superannuation changing with increasing age. Surprisingly, there is no significant difference between the superannuation values of formerly married men and formerly married females. A broadly similar pattern to that of the formerly married is observed for men who are currently in a de facto relationship. The similarity may reflect that most of the men in the latter part of the age range considered who are in a de facto relationship have previously been married. The reverse pattern is evident for women in de facto relationships. Women in a de facto relationship start off with a disadvantage compared to singles but recover from it by their late 20s. Since a large proportion of those in de facto relationships (whether males or females) have been married previously, the differential effect between females and males in a de facto relationship may reflect the shocks on superannuation following separations. As expected, self-employed individuals have a significantly lower level of superannuation. The new policy adopted in 1992 imposed compulsory contributions for the wage earners, but not for the self-employed. Moreover, the self-employed experience greater variability and uncertainty in their income, and so may prefer to retain their savings in forms on which they may draw in the event of a crisis.

The Impact of Children on Australian Women’s and Men’s Superannuation

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Model 2 introduces a control for the current gross annual income from wages and salaries. It shows that throughout the age range analysed superannuation increases with the gross income from wages and salaries in 2001–02, and the superannuation advantage of the higher paid increases with age. This pattern is common to both females and males. In the absence of information about each individual’s wage pattern throughout their active life, we rely on this latter variable as a proxy of the actual employment histories. The contrast between the results of Models 1 and 2 indicate that changes in superannuation with age are due to more than our measured relationship between age and income. Figure 4 illustrates the relationship between age and superannuation levels for the two models. Our ability to control for the effects of income is limited due to the fact that income is only observed once (i.e. in 2001–02). With a more complete time series of data on income a more elaborate estimation technique to consider the endogenous determination of superannuation and earnings would have been necessary. We tested for endogeneity of the gross income from wages and salaries in 2001–02 and found it to be exogenous.

Superannuation

Figure 4: Relationship Between Superannuation Levels and Age (Model 1: Without Control for Age vs. Model 2: With Controls)

Age

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Discussion The inadequacy of women’s superannuation savings has been well known for many years. The analysis in this paper illustrates that women’s deficit in the value of their superannuation increases steeply with the number of children they have. Moreover, even after controlling for a range of variables which are related to the selectivity of female childbearing, there are still substantial negative effects related to the number of children a woman has. Thus, whilst by no means all women’s superannuation deficit is child-related, within the female population the superannuation deficit of women with more children should be of particular concern. Financial assistance targeted specifically at women with children may help to address this problem. In many other countries, women who are responsible for child care are given extra assistance from the government, in the provision of retirement income (Whitehouse 2007). In other countries which have social security systems administered by the government, child-care credits are awarded, boosting entitlements to old age pension benefits (Olsberg and Ferris 2001). This would be difficult to implement in Australia, under the current means-tested social security system. Options which might be considered in Australia are the addition of a government-paid superannuation contribution to the lower paid parent in families which receive child-related benefits, such as the Maternity Allowance (a ‘baby super bonus’) or Family Tax benefits. The government has already introduced a number of initiatives to address women’s superannuation deficit, but with varying success. Some of these initiatives were introduced after the collection of the data used in this research. Analysis of later waves of the survey will enable us to assess the impact of these more recent changes to the rules. The spouse contribution tax incentive (introduced in 1996) was designed to encourage voluntary contributions for low income women. The take up rate has been low (in the HILDA data only 2.6 per cent of partnered women and 0.7 per cent of partnered men reported receiving contributions into a super fund from their partner, with the average annual receipt being $74 per partnered female and $54 per partnered male). This may reflect, firstly, that the benefit is only available to low-income women. It seems likely the partners of non-working mothers would have a greater difficulty in making additional voluntary contributions than the partners of childless women, due to the financial costs of their children. Secondly, it may be that many women are unaware of this benefit. Thirdly, the tax incentive is fairly low (a rebate of 18 per cent of the contributions). The introduction of the government co-contribution (effective from 1 July 2003 — after the data analysed were collected) has provided an incentive for low and middle income workers to make voluntary contributions. Data released by the ATO suggest that the co-contribution system has been particularly beneficial to women: 63 per cent of co-contributions went to women (House of Representatives Standing Committee on Economics, Finance, and Public Administration 2006). The co-contribution is not targeted specifically at women; nor does it give special treatment to women who have child care responsibilities. This benefit is not available to people who are not working (you must be an eligible employee in order to receive the co-contribution). Given

The Impact of Children on Australian Women’s and Men’s Superannuation

21

the problems identified in our research, this seems counter-productive — the people who are out of the workforce, caring for children, are the ones who most need assistance in saving for retirement. The Human Rights and Equal Opportunity Commission has recently advocated changes to the co-contribution system — specifically that the Australian Government extend the Superannuation Co-contribution Scheme to individuals not in the paid workforce because of caring responsibilities including caring for dependent adults or children. An individual is to be eligible for government funded co-contributions if he or she is either eligible for Carer Payment, eligible for Parenting Payment or in receipt of Carer Allowance in addition to another income support payment for persons of working age (HREOC 2007). The House of Representatives Standing Committee (2006) has made similar recommendations, and they went further, arguing that the compulsory superannuation system should be extended to women on maternity leave. The adoption of these recommendations would help to redress the superannuation deficits of women with children, although it seems likely the financial costs of children would limit the extent to which they could take advantage of such measures. As women lose income as a result of time off from paid employment to fulfil family responsibilities (including the income they lose after returning to work due to their having less work experience, education and training and due to discrimination), they are likely to become more dependent on their partner for financial support in retirement. This can become an issue if a marriage breaks down. At the time the data we have analysed were collected, the Family Law rules were not at all clear about the treatment of superannuation assets on divorce. Technically, since superannuation funds are trust funds, the trustee was holding the assets in trust for the member. The superannuation money was not the property of the husband. There was considerable variation in the treatment of superannuation assets in divorce — often the wife would not receive a fair share of this benefit. With the introduction of the compulsory superannuation system, superannuation assets have become an increasingly significant component of the family’s assets. Therefore it became more important to ensure that there was a fairer system for dividing the superannuation entitlement in the event of divorce. Family Law was changed with effect from late 2002, and superannuation is now considered to be an asset which must be taken into account when dividing assets on divorce. This does not necessarily mean that a wife will receive a share of her husband’s superannuation, because the division of assets is negotiated. There may be a trade-off; e.g. the wife might keep the family home and the husband might keep the superannuation assets. As yet, there is little information available on the impact of the new rules. It would be interesting to monitor the superannuation savings of divorced women relative to married women — and this would be an area for future research. The adequacy of the superannuation of much of Australia’s population has been questioned — even for those working full time for thirty years, the adequacy of the existing system is arguable (since it depends on the definition of ‘adequate’) (Senate Select Committee on Superannuation 2002; Taylor and Lloyd 2004; House of Representatives Standing Committee 2006). For those

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who spend a significant amount of time out of the workforce, or working parttime, the outlook may be especially bleak (Olsberg 2005). One of the reasons for this is that cohort life expectancies in the older ages have been increasing more rapidly than official estimates had forecast (Booth and Tickle 2004). The analysis in this paper suggests that the raising of fertility may be a secondary demographic threat to the adequacy of the nation’s superannuation and may also affect its gender equity (Cigno and Rosati 1996; ABS 2006c). However, rising fertility should also eventually result in a proportionately larger workforce and hence revenue base from which to fund the costs associated with population ageing. Australian Federal Treasurer Peter Costello’s much reported soundbite ‘If you can have children it’s a good thing to do — you should have one for the father, one for the mother and one for the country, if you want to fix the ageing demographic’. (Dodson 2004) recognizes the potential value of higher fertility as a response to the challenges posed by population ageing. However, as our analysis shows, women who contribute to ‘fixing the ageing demographic’ by having children face the prospect of a financially less comfortable retirement as a consequence of their doing so. If one accepts that higher fertility will benefit the nation financially by reducing the adverse fiscal consequences of population ageing, then rewarding the producers of that benefit (i.e. those who have had the children) would seem to be justified. In order to understand the variation in superannuation better, further analysis is needed to examine whether the effects of children on women’s superannuation are purely the direct result of their compulsory contributions with more children or whether voluntary contributions to superannuation also are affected. Analysis is also needed of the variation in partner’s contributions with the number of children. Moreover work which examines the variation in asset portfolios more generally is needed to assess the extent to which the reduction in superannuation with increasing numbers of children is compensated for by changes in the other components of household wealth.

Acknowledgement Earlier versions of this paper were presented to the HILDA Survey Research Conference 2007 at the University of Melbourne 19–20 July 2007 and to the 15th Colloquium of Superannuation Researchers at the University of New South Wales, Sydney, 19–20 July 2007.

Notes 1. The current regulator is the Australian Prudential Regulation Authority (APRA) and prior to 1998 it was the Insurance and Superannuation Commissioner. 2. Superannuation savings are subject to a range of tax deductions, rebates, and taxes. Therefore the Australian Tax Office can be the source of data on various aspects of superannuation contributions and benefits. 3. The preservation requirements were introduced under the regulations to the Occupational Superannuation Standards Act 1987.

The Impact of Children on Australian Women’s and Men’s Superannuation

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4. Initially the preservation requirements only applied to part of the benefit, i.e. it was possible to take part of the benefit in cash on resignation. However the rules were gradually tightened over the years — any benefits arising from contributions made after 1 July 1999 must be fully preserved. A preservable benefit cannot be taken out of the superannuation system unless the member meets a condition of release, e.g. death, total and permanent disability, retirement after age 55, etc. The rules are quite complicated and have changed frequently over the years. 5. Technically, employers do not have to pay the superannuation contributions. But if they don’t they are required to pay additional tax. The cost of the tax exceeds the cost of the superannuation contributions, so most employers prefer to pay the contributions. 6. From time to time there are proposals to increase the compulsory contribution rate to 12 per cent or even 15 per cent, but this is contrary to the policy of the current government. 7. Employer groups have suggested that this amount should be increased to $800 per month, which would mean that many workers would no longer be eligible for the SGC. However at present this is not government policy. 8. As an example, the Unisuper superannuation fund (which covers most University staff) requires employer contributions of 17 per cent of salary. 9. Originally self-employed people were not eligible for the co-contribution; the rules were changed effective from 1 July 2007, to allow self-employed people to claim the co-contribution as well. Also, the calculation of income, for these purposes, is subject to special rules. 10. The legislation has primarily been beneficial for wives of male fund members, but also provides tax deductions for female fund members who make contributions for their low-income husbands. 11. The model is estimated using the Olsen’s (1978) transformation of the parameters: θ = 1 σ and γ = β (1 σ ) , which leads to the following log likelihood:

(

 1 log L = ∑ log Φ − X i'γ + ∑  −  log (2π ) − log θ 2 + θ yi − X i'γ 2 di = 0 di =1 

(

)

( ) (

)) 2

References ABS (Australian Bureau of Statistics) (2001) Superannuation: Coverage and Financial Characteristics, Catalogue Number 6360.6, Commonwealth of Australia, Canberra, available: http://www.abs.gov.au/ [accessed April 2007]. ABS (2005) Social Trends 2005, Catalogue Number 4102.0 Commonwealth of Australia, Canberra, available: http://www.abs.gov.au/ [accessed 5 April 2007]. ABS (2006a) Population Projections 2004–2101 Reissue, Catalogue Number. 3222.0, Commonwealth of Australia, Canberra, available, http://www.abs.gov.au/ [accessed 10 August 2007]. ABS (2006b) Household Wealth and Wealth Distribution, Catalogue Number. 6554.0, Commonwealth of Australia, Canberra, available: http://www.abs.gov.au/ [accessed 2 April 2007].

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ABS (2006c) Births 2005, ABS Catalogue Number. 3301.0, Commonwealth of Australia, Canberra, available: http://www.abs.gov.au/ [accessed 10 January 2006]. Australian Council of Trade Unions (ACTU) (2007) ‘Women now earn $100 a week less than men: ACTU analysis shows widening gender pay gap’, Media Release, 7 March. Australian Taxation Office (1999a) Super news for most, but women and contractors still missing out, media release 99/09, available: http://www.ato.gov.au/ [accessed April 2007]. Australian Taxation Office (1999b) Superannuation Guarantee compliance up — Women contractors and regional areas benefit, media release 99/87, available: http://www.ato.gov.au [accessed 5 April 2007]. Booth, H. and Tickle, L. (2004) ‘Beyond three score years and ten: Prospects for longevity in Australia’, People and Place, 12(1), pp. 15–27. Breusch, T. and Gray, E. (2004) ‘New estimates of mothers’ forgone earnings using HILDA data’, Australian Journal of Labour Economics 7(2), pp. 125–150. Brown, C. (1994) The distribution of private sector superannuation assets by gender, age and salary of members, Paper presented to the Superannuation Researchers Colloquium, available: http://rim.treasury.gov.au/content/pubs.asp [accessed 2 April 2007]. Carmichael, G. and McDonald, P. (2003) ‘Fertility trends and differentials’, in S.E. Khoo and P. McDonald (eds) The Transformation of Australia’s Population, UNSW, Sydney. pp. 40–76. Chapman, B., Dunlop, Y., Gray, M., Liu, A. and Mitchell, D. (2001) ‘The impact of children on the lifetime earnings of Australian women: evidence from the 1990s’, Australian Economic Record, 34(4), pp. 373–389. Cigno, A. and Rosati, F. (1996) ‘Jointly determined saving and fertility: Theory and estimates for Germany, Italy, UK and USA’, European Economic Review, 40, pp. 1561–1589. Clare, R. (2004) Why can’t a woman be more like a man: Gender differences in retirement savings, paper presented to Super: Saving 4 the Nation, the ASFA National Conference and Super Expo, Adelaide Convention Centre, 10–12 November. Cobb-Clark, D. and Hildebrand, V. (2002) The wealth and asset holdings of U.S.born and Foreign-born Households: Evidence from SIPP Data, IZA Discussion Paper No. 674, available: http://www.iza.org/ [accessed 13 February 2007]. Commonwealth of Australia (1984) Sex Discrimination Act 1984 No. 4 — Section 41, available: http://www.austlii.edu.au/ [accessed 12 June 2007]. Commonwealth of Australia (1992) Superannuation Guarantee (Administration) Act 1992 No. 111, Section 20, available: http://www.austlii.edu.au/ [accessed 12 June 2007]. Commonwealth of Australia (2004) Budget 2004–05: More Help for Families, available: http://www.budget.gov.au/2004-05/ [accessed 10 January 2007]. Dodson, L. 2004. ‘The mother of all spending sprees’, Sydney Morning Herald, 12 May, Budget Supplement, p. 1.

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Evans, M. (1996) ‘Women’s labour force participation in Australia: recent research findings. Journal of the Australian Population Association, 13(1), pp. 67–92. Ferris, S. and Olsberg, D. (2001) ‘Missing out? Women and retirement savings’, Macquarie University Department of Actuarial Studies Research Paper 2001.01. Foster, C. (1988) ‘Towards a National Retirement Incomes Policy’, Social Security Review Issues Paper 6, Australian Government Publishing Service, Canberra. Gray, A. and Tesfaghioghis, H. (1993) ‘Aboriginal population prospects’, Journal of the Australian Population Association, 10(2), pp. 81–100. Greene, W. (1999) ‘Marginal effects in the censored regression model’, Economics Letters, 64(1), pp. 43–50. Hancock, K., Hedley, K. and McCrossin, R. (1977) Occupational Superannuation in Australia, The Final Report of the National Superannuation Committee of Enquiry, Australian Government Publishing Service, Canberra. Henman, P., Percival, R., Harding, A. and Gray, M. (2007) Costs of children: Research commissioned by the Ministerial Taskforce on Child Support, Occasional Paper No. 18. Australian Government Department of Families, Community Services and Indigenous Affairs, Canberra. House of Representative Standing Committee on Economics, Finance and Public Administration (2006) Improving the superannuation savings of people under 40, The Parliament of the Commonwealth of Australia, available http://www. aph.gov.au/ [accessed April 2007]. HREOC (Human Rights and Equal Opportunity Commission) (2007) It’s about time: Women, men, work and family, available http://www.hreoc.gov.au/ [accessed 3 April 2007]. Junankar, P. and Mahuteau, S. (2005) ‘Do Migrants get good jobs? New migrant settlement in Australia’, Economic Record, 81(S1 August), pp. S34–S46. Kelly, S. (2003) ‘Forecasting wealth in an ageing Australia: An approach using dynamic microsimulation, paper presented at the 7th Nordic Seminar on Microsimulation Models, Helsinki 13 June, available: http://www.natsem.canberra. edu.au/ [accessed 3 April 2007]. Kelly, S. (2006) ‘Modelling the expected income streams’, Presentation to the 39th National Conference of the Australian Association of Gerontology, 22–24 November, available: http://www.canberra.edu.au/centres/natsem/home/ [accessed 2 April 2007]. Kelly, S. and Harding, A. (2007) ‘Baby boomers — doing it for themselves’, AMP/ NATSEM Income and Wealth Report Issue 16, March, available: http://www.amp. com.au/group/3column/ [accessed 3 April 2007]. Mahuteau, S. and Junankar, R. (2007) Do migrants succeed in the Australian labour market: Further evidence on job quality, IZA Discussion Paper, Bonn, Germany. Marks, G., Headey, B. and Wooden, M. (2005) ‘Household wealth in Australia: Its components, distribution and correlates’, Journal of Sociology, 41(1), pp. 47–68. McDonald, P. (2001) ‘Family support policy in Australia: The need for a paradigm shift’, People and Place, 9(2), pp. 14–20.

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Olsberg, D. (1997) Ageing and Money: Australia’s Retirement Revolution, Allen and Unwin, St Leonards. Olsberg, D. (2005) ‘Women, superannuation, and retirement: Grim prospects despite policy changes’, Just Policy, 35, pp. 31–39. Olsen, R. (1978) ‘Note on the uniqueness of the maximum likelihood estimator of the Tobit Model’, Econometrica, 46, pp. 1211–1215. Parr, N. (2005) ‘Family background, schooling and childlessness in Australia’, Journal of Biosocial Science, 37(2), pp. 229–243. Parr, N. (forthcoming 2007) ‘Which women stop at one child in Australia’, Journal of Population Research, 24(2). Parr, N. and Guo, F. (2005) ‘The occupational concentration and mobility of Asian immigrants in Australia’, Asian and Pacific Migration Review, 14(3), pp. 351–380. Percival, R. and Harding, A. (2002) ‘All they need is love and around $450,000’, The AMP/NATSEM Income and Wealth Report Issue 3. Australia: AMP, available: http://www.canberra.edu.au/centres/natsem/publications/ [accessed December 2004]. Rothman, G. (1995) The distribution of superannuation by sector, account type and personal characteristics, paper presented to the Australian Colloquium of Superannuation Researchers, University of Melbourne, July. Senate Select Committee on Superannuation (2002) ‘Superannuation and standards of living in retirement’, available: http://www.aph.gov.au/Senate/committee/ superannuation_ctte/completed_inquiries/2002-04/living_standards/report/ contents.htm [accessed April 2007]. Senate Select Committee on Superannuation and Financial Services (2001) ‘Enforcement of the Superannuation Guarantee Charge’, Parliament of Australia, available: http://www.aph.gov.au/senate/committee/superfinan_ctte/completed_ inquiries [accessed April 2007]. Taylor E. and Lloyd, R. (2004) ‘Superannuation — Finding the Balance?’, NATSEM Report prepared for CPA Australia, available: http://www.cpaaustralia.com.au/ [accessed April 2007]. Taylor, J. (2003) ‘Indigenous Australians: The first transformation’, in S. E. Khoo and P. McDonald (eds), The Transformation of Australia’s Population, UNSW, Sydney. pp. 17–39. Watson, N. and Wooden, M. (2002a) The Household, Income and Labour Dynamics in Australia (HILDA) Survey: Wave 1 survey methodology, HILDA Project Technical Paper Series No 1/02, available: http://www.melbourneinstitute.com/ hilda/ [accessed 2004]. Watson, N. and Wooden, M (2002b) Assessing the quality of the HILDA Survey Wave 1 data, HILDA Project Technical Paper Series No 4/02, available: http:// www.melbourneinstitute.com/hilda/ [accessed 2004]. Whitehouse, E. (2007) Pensions Panorama: Retirement Income Systems in 53 Countries, World Bank, Washington D.C.

The Economic and Labour Relations Review Vol. 18 No. 1, pp. 27–52

Farewell to Tax Neutrality: The Implications for an Aging Population Susan St. John * Abstract In the light of the financial consequences of longevity, the potential for widening living standards as the population ages, and the perception of an increased burden by the working age population, recent policy changes in New Zealand appear far from ideal. For nearly twenty years, the retirement system has comprised just a universal state pension, called New Zealand Superannuation, and voluntary unsubsidised private saving. The decision in the late 1980s to promote tax neutrality for saving was critical to attaining a cost-effective, adequate, equitable and sustainable retirement income for all in an uncertain future. Nevertheless, a level playing field was only partially achieved and by the early 2000s, large imbalances in the economy were apparent. Strident calls to promote saving gradually undermined the accord around tax neutrality for retirement saving leading in 2007 to the re-introduction of tax incentives for certain types of saving, and other types of state intervention in private provision. This paper examines how the twenty year experiment with tax neutrality is coming to an end and the implications this has for the support of an aging population experiencing increased longevity.

Introduction New Zealand has often been described as a social laboratory, nowhere more so than in the case of retirement provision. For nearly twenty years, New Zealand adhered to the principle of tax neutrality in private saving for retirement. Voluntary unsubsidised private saving together with a universal state pension, New Zealand Superannuation, appeared to be a well-supported, cost-effective, adequate, secure, and highly equitable approach. When tax neutrality for saving was first introduced between 1988 and 1990, along with other wide ranging reforms to the tax system, it took many by surprise (St. John and Ashton 1993). This paper revisits the nature of the dramatic experiment to abandon conventional tax treatment of saving. Along with other lurches in retirement provision, it provoked some international bemusement (Johnson 1999). Was it a successful experiment? What was the purpose? Did it have potential advantages in the light of an ageing population?

* University of Auckland

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In 2007, the nearly twenty-year experiment has been brought to an abrupt end, providing yet another opportunity for scientific international observation of this social experiment. What happens to saving when tax incentives are introduced? While the goals of these recent changes, which will be fully phased in by 2011 (see Box 1), are ostensibly to enhance retirement saving as well as to solve the national saving problem, a bigger question is whether they are suitable reforms in the light of the ageing population and increasing longevity. The twenty-year experiment in New Zealand demonstrates that a comprehensive income tax approach to retirement saving requires that the principle be implemented comprehensively so that housing investment, in particular, does not remain tax advantaged. More recent experience also shows that opening the door even just a little to tax breaks leads quickly down the slippery slope towards an expenditure tax treatment for retirement saving and the complexities of a hybrid approach to taxing capital. In the 1980s in many OECD countries, the latter was seen as very damaging (Hagemann, Jones and Montador 1987). This paper first sets out the background to the introduction of tax neutrality in the context of retirement income policies in the 1990s. Then the rise of pressure for tax incentives and the unravelling of tax neutrality with the introduction of KiwiSaver are described. A framework for evaluating the success of the two New Zealand experiments is suggested using the economic criteria of equity, efficiency and administrative simplicity; as well as their capacity to meet stated goals; and their suitability in the face of an ageing population. The final section draws some conclusions and highlights some of the dangers of the new policy mix in New Zealand.

Background: The Retirement Policy Mix 1988–2007 Private Provision For the period 1988–2007, New Zealand had a uniquely simple system of voluntary, unsubsidised provision for retirement saving to supplement the basic state pension. In theory people were free to save in any appropriate way, whether by acquiring equity in housing, repaying debt, investing in businesses or financial assets or even by furthering their own education or that of their children. This section discusses the theoretical underpinnings that gave rise to this tax reform in New Zealand and the context of the difficult transition to tax neutrality. Between 1990 and 2005, defined contribution employment-based schemes steadily replaced defined benefit schemes as risk was shifted from employers to employees, and overall employee participation in occupational superannuation schemes declined (Table 1). This process had the extra negative factor that the change in the tax regime described below impacted on private pension and annuity provision. This means fewer new retirees have either an annuity or a private pension to supplement the basic state pension, and far fewer again have pensions that offer full protection from the risk of inflation.

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29

Table 1: The Membership and Assets of Occupational Superannuation Schemes (Private and Public) 1990–2005 Year

% coverage of the labour force

Assets $NZm

1990

22.6%

9,508

2005

14.7%

11,452

Source Report of the Government Actuary for the Year Ended 30 June 2006, accessed at http://www.isu. govt.nz/

The State Pension The state pension, New Zealand Superannuation (NZS),1 is a basic income, payable at age 65 to all New Zealanders living in New Zealand who meet the minimal residency requirements of 10 years’ residency since the age of 20 years and not less than 5 years’ residency since attaining the age of 50. There are offsets for some overseas pensions. It has several unusual features as a first pillar. It is non-contributory and thus recognises both paid and unpaid contributions to society. Women in particular are well-treated (St John and Gran 2001). NZS protects against the risk of inflation, the risk of poor investment and the risk of a growth in living standards generally. It is very simple to understand, apply for and administer. There are no inherent disincentives to work or save because the pension is neither income- or asset-tested. As social insurance, the scheme does not require any guarantee period nor return of capital on death, so that it functions as a cost-effective pure, gender­ neutral life annuity, providing longevity protection. The general tax base is wider than wage income, as it includes taxes on investment income and on consumption. Thus some of the burden of the PAYG scheme is spread from the working-age population to include tax contributions from the old as well. The net rate of payment for a couple is legislated to be within the band of 65–72.5 per cent of net Average Ordinary Time Weekly Earnings (AWE). Each year there is an annual adjustment to reflect movements in the Consumer Price Index, unless the floor of 65 per cent is breached at which point wage indexation restores the floor (under Mixed Member Proportional (MMP) Representation arrangements the floor is currently agreed at 66 per cent). Table 2 sets out the current rates. The level has been effective in largely preventing poverty for the elderly, so that there is little need for supplementary welfare payments. A comprehensive survey in 2004 showed that those over 65 enjoy the best profile of living standards of any age group (Ministry of Social Development 2006). In terms of sustainability, the net cost of paying New Zealanders the NZS is currently 3.6 per cent of GDP and expected to increase to around 8 per cent of GDP by 2051.2 While the fiscal pressures of an ageing population are real, the size of the problem seems modest in comparison with other OECD countries many of which already face much higher pension/GDP ratios and which provide subsidies in the form of tax expenditures for private provision that are not reflected in pension/GDP ratios.3

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Table 2: New Zealand Superannuation Rates 1 April 2007 Pension type

% couple rate

Net weekly at primary tax

Single Living alone

65

$277

$336

Single sharing

60

$256

$310

Couple, each person

50

$213

$256

Gross weekly

Source: WINZ http://www.workandincome.govt.nz/

Was This a Sensible Arrangement for Retirement Policies? One outcome has been less reliance on superannuation assets in household net worth. Pension funds as a percentage of GDP are only 11 per cent in New Zealand in contrast, for example, to Australia, 58 per cent, and Iceland, 123 per cent (OECD: 2007b). However while the OECD weighted average of pension funds/GDP is 87.6 per cent, there are 16 OECD countries whose ratios are lower then New Zealand, including high growth countries such as Norway and Korea. A high ratio is no guarantor of solving the national savings problem either. Iceland’s Current Account Deficit, for example has been in the order of 10 per cent of GDP. It may be argued that the lack of tax incentives has justified the relatively generous tax-funded universal New Zealand Superannuation. The universal pension together with the tax-neutral regime for private financial saving offers tax advantages, has favourable equity implications, and enjoys relative simplicity. Each person in receipt of the pension is taxed in his/her own right as an individual on total gross income including the gross pension, so that with New Zealand’s mildly progressive income tax rates, the top income pensioner effectively receives a pension worth approximately 72 per cent of the pension of the lowest income pensioner. If there is a deficiency, it is in the lack of assistance to enable middle income people to achieve an adequate income replacement rate that offers them protection from longevity risk including the risk of increasing average longevity (St John: 2006b).

Background to Comprehensive Income Tax Reforms 1988–1990 4 In the 1980s, special tax advantages in the tax system were supposed to achieve all kinds of objectives. Sometimes interventions were based on desirable aims, such as to encourage savings for retirement, to increase business investment and exports, or to expand the coverage of private health insurance. Often however, tax privileges resulted from the activities of pressure groups. The process narrowed the base on which taxes could be levied, which implied a higher required rate on the smaller base. In turn, higher tax rates increased the incentive to evade and avoid or otherwise find loopholes, and for interest groups to lobby for further protection. In this environment the tax system (as in other OECD countries) was widely perceived to be complex and administratively

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cumbersome, to have high efficiency costs and to be inequitable. Many people were able to avoid their fair share of the tax burden, while others resorted to illegal actions to evade theirs (McCaw Committee 1982; Hagemann, Jones, and Montador 1987; McLeod 2001b). In December 1987, the Minister of Finance, Roger Douglas, announced wide tax reforms including a low flat rate of personal tax aligned with the company rate. Tax subsidies for saving were to be removed, imputation credits introduced for dividend income and the tax base broadened by the closure of loopholes of all kinds. The rationale was largely economic and there did not appear to be any particular concerns about the effects on retirement incomes. The intent was to ‘level the playing field’ so as to remove, or minimise, the economic cost of distortions that arose from treating different income streams differently. Douglas argued that tax concessions had allowed savings to flow to favoured financial institutions that had not necessarily invested the money in the best ways possible for growth. He claimed that a low, flat tax rate was necessary to encourage saving, reward work and minimise avenues for income splitting. The intent was clearly to underpin the other economic reforms of the 1980s in New Zealand that had emphasised the role of the free market in the allocation of scarce resources (Easton 1997a, 1997b). A consultative document reviewed the arguments for comprehensive income tax underlying these reforms, particularly as they affected saving, and considered the merits of an expenditure tax treatment of saving. A direct expenditure tax (DET) has theoretical advantages by not imposing a penalty on saving. All increases to savings are deducted and reductions to savings are added to income to give the DET base (Y-S). It was noted that if savings are positive the DET base is smaller than the income base (Y), necessitating higher rates of tax to achieve the same revenue.5 In turn, a higher rate of tax carries a higher disincentive to work, off-setting the advantage from not distorting the saving choice (Douglas 1988). A comprehensive income tax rather than a DET was chosen in light of the difficulties of the transition to DET and the lack of DET in the rest of the world (Douglas 1988: 38).6

The Equity Argument While flat tax itself is not progressive, improving fairness was another strong rationale for the changes. Tax avoidance and tax exemptions had rendered the old tax system of the 1980s far less progressive than the stepped up marginal schedule appeared: [Flat tax] in conjunction with enhanced income support for low income people in the workforce and the abolition of tax concessions that favour the better-off will also make our tax-benefit system more truly progressive (Douglas 1987). Higher income people under flat tax would pay more tax, first because they would no longer benefit from a lower rate on the first part of their income and second because of the removal of the major tax concessions and the closing of tax loopholes.

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The Minister of Finance claimed that the concessions on life insurance and superannuation schemes alone were worth 2.5 percentage points on basic tax rates, or about 1.2 per cent of GDP (Douglas 1987).The rate of the flat tax was not announced in the tax package although later it was revealed that a 23 per cent rate was contemplated and would have been accompanied by the cuts to government expenditure by the introduction of user pays for state provision of many kinds.

Saving for Retirement As in many other countries, tax-subsidised private pensions were originally the preserve of employees in large companies and the government sector. The chief beneficiaries in the private sector were characteristically white, male, highincome, long-term employees. In the state sector, a defined benefit scheme (The Government Superannuation Fund) with its inflation-adjusted pensions enjoyed wide coverage in the 1960s and 1970s. Prior to the tax reforms of the late 1980s, pension schemes had received preferential tax treatment on both employee and employer contributions and on fund earnings. While pensions were taxed as income, up to 25 per cent of pension savings in these schemes could be taken as a tax-free lump sum. Pure lump-sum schemes were also tax subsidised, but less generously after the early 1980s.7 Under the tax regime introduced in 1987 and applying until 2007, contributions to savings plans had been made out of after-tax income so that contributions might be described as ‘taxed’ (T). Income accruing as fund earnings is taxed (T) at the company rate of 33 per cent, while withdrawals from the fund are exempt from tax (E). The traditional expenditure tax treatment involves an Exempt/Exempt/Taxed (EET) regime while the New Zealand income tax treatment of savings involved a Taxed/Taxed/Exempt (TTE) regime. By 1 April 1990, the new tax regime was fully operational with the Income Tax Amendment Act 1989 and the Superannuation Schemes Act 1989 providing the necessary taxation and supervisory legislation. Schemes became ‘registered’ by the Government Actuary rather than ‘approved’ as previously for tax concession purposes. The regime emphasised the responsibilities of trustees and applied equally to schemes sponsored by employers and those offered to the public via retail schemes. From this point New Zealand’s tax regime for retirement income saving no longer distinguished between pension and lump-sum schemes. A tax neutral approach precludes the right to regulate retirement saving for social purposes, for example, to legislate for the purchase of an annuity from the retiree’s lumpsum savings. Thus with no tax concessions, no restrictions could apply as to how scheme benefits were to be received, although the trust deed could specify such details. Also there was no restriction on the amount of the employer’s contribution. Rather than tight regulation, the disclosure requirements of the Securities Amendment Act 1996 and the Investment Advisors (Disclosure) Act 1996, were imposed, consistent with free market reforms that assume full information (Periodic Report Group 1997: 191).

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These far-reaching reforms made New Zealand the only OECD country, except perhaps Mexico, not to treat private savings for retirement differently from other forms of saving (Yoo and de Serres 2004). While the intent of removing privileges from certain classes of saving was to encourage investment in more productive areas, the idea of tax neutrality in the treatment of saving was difficult to realise in practice as discussed below.

The Transition to Tax Neutrality 8 A complex and uncertain time for private superannuation followed the December 1987 announcement of TTE. A transitional regime for previously taxfavoured schemes was supposed to be sufficient to allow the smooth adjustment to the new tax environment. An overwhelming majority of submissions to the consultative committee set up under the chairmanship of Dr Donald Brash voiced strong opposition to the direction that the Government had chosen. The Brash committee was however in sympathy with the concept of neutral treatment of all forms of savings, but recommended as more appropriate an approach that exempted contributions from tax, but fully taxed fund earnings and emerging pension benefits (Exempt/Taxed/Taxed) (Report of the Consultative Committee 1988). Under certain assumptions, such a regime was tax neutral although the committee was in favour of some degree of concession which they argued could be offset by a lower entitlement to the state pension. Amongst the arguments for this alternative treatment were: •  lower windfall gains for existing pensioners and those close to retirement; •  less disruption to schemes in the short term with implications for the stability of capital markets; •  better ability to impose regulations, especially those relating to preservation, portability and the requirement to take a pension. The committee claimed that the Government’s proposed TTE regime would be more fiscally costly than the equivalently neutral ETT regime that they recommended. This extra cost would arise despite the short-term gains that would accrue to the Government’s budget by bringing the tax liability forward to contributions. Not only would the possibility of increased numbers of schemes being wound up mean greater calls on the state pension in the future, but they also foresaw the possibility of a significant loss of tax revenue when all end benefits were paid tax-free compared to their recommendation in which all benefits would be taxed as they emerged (Report of the Consultative Committee 1988: 21). In the event, the Government made only minor changes in line with the committee’s recommendations and indicated the intention to proceed with the TTE treatment of superannuation saving. The absence of any grandfathering clauses to ease the two year transition meant that the impact of the changes on private superannuation schemes was dramatic. All pension schemes had to be reviewed, and pension levels could be reduced to reflect their new taxpaid status and to allow for the tax on investment income. Many occupational

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schemes were closed to new members, while others were wound up and the funds distributed. Some were changed from a defined benefit basis to a defined contribution basis. Existing schemes had until January 1990 to submit proposals to the Government Actuary if they wished to reduce accrued benefits to compensate for the new tax regime. This once-only legislative provision over-rode the trust deed which would not ordinarily permit this to happen without the consent of all affected members. Existing and newly retiring pensioners were to be compensated for the tax on fund earnings and the subsequent reduction in their pensions by being able to take the pension tax-free. Any renegotiated reductions to accrued superannuation benefits were required to be fair between members and to provide no financial advantage to the superannuation scheme. Those near or in retirement were to be protected as far as possible. While, strictly speaking, those in retirement or close to retirement would require a much lower reduction in pension benefits than younger members of schemes to compensate for the tax changes, it was deemed to be equitable to have a uniform rate of reduction across the board if the trustees were so to choose. As it turned out, many schemes in actuarial surplus did not reduce the pensions already being paid much, if at all. As a result, pensioners received an immediate increase of disposable income from their pensions of up to 49 per cent depending on their marginal tax rate. The Government Superannuation Fund (GSF) was also required to reduce benefits, despite being largely PAYGO. In this case, existing pensions were reduced as if the pension was taxed as primary income, ignoring all other forms of income. There were considerable windfall gains for those on the highest marginal tax rate and with the largest pensions (St John and Ashton 1993: 39). Not only were the distributional consequences of adopting TTE unfortunate, but the loss of tax revenue was scarcely appropriate in the light of the fiscal problems the Government was facing. It was estimated that the revenue forgone over time by the granting of tax-free benefits to those who had saved under a highly tax concessionary regime was of the order of around $3–4,000 million in present value terms (Report of the Consultative Committee, 1988). The net result of the renegotiation period was that many of those who had already benefited from the concessionary regime of the past benefited yet again — what had been an EET regime became, effectively EEE for some. The losers were taxpayers generally, and future and current members of existing schemes whose entitlements would be considerably less generous. Ironically, the lost revenue may have eliminated any time advantage that there might have been in bringing forward the receipt of tax from the receipt of the pension to the contributions and fund earnings stages. A one-off tax on accrued capital might have been effective in reducing the windfall gains, as was suggested when similar possible reform was considered in the US (Munnell 1992). Douglas argued that long drawn out transitional arrangements are seldom fair, are usually complex, and defer the benefits of the changes being implemented. He believed that any dramatic change in which there are winners and

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35

losers was best presented as part of an overall package where personal losses in one area are offset by gains in other areas. But political factors disrupted the reform process so that many of the changes originally envisaged by Douglas were not implemented. The timing of the reforms could hardly have been worse. The December 1987 announcement came just after the New Zealand share market crash and at the beginning of what was to be a prolonged and deep economic recession. Reduced cash flows and the attempts to shift towards more liquid portfolios on the part of major long-term savings institutions intensified the downturn in the property and equities market. Differently from in other countries, share prices were slow to recover after the share market crash, and the share price index (Barclays Index) fell from a peak of 3,800 in October 1987 to around 1,200 by the end of 1990. Attempts by institutions to sell assets in this period may have contributed to the damagingly high interest rates that persisted despite a rapidly reducing rate of inflation. The Consultative Committee had certainly foreseen this possibility as a consequence of the new tax regime (Consultative Committee on Superannuation, Life Insurance and Related Areas 1988: 26).

The 1988–1990 Tax Reforms for Saving in Practice The tax regime adopted by New Zealand (TTE9) for retirement saving works best if the tax rate system is fairly flat. That way, the contributions tax rate applied to employer contributions, the tax rate on fund earnings (the company rate) and the marginal tax rate of contributors will be similar. No end of year reconciliation is required nor is the imputation of income from funds affected. However Douglas’s radical and unexpected announcement in late 1987 caused much political bickering within the government, and the full package was never implemented the way it was conceived. The flat tax proposal was abandoned and instead, two statutory rates with a low income rebate were introduced giving three effective marginal tax rates (see Table 3). Table 3: New Zealand Tax Schedule for Personal Income Tax Bracket

Effective Effective Effective marginal tax marginal tax marginal tax rate 1988–1996 rate 1997–2000 rate 2001–

$0–9500

15*

15*

15*

$9501–30895

28

21

21

$30,895–38,000

33

21

21

$38,001–60,000

33

33

33

$60,000+

33

33

39

*Includes the low income earner’s rebate

Nevertheless until the mid-1990s, the tax scale was fairly flat and the tax regime of TTE worked tolerably well. But once the second tax band was lowered from 1997/8 to 21 per cent and extended, there were big disparities between taxes

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paid in superannuation funds and the marginal rates actually faced by low and middle income earners. Employer fund contributions (under a withholding tax, the SSCWT10) and earnings in the fund were taxed at 33 per cent making the regime tax penal for anyone on only a 21 per cent tax rate. Perversely however, significant tax advantages from saving in employersponsored schemes for high-income superannuation fund members were introduced when the top tax rate was lifted to 39 per cent in 2000/1 (see Table 3). Nevertheless the ‘salary sacrifice’ option for high-income earners to exploit these advantages by reducing their gross income in exchange for employer contributions was not widespread. The Taxation (FBT, SSCWT and Remedial Matters) Act 2000 imposed a fund withdrawal tax (FWT) to reduce the ability of high-income people to use superannuation vehicles as a short term means of avoiding the 39 per cent rate. Despite the best endeavour of the Taxation of Life Insurance and Superannuation working party, TOLIS (1997), to resolve the marginal tax rate issues, there were no easy answers in determining a suitable proxy rate for either employer contributions, or for the taxation of fund earnings. In 2004, a partial solution was introduced so that employers could use the marginal tax rate of the employee (15 per cent, 21 per cent, 33 per cent) for the tax on employer contributions. The option was voluntary and did not address the over-taxation of fund earnings for employees on tax rates of less than 33 per cent. It was not until 2007 that the issue was finally addressed in the raft of dramatic changes described below. In another tilt to the playing field, superannuation funds paid tax on capital gains where such funds were deemed to be trading assets rather than investing ‘passively’. Individuals who invest on their own account are usually exempt from such a tax. In 2004, a report commissioned by government to determine an acceptable tax treatment recommended the removal of capital gains tax on non-passive managed funds to address this anomaly (Stobo 2004). The government included this as part of the overall tax changes for investment vehicles to take effect in 2007 as discussed further below.

The ‘Level Playing Field’? After the radical reforms undertaken in the 1980s, the NZ tax system has long been regarded as one of the most efficient within the OECD (OECD 2007a). This is despite the continued favourable tax treatment of housing investment, through the absence of a capital gains tax (Bollard 2004). Significant biases towards investment in housing arise from the non-taxation of the imputed rent in owner-occupied dwellings, the tax-free nature of most capital gains by individuals deemed not to be traders, and the tax regime for rental income that allows deductibility of full nominal mortgage interest and other write-offs such as depreciation,11 while capital gains are largely untaxed. Despite the best endeavours of the 2001 Tax Review (McLeod 2001a, 2001b) that examined the case for taxing imputed rent and discussed advantages that might flow from a tax on net housing equity the Risk-Free Return Method (RFRM), there has been little political interest in levelling the playing

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field for housing. In 2007 the OECD suggested that New Zealand needed a new strategic direction: There are at least two broad options: adapting the system within a comprehensive income approach or moving to a dual income tax system, in which capital income is taxed at a lower rate than earned income. These options should be evaluated against the criteria of efficiency, equity, simplicity and transition costs within an inter-temporal economy-wide framework. In any case, weak points within the current tax bases should be re-examined, recognising the merits of a “broad-base, low-rate” approach. Any actions taken in the near-term should avoid adding to domestic demand and be consistent with the long-term direction eventually adopted. Reforms should also not put long-term fiscal sustainability at risk: a higher GST rate could help achieve this objective (OECD 2007a: 2).

Re-introduction of Tax Incentives? Numerous retirement policy review taskforces during the 1990s and 2000s supported the voluntary, tax unsubsidised retirement savings regime in New Zealand.12 The 2001 Tax Review, the first since 1982, also recommended that tax incentives for saving should not be introduced (McLeod 2001). Nevertheless, anxiety persisted about whether New Zealanders save enough, either individually for retirement, or as a nation. New Zealand is heavily reliant on foreign savings with a persistently large current account deficit and accumulated overseas debt.13 While the national saving problem involves more than just the household sector, New Zealanders’ poor personal savings habits came under increasingly scrutiny.14 A 2002 net worth survey showed that mean assets for individuals over 65 was only $186,000 (Statistics New Zealand 2002). With a median of only $113,000, the distribution is highly skewed, and on the surface New Zealanders appeared less well prepared for retirement than their counterparts elsewhere. However Treasury research argued that given the substantial wealth implied by the New Zealand Superannuation pension itself, on average, people were saving enough for optimal income smoothing (Le, Gibson and Scobie 2004). A later paper refined this research, but still found little evidence of widespread undersaving (Le, Gibson and Scobie 2007). In 2001 the Government reviewed the basis on which private savings are taxed or otherwise encouraged within the parameters that: … any incentives would have to meet the requirements that they were fiscally affordable, did not crowd out other government spending and added to overall savings levels, rather than merely shifting the form of savings’ (Cullen 2001). A range of complex suggestions was made. The Minister of Finance, Dr Cullen initially proposed a ‘parallel option’ to the current taxation regime for superannuation, under which contributions continue to be paid from taxed income, investment earnings are tax free, and benefits are partially taxed. This was

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referred to as TEt (or Taxed, Exempt, and partially taxed) compared to the current TTE. There was to be a limit on the annual contributions and a limit on the amount that could accumulate within the scheme. The scheme would be required to lock in the benefits for a period or until a specified age is attained and to provide a portion as a pension. There were concerns in the industry that compliance would be difficult and would require new schemes distinct from existing schemes. As noted above, a major, concurrent review of the tax system examined the case for tax incentives in depth, and recommended that they not be reintroduced (McLeod 2001b). A report of officials noted that it was difficult to ascertain the exact goals the government wanted to achieve and that none of the options examined (tTE,TET,Tet) was able to meet all the objectives the government sought, (The New Zealand Treasury 2001). As in the past when tax incentives were considered, it has been difficult not to conclude that the advantages are likely to go to the people who least need an incentive to save, and that overall savings are unlikely to be increased. The skewed distribution of financial saving towards the higher income end persuaded the committee that tax concessions would be both highly regressive and ineffective. On balance, the Treasury report indicated that if a tax incentive were to be reintroduced then a very limited one (with a cap on contributions of $1000–2000) with an upfront incentive was best: Officials do not suggest that an upfront incentive is likely to make savings more realistic for many low to middle-income households. Such an incentive scheme is simpler to promote and explain however, which may increase its utilization amongst households with little to no current savings. While no incentive may be likely to appreciably increase savings, Officials prefer a tTE scheme to a TET or TEt incentive because it would result in fewer harmful distortions to investment patterns, it would have a lower fiscal cost and it would create less room for avoidance and tax planning behaviour (The New Zealand Treasury 2001: 1). In other words, Treasury was not enamoured of the idea of reintroducing tax incentives at all. The government continued to discuss saving incentives, but in January 2002 it decided that tax incentives for private saving would not proceed in the current year after all, citing reasons of fiscal tightness. In February 2002, the National opposition announced its policy to reintroduce tax incentives. The shape of these would appear to reflect the minimal tTE model proposed by Treasury. But in the May Budget, the Labour government endorsed the status quo of no up-front tax incentives, and later went on to win the election.

The Un-levelling of the Level Playing Field While it appeared that tax concessions were not on the agenda, by 2003 there were calls for a more proactive state intervention in private savings. The Minister of Finance signalled his dissatisfaction with the ‘total remuneration’ packages that had become more common:

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I do detect a change of attitude. The 1990s were a high watermark for individualism. A part of that was the rise of the idea of the total remuneration package. Employers recruited on a set fee for service and the worker did what he or she decided they wanted to with the wage. While this is fine in theory, there is a growing body of research that suggests that the hands-off approach works against some of that total remuneration going into long term saving (Cullen 2003). A new ‘State Sector Retirement Savings Scheme’ commenced in 2004 as a portable defined contribution scheme in which the government as employer matched contributions up to an after-tax 3 per cent of salary. A wide choice of investment styles, risk/return options and fee structures was offered from a limited list of providers. The government appeared to consider the new scheme as a role model for private sector employees, but how private sector employers could match a subsidy sourced from the general taxpayer was not clear, and employment-based superannuation schemes continued to decline. In mid 2004 the government appointed a working group to report on the design of a generic workplace savings product (Savings Product Working Group 2004). There were many difficult issues, such as whether there should be automatic enrolment, how part-time and casual workers might be included, rules around early withdrawal, management and approval of schemes and how all this could be achieved in a tax neutral environment. While the working group assumed that the government would not introduce any tax incentives for the generic product, it was clear that ‘sweeteners’ as they are called in the report were likely to be necessary. Critics such as the Association of Superannuation Funds of New Zealand argued that any such incentives would undermine existing employment-based schemes and would be a costly mistake, both ineffective in substantially increasing saving and cumbersome to administer.

KiwiSaver (I) The predicted economic slowdown of the mid-2000s failed to materialise as the sustained housing boom, fed by the willingness of banks to borrow abroad, kept confidence high. A worrying scenario was being played out. Tight monetary policy, designed to contain the economic boom, was leading to high interest. High exchange rates exacerbated the current account deficit, leading to ever more strident calls for households to save more. The 2005 budget announced that a work-based scheme KiwiSaver, requiring a 4 per cent or 8 per cent employee contribution, would be introduced in 2007. The key premise of KiwiSaver (I) was that people are more likely to commit to saving regularly if they are automatically enrolled rather than deciding whether to ‘opt in’ (see for discussion of this feature St John and Littlewood 2006). In KiwiSaver (I), the only government subsidies were a flat $1,000 ‘sweetener’, and an annual fees subsidy of $40. These subsidies eschewed the problems of the regressivity of tax concessions, thus enabling the TTE tax regime to remain unaffected. The legislation was subject to the normal submissions through the select committee process but when the bill was finally reported back, some

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key features of KiwiSaver had been changed. Of particular significance, it had been decided that employer contributions that matched employee contributions up to 4 per cent of gross income would be exempt from the withholding tax (SSCWT). The legislative basis for this was not in the KiwiSaver Act 2006 itself but in the Taxation (Annual Rates, Savings Investment, and Miscellaneous Provisions) Bill, going through the House at the same time, and appeared to be the result of compromise in an MMP parliamentary system. Cabinet papers released under the Official Information Act show alarm bells were ringing: Officials do not recommend exempting employer contributions to KiwiSaver from SSCWT. On the one hand, this would create benefits for an employee to sacrifice his/her salary or wages in exchange for an employee contribution, higher amounts could be saved and compliance costs for employers would be reduced. On the other hand, this would create a tax distortion in favour of employer contributions to KiwiSaver relative to existing schemes, could have a fiscal cost of up to $330 million, could lead to pressure to exempt all employer contributions, and would lead to no tax on employer contributions under the taxed/taxed/ exempt (T/T/E) model (Inland Revenue Department 2006). Concerns were echoed by the OECD: Over the years, there has been a move toward granting more exceptions, constituting a break with the “broad base, low rate” policy endorsed in the 2001 Tax Review (McLeod et al. 2001). Non-neutral tax policies that are unevenly applied to various activities encourage New Zealanders to devote resources to less-taxed activities, rather than to those that generate the greatest economic returns …The tax exemption for employer contributions to registered superannuation schemes is a further departure from the comprehensive income approach. In the latter system, any employer contribution to a superannuation fund for the benefit of an employee is liable for tax. The exemption was introduced in the context of KiwiSaver to incite employers to invest in superannuation schemes and give them more choice in the way they remunerate their workers. While this might seem attractive by providing some tax advantages to savings, it nonetheless introduces non-neutrality by only favouring one particular type of savings and can induce switching between savings instruments. Over the life cycle, it can be seen as a tax exemption for employees and erode the tax base (Mourougane 2007: 20). Exactly as would be predicted, the employer contribution tax break was the thin end of the wedge. The Association of Superannuation Funds of New Zealand argued that there was a serious risk that many existing superannuation schemes would be wound up, undermining the government’s goal of increased saving. Thus almost immediately, a further Supplementary Order paper extended similar tax privileges to all employer superannuation schemes that met lock-in provisions. Cabinet papers acknowledged that the extension to other schemes had

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little to do with the goal of increasing new saving as it essentially subsidised existing saving. While there appeared to be little, or no, in-depth analysis of the regressivity of the reintroduction of tax incentives, the IRD noted that the higher the employee’s salary the higher the benefit, and that: ‘…the benefit of the $1000 government contribution to KiwiSaver and the fee subsidy pale over time in comparison with the benefit of the tax exemption (Inland Revenue Department 2006). Officials were clearly concerned about their potential cost: The fiscal risks of a wide extension of the SSCWT exemption and other KiwiSaver incentive are very considerable (Inland Revenue Department 2006). A housing subsidy had been made available through KiwiSaver for first home buyers (see Box 1), but in addition a mortgage diversion scheme was also introduced late in the piece despite select committee scrutiny that had rejected it. Under this scheme, after one year, up to half of the employee’s own KiwiSaver contributions can be directed to mortgage repayment. Given that a key concern that promoted KiwiSaver in the first place was overinvestment in housing, providing mortgage repayments from what was intended to be retirement savings appeared somewhat counterproductive (OECD 2007). The introduction of KiwiSaver was timed to coincide with the reform of the taxation of collective investment vehicles including superannuation schemes. The intent was to retain the tax-paid nature of superannuation schemes, but to align the proxy tax rate more closely with the tax rate of the individual investor. Unfortunately as the previous TOLIS exercise showed, there is no easy way to do this accurately without imputation and an end of year reconciliation. The final legislation reflected this dilemma — erring on the side of generosity to the individual and thus opening the gates to avoidance activity. Superannuation schemes (and other collective vehicles) can, from 1 October 2007, become ‘Portfolio Investment Entities’ (PIEs), where a member who earns under $38,000 from other sources but whose total income including PIE income is under $60,000 can opt for a 19.5 per cent rate.14 In effect this could mean $60,000 of PIE income can be taxed at only 19.5 per cent. If the member earns more than $38,000 in taxable pay, or more than a combined $60,000 including the PIE income, the whole of the PIE income is taxed at the alternative higher PIE rate set at 33 per cent (30 per cent from 1 April 2008). Thus there are not inconsiderable rewards for restructuring the way in which earned income is received. The avenues for avoidance of tax have other ramifications which are likely to emerge over time. For example, the ability and incentive for employees to salary sacrifice into superannuation schemes generally, together with the lack of full accounting for PIE income, means that eligibility for income-tested supplements may be enhanced. For instance, an extensive programme of Families Tax Credits now applies a long way up the income distribution,16 providing a further 20 per cent return on a salary sacrifice arrangements. A lower repayment of student loans which are now interest free gains another 10 per cent.

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Box 1: KiwiSaver (as at July 2007) •  KiwiSaver is a voluntary, work-based savings scheme administered by the Inland Revenue Department using the existing PAYE (pay as you earn) tax system. Employees are automatically enrolled into KiwiSaver when they start a new job. They have the second to eighth week of employment to ‘opt-out’ and must advise their employer of their decision. •  Scheme enrolment is not automatic for workers under 18, or those employed less than 4 weeks, or for existing employees. They may join if they wish. Selfemployed people and beneficiaries can join but make payments directly to the scheme provider. •  Employees’ contributions start from the first pay day with an employer. Deductions from wages are at a rate of 4 per cent of gross salary, unless the individual opts for the higher rate of 8 per cent. Matching contributions up to 4 per cent by the employer are tax-free. •  There is a matching tax subsidy of $20 a week for employees’ contributions and a compulsory 4 per cent contribution from employers to be phased in over four years from 2008, matched with a $20 a week tax subsidy paid to the employer. •  Funds are held by the Inland Revenue for an initial three month period during which the employee can seek financial advice and select a fund provider. Savers will be able to select their own fund and can change provider, but can only have one provider at any time. Those who do not specify a fund will be randomly allocated to a default provider. •  Savings are ‘locked in’ until the age of eligibility for NZ Superannuation (currently 65) except in cases of: financial hardship, permanent emigration, serious illness or after a minimum of three years or to contribute toward a deposit on a first home. However, after a minimum 12 month contribution period, savers can stop contributions for up to five years by applying for a ‘contributions holiday’. Contributions resume at the end of the five years unless the individual applies for a further ‘contributions holiday’. •  Existing superannuation schemes have the option of converting to KiwiSaver, subject to certain criteria. Members of other schemes may choose to open a KiwiSaver account, instead of or as well as, their existing scheme. •  The automatic enrolment provisions will not apply in workplaces where the employer is ‘exempt’ i.e. running a scheme that is portable, open to all new permanent employees, and has a total contribution rate (employer plus employee) of at least 4 per cent. •  A mortgage diversion option is available whereby one half of the employee’s contribution can be allocated to his/her mortgage costs. •  The Government will also make an up-front contribution of $1,000 plus $40 for fees per person, to be ‘locked in’ until the recipient reaches the age of eligibility for NZS or for five years, whichever is the greater; provide a fee subsidy; and offer a first home deposit subsidy of $1,000 per year of membership in the scheme, up to a maximum of $5,000 for five years. Source: The New Zealand Treasury 2007

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KiwiSaver (II) In early 2007, it was clear that the pressure to extend tax concessions further would intensify. In the May Budget (just 6 weeks before KiwiSaver was to begin) tax subsidies were dramatically extended so that the first $20 a week of individual contribution attracts a matching $20 ‘tax credit’. This corresponds to a 100 per cent subsidy on 4 per cent contributions from gross pay up to $26,000 per annum. The tax credit is not limited to those in employment and can be accessed by beneficiaries, unpaid caregivers and the self employed for contributions up to $20 a week. From 1 July 2008, compulsory employer contributions of 1 per cent rising to 4 per cent of employee’s gross pay in 2011 will apply. This is only for those employees in the scheme, leaving much confusion as to what will happen with remuneration packages and wage negotiations. The employer costs are offset by a matching $20 tax credit, so that in the first two years the cost to the employer is minimal, even when employees are earning more than $26,000. The current (July 2007) version, KiwiSaver (Mark 2) is outlined in Box 3, but aspects are still to go through the legislative process. Meanwhile, the top rate of the PIE regime reduces to 30 per cent from 1 April 2008, creating an ever bigger gap between the top income tax rate and the tax on investments in PIEs. The new matching tax subsidies which apply to the first $20 contributed by the employee and the tax offset to the employer are less regressive than pure tax exemptions, however the cost is high. The New Zealand Treasury estimates that by 2011, the fiscal cost will be $1.2 billion, while the effect on household saving is expected to be only $1.1 billion (The New Zealand Treasury 2007). These projections are liable to serious under-estimates of the tax foregone in KiwiSaver as the extensive nature of the tax subsidies become apparent and take-up increases (see Table 4 for some ballpark estimates). The scheme is open to all NZ residents under the age of 65 (3.7 million people), of which about 1.7 million are potentially entitled to tax-subsidised employer contributions. Table 4: The Estimated Fiscal Cost of KiwiSaver (II) One-off sweetener $1000

Fees subsidy $40 pa

Annual cost of employee subsidy 2011

Annual cost of employer subsidy 2011

Cost of 30% PIE rate (applies to other schemes as well

100% uptake

3.7

0.15

2.4

1.2

0.18

50% uptake

1.85

0.08

1.2

0.5

0.18

Notes: 1] Cost figures in $ Billion; 2] These are estimates by author

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Evaluation of Tax Neutrality, and KiwiSaver II in Light of the Aging of the Population Box 2 shows the timeline of the changes to the tax treatment of superannuation in New Zealand. Box 2: Timeline of Tax Changes to Saving for Retirement in New Zealand Years

Employer Contributions

Employee Contributions

Fund earnings

Final withdrawals

Pre-1988

Lump sum — taxfree to ceiling Pension — taxfree (E)

To ceiling, tax-free (E)

Tax-free (E)

Lump-sum taxfree (E) Pension taxed (T)

1990– for standard superannuation scheme

Taxed 33% (T) (15%/21%/33% also possible from 01-04-2006)

Taxed at MTR (T)

Taxed 33% (30% from 01-04-2008) (T)

Tax-free lump-sum or pensions (E)

1 July 2007 KiwiSaver or complying fund only

Tax-free to 4% employee’s gross pay (voluntary)

Taxed at MTR but matching tax subsidy up to $20 a week

Taxed at 19.5% or 33% as a proxy for MTR of employee

Tax-free lumpsum

1 July 2008 KiwiSaver or complying fund only

Tax-free to 4% employee’s gross pay. 1% (compulsory). Employer gains matching tax subsidy up to $20 a week

Taxed at MTR but matching tax subsidy up to $20 a week

Taxed 19.5% or 30% as a proxy for MTR of employee

Tax-free lumpsum

1 July 2009 KiwiSaver or complying fund only

Tax-free to 4% employee’s gross pay. 2% (compulsory). Employer gains matching tax subsidy up to $20 a week

Taxed at MTR but matching tax subsidy up to $20 a week

Taxed 19.5% or 30% as a proxy for MTR of employee

Tax-free lumpsum

1July 2010 KiwiSaver or complying fund only

Tax-free to 4% employee’s gross pay 3% (compulsory). Employer gains matching tax subsidy up to $20 a week

Taxed at MTR but matching tax subsidy up to $20 a week

Taxed 19.5% or 30% as a proxy for MTR of employee

Tax-free lumpsum

1 July 2011 KiwiSaver or complying fund only

Tax-free to 4% employee’s gross pay 4% (compulsory). Employer gains matching tax subsidy up to $20 a week

Taxed at MTR but matching tax subsidy up to $20 a week

Taxed 19.5% or 30% as a proxy for MTR of employee

Tax-free lumpsum

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Gains from the post-2007 regime are likely to be largest for the 45–64 age group, who are the most likely to have other savings that they can shift into KiwiSaver, have the least time to wait before getting access at 65, and will still receive a universal benefit. The net present value of the upfront $1000 and the $40 subsidy on the first $20 saved is much lower for those aged 18–45, who except under limited conditions cannot access this until age 65. This group is far less likely to join KiwiSaver and enjoy access to the subsidies. In terms of addressing the stated problem of national saving or the Current Account Deficit (CAD) little can be expected. The impact on the goal of reducing consumption is in seeming conflict with tax-subsidised lump-sums paid out at 65. It is also likely that employers will eventually close existing work-based superannuation schemes or shift them into KiwiSaver. Subsidised KiwiSaver contributions overturn the old rule that reducing debt was the first main preparation for retirement. It now makes financial sense to either not reduce debt, especially student loan debt, or even to increase debt to join KiwiSaver. Overall, the NZ Treasury expect that because much of the KiwiSaver saving will not be new saving and because the subsidies make savings goals more easily achieved, there may be more consumption, not less (Minister of Finance 2007). Some positive features of KiwiSaver include full portability, choice of provider and the likelihood of increased financial literacy in the population over time. But there are several reasons to support the claim that KiwiSaver is ‘seriously regressive’17 despite the use of a tax credit approach rather than a tax incentive: •  At any given income level, the two-earner family gains the most. •  High-income, one-earner families are more likely to have the non-earner in KiwiSaver and accessing the upfront $1000 and the matching annual $1040 subsidy. •  High earners are more likely to benefit from the advantageous PIE regime and from salary sacrifice options (Retirement Policy and Research Centre 2007). •  Older, wealthier baby boomers are more likely to join and have less time to wait to get the upfront incentive. Returns on savings, ignoring the actual investment returns, are high. •  Younger debt-laden workers, those on benefits and those with children are less likely to join because of the initial 4 per cent contribution hurdle. In terms of the impact in an ageing society, the new regime offers no retirement decumulation product that might protect against the longevity risk. There is no constraint on the use of tax-subsidised lump-sums. The fiscal costs of an ageing population have been exacerbated without any social advantage such as requiring an annuity that could be used to help pay for health and long-term care (St John 2006b). It is hard to see now how annuity products can be made attractive in a voluntary regime without further state spending. The state pension has offered a basic level of protection to date, but its universal generous level at age 65 may be under increasing threat.

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Box 3: Assessing the Tax Regimes for Saving Years:

Pre–1988

1990–2007

2011–

1.Private saving

EET

TTE

ETE

2.Housing

TEE

TEE

TEE

State pension NZS

Universal pension until 1985, when the surcharge (income test) came in

Surcharge 1984–1998 (low impact) NZS fully universal from 1999

Universal NZS unlikely to remain

Tax regime

Economic Efficiency

Poor

Good

Poor

1. Saving

Highly distortionary inconsistent treatment

Consistent treatment of saving except for housing

Highly distortionary inconsistent treatment

2. State pension

Surcharge distorts

Low distortions from universal NZS

Return to efficiency costs of income tested NZS?

3. Tax system

Overall tax system a hybrid of income and expenditure. High DWL

Comprehensive income tax basis Moderate DWL

Overall tax system a hybrid of income and expenditure. High DWL

Horizontal equity

Poor. Savers in superannuation and housing advantaged

Good. except for lack of capital gains tax

Poor. Savers in superannuation and housing advantaged

Vertical equity

Poor

Better

Poor

Administration simplicity

Poor

Excellent

Poor

Use of principles approach in tax policy

Poor

Excellent

Poor

Fiscal costs of pensions

High. Tax breaks add 2.5 percentage points to tax rates

Sustainable

Potentially explosive

Stability state pension

Poor

Settled — Accord 1993–2000

Under threat

Protection of longevity risk (annuities market)

Good basic state pension. Some private pensions and annuities

Good basic state State pension under pension. Lump-sum threat. Lump-sum saving. Few annuities saving. No annuities and pensions

Impact on national saving

n/a

Neutral — except for housing

Negative. Encourages spending with lump sums at 65. Reduces government saving

Box 3 uses some conventional criteria for evaluation of the old and new tax regimes: economic efficiency, horizontal equity, vertical equity, administrative simplicity and fiscal cost. Tentative assessments of the use of principle in tax

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policy; political stability of the state pension, and the implications for the ageing population increasing longevity risk are summarised.

Conclusion Tax incentives for saving for retirement have been traditional in western societies. Their negative effects have been well documented,18 including their regressivity; their ineffectiveness in increasing saving; their complexity and the costs of their regulation and administration; their gender bias, and their lack of transparency. New Zealand alone experimented with a different way. The direct and indirect costs of moving to a TTE regime in the late 1980s were high. The rewards of simplicity and fairness were only partially realised however, largely because of the failure to deal with housing. Investment in housing remained tax-advantaged, while saving in superannuation schemes was often treated inappropriately at the individual level. Speculation in housing contributed to current account worsening and a high overseas indebtedness, fuelled in turn by high interest rates and an overvalued exchange rate. In a scramble to address this problem, together with an unwillingness to confront the housing market directly, the previous principled approach to tax matters was relegated to second place. In 2001 a tax paper from the OECD could claim: Tax policy in New Zealand is grounded within a coherent overall strategy and the changes for various parts of the system are generally scrutinised with a view to how these might affect the efficiency equity and simplicity of the system as a whole (Dalsgaard 2001: 5). Even as late as 2005, a government discussion document stated: … it is important that the tax rules for investment income operate efficiently and that investors’ decisions are not distorted by different tax treatments for income from investments that are similar in nature (Cullen 2005: 1.2). But the policy direction had taken New Zealand a long way from this ideal just two years later. The departures from tax neutrality were accelerated by compromises in an MMP environment and have appeared easy to sell to an unsophisticated public. The financial services industry has been buoyed by the prospect of new business and has perpetuated the popular illusion that such tax concessions will help to solve the ‘saving problem’. The 2007 OECD report on New Zealand offered two clear alternative directions for tax reform: either comprehensive income tax or a Dual Income Tax (DIT) in which capital is taxed less than income to overcome the savings disincentive of an annual income tax (Mourougane 2007). Both require a consistent, comprehensive definition of capital income and a uniform rate of tax. Neither of these two approaches is now the basis of tax policy in New Zealand. While the original reforms that promoted tax neutrality were part of an overall coherent package, recent changes have been introduced in a piecemeal process and illustrate the dangers of opening the floodgates even a little. As

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discussed, KiwiSaver (I) led to the series of subsequent undebated, unsupported adjustments including the introduction of direct tax subsidies in KiwiSaver (II), and has opened avenues for tax avoidance through collective investment vehicles. As one concession leads to demands for another, it is likely the process is far from over. There seems little reason to exempt employer contributions from the SSCWT and not allow employee contributions to also be tax-free. Compulsory employer contributions for employees enrolled in KiwiSaver complicate remuneration policy and may lead to demands for full compulsion over time. Concessions on fund earnings in PIEs for 39 per cent marginal taxpayers are likely to lead to pressures for similar tax breaks for lower marginal tax payers. Finally, there is a case to be made for encouraging annuities, again with costly implications as the opportunity for a trade-off with the KiwiSaver introduction has not been exploited. In other countries, tax incentives usually have one clear redeeming feature: they may allow prescription of the nature of the final benefit. Provision of income via a pension or an annuity can give society some pay-back for foregoing tax revenue in the accumulation process. While the annuity provides longevity protection for savings supplementary to the state pension and thus protects the longest lived individuals, society also gains because there is a certain income stream that can in principle be used to pay for the additional costs of long term care and other health costs. Given the personal nature of the concessions, pensions are not easily disguised by the use of trusts, nor can the underlying capital sum be dissipated too early in retirement. New Zealand had a unique opportunity with a tax-neutral regime to design an explicit subsidy to recognise the gains to society from annuitisation with few of the disadvantages of traditional tax incentives (St John 2006b). One possibility was the provision of a limited value, inflation-adjusted, gender-neutral annuity to supplement NZS, purchased out of lump-sum saving and a suitable share of home equity. This annuity would require subsidisation to be viable but may have also included a cost-effective insurance rider for long-term care. This opportunity is now passing while New Zealand runs the dangers of an EtE regime, with unregulated lump sums alone coming out of KiwiSaver and other tax-advantaged schemes. In the meantime, private home equity release schemes are aimed at younger age groups for consumption, not for long term retirement income purposes. The New Zealand retirement system has been built on the provision of a generous universal pension for all without any means test. If the private savings of the well-off become tax-subsidised however, such largesse may be called into question. The advantages of a simple, fully universal pension that secures a sound basic level of longevity protection for all may eventually be a casualty of the reversal in tax policy. The hard won gains of the twenty year experiment may have been lost without ensuring there are sufficient gains to justify the new direction.

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Notes 1. As set out in Part 1 of the New Zealand Superannuation and Retirement Income Act 2001. 2. See Retirement Commission 2007. 3. Ireland for example has a regime of tax expenditure for retirement incomes that if counted as part of the state’s pension costs for 2000/1 would increase the pension/GDP ratio by 1.7 percentage points (Hughes 2005). Also see Yoo et al. (2004) for a comparison of the costs in OECD countries. 4. This section draws on St. John 2007. 5. Alternatively it could be argued that if all bequests are counted as expenditure, the DET is equivalent to a Lifetime Income Tax, in turn, superior to an annual income tax. 6. The theoretical debate as to which tax base is best is far from settled with the arguments on each side finely tuned. For an advocate of expenditure taxation see Judd 1999. 7. For a discussion of the pre-reform tax treatment see St. John and Ashton 1993: 23–24. 8. Derived from St John and Ashton 1993. 9. Savings are funded out of Taxed income, returns on savings are Taxed, and withdrawals of savings are Exempt. 10. Specified Superannuation Contribution Withholding Tax. 11. Recovered on re-sale. 12. Periodic Report Group 1997, 2003; Taskforce on Private Provision for Retirement 1992. 13. The current account deficit for the year ended March 2007 was $13.9 billion (8.5 per cent of GDP), New Zealand’s net international liability position at 31 March 2007 was $145.0 billion, 85 per cent GDP (Statistics New Zealand 2007). 14. See for example Skilling 2005. 15. KiwiSaver schemes as a whole do not have to be PIEs but government appointed ‘default schemes’ must be PIEs. 16. See St John 2006a. 17. As claimed by some, such as Child Poverty Action Group researcher Wynd (2007). While matching tax credits are supposed to be less regressive than tax incentives, a detailed distributional analysis has not been released by Treasury or the IRD. 18. See for example Sinfield 2000.

References Bollard, A. (2004) ‘What’s happening in the property sector?’, Reserve Bank of New Zealand: Bulletin, 67(3), pp. 37–46. Consultative Committee on Superannuation, Life Insurance and Related Areas. (1988) Tax treatment of superannuation, Office of the Consultative Committee on Superannuation, Life Insurance and Related Areas, New Zealand Government, Wellington.

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Trade Union Responses to White Collar Off-Shoring Carolyn Penfold * Abstract For some time, the trade union movement has been facing the challenge of repositioning itself to attract and retain members, and to remain relevant, useful, and powerful. These difficulties have been exacerbated during the recent period of intense ‘globalisation’. The political embrace of neo-liberalism, de-regulation of labour and other markets, increased capital flows, interaction between national and regional economies, and innovation and growth of information and communications technology, have created a very different, and constantly changing environment for labour. Services work in particular is increasingly mobile as a result of huge developments in information and communications technology. The white collar service sector is thus creating a particular challenge for trade unions, as the developed world increasingly buys its services off-shore. This article examines the features, extent, and effects of white collar services off-shoring, before going on to examine the responses of trade unions to this phenomenon. It looks at action taken by a number of unions in the USA, Australia, Europe and India, as well as internationally, before drawing conclusions regarding appropriate directions for unions to follow.

Introduction The trade union movement has for a number of years been seeking ways to reposition itself, in order to attract and retain members and to remain relevant, useful and powerful (Gordon and Turner 2000; Fairbrother and Yates 2003). Many challenges have resulted from local factors including privatisation of formerly highly organised public sector workplaces; a shift of jobs from the traditionally unionised ‘blue collar’ sectors such as transport and manufacturing to the new ‘white collar’ service industries; and changing regulation of labour markets and industrial relations systems (Fairbrother and Yates 2003). These challenges have been exacerbated during the recent period of intense globalisation. The political embrace of neo-liberalism, de-regulation of labour and other markets, increased capital flows, interaction between national and regional economies, and innovation and growth of information and communications * Faculty of Law, The University of New South Wales

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technology, have created a new and constantly changing environment for labour (Gordon and Turner 2000: 4–14; Fairbrother and Williams et al. 2007: 31). Neo-liberal philosophies encourage deregulation of labour and other markets, and increasingly emphasise individuality and competition, as opposed to collectivism and government intervention. Interaction among markets, the easy movement of capital, and the growth of trans-national corporations make it increasingly difficult for labour issues to be negotiated locally, or even on a national or regional basis. Changing labour markets see traditional workforces diluted or replaced by workers previously disregarded by unions as irrelevant, hostile, or distant, while traditionally organised workers become more difficult to organise as employment in their areas becomes more contingent and precarious. Innovation in information and communications technologies has meant that some types of work, especially in the services sector, can be performed without reference to the location of end-users, and can thus easily be undertaken in any location, shifted between locations, and competed for by workers at any location. Each of these aspects of the globalising world has many deeper, more complex, and often contradictory facets. Such changes present huge challenges for trade unions, while perhaps also in some instances providing opportunities for renewal (Arthurs 2001; Fairbrother and Yates 2003). Individual unions, and the trade union movement as a whole, have responded in a range of ways (Gordon and Turner 2000: 4–5). They have focused on ensuring their relevance at grassroots level through renewed emphasis on recruitment, participation and democratisation of members. They have undertaken rationalisations and amalgamations. They have refocused on local campaigns and have encouraged high profile coverage of political or economic ‘crises’ affecting their workers, highlighting the continuing importance of union representation (Fairbrother and Williams et al. 2007: 32). At the same time, unions and the union movement have focused on building broader ties among unions at sector, national, regional and international level. They have also formed links with other other social movements (Gordon and Turner 2000: 15), and at times with businesses themselves (Fairbrother and Yates 2003: 21). Some of these responses may seem contradictory, but they are in fact a recognition that in a rapidly changing world, no single focus is likely to be enough to combat the many, varied, and increasing challenges which the union movement faces (O’Brien 2002: 234; Fairbrother and Williams et al. 2007: 47). While challenges to trade unions may be seen across the movement as a whole, one specific area giving rise to very real challenges for unions is the white-collar service sector. The opening up of national economies and labour markets, the easy movement of capital, and particularly technological innovation and growth, have allowed and encouraged a huge change in the make-up and operation of this sector world-wide. In particular, there has been a major increase in the amount of service sector work ‘off-shored’, that is, previously performed locally but now commonly performed overseas. This article looks at the increasing ‘off-shoring’ of the service sector, at how trade unions have responded to it, and finally, at how trade unions should perhaps respond to it in the future.

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The intention is not to provide a definitive empirical study of union responses to off-shoring, as this article covers only some countries, some unions, and some responses. Rather, the intent is to identify the kinds of responses which unions have made to white collar off-shoring, to enable a discussion of possible and useful responses to this phenomenon.

White Collar Off-Shoring The off-shoring discussed in this paper relates to service work being performed in one country for firms in another country. The service work may or may not be outsourced. A firm may for example set up its own off-shore operations, buy services from an overseas operation, or buy services locally from a provider which off-shores. The main feature is that the actual work is performed outside the end-user’s or purchaser’s country.

Types of Off-Shored Services Off-shored services take many forms. The example most familiar to many Australians is that of call centre workers who phone at dinner time, trying to convince respondents to change phone companies, book a holiday, or answer market research questions. This work, done by ‘outgoing call centres’ is a tiny part of call centre work. By far the majority of off-shored call centres take incoming calls, where callers may ring to ask about a local train or bus timetable, to order a pizza, to query a bank statement, or to request a quote from a travel agent. Any of these calls may be answered as easily by someone in India, or in fact anywhere in the world, as by someone in Australia, or in any particular city. Business process outsourcing (BPO) are also commonly off-shored. BPO work includes maintenance of health records, assessment of insurance claims, airline ticketing, data processing, and human resource management. More recently, there has also been phenomenal growth in knowledge process outsourcing (KPO). This involves buying from overseas not only peripheral business processes, but often a firm’s core knowledge work, such as legal compliance work, medical diagnostic services, or financial and equities analysis. While very many different types of work are being off-shored, collectively the work described above is referred to as ITES, or ‘Information Technology Enabled Services.’ Although the various services may have little else in common, the off-shoring of call centres, business processes, and knowledge processes has all been facilitated by the huge and global growth in information and communications technology. Because of this technological innovation, these services can now be performed anywhere in the world. Finally, and separately, there is information technology (IT) proper. While the work referred to above is IT-reliant, IT services and processes themselves are commonly off-shored. Thus much of the work of computer engineers, systems engineers, software developers, and programmers carried out for local companies will be performed off-shore. While it can be seen that the services provided are diverse, there is also significant intertwining, as many companies performing work off-shore undertake services in more than one of these areas.

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Extent of Off-Shored Services The extent of services off-shoring is difficult to quantify for a number of reasons. Firstly, there appear to be no uniform international measurements in the area, and indeed even national measurements often do not align. For example, it is not possible simply to look to India’s records of the services it exports to the USA or Australia, and to Australia’s or the USA’s records of services imported from India. None of these countries has just a single set of such figures. The figures they do have will differ according to how well records are kept, the categories of data being tracked, the classification given to various goods or services, the method of purchase or import, and the method of data collection. For example, Indian services may be bought by a multinational company through an office in a third country but for the benefit and at the cost of Americans or Australians. Such service transfers may not be recorded at all in Australian, US or Indian official statistics as trade in services. Even within one country, different organisations and government departments use varying classifications and categorisations (Bivens 2006). The lack of solid and uniform statistics has meant that well-publicised (and frequently inconsistent) estimates have often taken the place of real information, resulting in considerable public concern. Estimates have suggested for example that 3.3 million jobs would leave America by 2015, that either 8 per cent or 15 per cent of financial services jobs would be off-shored by 2008, that 5 per cent of jobs in the telecommunications industry would be off-shored by 2008, that 10 per cent of technology jobs would be off-shored by the end of 2005, and that 25 per cent of traditional US technology jobs would be off-shored by 2010 (Parliament of Australia 2005). Many other estimates have also had high-profile releases, not rebutted by data but over-taken by the next estimate, and the next. The overlap and inconsistency between categories, along with differing time frames, and the fact that these figures are really only estimates, make them difficult to refute or to fully evaluate. The difficulty of measuring the extent of services off-shoring is magnified in attempts to measure the effect of services off-shoring. This creates a whole debate in itself. While there is constant public outcry in developed nations about the loss of white collar jobs, there are no reliable statistics on the number of jobs lost as a result of off-shoring, and in fact some estimate that virtually none of the perceived job losses are due to this (Kirkegaard 2004). Rather, a general slowing of the economy, the end of the dot.com boom, and normal adjustments in employment types may account for the loss of many of the jobs believed to be lost to off-shoring (Center for American Progress 2004).

Media Responses to White Collar Off-Shoring While researchers note the factual and statistical difficulties of linking job losses to services off-shoring, public perceptions and media reporting tend to ignore these difficulties and focus instead on the dangers of off-shoring. The concerns aroused in the community regarding these perceived dangers help to explain some union responses. These concerns have been most loudly voiced and most broadly publicised in the USA.

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Political rhetoric and media reports make much of the loss of American service jobs to overseas countries. Off-shoring is perceived, rightly or wrongly, to be taking a huge toll on workers. While off-shoring has allowed many companies to become or to remain more competitive, thus strengthening the situation of the company and its shareholders, many such companies have been accused of saving themselves at the expense of American workers. For example, Lou Dobbs, a regular presenter on CNN, runs a segment tagged ‘Exporting America,’ in which he ‘outs’ companies ‘betraying’ the USA by supporting off-shoring. He has published ‘Exporting America: Why Corporate Greed is Shipping American Jobs Overseas’ (2004), and lists ‘outed’ companies on his web-site. The latter idea has been replicated in Australia by the Finance Sector Union, with a web site encouraging bank customers to check where their banking services are actually performed. There is also a great deal of generalised anti off-shoring sentiment in the public domain, and accusations of dastardly behaviour by CEOs. One article by the Institute of Policy Studies and the group ‘United for a Fair Economy’ (2004), notes a direct relationship between the number of jobs off-shored by a company, and its CEO’s salary rise, surmising that CEOs are being paid to act against Americans. The same article juxtaposes CEOs’ salaries with those of the US military personnel killed in Iraq, comparing the risks and responsibilities undertaken by the two groups, and comparing the pittance paid to soldiers fighting for America as against the huge sums paid to those intent on ‘selling out’ Americans. While the connection of off-shoring with military deaths might appear just plain wacky, this article is not unique. The ‘Gone with the World’ website which reports on the ‘dangers and disruptions of Globalization, Free Trade, and Off-shoring’ (2007) describes the USA as increasingly vulnerable to terrorism and overseas instability as more and more of its services are performed overseas. More mainstream groups are also playing up the dangers of reliance on overseas countries. For example, the US wing of the Institute of Electrical and Electronics Engineers (IEEE-USA) (2004) sees the off-shoring of high wage jobs to low wage countries as posing ‘a very serious long term challenge to the nation’s leadership in technology and innovation, its economic prosperity, and its military and homeland security.’ It is a threat with ‘serious implications for our national security as well as our economic competitiveness’ (IEEE-USA 2006). Public concern about jobs lost to off-shoring is heightened by concern regarding the type of jobs which are now being performed overseas. The McKinsey Global Institute (2005: 21) notes that ‘[i]t’s hardly the size of the [off-shoring] phenomenon that accounts for the uproar. More important … [is] … the fact that it’s affecting a segment of the workforce that hitherto was never subject to this kind of competition, namely service workers.’ Cassidy (2004) comments that ‘Many white collar industries that once provided safe, well-paid employment , such as telecommunications, insurance and stock broking, are no longer immune … ’. ‘Employment Law Alliance’ (2004) sees the balance of the economy changing; while ‘good jobs decline, lower-wage jobs grow.’

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Manufacturing jobs lost during previous decades were seen as low on the value chain, and their losses were said to allow developed nations to compete instead for the higher end of the market. However, now that the better educated workforce appears to be under threat, there are fears that the developed countries will end up with the low value jobs once again. ‘Gone with the World’ (2007) writes that ‘The only options for a displaced knowledge worker may be to go back into the blue collar trades. They might as well burn their college degree … ’. The jobs now available ‘don’t really provide the kind of expertise that is going to keep the US a forward moving economic power. We are handing over our economic keys to other countries.’ Anecdotes also abound of insult added to injury when workers in developed countries are required to train their own low wage replacements, before being retrenched themselves (Badger 2004). All these factors add to increased feelings of vulnerability, the need for better worker protection, and hence union activity.

Union Responses to White Collar Off-Shoring The globalisation of services work has placed real pressure on local and national trade unions. The increasing use of complex and transnational corporate structures, along with the increasing ease of moving work off-shore, create disincentives for local and national unions to represent their members robustly, and to bargain hard for their members’ demands. In the current environment those demands may well be met by the movement of jobs off-shore, rather than by genuine negotiation and compromise with local employees (Van Wezel Stone 1995). Consequently, unions in the era of globalisation have needed to think more broadly and strategically about how best to protect their members, and are still in the process of creating new responses to the events occurring around them (Arthurs 2001; Fairbrother and Yates 2003). This section looks at some of the responses which unions have made thus far to the advent of services off-shoring.

USA Labour unions in the USA do not have huge coverage. Some sectors are comparably well represented, with about 21 per cent of professional and related workers having union membership in 2005. Within that group, some occupations record much higher union membership rates. Overall, however, rates of unionisation are much lower. In 2005 only about 12.5 per cent of the total workforce were union members, with even lower proportions in the private sector (AFL-CIO, DPE 2006 a and b). In addition to low overall union membership rates, there has been a problem of fragmentation of the labour movement, with numerous unions each covering very few employees. For example thirteen different unions have significant numbers of public employees, nine different unions cover manufacturing, and more than thirty unions cover the health care sector. In thirteen of the fifteen major US economic sectors, there are at least four significant unions A great deal of work has thus been put into encouraging either amalgamation of

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unions, or at least linkages between unions to help to consolidate the labour voice (Stern 2005). Currently, more than 50 per cent of all union members in the USA are white collar workers, with professional and related occupations making up the largest occupational classification of union membership( AFLCIO, DPE n.d.). Thus many of those in the USA affected by white collar offshoring will be unionists, and likewise many unionists have been, are, or will be affected by white collar off-shoring. One effect which off-shoring is claimed to have had in the USA is to raise the profile of unions. Dyed-in-the-wool free enterprise advocates are said to be begging for government protections, and joining unions. A 2004 survey found that 52 per cent of respondents would turn to government agencies or elected officials for help if their job was threatened by off-shoring, and 37 per cent of respondents would seek help from a labour union, although only 12 per cent of these respondents actually belonged to a labour union! (Employment Law Alliance 2004). The International Federation of Professional and Technical Engineers (IFPTE) claims to have had many more enquiries about membership since the off-shoring scare began: ‘I get calls from places we never used to get calls from … . People are realizing that labour unions are the best kept secret in America’ (Banks, cited in Badger 2004). According to one union, newly retrenched members, and those under threat are ‘convinced that America’s white-collar workers have to band together to keep their futures from being exported to places where skilled labor comes cheap’ (Badger 2004). (Arthurs 2001: 271) notes that in the USA ‘unions have pretty much stopped shrinking … . The American labor movement seems to have found a mobilizing issue: globalization.’ What then do labour unions in the USA see as the major concerns raised by white collar off-shoring? Naturally, the most immediate concern is the loss of individuals’ jobs, where work is moved directly overseas, or is out-sourced to other companies which then off-shore the work. In addition to these immediate job losses are the longer term difficulties of finding new jobs in the same area. Unemployment and long term unemployment is rising more steeply amongst well educated workers than across the population generally (AFLCIO, DPE 2006b), particularly worrying to workers such as software engineers ‘who were told for the last 20 years that they had precisely the skills needed to thrive in the global economy’ (Bivens 2006). Workers in this sector are also being moved from long term and secure employment into more contingent or precarious employment. For individuals this often leads to loss of benefits such as health insurance and employer funded pension plans, while for unions this contingent employment makes labour much more difficult to organise (AFLCIO, DPE n.d.). Professional and related employees now make up 30 per cent of the contingent workforce. Further, while service work is a constantly growing proportion of the economy of the USA, the work now being generated is not at the highest end of the market. The projected creation of 1.5 million new high tech jobs in the seven fastest growing occupations in the decade to 2010 has been revised downward to a projection of just 126,000 in the ten years to 2014 (AFL-CIO, DPE 2006b). Seven of the ten occupations now expected to experience the largest jobs

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growth up to 2014 are low wage service occupations not requiring a college degree. Understandably, both workers and unions are concerned then about immediate job losses, but also about the prospects of workers being required to move to lower level, less professional, and less well rewarded jobs, or to face long term unemployment. In addition to actual job losses, there are concerns that the potential to offshore may itself create downward pressure on existing wages and conditions, and decrease the bargaining power of workers and unions. Even suggestions that a company may off-shore can make workers and unions far more circumspect in their demands, and lead them to accept levels of wages and conditions which they would not do without such threats (Van Wezel Stone 1995; Bivens 2006). As employers now have a clear choice between producing locally and moving off-shore, workers from around the world are competing against each other for jobs. They are less able to assert their rights, for fear of being underbid (Arthurs 2001). Workers and unions are concerned more generally also, that in the longer term off-shoring may cost the USA its competitive edge in technology and innovation, its economic independence and superiority, and its military and security strengths (IEEE-USA 2006). They worry that the loss of the flow-on effects of having work done locally mean that the real costs of off-shoring go well beyond the individual’s lost income. Tax revenues fall, dependence on public assistance increases, and incomes stagnate (AFL-CIO n.d. a and b). Unions are dealing with their concerns in a variety of ways. Firstly, for individuals losing jobs, unions are lobbying government to offer more assistance in specific terms such as re-training, income support and health care coverage (IEEE 2006; AFL-CIO n.d. c). Special assistance schemes have been introduced to assist workers whose jobs in the manufacturing sector have been lost as a result of trade agreements, and unions are now asking government to provide similar support to white collar workers losing their jobs to off-shoring. It is argued that: public policy needs to insure that US workers are compensated for the extra risk they are now bearing due to competition with workers all over the globe. This compensation should take the form of large social insurance programs, (publicly guaranteed health and pension benefits) as well as more directed programs like making sure that service-sector workers displaced by trade are eligible for trade-adjustment assistance (Bivens 2006). While government talks of the re-adjustments inevitably required as a result of globalisation, unions do not see the required re-adjustments as natural or inevitable: The destruction of US jobs is not occurring on a level playing field resulting from neutral policies. Rather, a broad range of state and federal policies allow, facilitate and even reward the destruction of US jobs. Government policies lavish tax breaks, government contracts, and easy access to the US market on companies that destroy good jobs and exploit lax workers’ rights to produce overseas (AFL-CIO n.d. c).

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Tax programs are seen to encourage and reward off-shoring, thus offering incentives to companies to move jobs overseas, and conversely penalising companies that keep jobs in the USA. Trade rules and agreements are also seen as needing review, to ensure that companies do not escape domestic or international obligations by sending jobs off-shore, and to ensure that trade is not made disadvantageous by other countries artificially manipulating their currencies. Unions are also asking government to plan carefully, to use public policies to stimulate innovation, and to invest in appropriate infrastructure to ensure that American workers are available, well trained and competitive, and that US industries are able in the future to offer top-quality jobs to these workers. While these strategies require long term planning and cannot occur overnight, unions are simultaneously pushing for shorter term changes. For example, state legislatures, influenced mainly by the Communication Workers of America and AFL-CIO, have been awash with activity aimed at decreasing the extent of off-shoring (AeA 2004). In the first quarter of 2005 more than 112 bills attempting to curb the use of off-shore service providers had been introduced in forty states of the USA. At a federal level also seventeen relevant congressional bills and resolutions had been introduced between January and May 2005 (National Association of State Procurement Officials 2005). The proposed legislation varies considerably, but certain themes are common. Firstly, no government work should be off-shored, and companies which off-shore should be ineligible for government contracts. Secondly, government grants and assistance should not be available to companies which off-shore service work. Thirdly, legislation should prohibit companies moving financial or personal data offshore. Fourthly, there should be mandatory disclosures by companies of their off-shoring activities. Finally, there should be mandatory identification by call centre operators of their geographical locations (known as ‘The Right to Know’ requirements). Few of the proposed bills have been actually passed; some were passed but weakened by amendment, and others have been vetoed. The difficulty of getting such legislation passed, along with questions regarding the potential effectiveness of this type of laws, have recently slowed down the push for the enactment of such legislation. Further, there is the paradox that ‘the more successful unions are at obtaining local legislative protection, the more likely businesses are to relocate to other areas’ (Van Wezel Stone 1995). Unions continue to push for the collection of better data. As discussed above the real effect of off-shoring upon the job market in the USA is unknown, and thus subject to constant claim and counter-claim. Bivens (2006) of the Economic Policy Institute suggests that figures released by the US Department of Commerce (DOC) cannot be relied upon. They note that the DOC’s Bureau of Economic Analysis (BEA) reports service imports to the US from India as $159 million in 2002, while India’s National Association of Software and Service Companies (NASSCOM) reported service exports from India to the US of $4.7 billion in the same period! Likewise, NASSCOM reports service exports as growing 400 per cent between 2000 and 2002, while the BEA’s corresponding figure is below 20 per cent. Better data collection on the true state of off-shoring activity is clearly necessary.

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Unions in the USA are also thinking more globally. While some unions were previously focused only on local concerns, and heading down the protectionist path, there is now a recognition that off-shoring issues need resolution in a global context. For example, IEEE-USA policy on off-shoring was reviewed and updated in 2006 due to concerns that its 2004 policy ‘has an anti-outsourcing tone that is inconsistent with our current emphasis on asking IEEE members to cope and survive in a “flat world” ’ (O’Neill 2006). There is little hope in the union movement in the USA that the goodwill of corporations, or their desire to retain a strong America, will save American workers from the perils of off-shoring: The reason why American businesses are not demanding the policies that would make America more competitive is because … they have disconnected themselves from the country’s future. America’s competitiveness is no longer their problem. What’s good for General Motors — or GE or IBM or Microsoft — is no longer necessarily good for America, and vice versa (Faux 2005). Unions see that as a result of globalisation, ‘corporations have no national loyalties and no concern about national boundaries. They move around the world looking for opportunities to maximise their profits by pushing down standards. They drive down pay and benefits standards for workers everywhere in a race to the bottom’ (SEIU n.d. a). ‘Global corporations threaten American jobs, families, and the hopes of future generations’ (SEIU n.d. b). AFL-CIO is cynical about corporations, which often claim a need to go off-shore to find appropriately skilled workers. The union believes these businesses in fact go off-shore simply because ‘they can find skilled workers in other countries who will do the work for pennies on the dollar’ (AFL-CIO n.d. a). The unions are recognising then that fighting campaigns to keep jobs and improve workers’ wages and conditions need to be backed up by global labour solidarity. ‘Campaigns for social justice have almost invariably tended to pursue justice one country at a time. Now with the advent of globalization, it’s no longer that simple. We have to achieve justice everywhere at once in order to achieve it anywhere at all’ (Stern 2005). ‘ … [W]orkers in any one country cannot set and maintain high labor standards without uniting to raise standards everywhere’ (SEIU n.d. b). Thus AFL-CIO (n.d. c) includes in its policies support for equitable and sustainable development abroad, stating that ‘the international community must recognize strong workers’ rights as a key foundation for vigorous democracy and equitable economic development.’ It states also that: stimulating stable and robust development around the world not only benefits workers in other countries [but] is essential to building a balanced economy where workers and countries can engage in high-road competition based on skills and productivity rather than a race to the bottom in wages and working conditions. Until workers in other countries are able to earn a decent wage and build a middle class, they will

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never be able to purchase the goods and services they produce, much less consume those produced in the US. (AFL-CIO n.d. c). Such world-wide development is of course far more difficult to achieve than changes to domestic policies and practices. But even this new rhetoric may be a step toward internationalising the union movement. By contrast with transnational corporations, unions have been slow to develop workable international structures. As a result, workers in different countries experience themselves as being in competition with each other (Arthurs 2001). Whilst unions are now appearing to take a more global outlook, it is unlikely that they will ever develop structures comparable to transnational corporations, given their reliance on localised member subscriptions simply for their existence, but they nonetheless are promoting activities which may give them greater power vis a vis such transnational corporations, and which are aimed at promoting the cause of workers globally, as workers, rather than as competitors. It is clear that unions in the USA are now looking to engage with the broader labour movement, and this engagement will be examined in more detail later in this paper.

Australia In Australia, the growth of services off-shoring has been far slower than in the USA, and there has been much less media coverage of this phenomenon. In addition, Australia has itself been identified as a country which could be a recipient of off-shoring as well as an off-shorer, and thus a beneficiary, rather than loser of jobs (Australian Computer Society 2004). It has been suggested that Australia, with reliable and well developed infrastructure, political stability, a well educated English speaking workforce, and with labour costs still comparatively low, should really be doing its best to exploit its suitability as a country to which others could off-shore (Deare 2006). However, both industry and government in Australia have been slow to exploit this opportunity (Braue 2006; Jenkins 2006). On the other hand, Australia has also been slow to join the off-shoring band wagon, and thus we have seen fewer employment and industrial concerns arising. In addition, unions in Australia (like those in the USA) are not really sure of the extent or effect of off-shoring yet, owing to a lack of reliable statistics. As a result, the National Institute for Economic and Industrial Research has been commissioned by the Finance Sector Union to try to compile better statistics, but also to identify where there are gaps in the data and how improved data could best be collected. Regardless of lack of data, however, the Australian media have recently been reporting many proposals to off-shore, and consequently Australian unions are now becoming more active in this area. Their activity is largely following the pattern of action of unions in the USA. To put Australian union membership into context, in August 2005 only 22.4 per cent of Australian workers were union members, a drop of 33 per cent over a decade (ABS 2005). Unionisation of 47 per cent in the public sector was much higher than in the private sector, where membership measured just 17 per cent. Like the USA, Australia has had many unions vying for coverage of the same members, or at least competing within the same sector. Also like

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the USA, declining membership rates and criticism of trade union inefficiency has led to the amalgamation of many Australian unions over the past couple of decades (Owens and Riley 2007: 95). Additionally, many of these unions are connected to both national umbrella organisations, such as the Australian Council of Trade Unions (ACTU), and to global organisations such as Union Network International (UNI). More recently, the threat of services off-shoring has also caused a number of Australian unions to unite to deal with this particular problem. For example, an ‘alliance’ of service sector unions in Australia, including the Finance Sector Union (FSU), the Australian Services Union (ASU), the Communications, Electrical and Plumbing Union (CEPU), and the Community and Public Sector Union (CPSU), has been working together to research public perceptions in Australia of off-shoring. This group of unions recently commissioned a survey on attitudes to off-shore labour, the results of which will be used to develop union strategies in this sphere. The survey found that most respondents wanted government intervention to keep jobs in Australia, believed that financial institutions should disclose overseas storage of customer information and should seek customers’ written permission to do so. They also believed that Australian companies should be compelled to provide decent working conditions in every country in which they operate (McNair Ingenuity Research 2006). The findings of this research are now being used by unions to demonstrate concerns about off-shoring, and to lobby government to act against it. Antioff-shoring action is being stepped up, seemingly heavily influenced by the activities of American unions. Australian unions are proposing legislation very similar to legislation proposed in the USA, which would make disclosure of off-shoring, and of the location of off-shored workers mandatory, stop government work being off-shored, and prohibit the movement off-shore of financial and personal data without the written permission of clients (FSU 2004). No such legislation has yet been passed, and governments seem unlikely to move in this direction. The federal Liberal Government has clearly stated that decisions to off-shore are a matter for a company’s board or a government department, and not matters on which governments should legislate (Parliament of Australia 2005). In the lead-up to the 2004 federal election the Labour Opposition showed some inclination to act against off-shoring to protect Australian jobs, but that policy has now been abandoned. Australian state governments also show no sign of moving against offshoring through legislation, although they have on occasions taken up a more protectionist stance. For example, Westpac backed down from plans to send a Sydney loans processing department to India, after the NSW Premier threatened that the bank’s government contracts may be reviewed if the plan to offshore went ahead. The Premier’s statement followed lobbying from unions, and considerable media coverage of the issue. The Local Government Association (LGA) also raised concerns about the proposed off-shoring, and the possibility that the LGA also would need to review its banking arrangements (Masson 2007).

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Unions have tried to keep the media focussed on the off-shoring issue where possible, and even plans to ‘trial’ off-shoring in small and discrete operations have been quickly reported to and by the media. Unions have also set up websites for more direct communications with the public. For example, ‘Bank Check,’ a site set up by the FSU, ‘gives you the inside track on how your bank treats their workers and your sensitive personal information … [Bank check creates] an independent reference point with information on off-shoring of jobs and data; employment practices and consumer rights’ (FSU n.d.). Australian trade unions have also been working directly with (and against) individual companies and whole sectors to develop strategies to protect Australian workers and Australian jobs. A recent strategy involved having a statement outlining union and worker concerns tabled at the AGMs of Australia’s major banks, seeking from the meetings undertakings regarding steps which those banks would follow before deciding upon off-shoring activities (Masson 2007). In relation to off-shoring generally, the St George bank has promised that every permanent employee impacted upon by off-shoring will be offered another position within the bank (Australian IT 2006). The ANZ bank has introduced its People Charter, which promises that all customer service jobs will remain in Australia, commits to early, broad and frequent consultation regarding off-shoring, assures affected staff of opportunities — including where necessary re-training — to allow their re-deployment to other areas of the bank, and claims that its employment practices in India will meet best practice standards, will pay competitively, and will exceed minimum local employment conditions (ANZ 2006). The NAB has signed a commitment to Fair International Workforce Standards, by which it agrees to ensure that it, and its suppliers, comply with the OECD Guidelines for Multi National Enterprises and the UN Declaration of Human Rights. It states that the bank’s suppliers are required to demonstrate operating policies and procedures supporting these standards (NAB 2005). The NAB and various unions have also negotiated a Global Unions Engagement Strategy, under which the NAB acknowledges its corporate social responsibilities, including support of freedom of association and collective bargaining, and commits to provide high employment standards for all employees. The unions and the NAB also agree to consult from time to time on these topics (NAB Global Agreement n.d.). While these commitments are laudable, and seem to strike a balance between the need to remain competitive, through off-shoring if necessary, and the need to protect the rights of workers both here and abroad, lack of enforceability remains a problem. The commitments can be seen as excellent public relations exercises, which the banks can chose to uphold or not as they wish. As a result, unions prefer to have such promises included where possible in enterprise or other enforceable agreements. Some enterprise agreements have been negotiated to include commitments that retrenchment of staff would be a last resort only, and that ‘every effort would be made to avoid retrenchment through re-deployment, re-training, normal staff wastage and curtailing recruitment’ (ANZ-FSU 1998). Australian unions have also made some headway in including consultation provisions in

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termination, change and redundancy clauses of enterprise agreements (NABFSU 2006), but the list of matters allowed in such agreements is becoming narrower and narrower, and it is likely to be increasingly difficult to include such clauses in future agreements. Common law agreements may be an alternative way to garner assurances from employers regarding off-shoring, but few companies would be willing to give such undertakings. Many firms are unwilling to make enforceable commitments regarding offshoring in either enterprise or common law agreements, making the point that off-shoring is a way to remain competitive, and that committing not to use offshoring would be poor business. Thus, companies remain willing to commit to consult over off-shoring, and to take into account the views of unions and employees, but not to be bound by them. Services unions are also hoping to move industry toward longer term planning and strategy. The unions recognise that a huge amount of work could go overseas, placing all employment in the Australian services industry under threat, and they are thus trying to convince the whole service sector, along with government, to identify longer term solutions which may keep the finance sector buoyant and competitive, and keep Australian jobs as well. The FSU for example wants the finance sector to try to identify its future needs; what kind of staff it will need, what kind of education and training those staff will need, and what numbers of staff will be needed, so that Australians can be prepared and ready to fill those jobs. While some banks currently claim that they must go off-shore to find workers, the FSU is sceptical about this. But even if the claim is correct, Australian unions would like that situation to be an aberration, resolved by longer term, sector wide planning. While Australian unions do not want to create ‘fortress Australia’ (Masson 2007) they do believe that the rate of off-shoring can be slowed, and that it is possible to change the way that off-shoring is introduced. Firstly, they would like to see appropriate training and education ensuring that workers in Australia are equipped and available for work in the services sector. Beyond that, unions would like assurances of no forced redundancies, increased lead-in time and genuine consultation prior to off-shoring decisions, more funding for training and re-training of staff to ensure employment, and commitments to human resources best practices, compliance with local law and ILO provisions, wherever work is performed. The approach of unions in the USA and Australia are similar, but neither has been successful in stopping the movement off-shore of services work. However, both have been successful in raising the profile of the off-shoring phenomenon, and publicising the problems which arise locally as a result of off-shoring. Consequently, union activity in the USA and Australia may have influenced both the speed and the extent of off-shoring, influenced the way that off-shoring decisions are made, and possibly also influenced the conditions under which off-shored workers are employed. Particularly in Australia, unions have also made some headway in reducing the likelihood of forced local redundancies through clauses in enterprise agreements, or voluntary corporate undertakings.

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Europe In Europe, unions have similarly been very active in the off-shoring debate, running anti-off-shoring campaigns and taking industrial action to protest threatened job losses. While union action may have slowed or reduced the extent of off-shoring, there, as in Australia and the USA, white collar off-shoring continues. The Trade Union Congress (TUC) in the UK does not accept that largescale off-shoring is an inevitable part of globalisation, and believes that unions have an opportunity to influence what happens in relation to where jobs are done (2004: 6). The TUC’s submission on global off-shoring states that: UK unions want to ensure that worker representation and good employment conditions operate throughout the global operations of the employer company, regardless of country. This has a double advantage: it helps combat casual, opportunistic relocation of jobs abroad, and builds a stronger international framework for industrial relations in the longer term (2004: 10–11). This outlook was apparent in the negotiation of a global agreement between Amicus and Prudential, following industrial action against off-shoring organised by the union Amicus. In taking the action, Amicus made the decision to encourage rather than detract from union solidarity, through an internationalist approach that avoided xenophobia and affirmed Indian workers’ rights to good employment conditions (Bain and Taylor 2004). While the action did not stop Prudential going ahead with off-shoring, it led to some important concessions for its UK workers, as well as undertakings relating to off-shore staff. Prudential agreed not to use compulsory redundancies in its UK operation, to give notice of proposals to off-shore work, and to consult over whether, and how, those proposals would be acted upon. For example, Prudential promised to look at whether there were viable alternative restructuring initiatives which may make off-shoring unnecessary. In addition, Prudential agreed to enter a global agreement which ensured that those performing work for the company off-shore would not do so under conditions less favourable that those required by the local laws and the ILO’s minimum labour standards. A number of other UK and European companies have entered into global agreements with workers’ groups which ensure firstly that as little damage as possible is created for local workers, and secondly that off-shoring does not lead to the exploitation of overseas workers. In the UK for example, the Union for the Finance Industry (UNIFI) has entered an agreement with Lloyds TSB, the union Amicus has agreed with CSC, and the union Connect has agreed with the BT Group. Each of these agreements includes provisions for meaningful and timely consultation regarding off-shoring, job security, re-deployment or re-training, and a commitment to ethical and principled dealings with any overseas companies and workers. Each of these agreements also requires adherence to ILO principles relating to rights at work.

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India In India, unions are often seen more as a way of mobilising electoral backing for a political party, than as protecting their members in their working lives. Unlike Australia, where unions are seen to be closely aligned to the ‘left’ parties, in India all political parties are likely to have a union base. Legislation in India assures workers the right to join collectives and trade unions, although this has recently been a matter of contention in relation to IT and ITES workers (The Hindu 2005). Union membership generally is high in organisations which are currently, or were historically state owned or controlled, but union membership is tiny as a proportion of the working population. In private enterprise, and especially amongst those who are highly skilled, trade unions are commonly poorly regarded, and either non-existent or with very low membership levels. Even those workers performing at the lower end of off-shored services in India often have good wages and conditions by local standards, often with attractive work spaces, subsidised transport, health insurance, and many other benefits. However, there are health and safety concerns particularly in the call centre industry, including the effects on workers of constant night shifts, overly tough targets, rigorous performance review systems, and abuse and hostility expressed by people in the off-shoring nations. These difficulties experienced by some in off-shored work provide a good opportunity for encouraging new union membership. Because off-shored service work is a recent development in India, and is done exclusively by private companies, there are few unions covering such workers. Two have however been established recently. Firstly, for IT professionals, there is the IT Professional Forum (ITPF), founded in 2003, with sponsorship from Union Network International (UNI). This union, with 3800 members across India (UNI 2006), tends to concern itself less with workers’ wages and conditions, and focus more on providing a social and professional forum for IT workers to meet one another, and to discuss IT innovations and developments. Although these workers may have very favourable working conditions, they may also be quite isolated, given that many move residence to work in IT hubs, and will often not know others in the cities to which they have relocated. The establishment of UNITES in 2004 was also sponsored by UNI. UNITES draws its membership from those working in IT enabled services, such as BPO and Call Centre staff. Unlike the ITPF mentioned above, UNITES makes clear that ‘we don’t shy away as a forum, this is a union’ (Navin 2006). Like the ITPF however, this union also reports less concern with workers’ wages and conditions, and more concern with the isolation of these workers. It therefore runs social and sporting events, competitions and meetings, again to provide a supportive forum for ITES workers. UNITES also provides training in businesses processes, to assist those from disadvantaged groups to take advantage of the growing job market for BPO workers. UNITES presents government approved courses using hardware and software donated by IT companies for the purpose. UNITES is preparing hundreds of workers each year for employment in the BPO industry (Shekhar 2005).

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Membership of both ITPF and UNITES remains small. It is envisaged that the unions may attract higher memberships and become more industrially active in the case of a market downturn, or if jobs begin to move off-shore from India, and demand for workers decreases. Ironically, the jobs off-shored to India remain vulnerable to further movement as globalisation marches on. Indian workers are as vulnerable to eventual off-shoring as are those in the most developed countries.

International Unions Operating within an ILO labour rights framework, global unions have been entering into agreements with global companies. The global agreements often focus more on general labour rights, and less on the processes which specific companies would need to undertake in deciding to off-shore. Union Network International (UNI) for example recognises that the most important international labour issues have been dealt with by the ILO, and thus ‘[a]ll the employers and unions have to do in the global agreement is commit to respecting these standards’ (UNI n.d ). UNI states that: [w]e cannot substitute for direct negotiations between companies and workers at the national level. However, in the era of globalisation, companies shift production and services to almost any part of the globe. The global agreement is a way for the company to say: wherever we go in the world, we will observe civilised internationally recognised standards; we will offer decent work and jobs. In short, ‘we will be decent global corporate citizens’. (UNI n.d.). By the end of 2006, forty seven global agreements were in place. Thirty nine had been negotiated between global unions and European based companies, seven between global unions and global companies, and only three with companies based elsewhere, to wit NZ, the USA, and South Africa (Hazard n.d.). It has been suggested that the proliferation of such agreements in Europe may be due at least in part to the mandated establishment of Works Councils within European based firms, allowing for more structured and reciprocal consultation and negotiation between these companies and their workers (Hepple 2005: 76). While global agreements are becoming more prevalent, commentators note the advantages of corporations promising to take on board corporate social responsibilities, but also express concern at the move toward private, voluntary and largely unenforcable promises, without strengthening enforceable, and enforced, international and national legal protections (Arthurs 2001: 271; Hepple 2005). Any attempt at transnational regulation of labour conditions and practices may be seen, however, as problematic. They could ‘obviously be attacked as intruding upon national sovereignty, as a form of disguised protectionism designed to preserve jobs in the advanced countries, as a device to prevent developing countries from industrialising, even as an attempt to force labour standards down to a lower transnational norm in those countries which exceed it’ (Arthurs 1996: 44).

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Global unions are also trying to influence the way in which off-shoring proceeds, by taking an active policy role in the area, rather than simply reacting to the ‘inevitable’ globalisation of services jobs. UNI for example has set up the ‘Making Offshore Outsourcing Sustainable’ (MOOS) project with the following objectives: •  increasing understanding of off-shoring and the mechanisms of off-shoring processes, •  providing an information hub on off-shoring, •  developing a trade union strategy for making off-shoring processes economically and socially sustainable, •  providing support for employee representatives dealing with off-shoring, and •  developing mechanisms for anticipating change and outlining the future of high skilled work. The MOOS project tracks and reports on off-shoring movement throughout Europe, hosts conferences which provide a forum for union organisation around off-shoring, and collates and disseminates its own and others’ research on the topic. Sabrina De Marchi (n.d.), project manager for the MOOS project, sees the trade union role as ensuring ‘that new jobs are created when old jobs move, that people are trained for new tasks when their old tasks disappear — and that working conditions are evolving, no matter where on the globe work is carried out’. International unions are also sponsoring the establishment of new unions in countries such as India for the recipients of off-shored work.

Strategies for Protecting White Collar Workers Globalisation, including the embrace of neo-liberal philosophies, the interaction of national economies, and the development and spread of information and communications technology, has created an environment which allows and indeed encourages the off-shore movement of a great deal of white collar work in the service sector. Regardless of union activity, it does not appear that globalisation can or will be stopped, but this does not mean that nothing can be done by unions to alleviate the potential problems it causes for workers, and for unions themselves. It can be seen that trade unions are employing multiple strategies in response to the challenges posed by white collar off-shoring; with responses ranging from the most local to the most global. At the former end of the spectrum we see trade unions trying their best to increase local membership, to campaign on local issues, and to garner local community support for workers displaced or threatened by off-shoring. Unions are also trying to engage local and national governments to fight off-shoring, or to assist in slowing it down, and to compensate those affected by it through re-training, social security and the like. Beyond this, unions themselves are trying to engage with one another at the international level, working to determine and articulate appropriate responses to globalisation. Unions are also increasingly engaging with multinational cor-

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porations in attempts to create global, rather than merely local, worker protections. Even national unions have managed to extract promises from multinationals regarding their treatment of labour wherever in the world that labour happens to be. At the broader level, unions are attempting to engage workers in countries to which work is off-shored, and to encourage them to see themselves as part of the world-wide labour movement. It is hoped that assisting these workers to organise, and to demand decent working conditions, will avoid a ‘race to the bottom’ whereby developed countries need to forego their labour standards to compete. The breadth of responses to white collar off-shoring can appear contradictory, with unions for example fighting to stop work being off-shored while at the same time fighting for the conditions of off-shore workers. However, such responses are not really surprising. Individual unions fight to protect their members, and union movements as a whole fight to protect labour. Further, in some ways the two are complementary. The better the protection offered to off-shore workers, the less the incentive for corporations to move work offshore, and thus the better the protection for workers in off-shoring nations. It is also thought that while off-shoring will not be stopped by trade unions, their responses may help to determine its results. Thus the numerous and varied responses made by unions may help to influence the shape of off-shoring and globalisation, to the benefit of all workers. Given the extent to which white collar work has been off-shored, are there particular strategies that unions in this sector should be using? Firstly, unions need to be actively involved in the development of policy, at local, national and international levels, and active in raising community awareness of the issues involved. Arthurs (1996) has noted the broader movements which may influence the manner in which globalisation occurs:  … juridical spaces … include trade unions, social and environmental movements, cultural institutions, media, academic critics, ambitious politicians, technocratic civil servants, and competing economic interests of every provenance (Arthurs 1996: 19). Unions do have an opportunity to influence the shape of globalisation, not just to deal with its problems, and to some extent this is already occurring. However, policy which involves trying simply to stop globalisation or off-shoring, or which involves hostility toward off-shore workers, is unlikely to save jobs and could do a great deal of damage to union solidarity. More helpful would be policy input which looks at both the benefits and disadvantages of actual or potential off-shoring, anticipates likely changes and needs, and encourages both industry and government to plan and prepare for them. While unions should be working at the broader policy level, they must also take practical action. Unions should be trying to work with both industry and government to ensure that the potential problems of off-shoring are minimised before they occur. For example, the FSU in Australia is trying to establish a process by which unions, government and the finance sector work together to

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identify for the future the kind of workers likely to be needed in the Australian services sector, to ensure that before they are needed there are personnel appropriately trained and in sufficient numbers to allow the service sector to use local staff when possible. Further, it is imperative that unions protect their own member’s jobs, wages, and conditions as far as possible, not least because these members are the unions’ financial base, and without them, and their membership fees, many unions will cease to exist. At the minimum, unions should try to retain work for current employees, to negotiate where necessary re-structuring which doesn’t involve compulsory retrenchments, and to negotiate re-training and/or movement of workers within the company, or to subsidiaries, related companies etc. To this end, it is appropriate for unions to campaign for specific workers in specific jobs with specific employers, to try to retain for those members the best possible working environment. This alone however is unlikely to be sufficient. Where jobs are lost, unions should be working with both industry and government to ensure that appropriate and sufficient resources are available for supporting and re-training workers displaced by the movement of jobs offshore. The scheme introduced in the USA to support manufacturing workers retrenched through ‘industry readjustment’ may also be an appropriate model to adopt in relation to services workers. Unions should also be pursuing global agreements, to ensure that if or when work is off-shored, it is not carried out under exploitative conditions, and that as a minimum it meets the conditions laid down by local law, and by ILO standards. Global agreements should be publicised and closely monitored, to ensure they are not used by companies simply as a public relations exercise but ignored in practice. Such agreements, especially if well implemented and enforced, should give pause to companies off-shoring, or threatening to offshore, for fallacious or exploitative reasons. Thus such agreements can serve both to slow down off-shoring and to ensure that when off-shoring does occur it is done ethically. Finally, it is important that unions guard against the use of racism and xenophobia to create anti-off-shoring sentiment. Hostility toward off-shore workers is ineffective to protect jobs, and in the long run cannot be beneficial to the union movement as a whole.

Notes 1. Thanks to Joellen Riley and Brendan Edgeworth for their encouragement and helpful comments. 2. Note OECD Guidelines for Multinational Enterprises, revised 2000. IV Employment and Industrial Relations, cl 7 Enterprises should not threaten to transfer an operating unit or transfer employees ‘in order to influence unfairly those negotiations or to hinder the exercise of a right to organise.’ 3. While there is a great deal of talk of how many Australian jobs will go overseas, in May 2004 only 12 per cent of 420 IT firms surveyed had actually completed an off-shore project. Parliament of Australia, Department of parliamentary Services (2005: 3).

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4. Workplace Relations Act 1996 (Cth.) s356, Workplace Relations Regulations 2006 (Cth.) Reg 2.8.5. It is clear from the description of ‘prohibited content,’ especially reg 2.8.5(h) and (i) that the regulations seek to exclude from agreements any restriction on the manner in which an employer can engage the services of workers. Thus it is likely that any clause seeking to curtail or even restrict the ability of an employer to off-shore work would be prohibited content. See also Riley and Peterson (2006). 5. But note the violations of trade union rights in India documented in ICTFU 2006. 6. While an average Indian makes $600 per year, a BPO worker with only high school education may begin work on over $2500 a year. This is about double the entry level earnings of a high school teacher. See Physorg.com 2005.

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available: http://www.wagenet.gov.au/wagenet/ search/view.asp?doccode=A298 8&doctype=AG&quickview=Y [accessed 15 February 2007]. Arthurs, H. (1996) ‘Labour law without the state?’, University of Toronto Law Journal, 46(1), pp. 1–45. Arthurs, H. (2001) ‘Reinventing labor law for the global economy: The Benjamin Aaron Lecture’, Berkeley Journal of Employment Law, 22(2), pp. 271–294. Australian Computer Society (2004) Policy statement on offshoring, available: http://www.acs.org.au/acs_policies/docs/2004/offshoringpolicy_wnochecklist. pdf [accessed 15 February 2007]. Australian IT (2006) St George defends off-shoring, available: http://australianit. news.com.au/articles/0,7204,20957035%5E15335%5E%5Enbv%5e15306 -15317,00.html [accessed 15 February 2007]. Badger, T. (2004) Collective strength: White collar off-shoring spurs union growth, Associated Press, available: http://www.commondreams.org/cgi-bin/print. cgi?file=/headlines04/0608-07.htm [accessed 14 February 2007]. Bain, P. and Taylor, P. (2004) ‘No passage to India? UK unions, globalisation, and the migration of call centre jobs’, Work, Employment and Society Conference, 1–3 September, Manchester, UK. Bivens, J. (2006) EPI (Economic Policy Institute) Issue guide: Offshoring, updated May, available: http://www.epinet.org/issueguides/offshoring/epi_issue_guide_ on_offshoring.pdf [accessed 14 February 2007]. Braue, D. (2006) ‘ICT skills foundering on poor data and disinterest’, ZDNet Australia June, available: http://www.zdnet.com.au/news/hardware/soz/ict_ skills_foundering_on_poor_data_and_disinterest/0,130061702,139260706,00. htm?ref=search [accessed 15 February 2007]. Cassidy, J. (2004) Winners and Losers, The truth about free trade, The New Yorker, 2 August, available: http://flashlakeheadu.ca/~kyu/E4111/Cassidy2004.pdf [accessed 15 February 2007]. Center for American Progress (2004) Offshoring by the numbers, 21 May, available: http://www.americanprogress.org/site/pp.asp?c=bjjrJ8)vf&b=81289 [accessed 14 September 2006]. De Marchi, S. (2006) Offshoring: The emergence of global production networks, available: http://www.moosproject.be/project.htm [accessed 15 February 2007]. Deare, S. (2006) IBM expands QLD outsourcing centre, ZDNet Australia, 22 June, available: http://www.zdnet.com.au/news/business/soa/ibm_expands_ queensland_outsourcing_centre/0,139023166,139260709,00.htm?ref=search [accessed 17 February 2007]. Dobbs, L. (2004) Exporting America: Why Corporate Greed is Shipping American Jobs Overseas, Warner Books, New York. Employment Law Alliance (2004) America at Work poll, referred to in Offshoring: Mad in the USA, Press Release, June 8, cited in S. Bottino, perspectives on offshoring and New Jersey, August 2004, available: http://www.njpp.org/rpt_ offshoring.html [accessed 14 November 2007]. Fairbrother, P. and Yates, C. (2003) Trade Unions in Renewal: A Comparative Study, Routledge, London.

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Fairbrother, P., Williams, G. Barton, R. et al. (2007) ‘Unions facing the future: Questions and possibilities’, Labor Studies Journal, 31(4), pp. 31–53. Faux, J. (2005) ‘Flat note from the pied piper of globalization,’ Economic Policy Institute, available: http://epi.org/content.cfm/webfeatures_viewpoints_flat [accessed 15 November 2007]. FSU (Finance Sector Union of Australia) (2004) Off-shoring — Where to from here?, available: http://www.fsunion.org.au/news/public/files/off-shoring%20 -%20final.doc [accessed 15 February 2007]. FSU (n.d.) Bankcheck: Putting the spotlight on finance sector employment practices in Australia, available: http://www.bankcheck.net.au/ [accessed 29 November 2007]. Gone with the World (n.d.) Dangers and disruptions of globalisation, free trade, and offshoring, available: http://www.gonewiththeworld.com/ [accessed 28 August 2006]. Gordon, M. and Turner, L. (eds) (2000) Transnational Cooperation among Labor Unions, Cornell University Press, New York. Hazard Magazine. (n.d.) Table of agreements concluded between transnational companies and global union federations, available: http://www.hazardds.org/ unioneffect/gufagreements.htm [accessed 15 February 2007]. Hepple, B. (2005) Labour Laws and Global Trade, Hart Publishing, Oxford. Hindu (The) Business Line (2005) Bengal CM ‘accepts’ the right to form unions in IT sector, available: http://www.thehindubusinessline.com/2005/12/25/ stories/2005122502440300.htm [accessed 15 February 2007]. ICTFU (International Confederation of Trade Union Rights) (2006) ‘India: Annual survey of violations of trade union rights’, available: http://www.icftu.org/ displaydocument.asp?Index-991223945&Language-EN [accessed 15 February 2007]. IEEE-USA (Institute of Electrical and Electronic Engineers) (2004) Position: Offshore outsourcing, revised May 2006, available: http://www.ieeeusa.org/ policy/positions/offshoring.html [accessed 14 September 2006]. Institute of Policy Studies and United for a Fair Economy (2004) Executive excess 2004: campaign contributions, outsourcing, unexpensed stock options and rising CEO pay, 11th Annual CEO Compensation Survey, available: http://www. faireconomy.org/press/2004/EE2004.pdf [accessed 15 November 2007]. Jenkins, C. (2006) ‘Austrade no show at Asia’s big fair’, Australian IT, available: http://australianit.news.com.au/articles/0,7204,19600688%5E15306%5E%Enbv %5E,00.html [accessed 15 February 2007]. Kirkegaard, J. (2004) Offshore outsourcing — Much ado about what?, CESifo Forum, available: http://www.ifo.de/pls/guestci/download/cesifo%20forum%20 2004/cesifo%20forum%202/2004/forum2-04-focus4.pdf [accessed 14 February 2007]. Masson, R. (2007) Finance Sector Union, personal conversation with the author, Sydney, 25-01-2007.

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McKinsey Global Institute (2005) The emerging global labour market, McKinsey and Company, available: http://yaleglobal.yale.edu/about/pdfs/offshoring.pdf [accessed 14 February 2007]. McNair Ingenuity Research (2006) Attitudes to offshore labour. Survey commissioned by FSU, ASU, CEPU, and CPSU. National Association of State Procurement Officials (2005) Offshoring and procurement: Positioning for the future, available: http://www.naspo.org/ whitepapers/offshoringissuebrief.pdf [accessed 15 February 2007]. NAB (National Australia Bank) (2005) Commitment to fair international workforce standards, available: http://www.nabgroup.com/vgnmedia/downld/ fairinternationalworkforcestandardspolicy950970683.pdf [accessed 15 February 2007]. NAB-FSU (2006) Enterprise Agreement 2006–2009. The National Australia Group and Global Unions Engagement Strategy (n.d.) Global agreement, available: http://www.nabgroup.com/vgnmedia/downld/ globalunionsengagementstrategy.pdf [accessed 15 February 2007]. National Foundation for American Policy (2005) Proposed restrictions on global sourcing continue at high level in 2005, NFAP Policy Brief, available: http://www. nfap.com/researchactivities/studies/Global_Sourcing_2005B.pdf [accessed 20 November 2007]. Navin, P. S. (2006) Call centre professionals form trade union, available: http:// www.hindonnet.com/2006/o1/27/stories/2006012702220200.htm [accessed 15 November 2007]. O’Brien, R. (2002) ‘The varied paths to minimum local labour standards,’ in J. Harrod and R. O’Brien (eds), Global Unions: Theory and Strategies of Organised Labour in the Global Political Economy, Routledge, London. O’Neill, V. (2006) Memo to career and workforce policy committee: IEEE position on offshore outsourcing, available: http://ieeeusa.com/volunteers/committees/ cwpc/Jun06/files/4.2.pdf [accessed 15 November 2007]. Owens, R and Riley, J. (2007) The Law of Work, Oxford University Press, Oxford. Parliament of Australia Dept. of Parliamentary Services (2005) Off-shoring jobs: US and Australian debates, Research Brief 14 March, Australian Parliament, Canberra. Physorg.com Technology (2005) Trade unionism hits India’s BPO, 8 November, available: http://www.physorg.com/news7996.html [accessed 20 November 2007]. Riley, J. and Peterson, K. (2006) Work Choices; a Guide to the 2005 Changes, Thomson, Sydney. Service Employees International Union (SEIU), (n.d.) Unite to win; a 21st century plan to build new strength for working people. Service Employees International Union. (n.d.) Global Partnerships, available: http:// www.seiu.org/about/global_partnerships/ [accessed 15 February 2007]. Shekhar, K. (2005) General Secretary of UNITES, personal conversation with the author, Bangalore, 15-12-2005.

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Stern, A. (2005) SEIU New ways to build new hope. Change to win, a new federation of 6 million workers from 7 major unions, available: http://www.seiu. org/about/2005_report/newways_newhope.cfm [accessed 14 February 2007]. TUC (Trade Union Congress), United Kingdom (2004) TUC Submission on Global Offshoring, made to Department of Trade and Industry, available: http://www. tuc.org.uk/economy/tuc-7732-f0.cfm [accessed 15 February 2007]. UNI. (2006) Union Network International e-bulletin July to August 2006, available: http://www.union-network.org/uninetnews.nsf/58f61ccf5878fe90c12567bb0 05642f9/31942731725e2d4bc12571c60049908d?opendocument [accessed 15 February 2007]. UNI. (n.d.) Union Network International; Global Framework Agreements, available: http://www.union-network.org/unisite/in_depth/multinationals/gfas. html [accessed 15 February 2007]. Van Wezel Stone, K. (1995) ‘Labour and the global economy: Four approaches to transnational labor regulation,’ Michigan Journal of International Law, 16, pp 987–1028. Workplace Relations Act (Cth), Australia (1996). Workplace Relations Regulations, Australia (1996).

The Economic and Labour Relations Review Vol. 18 No. 1, pp. 79–98

War, Racism and Industrial Relations in an Australian Mining Town, 1916–1935 Sarah Gregson * Abstract The goldmining town of Kalgoorlie in Western Australia has been the site of race rioting on three occasions — in 1916, 1919 and 1934. These outbursts have typically been examined as separate events, but, analysed together, they provide an opportunity to see racism, and anti-racism, as historical and social processes. In all these riots, returned soldiers, organised by a leadership often drawn from the officer class, played a significant part in harassing migrants and promoting White Australia. Through this lens, an important corrective to the dominant explanation of the White Australia policy is suggested. While most historians of Australian racism portray immigration restriction as a demand successfully won by the labour movement in defence of white workers’ jobs, the Kalgoorlie race riots expose a distinctly conservative case for employer ‘divide and rule’, anti-migrant propaganda and racist violence. Concomitantly, the local labour movement found that racial division among their ranks was a recipe for industrial defeat.

Introduction Willingness to go to war, and hostility to immigrants at home, are often portrayed as typical Australian working class attitudes. Without doubt, many Australian military excursions overseas have generated their share of ‘home front’ victims: most recently, the sending of Australian troops to Afghanistan and Iraq has been accompanied by increased ‘moral panic’ about, and harassment of, local Middle Eastern residents (Poynting et al. 2004). On the whole, the labour movement has not joined this anti-Muslim chorus, constituting instead a significant component of antiwar protests (see, for example, Workers Online 2003). Nevertheless, statements by some of the more outspokenly nationalist union officials about the unwanted presence of ‘illegal’ and ‘cheap’ workers locally, and about the sending of ‘Australian’ jobs overseas, are a worrying indicator that the political victories won by anti-racists within the movement may be reversible1. Therefore, an assessment of past challenges to racist ideology * The University of New South Wales

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within the labour movement has particular contemporary relevance. It is important to challenge the dominant view, in the historiography of Australian racism, that support for migrant exclusion was a product of labour movement agitation against increased competition for jobs. Markey’s (1990: 580–81) characterisation exemplifies the dominant analysis: ‘[d]islike of foreigners [was a] national working-class characteristic’. With acceptance of this view widespread until quite recently, there have been lamentably few attempts to explain periodic working-class campaigns containing anti-racist elements and to incorporate them into a wider theoretical perspective (for exceptions, see Martinez 1999, 2001; Gregson 2001, 2003, 2004; Small 2001). Industrial struggles against racism date back at least to campaigns by Darwin waterside workers before World War Two against Dutch imperialism in Indonesia, to union support for Aboriginal workers from Noonkambah to Wave Hill, and to the actions of Broken Hill miners in the inter-war period. These all call into question current ahistorical and teleological assumptions that the adoption of ‘enlightened’ and ‘educated’ attitudes is a recent phenomenon (Lockwood 1982; Hawke and Gallagher 1989; Riddett 1997; Martinez 1999; Ellem and Shields 2000). In contrast, this article suggests that, far from being universally hostile, labour movement attitudes towards immigrants have always had a fluidity and indeterminacy not often acknowledged in the historiography of racism. Concomitantly, examples of governments past and present victimising migrants and introducing discriminatory legislation, alongside employer groups using ‘divide and rule’ strategies to isolate migrants and drive down wages, suggest that these social forces have played a significant role in the creation of a racist hegemony. Acknowledgement and evaluation of a conservative racist agenda provides an important qualification to the common assertion that the labour movement has been the principal force behind immigration restriction and migrant harassment campaigns.2 Whilst this Kalgoorlie-based case study shows the labour movement to have engaged in a campaign of racist exclusion against many of its own members, it also brings to light hitherto hidden signs of worker opposition to the ideological hegemony of the White Australia policy and wartime xenophobia. In later disputes, unionists recognised that the recruitment and involvement of migrant workers was vital to industrial success, while racism was anathema to union strength and solidarity. On the other hand, this case study also demonstrates a conservative exclusionary agenda at work, based on the role of organised returned soldiers in Kalgoorlie. Although there was early controversy within the local sub-branch of the Returned Soldiers Association (RSA) about how best to defend wages and working conditions, the RSA was united against the presence of migrants on the mines, arguing that soldiers had laid down their lives ‘for their country’s liberty and race purity’.3 While today’s Returned and Services League (RSL) may not enjoy the same level of political influence that did the Federal Returned Sailors and Soldiers’ Imperial League of Australia (RSSILA) in the inter-war period, it is arguable that the more general militarisation of public debate in the current ‘war against terror’ has had analogous ramifications for migrant ‘outgroups’ (Lake 2006:

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15–6).4 Further, by examining the roles played by organic local groupings such as the union movement, various employer groupings and returned soldier organisations, we can observe racism not as a disembodied set of ideas in people’s heads, but as part of a social process, affected by the material and political interests of organised activists and the ebb and flow of class struggle.

Wartime Persecution of ‘Enemy Aliens’ In Australia, the outbreak of war in 1914 was the catalyst for a rising tide of racism against many non-British migrants, alongside the demonisation of antiwar activists. Racism and anti-radicalism went hand in hand. As Evans (1987: 3) noted, ‘anti-Germanism provided a fresh impetus for an intensified form of alien and radical scapegoating’. The Prime Minister, W.M. Hughes, had, for some time, been leading a fierce campaign against the Industrial Workers of World, branding its migrant members as ‘German agents’ and denouncing its internationalism as a foreign and seditious ideology. Under the auspices of the War Precautions Acts 1914–16 and its accompanying set of regulations, ‘enemy subjects’ were removed from the share listings of Australian companies, blocked from transferring land, prevented from gaining public service employment, forbidden to change their names without permission, and refused membership of proprietary clubs. The sale of goods produced in enemy countries was also prohibited (Commonwealth Official Yearbook 1916: 1004, 1918: 1042; Scott 1936: 112–3). In McKernan’s (1980) view, the scapegoating of migrants was integral to manufacturing a sense of danger and urgency on the homefront. The formation of the RSSILA, a federal body of returned servicemen, took place in 1916, adding another voice to the nationalist clamour. As Kristianson (1966: xxviii) put it, ‘[e]ver since its formation … the League has put to the Commonwealth government demands with regard to defence, immigration and creeds and organizations seen as subversive to the maintenance of the Australian way of life.’ Using both lobbying methods and ‘direct action’, its leading officials, often drawn from the officer strata of the former AIF,5 fought for their vision of a united, orderly, white nation. Despite initial fears that the repatriation of thousands of organised, militarised troops might seriously disrupt life on the home front, the RSSILA leadership used the rhetoric of crossclass trench camaraderie to organise a small but significant number of veterans into an association that would provide an important conservative influence in the workplace, the classroom and the wider community (White 1981: 137; Cain 1983: 39; McQueen 1984: 213; Sekuless and Rees 1986: 22; Moore 1989: 137). Many sub-branches of the RSSILA became, among other things, organising centres for anti-migrant agitation, and returned soldier propaganda about ‘race loyalty’ helped to sow division within the working class that fulfilled a wider anti-union agenda. Although hostile to working class agitation for better wages and conditions in any other circumstances, by encouraging antipathy towards southern Europeans, the RSSILA leadership feigned concern about employment conditions to appease its working class constituency, weaken attempts to build trade union solidarity across ‘racial barriers’, and galvanise support for the White Australia

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policy, while never seriously limiting the supply of cheap labour wanted by governments and local employers. Its commitment to industrial passivity was a useful tool for employer groups when both propaganda and muscle were required to defeat militant unionism. Although the vast membership of the early RSSILA was politically heterogeneous, labour-leaning returned soldiers faced strong pressure from an officerdominated leadership to toe a respectable line or leave. Indeed, membership density fell to little more than nine per cent of the potential constituency by the mid-1920s, ensuring that the political character of the organisation shifted rightwards (Kristianson 1966: 36; Oliver, 1993; Louis 1998). The labour movement, in comparison, was a far more ‘broad church’ and incorporated members with diverse and sometimes conflicting views about most things. On the question of race, the labour movement was home to those who were overtly hostile towards migrants as well as those who welcomed any unionised worker as a potential ally.

The 1916 Campaign Against ‘Enemy Subjects’ in Kalgoorlie Throughout 1916, the Kalgoorlie branch of the Federated Mining Employees’ Association6 engaged in a concerted campaign to oust fellow workers they saw as ‘enemy subjects’ from the mines. The union leadership made numerous requests for the internment of the mostly Slav migrants to whom they objected. When these calls went unheeded by the Federal Government, the Miners’ Union resolved not to work with ‘unnaturalised enemy subjects’.7 A vigilance committee was empowered to question all those deemed ‘enemy subjects’ regarding their citizenship status. If those challenged could not produce naturalisation papers, Britisher miners would refuse to work until they had left the mine (Kalgoorlie Miner, 7 February 1916).8 The role of the main employer organisation in this campaign had enormous significance as well. The day before the work ban was due to come into effect, Miners’ Union officials met with the Chamber of Mines and the two parties agreed unanimously to make a joint representation to the Federal Government regarding the internment of the migrant workers (Kalgoorlie Miner, 5 February 1916). One report suggested that the Australian miners could not bear being taunted about the recent retreat from Gallipoli, with James Cunningham, secretary of the Miners’ Union, describing the political tensions underground: The feeling against enemy subjects is practically general throughout the whole of the members … [and] … has grown considerably during the past couple of months. Numbers of these men make no secret of their national sympathies when underground, and expressions of disloyalty have frequently been made during crib time, when the newspapers are generally read … disloyal sentiments expressed were reported by members to have been almost unbearable, more particularly for those who have relatives fighting at the front. The union realises it will be difficult to arrive at who are enemy subjects, as its members have no grievance against members of the Croatian-Slavonian Society who are working

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on the mines, and who have no sympathy with Austria. They do not desire that any unnecessary hardship should be inflicted upon these men, as evidence of their loyalty is forthcoming in the fact that some twenty of them have joined the Australian Expeditionary Forces (Kalgoorlie Miner, 29 January, 9 February 1916). As Cunningham suggested, although working together created some empathy among workers, newspapers were an important source of ideas and closely read in the workplace, giving loyalist editors a wide audience (Splivalo 1982; Oliver 1995: 64). The Kalgoorlie Miner’s editorials were littered with racist slurs against German people and the newspaper approved the targeting of local migrants considered ‘suspect’. Even those who had become naturalised were untrustworthy, claimed the Miner, arguing that ‘when the crucial hour of trial comes, the microbe of Kaiserism which has been growing and asserting itself for centuries may outweigh all previous resolves’ (Kalgoorlie Miner, 23 March, 16 August 1916).9 In response to German newspaper reports decrying the use of asphyxiating gas in warfare, the Miner, without an apparent sense of contradiction, sprang to the defence of the British and their allies: Vainglorious racial arrogance … when exalted into a creed, with a thousand material interests based on it and backed by great armies to further its fanatical teachings … becomes a dangerous mania. [W]hen with a crazy belief in their divine mission, they regard themselves as superior to all obligations of morality and law; when they trample upon the rights and ideals of every other people, and would make all other nations subservient to their good pleasure; then they become a pestilential danger and must be suppressed at all costs (Kalgoorlie Miner, 7 July 1919). Many local ministers used their influence to bolster support for the war as well. The Bishop of Kalgoorlie, Dr Golding-Bird, asked rhetorically whether there was any country in the world like Germany ‘in which moral decay and the rapid relapse into paganism [were] so strikingly and visibly manifest?’ (Western Argus, 22 August 1916). The majority of migrant workers affected by the ban chose not to attend work, unwilling to provoke a strike. Ironically, subsequent reports reflected union approval of their ‘commendable spirit’ (Kalgoorlie Miner, 9 February 1916). However, the mostly Slav workers were not offered relief payments by the union, despite the fact that many were union members. Instead, officials deflected responsibility for the growing financial stress they suffered onto the alleged laxity of the Defence Department (Kalgoorlie Miner, 14, 30 March 1916). The Miner (22 March 1916) reported that many ejected workers were relying on the support of the Slav community and that some families were ‘on the verge of starvation’. The Miners’ Union decision put the men in an impossible position. They were barred from working locally but, because of the restrictions imposed by the War Precautions Act, were unable to move around freely in search of work elsewhere or to leave the country.10 Even the prospect of receiving internment food and board was withheld, as the government expressed an unwilling-

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ness to incarcerate working miners unless an act of disloyalty was proven. This was unlikely, explained Captain Corbett from the Defence Department to a mass union meeting, because all the enemy subjects on the fields were known to his Department and not considered security risks (Kalgoorlie Miner, 8 February 1916). However, as the effect of the ban on the operation of the mines became more apparent, Kalgoorlie employers tried to get the Miners’ Union to rescind its decision. The Chamber of Mines denied ever supporting what it now called the ‘precipitate’ action of the Miners’ Union and the Chamber of Commerce expressed the view that the decision had been an error of judgement with serious ramifications for the war effort (Kalgoorlie Miner, 28 February 1916). The mine managers turned on the union, accusing it of pursuing an ‘old stalking horse’, the removal of all non-Britishers from the mines (Kalgoorlie Miner, 1 March 1916). The Westralian Worker (31 March 1916) unapologetically viewed the campaign in this light, expressing consternation that migrant exclusion was causing any debate. No sympathy should be wasted on the Slavs, its editor argued, because ‘[f]rom all accounts the enemy subjects who have in the past been interned showed absolutely no gratitude for the humane treatment they received at the hands of the department.’ However, while some individuals undoubtedly agreed that the departure of any non-Britishers was cause for satisfaction, the Miners’ Union did not challenge the presence of other ‘non-enemy’ migrants workers, and praised the enemy subjects for their co-operation and assisted the mine managers by advertising the vacant jobs through union channels (Kalgoorlie Miner, 8 February 1916). The union even suggested a pool of available labour from Meekatharra that could have replaced the excluded workers, but the Chamber of Mines refused to employ them on principle — because the Meekatharra men were on strike at the time. Richard Hamilton, President of the Chamber of Mines, used the dispute to question publicly whether the constant drain of recruiting on the mine workforce was in the best interests of the war effort. While he did not want to be seen putting his own sectional interest before the national imperative, he maintained that Kalgoorlie miners were better left to ‘do their bit’ underground (Kalgoorlie Miner 22, 29 March 1916). As Fischer (1988: 11) pointed out, the mine managers promoted a simple and convenient equation — that production plus profit equalled patriotism. Tabili (1994:7) has argued that some historians exhibit a persistent tendency to treat official resolutions and policies as representative of organisational consensus. In particular, she notes a common assumption that ‘[t]he motives of the white rank and file [can be] extrapolated from those of union leadership’. Equally, Lunn (1985: 3) advises that union resolutions ‘should be the starting point of any investigation of labour attitudes to race and immigration, not the conclusion’. There were signs that, while not siding with the mine managers, some members contested their union’s exclusionary policies. One shop steward, Bruce McGay, blamed two leading officials for pushing the racist resolution, arguing that members would have ‘let the matter drop’, if not for the incitement of these two men (Kalgoorlie Miner, 24 March 1916). However, several months later, the local Argus (4 July 1916) newspaper informed readers that storms of

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protest had greeted union reports that one of these officials had successfully moved a motion at the annual conference of the Miners’ Federation decrying ‘racial dissatisfaction’ as detrimental to the union movement’s best interests. In a Letter to the Editor, ‘Britisher’ expressed disgust at the union’s racism: It is indeed hard for me to conceive that a body of Australian working men, claiming to be among the most enlightened people on earth, and whose motto is “Justice for all” can stand calmly by, trying to hide behind the back of the Minister for Defence, while women and children are wanting bread … Perhaps the war has given some of us the “jumps” … Don’t let it foster in us an ugly spirit of race pride and domination, nucleating in that spirit which we condemn in the Prussian mind — megalomania (Kalgoorlie Miner, 25 March 1916). Another member argued that unionists should offer friendship to ‘any man who has to earn his living in dirty smoky holes’ and felt ‘ashamed to meet men who are suffering by this one-eyed policy of the union’ (Kalgoorlie Miner, 27 March 1916). While the evidence regarding these debates is not conclusive, it does at least suggest that there was a debate, a situation not often acknowledged in labour movement histories. Of the two hundred migrant workers ejected from their jobs, the vast majority were shovellers and truckers, illustrating a clear division of labour brought about by employer recruitment practices. The Chamber of Mines reinforced workplace ethnic segmentation by arguing that finding replacements for the dismissed workers would be difficult, as only foreigners were ‘willing’ to do the difficult and dirty work (Kalgoorlie Miner, 9 February 1916). Indeed, it argued, the ‘class of work … is one from which the British mine worker is peculiarly averse. It means steady, hard, physical work, which he either cannot or will not do; in many cases he refuses to attempt it: and, consequently, a foreigner gets the job’ (Chamber of Mines 1916: 5; Westralian Worker, 3 March 1916). However, in a Letter to the Editor, one trucker described the dirty and dangerous working conditions of shovellers and truckers, maintaining that mine managers would have no trouble getting workers if they improved the labour process. The relatively minor cost of laying, cleaning and repairing the lines, he argued, would obviate the need for ‘a modern Samson to push a truck on them’. Bad conditions were not the fault of migrant workers, as he saw it, because many were unable to get employment elsewhere and had little choice but to take mine labouring jobs with poor wages and conditions (Kalgoorlie Miner, 14 February 1916). Towards the end of August, the union campaign took a new turn. Until then, union officials had refused all entreaties from Federal and State Governments and from the Chamber of Mines to make a distinction between loyal and disloyal enemy subjects. When some mine managers began to re-employ Slav workers, 2,700 miners walked off the job. Once production had stopped, however, more serious attempts to resolve the dispute took place (Kalgoorlie Miner, 25, 29 August 1916). The Minister for Mines, R.T. Robinson, proposed a five-member Royal Commission be established to investigate each of the workers to whom the Miners’ Union objected, in order to uncover ‘disloyal’ ele-

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ments. During nineteen days of hearings, the Commission examined the status of 138 people, hearing nineteen witnesses in the process. In all, thirty three men were classified as ‘enemy aliens’ and were subsequently interned (Kalgoorlie Miner, 3 November 1916). As a device to get the miners back to work, the Royal Commission was a success. The investigation permitted re-employment of most banned workers and, at the same time, reinforced the Government’s policy regarding the persecution of ‘enemy subjects’.

The Role of Organised Returned Soldiers Of all the Australian states, Western Australia sent most men per head of population to war and Welborn’s figures suggest that as many as twelve per cent of Western Australia’s soldiers enlisted on the goldfields alone (Welborn 1982: 191; Mordike 1990: 4; Bolton 1994: 11; Oliver 1995: 32). Returned soldiers came from all walks of life and, unsurprisingly, the early RSSILA membership was divided on a range of political questions. While some returned soldier activists pushed the League to lobby about the cost of living, unemployment, and repudiation of the national debt, the RSSILA leadership opposed all motions that smacked of opposition to ‘responsible Government and the safety and security of the Australian people’ (West Australian, 20 January 1919). The WA State President, Colonel Lamb, labelled internal dissension as ‘unfortunate’ at a time when, as he pointed out, the leadership was trying to cultivate the regard of politicians and employers and simultaneously marginalise the claims of rival organisations (West Australian, 1 May 1918). Although returned soldiers stood on both sides of union barricades, the RSSILA helped form groups of loyalists to oppose domestic labour unrest and, contrary to the notion that it protected the welfare of ex-servicemen, RSSILA leadership was more concerned to contain working-class returned soldier anger at government repatriation policies (Brown 1981: 73–78). Looking back, one prominent leader of the Western Australian branch noted that, after 1921, ‘there was a marked falling-off in the membership returns’ (Collett 1929: 17), which the State Executive attributed to returned soldier apathy. Later, it would become the official orthodoxy that it was the radicals who had been responsible for declining membership. Colonel Collett remarked that the League’s troubles were ‘in part, due to the intrusion of loud-voiced demagogues … whose very presence kept many decent people away’ (Reveille, 31 October 1928). The membership would diversify again as unemployment rose in the late 1920s and returned men looked to the RSSILA for job placement and relief money, but by then the conservative dominance of the leadership was well-established. Nevertheless, in its attempts to build membership from a largely working-class constituency, the RSSILA insisted it was ‘non-political’ and that its support for immigration restriction was evidence of its concern for working-class living standards. Even in its first year of operation, the Returned Soldiers’ Association sent a delegation to the Premier, Frank Wilson, asking for, among other things, the dismissal of all enemy aliens from government jobs (West Australian, 17 February 1917).

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During the war, soldier send-offs in Kalgoorlie had occasioned militant speeches, rousing band music and much fanfare, but preparations for the men’s return were far less systematic. There was a push to repatriate soldiers to regional centres to prevent them from congregating in the city centre, where their discontent might encourage collective militancy and prejudice recruiting efforts. In the words of the War Council, this plan would ‘overcome the difficulty of an accumulation of men in the city, and result in getting them out to the country districts, which is much to be desired, both in the interests of the men and country as a whole’ (Kalgoorlie Miner, 22 July 1916). For its part, the Kalgoorlie Council called a public meeting to discuss the creation of employment opportunities that would help, some felt, ‘to keep them from getting into the habit of loafing about the town’, because only ‘[a] limited number of employers have been found who have been willing to take such men on and give them light duties, paying them the current minimum rate of wages’ (Kalgoorlie Miner, 18 July 1916). One Letter to the Editor proposed that patriotic citizens fund a soldiers’ meeting place — ‘a club house without the beer’, as he primly described it (Kalgoorlie Miner, 24 February 1916).11 Another alluded to the consequences of leaving returned men unoccupied, arguing that ‘the lads [were] hardly to blame’ for getting up to mischief if the town did not repay their debt in the form of diverting amenities (The Sun, 26 March 1916). Under the supervision of the Red Cross Society and its Honorary Secretary, Mrs H.N. Curle Smith, a Soldiers’ Club was set up and a sub-committee formed to organise the facilities and a committee of women was given ‘the privilege of organising the catering’ (Kalgoorlie Miner, 28 March 1916). The Kalgoorlie Chamber of Commerce provided new clubrooms in 1919. Visiting the goldfields shortly after they were opened, Acting Prime Minister Watt inspected the facilities, remarking that they ‘would promote feelings of good fellowship among returned men, and tend to keep them within the ranks of useful, loyal citizens’. Reflecting the ruling class apprehension and class polarisation of the post-Russian Revolution period, Watt surmised that those who ‘lived under the kindly influence of institutes like the one in Kalgoorlie would be the very last to become Bolsheviks’ (Kalgoorlie Miner, 8, 22 August 1919). Returned soldier harassment of migrants was a recurrent feature of wartime xenophobia and, while leading citizens and newspaper editorials ‘tut-tutted’ about ruffian behaviour and the need for law and order, perpetrators were often treated leniently by the court system (Oliver 1990). In October 1916, two such cases were brought before Mr Walter, the magistrate of the Kalgoorlie Police Court. One young soldier had stolen several valuable items from one Siegfried Christian Larsen. Although the soldier pleaded guilty, Walter surmised he had not intended to steal and gave him a six-month good behaviour bond. Just two months previously, Judge Walter’s only son had been killed in France (Western Argus, 22 August 1916). In another incident, a mob of thirty returned soldiers raided the lodging-house of a German man, Richard Krahn. According to one report, they ‘pulled down portions of [an] iron fence, burst open the front door and smashed everything they could lay hands on. Many articles were scattered

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about the street’ and a long list of items was reported missing (West Australian, 2 October 1916; Western Argus, 3 October 1916). A returned soldier appeared in court over this incident, charged with intent to steal. The magistrate lectured him about his actions being a discredit to the army he had served, stating that his behaviour smacked of ‘a trick caught from the Germans’, and then allowed him to go (Kalgoorlie Miner, 4 October 1916). A few months later, local migrants were again the victims of war-inspired racism in one of the earlier outbreaks of returned soldier violence in Australia (Rawson 1968; Evans 1988). In December 1916, inflammatory reports in the Kalgoorlie press blamed the King of Greece for the deaths of British and French soldiers at the hands of Greek troops (Kalgoorlie Miner, 8 December 1916). Soon afterwards, a number of Kalgoorlie residents formed a spiteful mob that damaged and looted more than twenty Greek-run businesses. As Gilchrist described: the ringleaders, including soldiers from a nearby training camp, accompanied by forty or fifty civilian youths, gathered near the Town Hall and, led by a soldier with a whistle, smashed the windows of three Greek shops in Cassidy Street (Gilchrist 1997: 23). When every Greek-owned business in Kalgoorlie had been destroyed, some of the incendiarists travelled by tram to nearby Boulder to attack more migrant businesses and homes. In the aftermath of the rioting, more than forty arrests were made. When those accused faced courts, the attitudes of the police and the judiciary revealed a distinct clemency towards outbursts of returned soldier ‘patriotism’. Those found guilty of rioting-related offences were most commonly fined, but two men charged with theft received prison sentences. Giving evidence in the prosecution case against William Griffen for unlawful possession, DetectiveSergeant Dempsey argued that the accused had not committed theft ‘by reason of any excess of patriotic spirit’ but was motivated ‘solely to benefit himself ’, as if race rioting was a lesser offence (Kalgoorlie Miner, 11–12 December 1916; Western Argus, 26 December 1916; Gilchrist 1997: 25). Griffen received a custodial sentence. The other man charged with intent to steal was Silvio Neso. When Neso’s lawyer pleaded that a fine might be sufficient punishment, the judge replied, ‘A fine will not meet the case. It was not a matter of a patriotic person excitedly smashing up property’, and sentenced Neso to two months’ gaol (Western Argus, 26 December 1916). Robert James Tucker, on the other hand, a returned soldier identified as one of the riot’s ringleaders, who had used a whistle to direct and incite the mob, was seen throwing a rock through a plate-glass window, and who had incited the mob to rescue a man who was being arrested, was fined. In the judge’s opinion, Tucker’s ‘willingness to serve his country’ justified lenient treatment (West Australian, 29 December 1916). The Kalgoorlie Miner reportage gave detailed descriptions of the riot and the subsequent court appearances of those arrested, without mentioning that the ringleaders of the violence were principally returned soldiers. Similarly, returned soldier involvement was downplayed by government authorities who

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were anxious to avoid responsibility for compensation claims, although the Acting Premier of Western Australia, Henry Lefroy, did admit that returned soldiers were ‘the ringleaders in almost every case of disorder of this nature’ (Yiannakis 1996: 207).

Racism in Kalgoorlie in the Inter-War Years In 1919, a further outbreak of racist violence, this time against Italians on the mines, saw returned soldiers leading hostilities. Using the stabbing of a 22 year old veteran by an Italian man as justification, returned soldiers rallied at the Kalgoorlie RSA clubrooms and then marched against Italian businesses and homes (Murray 1982: 27). On the basis of an argument that the protest was in defence of jobs for returned soldiers, single Italian men were ordered to leave town or face physical ejection. The WA Police Commissioner sympathised with the RSA militants, describing their actions as ‘lawful compulsion’ and, far from acting in defence of Italian victims, local police appear to have done little beyond advising the migrants that it was in their best interests to leave (Oliver 1995: 156–60). Local newspapers, too, opposed the presence of Italian workers in the town and, while distancing themselves from the violence, expressed open sympathy with the aims of the returned soldiers. One editor lamented that ‘[t]he fate of the community … depends on the goodwill of the Dagoes’, maintaining that their presence ‘render[ed] the preservation of conditions of peace impossible’ (The Sun, 17 August 1919). On this occasion, however, the largest union on the goldfields, the Australian Workers Union (AWU), into which the miners were now organised, did not support migrant exclusion. Instead, it denounced the actions of the rioters and pledged solidarity with all migrant union members and their families. At a meeting of the mining division of the union, delegates passed a resolution against the riots and the ‘spineless manner in which [the Government has] acted in not providing protection for citizens of this community’. They demanded the government ‘withdraw immediately the instructions given for the Italians to leave the district’ (Westralian Worker 22 August 1919). Murray has argued that the AWU officials supported the migrant workers in a cynical attempt to build union membership and become the sole representative of mine labour, against the rival claims of a Nationalist union, the Federated Miners Union (FMU), comprising principally returned soldiers (Murray 1982: 30).12 While this may have been partially so, the AWU’s support for migrant workers was a long way from the exclusionary position it had taken against Slav workers three years earlier and suggests that solidarity across perceived racial boundaries was developing. Later that year, the AWU locked horns with its real industrial rival, going on strike against the ‘bogus unionists’ of the FMU (Oliver 1998). Again, the Kalgoorlie RSA sub-branch became a focal point as veteran members rallied at the clubrooms to sign up as ‘special constables’ or strike breakers. For its part, the Chamber of Mines was wholly in support of the returned soldiers, claiming that they were merely ‘in pursuit of their lawful avocations’ against the ‘degenerates’ in the AWU. However, not all returned soldiers answered the call.

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A meeting of the nearby Boulder RSA sub-branch censured the Kalgoorlie RSA officials for ‘fighting the battle of the Chamber of Mines and acting in a manner which is detrimental to the best interests of ourselves as workers’ (The Sun, 9 November 1919). Returned soldier workers should join the AWU, the Boulder veterans argued (West Australian 8 November 1919). McQueen (1984: 214) has argued that these two goldfields sub-branches were divided by class — that the Kalgoorlie RSA was dominated by an extensive mercantile and mine management constituency, whereas the Boulder subbranch had a far more proletarian character, being located in the heart of a working-class residential area. In this year of post-war flux, the evidence suggests significant numbers of returned soldiers opposed industrial scabbery by their former ‘comrades’ while, at the same time, AWU members (many of them returned soldiers themselves) were acknowledging migrant workers as industrial allies. The RSA, however, both at State and local level, continued to oppose the presence of ‘aliens’ on the mines. In 1919, it lobbied the Federal Government for the retention of the White Australia policy without amendment13 and, at the RSSILA’s Federal Congress in 1922, a strongly worded resolution criticised ‘coloured immigration’ and confirmed the organisation’s ‘unswerving loyalty’ to a ‘White Australia’ (Duncan 1961: 109). The Kalgoorlie sub-branch of the RSSILA also resolved: ‘That immigrants and slackers be debarred from entering Australia while our soldiers are still away.’14 A third incidence of race rioting in Kalgoorlie took place fifteen years later in 1934 (Gregson 2001). Angered by the death of a white miner outside an Italian-run hotel, hundreds of rioters looted and burned migrant-owned homes and businesses in Kalgoorlie and Boulder over two successive evenings. Indeed, it is the sustained nature of the rioting that most invites questions regarding social forces supporting the mobilisation. On the morning after the first night of rioting, large street meetings at several pit-heads resolved not to work until all ‘unnaturalised foreigners’ had been sacked from their jobs. The strikes were organised by a seven-member ‘unofficial miners’ committee’; one member of this committee was an AWU shop steward and at least two were returned soldiers. While most accounts of the riots blame union antipathy towards migrants and ‘competition for jobs’ for the outbreak of violence (Gerritsen 1969; Bertola 1978), the evidence does not support this conclusion. AWU officials condemned the strike, argued for a return to work and organised some 300 miners into a night patrol for the prevention of further violence. They also assisted with the distribution of food and water to distressed migrant families hiding in the surrounding bushland. While some miners undoubtedly participated in the riots, the vast majority did not. Organised returned soldiers played a clandestine role in fanning the rioting while not being prepared to support migrant exclusion as openly as they had in the past. In stark contrast to the class-conscious position of the Boulder RSA in 1919, in 1934 it was reported that ‘a tall elderly man’ led a group of youthful rioters to the Returned Soldiers League hall in Boulder in order to distribute guns among them (Kalgoorlie Miner 31 January 1934).15 A report on the riots in the League’s monthly newsletter was a masterpiece of dissembling innuendo.

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While disassociating its members from support for open violence and never admitting that some members took part, the Kalgoorlie Digger (February 1934) supported action against the presence of migrants on the mines and excused the lack of open veteran involvement in the riots as resulting from the unpopularity of their actions in 1919 when soldiers had last ‘tried to assist the public’. The sub-branch was, however, still active on the ideological front. At the 1934 State Congress, the Kalgoorlie delegate, Lieutenant-Colonel Fairley, successfully moved a motion ‘[t]hat representations be made to the State Parliament on the question of restriction of alien labour in mining and other industries in order that the decision of a previous Congress on this matter be given effect to.’ At this time, Fairley was Secretary of the Kalgoorlie sub-branch and editor of the Kalgoorlie Digger (Listening Post, 26 October 1934). A further indication of how far labour movement attitudes had shifted regarding migrant workers was palpable in an industrial dispute which took place one year later. In a dispute over working hours on the mines, 6,000 workers went on strike in Kalgoorlie and other Western Australian mining centres, including at the Lake View and Star and Sons of Gwalia mines, where many migrant workers were employed. Fundraising activities in support of the strike involved Britisher and migrant workers alike, prompting Workers’ Weekly to report gushingly: A steel front of native and foreign workers has been preserved in the struggle, and amongst the ranks of those who fought with rifles a year ago is the most intimate fraternisation in the face of the common enemy (Workers’ Weekly, 1 February 1935). After six weeks out, the strikers were victorious and, in the course of the dispute, union membership density which had stood at 40 per cent at the commencement of the strike rose to 72 per cent by the time members returned to work (Bertola 1993: 239). Although AWU officials were not committed internationalists, they recognised that building a powerful union required the mass recruitment of workers, regardless of nationality. As well as denouncing the race rioters in 1934, union leaders expressed a principled ‘determination to give the union ticket to all members irrespective of nationality’ (West Australian, 2 February 1934). In addition, Communist Party (CPA) members on the goldfields — although few in number — won a hearing for their argument that workers should strike against the mining employers, not their fellow workers. The threat of being outflanked by the left on the ‘race question’ put pressure on more conservative union officials to adopt a more inclusive attitude towards migrant workers. Indeed, a leading CPA member, Bronc Finlay, who had been a prominent opponent of the 1934 riots, was elected to the AWU Mining Division leadership in 1938 (Gregson 2003: 192). The role of industrial disputation in bringing workers together over common causes helped to overcome perceived divisions. Despite the growth of highly competitive and industrially divisive tribute mining, many migrant workers shared a political and industrial commitment to unionism with their Britisher counterparts. While some writers have emphasised the

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marginalisation of migrants on the mines, an examination of AWU membership records for the mid-1930s suggest that perhaps twenty per cent of AWU members had a non-Britisher background throughout this period, roughly analogous to the numerical presence of migrant workers in the community (Gregson 2001: 191–2). In addition, membership density almost doubled from approximately 40 per cent in early 1934 to over 72 per cent in March 1935.

Conclusion Racism is more commonly depicted as part of a competitive struggle within classes, rather than as a tool used by government and employers in the rivalry between classes. The racist hiring practices of many employers and the sympathetic responses of some trade unionists to their migrant counterparts rarely feature in the existing historiography of the period. In reality, mine employers were not benign influences in local race debates — on the one hand, they held out British employment preference as an industrial ‘carrot’ they hoped would distract local workers from the real source of their employment woes. On the other hand, they openly hired migrant workers on the basis that dirty, low-skilled, poorly-paid labouring jobs around the mines were ideally suited to southern Europeans. In this way, employers attempted to isolate southern Europeans from unionised Britisher workers, thereby limiting opportunities for the kind of fraternisation that might lead to united struggles for improved wages and conditions. In the eyes of the employers, here was the ‘stick’ — as long as Britisher workers saw their migrant counterparts as ‘disloyal’ and ‘ratebusting’, the potential for strong unionism might be constrained. Despite the overwhelming onslaught of racist messages delivered through legislation, newspaper editorials, employer hiring practices and through many other means, considerable resistance to racial division came from within the labour movement, challenging divisive management strategies. While the 1916 union resolution against migrant workers might be considered standard labour movement strategy, this case study shows that unionised workers were not unanimous supporters of racist exclusion and that some workers were prepared to argue in support of their Slav counterparts. However, while in all three race riots, returned soldiers demonstrated their continued commitment to a form of ‘ethnic cleansing’, the labour movement gave increased support to their migrant co-workers against RSL and employer racism. Where the small signs of opposition to migrant exclusion were isolated in 1916, in the later riots they became official union policy. More than twenty years ago, Burgmann encouraged historians to look away from those falsely-conscious workers who sought racist ‘solutions’ to their industrial problems. She urged further examination of ruling class interest in racial division in order to understand its ideological ramifications within the working class. Here, it is argued that the role of the organisation now known as the RSL in local race debates is a revealing window into the dynamics of race relations. The officer-dominated leadership deliberately galvanised a small but important group of returned soldiers for continued service to ‘the nation’. Part of their role was to propagandise about a range of conservative policies, includ-

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ing that of White Australia. Indeed, as Duncan (1961: 109) noted, even in 1958 when the White Australia policy was beginning to attract criticism from other sections of society for its racist underpinnings, the RSL stood firm. Sir George Holland, its then-president, announced to the press and the State Branches that the support for ‘White Australia’ expressed in the 1922 resolution remained current policy. The RSL leadership promoted the ideology behind the White Australia policy in the way that this policy had always been intended — as a piece of legislation that purported to defend working class wages and conditions while fundamentally seeking collaboration between white workers and their white employers. In this way, it could mask a concomitant hostility towards militant trade unionism behind calls for immigration restriction in the ‘interests’ of local workers.

Notes 1. See for example (CFMEU 1999); Speech: Warren Smith, Secretary, MUA Sydney Branch, APEC Protest Rally, 8 September 2007. 2. In a survey of the relevant literature, Iacovetta, Quinlan and Radforth, for example, suggest national immigration policy was set by a coalition of trade unionists and the urban and rural middle class (Iacovetta et al. 1996: 97). Burgmann’s (1978) work has been, until quite recently, something of a lone voice against this hegemony. 3. Correspondence: Western Australian branch of the RSSILA to Acting PM Alf Watt, 12 March 1919, NAA: A1/15, 1919/4097. 4. Returned service organisations have had a plethora of names, name changes and misnomers. In this article, I refer to the Returned Soldiers’ Association (RSA) that became the Western Australian Branch of the federally recognised Returned Sailors and Soldiers’ Imperial League of Australia (RSSILA) in 1918. The organisation discussed here should not be confused with another WA grouping of returned soldiers, also known as the RSA, formed by left-wing soldiers ostracised from the RSSILA (Oliver 1993: 29–35). The organisation referred to herein is currently known as the Returned and Services League or, more commonly, the RSL. 5. The AIF leadership, according to Robson, was overwhelmingly Protestant and primarily drawn from a narrow range of occupations — ‘commerce, clerical, professional and pre-war army’ (Robson 1973: 748–9; McQuilton 2000, 2001). 6. In 1916, the Kalgoorlie and Boulder miners amalgamated into the Federated Mining Employees’ Association of Australia. Locally, they were simply referred to as the Miners’ Union, until the FMEA merged with the Australian Workers’ Union (AWU) in 1917. 7. Some of these workers were nationals of countries like Serbia and Montenegro, that had been forcibly incorporated into the Austro-Hungarian Empire. 8. ‘Britisher’ was a contemporaneous term denoting people of Anglo-Celtic origin, both Australian and British. While it is useful to employ this term to

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reflect the perceived ethnic boundaries, its racial connotations are rejected. The terms ‘migrant’ and ‘foreigner’ refer exclusively to non-Britishers. 9. This was clearly a play on Tom Barker’s famous phrase, ‘the microbe of patriotism’. Direct Action, 10 August 1914. 10.  War Precautions Acts (1914–16) and War Precautions Regulations (1915), Official Yearbook of the Commonwealth of Australia 1901–1914, no. 8, Commonwealth Bureau of Statistics, Melbourne, 1915, p. 1093. 11. These attitudes mirror those of anxious ‘do-gooders’ around the country (see King 1994). 12. The FMU was a defunct union, revitalised in 1916–7 by those who left the labour movement in the 1916 Australian Labor Party split. Its secretary claimed FMU membership totalled more than three hundred workers, of whom more than fifty were returned soldiers (Kalgoorlie Miner, 13 November 1919). 13. Correspondence: Western Australian branch of the RSSILA to Acting PM Alf Watt, 12 March 1919, NAA: A1/15, 1919/4097, National Archives, ACT. 14. Correspondence: Western Australian branch of the RSSILA to Acting PM Alf Watt, 6 January 1919, RSL Collection, MS6609, Series 1, Box 332, 600–679, National Library of Australia. 15. While specific details of this political transformation are not known, it is suggested that the conservative influence of Federal and State leaderships through tireless anti-radical propaganda, alienation of left-leaning members and, in the last instance, expulsion of ‘troublemakers’, remade the Boulder sub-branch in the leadership’s image.

References Bertola, P. (1978) Ethnic difference in Kalgoorlie, 1893–1934, unpublished Honours thesis, Murdoch University. Bertola, P. (1993) Kalgoorlie, gold, and the world economy, 1893–1972, unpublished PhD thesis, Curtin University of Technology. Bolton, G. (1994, first published 1972) A Fine Country to Starve In, University of Western Australia Press, Churchlands. Brown, M. (1981) Western Australians and the world: Anti-war organisations as a case study, 1919–1939, MA thesis, University of Western Australia. Bryan, C. (1918) Archbishop Mannix: Champion of Australian Democracy, Advocate Press, Melbourne. Burgmann, V. (1978) ‘Capital and labour’ in A. Curthoys and A. Markus (eds), Who Are Our Enemies? Racism and the Working Class in Australia, Hale and Iremonger, Neutral Bay, pp. 20–34. Cain, F. (1983) The Origins of Political Surveillance in Australia, Angus and Robertson, Sydney. Chamber of Mines of Western Australia (1916) Monthly Journal, xv(1), p. 29. Chamber of Mines of Western Australia (1916) ‘Alien Enemies Commission’, 31 October, pamphlet held in the National Library of Australia.

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Collett, Colonel H. B. (1929) ‘The R.S.S.I.L.A. in Western Australia’ in Returned Sailors’ and Soldiers’ Imperial League (W. A. Branch) (compiled), The W. A. Digger Book, Perth. Commonwealth of Australia Gazette, 12 January 1916, pp. 39–51. Construction, Forestry, Mining & Energy Union (CFMEU) (1999) Submission to the Review of Illegal Workers in Australia, Department of Immigration and Citizenship. Duncan, J. (1961) The origin, aims, and achievements of the R.S.L. in Western Australia, unpublished manuscript held at Anzac House, Perth. Ellem, B. and Shields, J. (2000) ‘H.A. Turner and “Australian Labor’s closed preserve”: Explaining the rise of “closed unionism” in the Broken Hill mining industry’, Labour and Industry, 11(1), pp. 69–92. Evans, R. (1987) Loyalty and Disloyalty: Social Conflict on the Queensland Homefront, 1914–18, Allen and Unwin, Sydney. Evans, R. (1988) The Red Flag Riots: A Study of Intolerance, University of Queensland Press, St Lucia. Fischer, G. (1988) ‘ “Enemy labour”: Industrial unrest and the internment of Yugoslav workers in Western Australia during World War Ι’, Australian Journal of Politics and History, 34(1), pp. 1–15. Gerritsen, R. (1969) ‘The 1934 Kalgoorlie riots: A Western Australian crowd’, University Studies in History, 5(3), pp. 42–75. Gilchrist, H. (1997) Australians and Greeks, vol. 2, Halstead Press, Rushcutters Bay. Gregson, S. (2004) ‘Defending internationalism in interwar Broken Hill’, Labour History, 86, pp. 115–136. Gregson, S. (2003) Foot soldiers for capital: The influence of RSL racism on interwar industrial relations in Kalgoorlie and Broken Hill, unpublished PhD thesis, University of New South Wales. Gregson, S. (2001) ‘ “It all started on the mines?”: The 1934 Kalgoorlie race riots revisited’, Labour History, 80, pp. 21–40. Hawke, S. and Gallagher, M. (1989) Noonkambah, Fremantle Arts Centre Press, Fremantle. Hills, L. (1938) The Returned Sailors & Soldiers’ Imperial League of Australia: Its Origin, History, Achievements and Ideals, part 1, Southland, Melbourne. Iacovetta, F., Quinlan, M. and Radforth, I. (1996) ‘Immigration and labour: Australia and Canada Compared’, Labour/Le Travail, 38/Labour History, 71, pp. 90–115. King, T. (1994) ‘Saving the returned men: The Soldiers’ Lounge, St Paul’s Cathedral’, Victorian Historical Journal, 65(2), pp. 169–178. Kristianson, G. (1966) The Politics of Patriotism: The Pressure Group Activities of the Returned Servicemen’s League, Australian National University Press, Canberra. Lake, M. (2006) ‘The militarisation of Australian historical memory’, Dissent, 40(1), pp. 15–16. Lockwood, R. (1982) Black Armada, Hale and Iremonger, Sydney.

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The Economic and Labour Relations Review Vol. 18 No. 1, pp. 99–114

Australian Skill Shortages: How the Howard Government Did Not Change its Mind Alan Montague * Judith Bessant * Abstract This article begins by assessing the evidence that there was, and is, a skill shortage in Australia, and notes that for some years the Howard government initially denied there was a problem of unmet demand for skilled people. It was not until late 2006 that we saw any kind of official acknowledgement of a problem. On 12 October 2006, Prime Minister Howard announced a ‘Skills for the Future’ policy that involved a commitment to spend $837 million over five years, and aimed ‘to help build a more highly skilled and responsive workforce to support Australia’s long-term economic growth’. Acknowledging that policy-making begins with the framing or constitution of a problem, assessments are offered of this federal government’s account of the ‘skill shortage’ problem. The questions posed in this article are: what policy initiatives during the Howard years were designed to address issues of training, and what was their potential for addressing the problem of an apparent shortage of skilled workers in Australia?

Introduction … I do not wish for a moment to underestimate the problem relating to skills … . But it is a challenge, it’s not a crisis, and we should approach it as such (Prime Minister John Howard 2006). During 2006, it seemed as though the Australian federal government ‘discovered’ that they faced a skills ‘challenge’, if not a crisis. The media began to carry stories like ‘BHP forced to recruit foreigners’ (Burrell 2007). Politicians and editorial writers climbed aboard what proved to be a relentless news story. According to an editorial in the Melbourne Age (9 February 2007): … the skills shortage was reaching critical mass. It doesn’t take a rocket scientist, if there are any left, to work it out. Funding shortfalls + decline in teachers = fewer graduates. This is not a linear equation; it

* Royal Melbourne Institute of Technology University, Melbourne

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feeds back on itself as a vicious circle. The result is that Australia is going to be the big loser. We begin by assessing evidence that there is a skills shortage, concentrating on the professions and traditional trades. We note that for some years the Howard government initially denied there was a problem of unmet demand for skilled people. It was not until late 2006 that we saw an official acknowledgement of a problem. On 12 October 2006, Prime Minister John Howard announced a Skills For The Future policy that involved a commitment to spend $837 million over five years and aimed, as he explained in his statement in the House of Representatives, ‘to help build a more highly skilled and responsive workforce to support Australia’s long-term economic growth’ (Hansard 2006). Acknowledging that policy-making begins with the framing or constitution of a problem, we also assess the Howard government’s accounts of the ‘skill shortage’ problem. The questions posed in this paper are: what policy initiatives were developed over the past decade, and particularly after 2006, designed to address issues of training, and what was the likelihood that, if implemented, they would have addressed the problem of an apparent shortage of skilled workers in Australia? After reviewing the evidence of a skills shortage, we turn to an examination of what the Liberal National Coalition (LNC) government did between 1996 and 2007 with respect to skill training. Finally, we consider the potential effectiveness of Government policies, including the Skills for the Future statement.

A Skills Shortage Is there a skills shortage in Australia either at a general — that is, national —  level, or in particular states and territories? There are problems answering this question definitively. One task for those who say there is a skills shortage is to establish whether there are difficulties in filling labour vacancies as distinct from filling positions that require a specific level of skill or experience. This distinction is significant given that the Commonwealth Department of Employment and Workplace Relations — responsible for monitoring labour market demand — also defined a skills shortage as a circumstance when ‘employers are unable to fill, or have considerable difficulty in filling, vacancies for an occupation, or specialised skill needs within that occupation, at prevailing levels of remuneration and conditions of employment, and reasonably accessible location’ (Employment Workplace Relations and Education References Committee 2003: 11). The term ‘skill shortage’ is often shorthand for a range of recruitment difficulties and skill deficits in the workforce. Shortages are monitored for occupations which require significant periods of education and training and or experience (usually of at least three years) generally being in the professions, traditional trades and occupations in information and communications technology. Skill shortage reports also include information on occupations experiencing ‘recruitment difficulties’; that is, where employers have some difficulty in filling vacancies for an occupation or specialisation within an

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occupation, even though there may overall be an adequate supply of skilled worker for that occupation. (Employment Workplace Relations and Education References Committee 2003: 11). There is also no simple, agreed-on or reliable measure that can be used to quantify the skill shortage. Indeed, it is necessary to draw on a range of indicators to get some sense of the problem. Nevertheless, there does seem to be some agreement that one of the most important indicators of a skill shortage is the time taken to fill vacancies. While Richardson’s (2007) account of skills shortage refers mainly to the VET area (technical skills), the concept is more generally limited by difficulty in determining precisely where skill shortages do, and will actually, reside. This is because many emerging occupations do not yet have clear and specific classifications owing in part to early stages of their evolution and the rapid pace of technological change. This means that some shortages are not recognised because it has simply not been possible to predict the new jobs and skills that are likely to emerge. Accepting such limitations Richardson’s multi-level definition provides a useful basis: •  Level 1 shortage: There are few people who have the essential technical skills who are not already using them and there is a long training time to develop the skills. •  Level 2 shortage: There are few people who have the essential technical skills who are not already using them but there is a short training time to develop the skills. •  Skills mismatch: There are sufficient people who have the essential technical skills who are not already using them, but they are not willing to apply for the vacancies under current conditions. •  Quality gap: There are sufficient people with the essential technical skills who are not already using them and who are willing to apply for the vacancies, but they lack some qualities that employers consider are important (Richardson 2007: 7). Does Australia actually face a skill ‘challenge’ or ‘crisis’? Clearly there is no shortage of people and organisations prepared to say so. The Reserve Bank of Australia (RBA) argued early on, in a 1999 report on monetary policy, that there was evidence that the strength of the labour market was generating skills shortages in some areas. The RBA drew on quarterly surveys by major banks like the National Australia Bank which reported an overall increase in 1999 in the number of business respondents citing availability of suitable labour as a constraint on current output and profitability. The Australian Chamber of Commerce and Industry (ACCI)-Westpac survey also pointed to an increase in the number of respondents finding it more difficult to obtain labour in the late 1990s (RBA 1999). On 23 October 2003, the Australian Federal Senate established an inquiry reporting to the Employment, Workplace Relations and Education References Committee. The initial report was scheduled for 6 November 2003 and its brief was to identify any emergent issues of skill shortage and labour market demand

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and the responsiveness of the education policies of all governments and industry. The Senate Inquiry, after consultation with industry, identified serious skill shortages in a number of traditional trades. These included pastry cooks, chefs and motor vehicle mechanics, toolmakers and upholsterers, boilermakers, fitter and turners, metal machinists, pressure welders and sheet-metal workers. Emerging problems were also noted in occupations such as refrigeration and air-conditioning mechanics, panel beaters, vehicle painters, and automotive electricians (Employment Workplace Relations and Education References Committee 2003). This Senate report also pointed to significant skill shortages in professions such as electrical or electronic engineers, accountants, registered nurses, midwives, mental health nurses, development disability nurses, pharmacists, physiotherapists, speech pathologists, medical imaging professionals, and secondary school teachers — though not in all disciplines (Employment Workplace Relations and Education References Committee 2003). Despite all this, it was not until 2006 that we saw any sense of urgency in official discussions about skill shortages at the federal level. It was undoubtedly prompted by increasing calls from industry for a government response. We examine whether the resulting Skills For The Future policies reflected the problem accurately. A Victorian Employers’ Chamber of Commerce and Industry (VECCI) Victorian Skills Survey in early 2006 observed that labour shortages were a significant problem for industry in Victoria (VECCI 2007). The VECCI Victorian Skills Survey was the first statewide Victorian survey of its kind covering all industry sectors, and was distributed to Victorian enterprises in early 2006. A total of 7,469 businesses were invited to complete the survey. The survey achieved a response rate of 17 per cent with 1,281 surveys being available for analysis (VECCI 2007). The VECCI Skills Survey (VECCI 2007) found that businesses were ‘experiencing difficulties in filling vacancies, with over half of businesses finding it difficult to recruit skilled people to vacancies over the 6 months ahead of filling in the survey. Neil Coulson, VECCI Chief Executive Officer claimed that: nearly 60 percent of respondents reported that skills shortages were having a negative impact on the productivity of their business — the Survey also shows that labour shortages are spread across skilled, semiskilled and unskilled occupations, from Welder/Boiler Makers to Taxi Drivers’ (cited in VECCI 2007). Whilst the VECCI survey response rate was low, it suggested that: •  Of businesses employing apprentices and trainees, 28.3 per cent reported difficulty in the previous six months in recruiting apprentices or trainees. Over one-third of total apprentice/trainee vacancies were for the occupation of Call Centre Agent; other occupations with the most apprentice/ trainee vacancies were Aged or Disabled Person Carer and Welder/Boiler Maker. •  The three occupations with the largest number of vacancies were: Aged or Disabled Person Carer, Sales Assistant, and Taxi Driver.

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•  Over half of businesses (58.4 per cent) felt that skill shortages were having a negative impact on the productivity of their business, with 10.7 per cent reporting a very negative impact (VECCI 2007). In 2006 the Australian Industry Group (AIG) in conjunction with the Allan Consulting Group also surveyed over 500 businesses. The issue most often cited and accounting for 85 per cent of the 500 businesses surveyed, was building a skill base to sustain competitiveness for at least three years. Employers claimed that economic growth was dependent on improving and rebuilding a skilled workforce (AIG 2006). In August, Manpower (Manpower 2006b) surveyed almost 32,000 employers in 26 countries including 3,000 Australian employers. The survey (Manpower 2006b) set out to determine the availability of suitable permanent professional candidates in the marketplace, and the impact any shortage was having on salaries/compensation. The survey results suggested that 29 per cent of employers worldwide reported they would have hired more professional staff over the past six months if candidates with the right skills would have been available. The survey shows that talent shortages among ‘permanent’ professionals were particularly acute in the Americas and the Asia-Pacific region, with fewer employers in Europe indicating difficulty in finding qualified professional staff. In Australia, half of responding employers from Western Australia reported raising salaries in an effort to attract qualified staff. Similarly, 40 per cent of employers in public administration and education said they would hire more staff if they could find them. Wage inflation was reported to be highest in these areas, along with the finance, insurance, real estate, mining and construction sectors (Donaldson 2006). The question of inflationary wage pressures resulting from skill shortages is an issue worth researching in its own right.

Apprenticeships and Traineeships I do feel the Howard Government has breathed life back into the skills area. There are now 400,000 people in apprenticeships. There were 132,000 when we took over in 1996. There’s more to do, but I think there was serious neglect under Labor (Andrew Robb, Vocational and Technical Education Minister, cited in Maiden 2007). Certainly the range of industry sectors covered by apprenticeships and traineeships has increased significantly since 1996. On the other hand, the ACTU warned in 2004 that a quarter-million shortfall in traditional trades apprentices could cost the economy $9 billion in lost output over the coming decade: ACTU president Sharan Burrow said an ageing workforce, combined with fewer traditional apprentices coming through the training system, was creating a skills shortage costing the economy about $735 million a year. The ACTU estimates up to 170,000 tradespeople will leave the workforce over the next five years and only 40,000 will enter it, leading to a national shortage of 250,000 traditional apprentices in 10 years (Shaw and Rood 2004).

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An interest in apprenticeships on the part of the Howard government can be traced to their early days in office. However, while that administration provided a range of incentives for employers and apprentices, designed to re-shape the nature of apprenticeships throughout their time in office, those ‘initiatives’ were not specifically designed to address a skill shortage in trades. It is doubtful whether interventions such as financial assistance to employers to reduce training costs were primarily directed towards addressing a skills shortage. The Commonwealth budget of 2006–2007 provided incentives designed to encourage trainees in diploma or advanced diploma levels in selected areas can be viewed as ‘too little, too late’. The skills shortage in the technical areas — in engineering, for example — has been apparent for many years. The initiative will take a considerable time to impact on industry (Vines 2007). Less than one per cent (0.04 per cent) of all apprentices and trainees are trained at the diploma or advanced diploma level (NCVER 2006). A significant increase in the number of persons at diploma level in engineering is needed as to turn the tide of the skills shortages in this industry sector. The Commonwealth used COAG agreements to impose a ‘neo-liberal’ competition-based training agenda on the states. While it was claimed that such initiatives were intended to ‘open up’ all public training funds to private competition and to create a more efficient and ‘user friendly’ apprenticeship system, they were not however designed to, nor did they, have the effect of addressing a general or specific skill shortage. Equity issues were also of concern. Employers recruiting apprentices with a disability are eligible for wage support of either $104.30 per week exclusive of GST (DEST 2007). And while this amount has seen modest growth since the early 1990s (the amount was around $96 per week under Working Nation in the Keating government era), the government contribution has not kept pace with the Consumer Price Index. Table 1: Commencements and Completions for Traditional Apprenticeships (smoothed), Australia, 1995–2005

Source: Karmel and Virk 2006, based on Apprentice and Trainee Collection 46 (NCVER). Reproduced with permission.

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Table 2: Completion Rates of Traditional Apprenticeships, 1998–2002, 2002–2005 States

New South Wales Victoria Queensland Western Australia South Australia Northern Territory Tasmania Australian Capital Territory Australia

1998–2002

0.52 0.58 0.84 0.87 0.57 0.79 0.92 0.88 0.64

2002–2005

0.45 0.44 0.85 0.87 0.60 0.80 0.86 0.78 0.57

Source: Karmel and Virk 2006, based on Apprentice and Trainee Collection 46 (NCVER). Reproduced with permission.

Research by Karmel and Virk (2006) indicates high attrition levels of apprentices in the traditional trades as well as increases in commencements (Tables 1 and 2). These writers suggest that ‘one possible explanation’ for the lack of increase in the number of traditional apprenticeship completions is ‘that the time taken to complete a traditional apprenticeship has meant that the increase in commencements has not yet had time to flow through to the number of completions’ (Karmel and Virk 2006: 7). ‘A second explanation is that completion rates have declined, possibly because of the many opportunities available in the labour market for those part-way through their training’ (Karmel and Virk 2006: 7).

Australian Technical Colleges One policy initiative set out in the 2004–2005 federal budget was to establish Australian Technical Colleges (ATCs) in 24 regions to address skills shortages. The intention was to introduce the ATCs over four years; they would enroll Year 11 and 12 students to commence trade training in an area of skill shortage while undertaking secondary schooling (DEST 2007). They would be industryendorsed and managed autonomously by principals with the discretion to recruit teachers on a performance-pay basis (DEST 2005, 2007). These vocational colleges fell largely in marginal electorates held by the Coalition, and were also set up in competition with state-run TAFE colleges (Maiden 2006). According to Prime Minister Howard, the new Colleges ‘helped restore the place of traditional trades in our national consciousness after a long period in which a trade training was deemed second-class’ (Howard 2006). The former Minister for Vocational and Technical Education, Gary Hardgrave said the new technical colleges were a ‘lighthouse designed to shed light on the need to make changes in education and this inspired policy was already having an enormous impact’ (Hardgrave 2005). In April 2006, it was reported despite John Howard’s ‘vision’ and enthusiasm for 24 federally funded technical colleges designed to address the skills shortage, many were under jeopardy and not being realised, with the Government at one stage threatening to strip some regions of the training centres promised at the previous election (Maiden 2006).

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The legislative basis for the Australian Technical Colleges was the Australian Technical Colleges (Flexibility in Achieving Australia’s Skills Needs) Act 2005. The Australian Government initially announced an investment of $343.6 million over five years to 2009 to establish and run 24 ATCs across Australia. Five opened in 2006, and a further 16 were due to open in 2007. They were intended as ‘partnerships’ of education, training, industry and community organisations, overseen on behalf of the federal government by the Department of Education, Science and Training. By early 2007, it was clear that the targeted enrolment of 7,500 was not achievable (Age Editorial, 9 February). According to the available data, even if that number was achieved, it would still not be enough to make a significant difference to the shortage. In September 2006, the AIG offered to the government research from Monash University ‘which forecasts a shortfall of 270,000 people with technical level qualifications over the next decade and shows that 86 per cent of occupations are listed as requiring a post-secondary qualification, yet only about 50 per cent of Australians have this level of qualification’ (Tingle 2006). The rationale for the ATC project was also unclear, as TAFE already has the infrastructure as well as capability and brief to achieve the outcomes sought by government. Given the tight budgetary constraints in education, the idea of building two dozen new colleges for the purpose of addressing the skills shortage raises questions about the expensive policy decision to replicate a training system that we already have in TAFE as well as other VET providers. There are questions about the costs involved. If 7500 students were recruited by 2009, the expenditure per student would be $350 million divided by 7,500. This equates to almost $47,000 per student. This is a concern, given that a Victorian TAFE college — for example, in 2005 — received around $11,000 for training a full apprentice, but noting that monies received were the lowest funding level of any state (Productivity Commission 2007).

Commonwealth Government Skills for the Future Policy 2006– In response to the problem of the skill shortage, the Liberal National Coalition (LNC) government also initiated a series of smaller interventions. On 18 September 2006, Prime Minister spoke at a ‘Skilling Conference’ hosted by the Australian Financial Review. At the time, the Australian Industry Group was calling for the spending of an extra $1 billion on training to train the existing workforce, and the establishment of ‘a national skills fund’ (Tingle 2006). The AIG also called for ‘more spending through tax breaks and to allow business more than 100 per cent deductibility for relevant training expenses’ (Tingle 2006). While minor concessions were granted by the government for training the existing workforce, the 100 per cent tax deductibility, according to our research, was not forthcoming. On 18 September 2006, Prime Minister Howard also described the skill shortages as a ‘necessary factor in a buoyant economy’ and suggested that the labour market would resolve the issues (Howard 2006). Here we get some insight into the LNC’s lack of response. There is an apparent contradiction between the

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ATC outlays and the claim that skill shortage could be resolved by the market alone. It seems, however, such faith is not shared by the Reserve Bank (Australia 2006) or the Senate Inquiry into skills shortages (Employment Workplace Relations and Education References Committee 2003). Moreover, the apparent failure of a ‘buoyant economy’ to fix the skills shortage is occurring at a time when Australia is enjoying the longest boom period in its history (Kirby 2000). Despite these claims of economic buoyancy and the efficacy of the market, less than a month after the speech at the Financial review Conference, the government announced a five year plan to address the problem. On 12 October 2006, Prime Minister Howard announced ‘a new investment in Skills For The Future totalling $837 million over 5 years to help build a more highly skilled and responsive workforce to support Australia’s long-term economic growth’ (Hansard 2006). Yet, $837 million is a small investment when considered in the context of a $15.5 billion federal expenditure budget for education for one year. The state funding is separate and much higher (Productivity Commission 2007). When this federal figure of $15.5 billion is multiplied by 5 years, it would add to approximately $80 billion budgeted for federal expenditure on education with modest CPI growth. The Skills For The Future policies funding period also is five years and budgeted as $837 million in total (Hansard 2006). Whilst $837 million may appear to be a large sum of money, the Skills For The Future budget in percentage terms represent only 1.04 per cent of the total federal education budget over five years — hardly enough to redress the skills shortage. The federal government was well placed to negotiate a higher training allocation to the states through The Council of Australian Governments (COAG), but apparently chose not to do so. This poses the questions: was industry being short-changed by these federal government policies, and what impact was this level of funding having in terms of economic growth and capacity building broadly in Australian society? While a number of apprenticeship, financial, and other incentives had been implemented since the Howard government came to office in 1996, those inducements were primarily directed towards employees. They were designed to deregulate or ‘free up’ training, not to prevent or overcome skill shortages. Toner notes that: The apprentice training rate in 2004 was at its highest level since 1992. If current rates of economic growth are maintained this high training rate will be sustained into 2006. Current high rates of training will have to be maintained for another decade to compensate for the reduced training effort in the previous decade. (Toner 2005: 6) Major players in the economy such as the Reserve Bank suggest there are significant reasons why skills shortages are a real worry. Anticipated demographic shifts caused by an ageing population in conjunction with skills shortages present a problem for the future. Warnings are given that unless government develops sound and long term policies and invests in education infrastructure to resolve the problem, Australia will not fare well in the future (Reserve Bank of Australia 1999, 2006a, 2006b).

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Australia’s economic boom over the past decade or more has been accompanied by a remarkable growth in the workforce, particularly in a range of professions. It is also worth noting that those who fill these positions require a degree-level qualification. Whilst these positions require a degree-level qualification, since 1996 we have seen a relatively small increase in the number of domestic Australian students commencing undergraduate training at Australian universities. One consequence of this has been the emergence of serious shortages of graduates in a number of vocationally specific areas, including the health, engineering and accounting professions (Birrell and Rapson 2006: 3). Kim Beazley also made the point: Is it not a fact that under this Prime Minister’s watch, Australia has reduced our public investment in TAFEs and universities by 7 per cent — the only advanced economy to do so — while our global competitors have increased their investment by 48 per cent? (Beazley, Hansard 12 October 2007: 65–66) Investment in public education from primary to tertiary level has not been adequate to build a well-skilled and educated workforce. Recent OECD figures rank Australia 13th out of 33 nations for the proportion of GDP spent on education (OECD 2006: 170). Whereas Switzerland and the United States spend A$12,000 per student, Australia invests $7,500. The OECD figures suggest that in Australia, cumulative spending on educational institutions per student over average duration in tertiary studies was below the OECD average (OECD 2006: 184). Indeed, there are suggestions that government policy may have contributed to the skills shortage. Donaldson (2006) has pointedly criticised the Howard Government’s decision to cut funding for TAFE (Technical and Further Education) by more than $1 billion in real terms over the decide from 1997. This meant that more than 300,000 Australians were turned away from TAFE colleges (Donaldson 2006). We now substantiate the claim that Skills for the Future is seriously under-funded, explaining why we question its capacity to be effective. We examine this claim by examining some of its initiatives. However welcome each initiative may be, do they together add up to a solution to the skills crisis?

Work Skills Vouchers Skills vouchers were a component of the Skills For The Future initiative introduced in 2007 to improve skills and to help people in the search for work. Specifically, they were intended for the completion of certain ‘accredited’ courses such as literacy/numeracy, basic education, or vocational Certificate II level programs. Each of the 30,000 vouchers is worth $3000 and can be spent on training in a TAFE, private or community college. The target group is Australians aged 25 and over who have not completed senior secondary qualifications; more specifically, priority is given to unskilled workers and income support recipients wanting to return to work (DEST 2006).

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This initiative was designed to help usher disadvantaged jobless people back into the labour market or sustain the employment of current workers. The degree to which the policy has been specifically designed to produce outcomes that address the skill shortage is debatable. While it is important to assist jobless people improve certain skills, it is also critical, given the task at hand, to design a policy that is more directive and requiring people to upgrade their credentials in areas where there are skill shortages. There is an assumption in the ‘voucher’ initiative that whatever courses the target group chooses to enroll in will match the areas of skills shortages. There is also an assumption that the targeted disadvantaged groups are well-placed to identify suitable courses that will improve their employability. The policy lacked in-built advice and services to enable people to choose or change courses. Thus the policy, which will cost $407.6 million over five years, may not reach its objectives efficiently.

Support for Mid-Career Apprenticeships The idea behind the support for the mid-career apprentices policy is to encourage existing workers to qualify as tradespersons in areas in demand by undertaking Certificate III or IV apprenticeships. Incentives of $150 per week ($7,800 p.a.) are offered in the first year, and $100 per week ($5,200 p.a.) in the second year. Incentives of $10,000 per annum are also available (DEST 2006). The target group are Australians aged 30 and over who are commencing an apprenticeship, or those who are already apprentices (in 2007), or apprentices who are employed in the traditional trades having reached at least the end of their second year of training. The money invested in this policy component was $306.6 million over five years (DEST 2006a). The amount payable to either the apprentice or the employer was to be $150 per week ($7,500 per annum) in the first year of the apprenticeship and $100 per week ($5,200 per annum) in the second year (DEST 2007). When provided to individuals and for-profit companies, these subsidies are taxable, although the net impact will vary with the operation of tax laws in specific cases. However, if money is paid to an employer who then passes this additional capital in the form of salary to an apprentice, is the tax deducted twice? If so — and circumstances indicate that this is a real possibility — then this would signify a distinct fault in the policy. Apart from uncertainty regarding the taxation issue this policy has an additional financial problem: insufficient money. Whilst this policy could go some way to addressing skill shortages, $306.6 million over five years is too little to contribute significantly to this goal. In 1990, there was an annual completion of around 32,000 traditional apprentices and this figure actually decreased; in 2003, it hovered around 25,000 completions. In September 2006, the completions traditional apprentices accounted for were 32,400. The growth in apprenticeships and traineeships mainly resides in traineeships. Apart from child and aged care and nursing, traineeships are not addressing the areas of greatest skill shortage (NCVER 2001, 2004, 2005, 2007). The figures indicate that the Howard government’s policies would not have met the need in traditional trades. Let us assume, for example, that the $306.6

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million is divided among a cohort of apprentices that are paid $150 per week ($7,500 per annum) in the first year of the apprenticeship, and $100 per week ($5,200 per annum) in the second year thus accruing to $12,700. Dividing the total by $7,500 suggests that it will fund 24,142 apprentices. According to research commissioned by the Housing Institute of Australia, the construction industry alone faces a deficit of 150,000 tradespeople over the next five years, with the average age of a builder in Victoria now 47 years (Houston and Schneiders 2007). The Australian Council of Trade Unions (ACTU) suggests that 170,000 tradespeople will leave the workforce by 2009 (Shaw and Rood 2004). We have noted that the AIG, not known as a natural bedfellow of the ACTU, forecast a shortfall of 270,000 technically qualified people by 2016 (Tingle 2006). It appears that some review of training policies in trades areas is needed.

More Engineering Places at University Another Skills for the Future initiative is the provision of 500 additional Commonwealth-supported engineering places available, involving a financial allocation of $56 million over five years (DEST 2006). Whilst the Association of Professional Engineers, Scientists and Managers Australia welcomed this allocation, it noted that because new graduates will not complete until 2010, the immediate shortage remains to be addressed. Science and Engineering degrees attract a student Higher Education Contribution Scheme (HECS) cost just under medicine and law. It is disappointing that a reduction of HECS liability and an increase in scholarships was not introduced earlier. Birrell and Rapson (2006) argue that graduate places have not increased sufficiently to turn the tide of the immediate and burgeoning shortages in many professional areas. They argue that despite an increase of 10,000 in domestic commencements between 2004 and 2005, the number of local commencing undergraduates in 2005 was much the same as in 1996 and 2001 (Birrell and Rapson 2006: 1). Increases, announced in 2007, in the number of fully funded places (particularly in the health and engineering fields), though welcome, were unlikely to alter the situation substantially. Birrell and Rapson argue that what has occurred is a replacement of marginally funded places (over-enrolments) by an equivalent number of fully funded places. Again, whilst welcome, this will have limited impact on the skills shortage.

Incentives for Higher Technical Skills Another Skills for the Future initiative takes the form of financial incentives — particularly in engineering. These incentives are available to 24,000 people over five years and cover technical areas such as engineering, laboratory, electrotechnology, childcare, dental prosthetics and civil construction. Within this policy, participating employers receive $1,500 for each employee commencing a Diploma or Advanced Diploma, and $2,500 when they complete through the Australian Apprenticeships Incentives Program (DEST 2006). This scheme, whilst welcome, arguably falls into the ‘too little, too late’ category and its take-up is uncertain.

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Business Skills Vouchers The final element of the package was the provision to offer business skills vouchers of $500 per annum from 2006 to 2011 for apprentices, at a total cost of $12.3 million (DEST 2006). This is intended as a contribution towards the costs of accredited small business skills training. This intervention has merit, given that over 50 per cent of all construction trades people and almost 30 per cent of automotive trades people are self-employed (DEST 2006). The importance of small business skills for tradespersons wanting to pursue independent contracting and run their own businesses cannot be underestimated.

Skills for the Future: Overall Assessment Cuts to public and private sector investment in skills formation have seriously eroded the skills base in many industries and occupations that are of economic and social significance. The critical question is whether the array of Skills for the Future will increase the supply of labour in areas where there are shortages? We have argued that in manufacturing, science, engineering, areas within medicine, aged care services and education, the supply of skilled people currently falls short of that which is needed to replace age retirements over the next decade. The kind of training and education that will be needed in all these areas of the workforce will require a significant boost as the knowledge and technological skills in all areas grows and changes (Employment Workplace Relations and Education References Committee 2003). We have argued that during the Howard government’s time in office, the capacity of the higher education sector to make the kind of contribution it can to Australia’s economy and workforce demands has not been recognised (Birrell and Rapson 2006: 16). As mentioned above, despite the economic boom which only served to intensify demand, we have seen a steady decline in investment in higher education and the TAFEVET sectors (Birrell and Rapson 2006). Australia also faces a shortfall of university-trained personnel. Analysis of the changing occupational structure of this section of the labour force shows that the numbers of staff employed at the managerial, professional, and associate professional level are growing more rapidly than the overall level of employment (Birrell and Rapson 2006). It appears that the findings of the 2003 Senate (Employment Workplace Relations and Education References Committee 2003) were not reflected in the Skills for the Future initiative. The valuable data submitted by industry seems to have limited impact given the lack of robust, properly financed long-term policies developed to address the skill shortage crisis. This article has focused on the shortfall in Commonwealth investment in skills. Also significant, but outside the scope of the article, is the relatively weak contribution by business to training and education (Buchanan 2004). On this last point, Buchanan reveals the reduction in employer expenditure on workforce training is disappointing (2004): Many employers intuitively understand the benefits of on-the-job training and long term employment relations. Today, however, they

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operate in circumstances which limits their ability to provide proper training and encourages them to minimise the obligations associated with (but not the incidence of) long term attachments in the workplace. Amongst larger firms in particular, the pressures to maximise shareholder value in the short run, and to survive in a world of excess capacity, are immense (Buchanan 2004: 32).

Conclusion The key argument in this article is that the Howard government failed to acknowledge the problem of skill shortages until very late in their term in office. Moreover, the policies that were finally implemented fell short in terms of effectiveness. We note how skill shortages impede economic development and social wellbeing, noting repeated recommendations by the Reserve Bank of Australia to invest in education. Yet, researchers like Birrell and Rapson (2006), and our own research, indicate that investment has been inadequate (a little over 1 per cent in the next five years) to address the major skill shortage. It was argued that the effectiveness of the Howard government policies — which include Skills For The Future, the fledgling Australian Technical Centres, and financial incentives for employers recruiting trade apprentices — can only have a limited impact in respect to ameliorating the skills shortage problem. What is needed is greater clarity about what exactly the problem is, and policy responses that specifically target existing and predicted areas of need. This relies on a commitment to invest in education — specifically the VET and higher education sectors. It requires a re-assessment of the current preoccupation with neoclassical economic ideas about ‘the individual’, ‘free competitive markets’, deregulation and other economic liberal values that have played such a significant role in shaping educational policies over the last ten years. It means paying attention to not only the task of addressing prevailing shortages, but also to values intrinsic in skill development and investment in education that includes, building the capacity of people to develop in ways that enhance their own, and Australia’s, social and economic well being.

References Age Editorial (2007) ‘Do the maths: Neglect plus shortages equals crisis’. The Age, Melbourne, 9 February, p. 16. AIG (Australian Industry Group) (2006) World Class Skills for World Class Industries: Employers’ Perspectives on Skilling in Australia, Report by Allen Consulting Group to the Australian Industry Group, May. Birrell, B. and V. Rapson (2006) Clearing the myths away: Higher education’s place in meeting workforce demands, Monash University Centre for Population and Urban Research/The Dusseldorp Skills Forum (DSF), October, Sydney. Colebatch, T. (2005) ‘Economist urges a new way on jobs’, The Age, Melbourne 24 February p. 6.

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DEST (Australian Government Department of Education Science and Training) (2005) Australian Technical Colleges: A discussion paper, Commonwealth of Australia, Canberra. DEST (2006) Skills for the Future, available: http://www.skillsforthefuture.gov.au/ [accessed 5 January 2007]. DEST (2007) Australian Apprenticeships, available: http://australianapprenticeships. gov.au/employer/incentives.asp [accessed 15 January 2007]. Donaldson, C. (2006) ‘Talent shortage impacts wage inflation’, available http://www.humanresourcesmagazine.com.au/articles/6F/0C046F6F. asp?Type=61&Category=933 [accessed 29 January 2007]. Employment Workplace Relations and Education References Committee (2003) Bridging the Skills Divide, Canberra. Hansard, H. o. R. (2006) Votes and Proceedings — Hansard. Canberra, Federal Parliament, 12 October. Houston, C. and B. Schneiders (2007) ‘Housing costs soar with skills shortage’, The Age, Melbourne 29 March, p. 10. Howard, J. (2006) Address to The Australian Financial Review Skilling Australia Conference, Sheraton On The Park Hotel, Sydney, 18 September. Kirby, P. (Chair) (2000) Ministerial Review of Postcompulsory Education Pathways in Victoria. Final Report, Department of Education, Employment and Training, Melbourne. Maiden, S. (2006) ‘New tech colleges in crisis’, The Australian, Sydney, 25 April, p. 1. Maiden, S. (2007) ‘Mr Fix-it has tools to restore colleges’, The Australian, Sydney, 24 January p. 1. Manpower (2006a) Confronting the coming talent crunch: What’s next? A Manpower White Paper, available: http://www.manpower.com.au/ [accessed 12 February 2007]. Manpower. (2006b) Talent shortage and wage inflation survey global results, Manpower Professional, available: http://www.hrone.lu/spip/IMG/pdf/Talent_ Shortage.pdf , [accessed 1 February 2007]. NCVER (National Centre for Vocational Education Research Ltd.) (2001) Australian Apprenticeships, Facts Fiction and the Future, NCVER Ltd., Leabrook SA. NCVER (2004) Australian vocational education and training statistics: Apprentices and trainees — June quarter 2004, Summary. NCVER Ltd., Leabrook SA. NCVER (2005) Australian vocational education and training statistics: Apprentices and trainees — June quarter 2005, Summary, NCVER Ltd., Leabrook SA. NCVER (2006) Australian vocational education and training statistics: Apprentices and trainees — June quarter 2006, Summary. NCVER Ltd., Adelaide. NCVER (2007) Australian vocational education and training statistics: Apprentices and trainees — September quarter 2006, Summary, NCVER Ltd., Adelaide. Organisation for Economic Cooperation and Development (OECD) (2006) Education at a Glance: OECD Indicators 2006, OECD, Paris.

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Productivity Commission (2007) Review of Government Service Provision: Part B Education, Chapter 4m Vocational Education and Training, available: http:// www.pc.gov.au/__data/assets/pdf_file/0009/61749/chapter04.pdf [accessed 17 November 2007]. Reserve Bank of Australia (1999) Statement on monetary policy, available: http:// www.rba.gov.au/PublicationsAndResearch/StatementsOnMonetaryPolicy/ index.html#2005 [accessed 9 February, 2007]. Richardson, S. (2007) What is a Skill Shortage?, NCVER, Adelaide. Shaw, M. and D. Rood (2004) ‘Apprentices a dying breed and economy will pay: ACTU’, The Age, 28 July, p. 2. Tingle, L. (2006) ‘PM changes tack on skills crisis’, Australian Financial Review, 18 September p. 1. VECCI (Victorian Employers’ Chamber of Commerce and Industry) (2007) Victorian skills survey, available: http://www.vecci.org.au/ [accessed 25 February 2007]. Vines, J. (2007). ‘Time to box clever on skills deficit’, Australian Financial Review, 29 January, p. 55.

The Economic and Labour Relations Review Vol. 18 No. 1, pp. 115–142

AWAs and Individual Bargaining in the Era of WorkChoices: A Critical Evaluation using Negotiation Theory Peter Sheldon * Nancy Kohn * Abstract The Howard government’s WorkChoices legislation appeared set to irremediably remake industrial relations in Australia by prioritising individual agreement making (through AWAs) at the expense of Australia’s traditional award systems based on collective bargaining. That government explicitly intended these changes to reduce labour market rewards to, and protections for, low paid and more vulnerable employees. Yet, it also deployed a rhetoric of individual choice in advocating these changes, promoting, in particular, a notion that individual bargaining and agreement making under WorkChoices empowered individual employees by opening opportunities for integrative (mutual gains) bargaining. This article asks what these changes really meant for bargaining between individual employee and employer. We analyse crucial elements of WorkChoices to highlight how its main structural mechanisms intensified employee bargaining weakness in individual bargaining. As well, we use negotiation theory, especially in relation to integrative bargaining, to evaluate the government’s own published advice to individual employees on how to bargain for an AWA. We find that the government explicitly sought to disempower employees through WorkChoices’ additional legal and institutional impediments and also through the concerted attempt at coaching employees to choose a losing path in their AWA negotiations.

Introduction For more than 90 years, Australia’s federal industrial relations system developed out of the ‘industrial arbitration power’ within the Commonwealth Constitution. This power explicitly recognised a number of fundamental matters endemic within capitalist democracies: opposing (as well as shared) interests between labour and capital; the inevitability of industrial conflict and the possibility of institutionally managing it; and the fact that individual employees gain power resources by combining in a union and that they have the right to * School of Organisation and Management, The University of New South Wales

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do so. The obvious public policy and state intervention aspects of Australia’s systems of conciliation and compulsory arbitration have long gained extensive attention here and abroad (Perlman 1954; Dabscheck 1993; Gardner and Palmer 1997). Yet those fundamental matters inevitably generated an industrial relations system based on bargaining — and, in particular, collective bargaining (Clegg 1976; Strauss 1988). Moreover, they took as given that the dynamics of this bargaining would flow from the human interests, needs and wants of employees as they engaged with the requirements of capital. Crucial to this process were the pre-existing strengths of Australia’s unions and their ability to channel employee needs and wants through collective bargaining, at times with support of the arbitral system. Upon its election in 1996, John Howard’s Liberal-National coalition government placed its own perceptions of the requirements of capital alone at centre stage. It did this by basing its national industrial relations system increasingly on the Constitution’s corporations power via the Workplace Relations Act 1996 and, more especially, the Workplace Relations Amendment (Work Choices) Act 2005 (WorkChoices), (Kirby and Creighton 2004; Dabscheck 2006; Stewart and Williams 2007). Among the most telling indicators were draconian restraints on many accepted operations of employee unions in a democratic society (Forsyth and Sutherland 2006; ILO 2007). WorkChoices provided for a uniform national industrial relations framework by subsuming most of those who, until 2006, had come under state arbitral systems (Australian Government 2005). Much of the critical debate on WorkChoices focused on measures targeted at individual employees, such as the removal of protections against unfair dismissal for employees of organisations with fewer than 100 employees, and the growing use of individual contracts — the new Australian Workplace Agreements (AWAs) — to cut employee incomes by removing overtime rates or to extend working hours (van Barneveld 2006; Workforce 2006; AHRI 2007). Largely remained unremarked outside specialist academic circles (Cooney 2006; Fenwick 2006; Riley and Sarina 2006), however, was the attempted obliteration of the award system, the core system of regulatory instruments at the heart of Australia’s industrial relations for a century. While legislative downgrading of the award system in favour of collective — but enterprise-based bargaining — had begun in 1993 under Labor Prime Minister Keating, the Howard government accelerated its demise and also weakened collective bargaining involving unions (Fenwick 2006; Stewart and Williams 2007). This escaped attention because of the maximum three-year transition process for the demise of state awards, delaying WorkChoices’ most obviously damaging impacts. The Howard government, through WorkChoices, intended individual agreement making between employer and employee to be the preferred model. Thus, a ‘choice’ to enter into an AWA meant an employee no longer had any access to an award or collective agreement (Cooney 2006; Riley and Sarina 2006; van Barneveld 2006). The Howard government spent enormous energy and public money on propagating the idea that WorkChoices freed individuals to negotiate directly with their employers, as if that had never been possible before.

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They pointed to the (belated and reactive) engineering, through the Workplace Relations Amendment (A Stronger Safety Net) Act 2007, of elements of ‘fairness’ supplementing the five minimal conditions that WorkChoices had introduced to underpin all individual bargaining (Hockey 2007). How many employees were involved? Recent Workplace Authority data (Workforce 2007) showed that between 27 March 2006, when WorkChoices came into effect, and 31 October 2007, the Authority had accepted lodgement of 522,576 AWAs. While employees covered by union collective deals made up the largest category — due to the transfer from state awards — ‘live’ AWAs covered about 9.3 per cent of employees, a huge rise on the percentages covered under the 1996 Act. Had the Howard government not lost power on 24 November 2007, this trend was set to increase, given the absence of choice for employees to avoid AWAs. What did individual bargaining mean for employees in those circumstances? The purpose of this article is to use negotiation theory to speculate on the meaning of WorkChoices for employees engaged in individual bargaining, or negotiation — words that we use interchangeably here. We examine the way WorkChoices (as amended in 2007) influenced employees’ capacity to bargain individually, focusing on employees with least power in the labour market — those most dependent on the award system (Fenwick 2006; AAP 2007). In particular, we attempt to make sense of AWAs under WorkChoices by concentrating on the literature pertaining to integrative (or mutual-gains) bargaining, as this was the type of bargaining that the Howard government explicitly promoted through law and policy. We pay particular attention to that government’s own targeted advice to employees on how to engage in AWA negotiations. This article therefore represents a novel genre in Australian industrial relations: an attempt to look, from an individual employee’s perspective, at the options for individual bargaining and agreement making within an institutional framework. First, however, it is necessary to discuss briefly the apparently doomed award system, the collective bargaining that fed it and their significance for individual bargaining. This will clarify the changes that WorkChoices brought to individual negotiations for contracts of employment. We understand that the new Labor government under Kevin Rudd will do away with AWAs: while we have, as yet, no clear idea of what will replace WorkChoices, we therefore write about them in the past tense.

Award Systems and Collective and Individual Bargaining For much of the twentieth century, the vast majority of Australian employees worked under terms and conditions established in a legally-binding industrial award — similar to a collective agreement or labour contract in other countries — that covered their particular job. A sometimes bewildering multiplicity of awards crisscrossed the labour market, depending on whether their definitional jurisdictions related to industries, professions, trades, occupations, regions, particular employers or some combination of these. According to Norris (1993: 139), in 1985, awards covered some 85 per cent of employees

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and while this proportion declined over the 1990s, it remained much higher than union density levels (Considine and Buchanan 2007). This meant that most non-unionised employees were also covered by union-negotiated (and -defended) awards. Awards almost always had two characteristics. First, they had at least two separate parties — one from the employer and the other from the employee side. This most visibly recognised the negotiation relationship and the parties’ shared as well as genuinely divergent interests. In almost all cases, employees’ access to award-making was via their union, as unions were the parties to the award, not individual employees or groups of employees. In some cases, the relevant parties were single employers; but in many cases, they were lists of employers or even employer associations. Second, in most cases, in a negotiation impasse, there was the potential and, often the statutory necessity, for a state tribunal to engage in third party intervention. Typically, this first took the form of conciliation but, where impasse remained, the tribunal could engage in compulsory (binding) arbitration of its own authority. Award-making is, as Alan Flanders (1975) pointed out for collective bargaining more generally, a rule-making process that governs certain jobs and work. Every person taking such jobs and doing such work had the right to the substantive (and procedural) terms and conditions contained in that award (or collective agreement) as a minimum.1 As Flanders (1975: 216) made clear, a ‘collective agreement … does not commit anyone to buy or sell labour.’ Instead it regulates all the (individual) commitments to sell or buy labour that, respectively, individual employees and their employers may enter into. Awards and collective agreements thus provide a floor under all relevant individual contracts of employment. An award provided a set of minimum employment and working conditions, governing jobs included under its jurisdiction — for example, ‘electrician’ or ‘nurse’ — and work — for example, ‘working in tight spaces’, ‘rest breaks’ or ‘shift work’. Much regulation of work related to working hours and payment rates for work done outside normal hours. Penalty and overtime pay rates were a source of income and protection to employees as well as a spur to greater managerial efficiency, providing a disincentive to inducing employees to work dangerously long hours or in ways that encroached heavily on their non-work lives. Awards also provided unions with substantive and procedural rights that strengthened their position during and between negotiations. Thus, in practical terms, when an employer hired a new employee under the award system, this process did not involve the two parties signing the award — which already existed. A parallel, better-understood example is that no one expects an individual employee or employer to sign a relevant law — such as a law against racial discrimination — before the employee starts a job. Instead, under the award system, individual employer and individual employee entered into an individual contract of employment — a common law contract — whether written or oral. Whereas the award regulated the job and the work, this individual contract pertained to the person in the job, the employee.

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The degree of real negotiation in the process of entering an individual contract under the award system varied greatly according to circumstances. However, as the contract of employment could not legally undercut an employee’s awardbased terms and conditions, many employers were content to offer terms and conditions that replicated those in the award. In particular, hiring processes focused on clarifying, in contractual terms, the main substantive elements of the award: pay rates; hours of work; penalty pay rates for overtime and weekend work; paid holidays and the like. Clearly, at times of very full employment or in sectors or occupations where labour was hard to find or keep, employers might offer an employee well above the award in both the quantity and range of conditions. Where unions could generalize these improvements, for example through local bargaining, they could establish ‘over-award’ rates or conditions that then regulated all the jobs and work covered under such formal or informal agreements (Hancock 1985: 193–199). Once employed, a person’s individual terms and conditions of employment, being based on the award, improved as the award improved. Historically, for example, when an award improved paid annual leave, say from two to three weeks, then the contract of employment for each individual employee also automatically changed to provide that improvement. This involved no individual negotiation between employee and employer. It was the result of negotiations elsewhere, between union/s and employer/s (or employer associations) or of arbitral intervention. Once again, it was always possible for individual employees to better their terms and conditions through individual negotiation with their employer, further improving on the award that had just created improved terms and conditions for the relevant job or type of work. Under the award system then, when an employee entered into an individual contract of employment upon taking a new job, (s)he was, at minimum, signing up for the terms and conditions that the collective strength and purpose of ‘her/his’ union had been able to generate. This occurred irrespective of her/his union membership and whether (s)he was able or willing to engage in any real individual negotiation prior to being hired. Even awards in areas where unionism was weak gradually followed paths cut by stronger unions. This reflected unions’ commitment to maintaining some degree of equity or comparability across industries and occupations and, at times, tribunal policy (Norris 1993: 6, 191; Hancock and Richardson 2004). Thus, awards — like systems of industry- or regional-level collective agreements in other countries — embodied decades of industrial and political struggles by unions (and employers), industrial relations jurisprudence and, at times, creative engagement between unions and employers. Through collective bargaining and, in Australia, its meshing into award-making, unions successfully captured, for almost all employees, a greater portion of last century’s economic growth and rising prosperity and a more egalitarian income structure than would have been available to employees as disparate individuals (King 1990; Norris 1992 and 1993). The collective bargaining that fed Australia’s award systems also represented unions’ determination to improve employees’ working lives, including their

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human dignity at work. This added ‘voice’ at work, spreading democratic norms and broadening the range of issues that employees came to have a legitimated input into. Thus, awards included a range of matters that improved employees’ quality of life at and outside work. Awards and more centralized collective agreements had other advantages. Employers knew what they had to pay or provide (as a minimum) and knew that their competitors were unable, legally, to undercut them. This reduced downward competitive pressure on the unit pay element of labour costs and was one reason that many employers supported the arbitral system and awardmaking. Awards provided economies of scale, greatly reducing employer transaction costs in hiring and remunerating employees. Again, there was no restriction on an employer negotiating individually with any employee. In sum, when the Howard government ushered in an era of individualized industrial relations through the 1996 Act, most individual employees, knowingly or not, carried a historically-generated, award-based inheritance in their employment entitlements. The 1996 Act gradually caused them to lose some of these entitlements and WorkChoices intensified this process. It removed direct access to most of them through further stripping from awards matters no longer ‘allowable’. Further, once an employee signed an AWA, that AWA displaced any relevant award protection and, at the end of the AWA period, the employee could not return to an award (Cooney 2006). As Riley and Sarina (2006: 343) suggest, WorkChoices: has destroyed the test-case system of determining basic wages and conditions of work by consultation with all stakeholders, gutted the system of arbitrated industry-based awards, withdrawn unfair dismissal protection from armies of Australian workers, and severely curtailed what little opportunity trade unions have to instigate industrial action in support of employees’ claims. This removed almost all of the protective mechanisms — legislative or institutional — that employees previously enjoyed. Instead it established a system where most of that inheritance no longer had legal support or defence and that provided no mechanism for most employees to achieve similar gains. In fact, the legislation deliberately blocked such activity. An increasingly large number of individual employees faced employers alone in a situation where the government overwhelmingly championed the use of AWAs. Individual bargaining in this context concerned not just the person but also the job and the work. This suggests a number of important questions. How plausible was Howard government rhetoric that WorkChoices would encourage integrative bargaining on AWAs in the absence of the sorts of protections previously available from awards or collective agreements? What sorts of negotiation, if any, were those less powerfully placed individual employees likely to engage in? Given the lack of any collective or institutional support for employees entering AWAs, how did that government choose to assist those individual employees? What did this approach suggest when coupled with the more concrete measures contained in WorkChoices?

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To help address these questions, the next section discusses important areas of change that WorkChoices introduced, relating to individual employees and the making of AWAs. The subsequent section explains relevant aspects of negotiation theory — referring, in particular, to integrative bargaining. In the process, we link these concepts to the employment relationship and negotiation of contracts of employment, drawing out the concepts of bargaining power and negotiating ‘scripts’. We then use these concepts to analyse government advice to individual employees — on its Workplace Authority website — about how best to negotiate AWAs. We develop a plausible, if still speculative, explication of the Howard government’s intentions for individual AWA bargaining under WorkChoices by combining an analysis of some of the main concrete measures contained in WorkChoices together with one on the predictable effects of following government advice through the Workplace Authority website. These two sources seem better indicators of government intention and likely outcomes than, for example, the more public relations-oriented second reading speeches of the relevant legislation. We conclude by bringing together our analyses of these two areas through which the Howard government used WorkChoices to shape the making of AWAs.

WorkChoices as an Environment for Individual Bargaining Legislative shifts to non-union bargaining frameworks since 1993 have focused on assuring employee ‘consent’ and an absence of ‘duress’, rather than supporting or monitoring bargaining. In fact, there is evidence that, under the 1996 Act, AWAs in many organisations very closely followed a pattern dictated by the employer. Employees had no choices and there was no bargaining allowed. In reality then, the notion of employee consent to an AWA was meaningless in areas of the labour market where the only option was to refuse a new job or leave an existing one. This trend appeared set to intensify under WorkChoices (Briggs and Cooper 2006; Cooney 2006; van Barneveld 2006). According to Prime Minister Howard (cited in Westcott et al. 2006: 9) underlying his government’s design of WorkChoices was the notion that it ‘[trusted] the employers and employees of Australia to make the right decisions in their interests and in the interests of the nation.’ While a simple re-statement of neo-liberal economic faith, consistent with Dabscheck’s (2006) more general argument about WorkChoices, it was also one more powerful example of the government’s Orwellian ‘doublespeak’ on industrial relations. Contrary to the assumptions of Westcott et al. (2006), WorkChoices did not seek to provide unfettered individual bargaining but concretely fettered individual bargaining processes in ways that accentuated employer power. Whereas employees used to individually bargain with these entitlements already ‘in the bag’, they now had to bargain (and thus sacrifice on other issues) to regain some entitlements through AWAs, and they faced legal restrictions to accessing others. For those millions of employees in workplaces of 100 or fewer employees who lost all protections from unfair dismissal, a crucial previous option — the choice to just remain in their jobs — disappeared. For those in larger workplaces, the spectre of dismissal for ‘reasons that include genuine operational

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reasons’ also loomed large (Dabscheck 2006: 15; AIRC 2007; Rollins 2007). Employers could thus use the ‘right’ to replace employees covered by a collective agreement with employees on sub-standard AWAs (Dabscheck 2006). The main substantive limitations employers faced were five very minimum terms and conditions under the Australian Fair (sic) Pay and Conditions Standards and the very limited fairness checks introduced under the 2007 Act. The five core conditions included a national minimum wage — but one with no concept of fairness built into its criteria or process of determination (Fenwick 2006). The maximum ordinary hours of work were 38 hours but the Act gave employers much greater discretion to average this maximum over a twelvemonth period, providing latitude to shape an employee’s life circumstances at will. As well, employers were still allowed to demand a ‘reasonable’ number of overtime hours, with no clear indication of what might be ‘reasonable’. Thus, as Fenwick (2006: 106) points out, WorkChoices did not ‘include any solid guarantee of maximum ordinary hours of work, and yet enshrine[d] the right of an employer to require that an employee carry out a “reasonable” amount of paid overtime.’ It again put employees in the situation of having to sacrifice in other areas just to regain entitlements that WorkChoices unilaterally denied them (AHRI 2007). The third minimum standard was four weeks’ paid annual leave. However, the Act allowed an employer to ‘request’ that an employee agree to trade away up to two of those weeks for cash. As Fenwick (2006: 109) notes, the employer could make this part of an AWA that was a pre-condition for taking a job. As Riley and Sarina (2006: 344) suggest, this made four weeks’ leave — a standard in Australia for over 30 years — an illusion. The final two minimum conditions were personal (sickness and carer’s) leave and access to unpaid parental leave. For many, the five minimum conditions amounted to almost nothing when compared to previous award (or collective agreement) protections. WorkChoices also deprived employees of a crucial option previously available to all award employees and widely available in other countries. That option is, at the end of an agreement, automatically to remain on the same employment terms and conditions pending a new award or agreement. Under WorkChoices, once an agreement expired, either party, on 90 days’ notice, could unilaterally terminate a collective agreement or AWA. At that point the agreement’s terms and conditions no longer applied, and unless the employer provided specific ‘undertakings’, the employee’s terms and conditions fell to the five minimum standards — including the national minimum wage — and the few remaining allowable award matters (Dabscheck 2006: 15). As Cooney points out (2006: 152), this unilateral termination would be ‘a very powerful weapon for an employer seeking to improve its bargaining position since it forces employees to bargain simply to retain the status quo.’ This has enormously increased bargaining leverage for the employer, and deprived individual employees of a place of refuge when facing a hostile bargaining scenario. Hence while individual employees began the Howard era having employment entitlements that derived from generations of collective negotiations, in the absence of an award or collective agreement, they could no longer avail

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themselves of those minimum standards and protections (AHRI 2007; Considine and Buchanan 2007). By late 2007, the main defence for individuals facing AWAs was the Workplace Authority and its Fairness Test. While this involved scrutiny and regulatory oversight, it did not look at whether an employee had the opportunity to bargain, whether the fairness off-set in the AWA was one the employee wanted, or if employee consent was genuine (Cooney 2006). As the drive for AWAs came from the Howard government and employers and their associations, understanding what attracted employers to choose AWAs helps explain likely and actual outcomes. Research suggests that AWAs attracted employers for several interlinked reasons (Briggs and Cooper 2006; Todd et al. 2006). First, unlike awards and collective agreements which are publicly accessible documents, AWAs were ‘private’ documents, legally protected from public scrutiny. AWAs thus also avoided union gaze and hence contributed to union exclusion and avoidance. They therefore became the instrument of choice for many larger employers ideologically committed to de-unionising their workforces. Second, procedurally, AWAs were very simple to draft and put into effect. As Briggs and Cooper point out (2006: 9), there was ‘no infrastructure for consultation and voting.’ Compared to WorkChoices 2005, the 2007 Act made decision making more complex for employers, once the Workplace Authority assumed the task of comparing a restricted set of monetary losses against previous awards and agreements. For many employers, the appeal of AWAs lay primarily in their ready potential for reducing labour costs, mainly through forced changes in working hours and removal of penalty rates and shift allowances. An employer consultant interviewed by Briggs and Cooper (2006: 11) conceded that as an ‘aggressive wage-saving mechanism’, AWAs were ‘your best option’. Another stated: There is not one organisation I’ve met that accepts AWAs as being anything other than an instrument to drive down wages and benefits and terms and conditions of awards. In one sense, unfortunately I think a lot of the evidence is that that’s the case. AWAs are being used to drive down terms and conditions found in industrial awards (Briggs and Cooper 2006: 12). While the 2007 Act may have tempered some of the worst previous excesses, its Fairness Test was very narrow in scope, particularly given that WorkChoices had declared many pre-existing conditions ‘prohibited’ for employees. The focus of the Fairness Test was monetary exchange and it said nothing about the agreement-making process, the quality of working life or an employee’s work / life balance. It was also backward-looking, focusing on compensating employees for losses suffered in signing an AWA. By contrast, WorkChoices opened up, to any employer, the opportunity to exert much greater control of an employee’s future working hours. Thus, the Workplace Authority had no way of estimating the eventual levels of (under-compensated) overtime or weekend work required. This, plus the lack of employee choice in the matter, meant that some employers continued to cut standards in ways consistent with losses suffered by employees who had had to accept AWAs under the 1996 Act and its

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No Disadvantage Test (Mitchell et al. 2005; AHRI 2007). As award protections shrank, the previous No Disadvantage Test and its belated replacement, the Fairness Test, became increasingly meaningless (Fenwick 2006). Therefore, under WorkChoices, employees entered ‘negotiations’ with only the five minimum conditions for protection — none of which related to work — and the changes under the 2007 Act which only related to a very narrow range of work matters. Even so, on the question of work, its regulation and its remuneration, individual employees negotiating AWAs faced an abyss — if indeed any real bargaining occurred. As the 2007 Act provided for no real support for genuine bargaining or proper consent, any bargaining under these circumstances was likely to intensify and spread disadvantage among employees. We will explain this further by reference to negotiation theory and collaborative (or integrative) bargaining.

Negotiation Theory and Integrative Bargaining Under WorkChoices, in practice, an employer could demand that any individual employee enter an AWA as a condition of attaining or keeping employment. Through the media and its WorkChoices website, the Howard government portrayed this as an occasion for choice. It advised employees that a bona fide AWA ‘negotiation’ was going to take place and that, with the right attitudes from an employee, a favourable outcome was available to both parties. The government claimed that it had created this particular situation to foster greater ‘flexibility’ and that employees could thereby tailor their employment and work to suit their individual needs (Australian Government 2005). Before considering these claims further, it is important to understand some of the basic principles of negotiation: what negotiation entails; why people choose to engage in it; and how it unfolds. In particular, we will refer to mutual-gains negotiations as this is the focus of both Howard government rhetoric and this article. There are several important characteristics that describe a negotiation (Lewicki et al. 2006). The first characteristic is that two parties choose to negotiate together, rather than electing to pursue other options. Furthermore, they are choosing this particular negotiation rather than a different negotiation — with a different other party, at a different time, in a different context or over different issues. If a party chooses instead not to negotiate, other options may include simply accepting the other party’s offer or refusing to negotiate that offer. This may include the choice to walk away. It may involve seeking redress through other means such litigation or some exercise of power or duress (Lawler 1992). In industrial relations, such an exercise of power may include an employer’s use of lockout or dismissal and employees going on strike. Generally, people choose to negotiate when they cannot independently achieve what they want but believe that negotiating provides the best route for attaining their objective. Thus, the second characteristic of a negotiation is that each party needs the other; that is, there is interdependence between the two parties. Importantly, however, one may have a greater need of the other; (s)he is more dependent. This ‘asymmetric interdependence’ between parties generates unequal power in negotiations as one party needs to negotiate more than the

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other who enjoys a greater array of other options (Bachrach and Lawler 1981; Fiske 1992; Lawler 1992). Typically, individual employees are wholly dependent on their wage or salary and hence on their employment for income while it is extremely rare for any employer to be particularly dependent on any one employee. An employee may leave one job for another or even set up in selfemployment. These are more limited and riskier options than those facing an employer who can, in the short term, replace one employee with a new one, get existing employees to take over the residual work, use agency labour or labour hire or even eventually outsource the work. A third characteristic in most negotiations is there is some conflict of needs and desires between the parties. What one party desires may not be what the other party desires and the purpose of the negotiation here is for both parties to search for means to resolve the differences, hopefully in a way that is mutually acceptable. For example, in a workplace negotiation, an employee may seek higher pay, while the employer wishes to maintain the status quo or even pay less. A fourth characteristic is that, during a negotiation, the parties expect a certain amount of ‘give and take’. A core idea of negotiation is that, in order to reach agreement, both parties understand that they may need to modify their opening offers in recognition of the claims of the other party. Thus, both parties enter a negotiation expecting to make changes in their initial offer. A common assumption is that this give and take results in a compromise in order to reach a settlement. However, a skilled and experienced negotiator, if (s)he seeks to, may be able to find outcomes that satisfy the main needs of both parties by going beyond compromise. This is the essence of integrative bargaining. The negotiation literature usually identifies two types of negotiation strategy (Fisher et al. 1999; Thompson 2005; Lewicki et al. 2006). Authors have coined a range of names for the first type: ‘zero-sum’; ‘win-lose’; ‘competitive’; and ‘distributive’. They typically refer to the second type of bargaining as: ‘nonzero-sum’; ‘win-win’ or ‘mutual gains’; ‘collaborative’ or ‘integrative’. Differences between the two types can reflect different notions of interdependence. A distributive strategy is one where one party chooses to compete, at the expense of the other, for portions of a fixed resource, commonly called the ‘negotiation pie’. In essence, in distributive negotiation, what one party gains from the pie, the other party loses. In contrast, when parties choose to engage in an integrative negotiation, they seek to work with the other party to find solutions that enable both parties to do well and achieve at least some of their main goals. Working together like this can allow the parties to ‘expand the negotiation pie’ before deciding how to divide it among themselves. Thus this approach is often called ‘win-win’ or ‘collaborative’ negotiation. This is the approach that the Howard government purported to support in pushing individual employees into AWAs. Underlying the use of integrative negotiation are several elements that distinguish it from the choice to engage in distributive negotiation. Significantly, at least one party perceives that a relationship exists with the other party or desires that a relationship develop through the negotiation . Moreover, the con-

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tinuing nature of that relationship is valued. This suggests that the two parties share an ongoing connection that has a past, present and/or future (Lewicki et al. 2006). It is important to reiterate that integrative negotiators continue to pursue their own individual, substantive interests — they do not abandon their own priorities. Integrative bargaining is not the same as compromising, even less conceding on core objectives. Rather, elements of the relationship offer the potential to jointly discover ways to meet the interests and needs of both parties in ways not accessible through distributive bargaining. In reality, most negotiations offer both integrative and distributive potential and choosing to be largely integrative means that, at some (late) point, the parties may still compete over an issue. A particular type of ongoing relationship is an employment relationship underpinned by an individual contract of employment, either at common law or via an AWA. Yet, historical experience overwhelmingly suggests that the existence of this ongoing relationship does not generate integrative impulses in agreement making. On the contrary, the well recorded history of collective bargaining and the much less well known history of individual bargaining suggest a long tradition of distributive negotiation, particularly over questions such as pay levels and (paid) hours of work. Yet, one of the defining features of a choice to engage in thoroughly distributive negotiation is the assumption that the parties will probably not be meeting again, or that, for at least one of the parties, their relationship has little value, despite its being long-standing and ongoing. The Howard government claimed that in championing AWAs through WorkChoices, it provided opportunity and encouragement to overturn traditions of distributive attitudes and behaviours in workplace relations. The problem is that, for large sections of the workforce, the government exacerbated structures of asymmetric interdependence in employment and at work, encouraging more distributive approaches from employers. There was nothing in WorkChoices or government policy that encouraged employers to increase the value they placed on their employment relationships. In particularly tight labour markets — by region or occupation — supply constraints do increase levels of employer dependence and so encourage this type of shift in employer perspective, but the unevenness of these market dynamics just further widens the gap between differently advantaged sections of the workforce. Elsewhere, where labour costs are an important element of an employer’s total costs or where employers are less dependent, this encourages employers to be very distributive in negotiations over pay levels and payment for working time. This more asymmetric interdependence manifests itself as employers’ ability to impose ‘agreements’ on employees without any bargaining or to prevail in distributive negotiations. Interestingly, the Howard government explicitly sought to redress this type of asymmetric interdependence, in case where it disadvantaged small businesses in their ‘relationships’ and ‘bargaining’ with large corporations. It amended the Trade Practices Act 1974 to allow collective bargaining by small business and heavily promoted this option as a way of redressing power imbalances amongst organisations (ACCC 2007). On the other hand, it introduced WorkChoices to

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remove protections against the power imbalances that employees faced in their relationships and bargaining with employers, and to exacerbate the deleterious effects of asymmetric interdependence in employment relationships.

Negotiation and the Question of Power Clearly, the use of power is one of the most fundamental aspects of negotiations (Lawler 1992; Anderson & Thompson 2004). Negotiation scholars often define power as the capacity to influence others or affect their decision-making in ways favourable to you (Thompson 2005; Lewicki et al. 2006). Power is being able to get what you want from the other party. Yet, people have unequal access to negotiation power (Lawler 1992). Fisher (1983) points out that powerful negotiators generally have more assets or wealth, are more educated, have better or more secure jobs, and better social or business connections than do less powerful negotiators. One example of this power imbalance occurs when an individual employee is negotiating with his or her boss. In almost all cases, when the employee negotiates alone, the employer has more power. When the employee is part of a group (or other collective body), and particularly if represented by a union, then the power can shift and become more equal. Differences in power between negotiators can make it more difficult to attain integrative agreements (Lawler 1992; Mannix 1993; Donohue and Taylor 2007). When there are clear differences in power, negotiators tend to focus more on the distributive aspects of the negotiation, making integrative outcomes less likely. In choosing to work towards integrative outcomes, the more powerful negotiator has to therefore choose to minimise the perceived power distance between the two parties (Anderson and Thompson 2004). This is a timeconsuming and hence expensive process for employers engaged in individual bargaining. Hence most employers who chose AWAs were not interested in developing such valued individual relationships — rather, they used AWAs as a way of forcing unionism out of the workforce, increasing management control over employee behaviour and/or cutting costs (van Barneveld 2006). Presenting AWAs as a take-it-or-leave-it option to employees or potential employees, as WorkChoices allowed employers to do, was itself an aggressively distributive approach that only increased employee perceptions (and experience) of their own powerlessness. Power in negotiation derives largely from two factors that are often linked. First, having a lower degree of dependence means having more options or better alternatives. This situation is encapsulated in the concept of having a stronger ‘BATNA’ (Best Alternative to the Negotiated Agreement) (Fisher et al. 1999). The second factor is the power that comes from effective use of a negotiation ‘frame’. According to Fisher et al. (1999), the BATNA is the best option you can turn to when you walk away from a negotiation, having failed to reach a settlement acceptable to you (Thompson 2005). Each side’s BATNA, in a sense, sets its floor (or ceiling) for the negotiation (Fisher 1983). BATNAs reflect the nature of interdependence between negotiation parties. The more dependent a party, the weaker its BATNA. An employee’s labour market position — via

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skill, experience, networks, location and the like — can create very different BATNAs, depending on the prevailing situation. In a negotiation for increased pay in a favourable labour market for employees, an employee’s BATNA could be to quit and find another job that pays more. In another situation, the best alternative may be to unionise so as to put a pay demand collectively. If this does not work, the BATNA for collective negotiations may, eventually, be to go on strike. Prior to WorkChoices, individual employees had some expectation that their BATNA to an unwelcome AWA negotiation might be the existing relevant award or, sometimes, a collective agreement. WorkChoices removed that BATNA from most employees and spread this situation extensively to former state system employees. Individual employees facing AWAs therefore have weakened best alternatives, despite some ‘fairness’ mitigation via the 2007 Act. The perceived strength or weakness of each party’s BATNA will have a significant influence on how they negotiate and, indeed, how far a negotiation will progress. An employer who has the power benefit of having a number of highly dependent employees may not wish to spend much time and energy on an employment negotiation with each of them. Yet, if one party believes they have a weak BATNA, then that party will need to try very hard to keep the other party at the negotiating table to conclude an agreement, as failure to do so may appear worse than what is being negotiated. BATNAs are also subject to change. An employee may have to negotiate without another employment option to turn to, yet a few months later, may have lined up a potential job. Such an employee has ‘strengthened his / her BATNA. Employers too have this ability to strengthen their BATNAs, for example, by exploring options to outsource work, use labour hire or employ casual employees. How negotiators see the strength of their BATNA and hence their interdependence helps shape how they approach a negotiation in terms of what they ask for and the worst offer they will accept — their ‘resistance point’. The resistance point is the last offer they will accept before walking away from a negotiation. It reflects the strength of an individual’s BATNA, but terminating a negotiation and turning to a BATNA may also carry transaction costs. For example, in the case of an AWA, refusing or quitting a job may mean having to move to a different location or there may be emotional costs in leaving workmates and starting anew. The second source of negotiation power is the construction of an effective negotiation ‘frame’. It is a much more subtle exercise of power than the BATNA. Framing is a perceptual process, a subjective mechanism that people use to evaluate and make sense out of situations (including negotiations). Our choice of frame directs us to pursue or avoid subsequent actions. Framing can be a conscious activity or it occurs unconsciously. We can be aware (and selfaware) about framing or unaware of its occurrence. In either situation, during the process of framing, people select and isolate central issues to include in a particular picture, or frame, and exclude others (Neale et al. 1987; Levin et al. 1998; Keren 2005; Lewicki et al. 2006).

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Effective planning for a negotiation normally includes conscious framing, or ‘frame control’, as negotiators deliberate over their own interests and priorities as well as strategies relative to the other party. Choosing what to exclude can be just as important as deciding what to put inside the frame. People will create different frames for the same negotiation, constructed from the elements that are important to them. There can be multiple frames used within a negotiation, depending on the issues and the parties involved. Having frame control facilitates a negotiator’s influence or control of the negotiation agenda and the negotiation process and is therefore an important source of negotiation power. A mismatch of frames creates conflict within the negotiation itself, This is particularly evident in distributive negotiations when two parties feel as if they are talking at each other about two different issues. Such mismatches are, in themselves, entirely legitimate where the parties have genuinely opposed interests that generate different perspectives. Where the parties have both shared and opposing interests under negotiation, both may shift to other frames at different points during the negotiation process, depending on the content and process of the negotiation. One of the main goals of a negotiation is to persuade the other party to accept, or ‘walk into’, your frame. Persuasion of this sort is called ‘reframing’. Reframing the other party means that you have convinced them to see and accept the situation from your point of view. This makes it much more likely that they will accept what you are offering or demanding. If one party is not actively self-aware about their framing for a negotiation, they are more likely to suffer reframing by the party with frame control. Thus, actively self-aware framing is a crucial element in the effective planning and conduct of negotiation. Those who do not plan sufficiently may conclude a negotiation with suboptimal outcomes, or fail entirely (Ury 1993; Thompson 2005; Lewicki et al. 2006). Planning includes identifying the main goal of the negotiation, the best strategy or strategies, and the BATNA and resistance point. The negotiator uses these to create a target point and opening offer. Effective negotiation (integrative negotiation in particular) requires forecasting of the likely objectives of the other party, their priorities, negotiation approach and tactics. By thus ‘putting yourself in the other party’s shoes (Fisher et al. 1999; Lewicki et al. 2006), negotiators can more successfully engage in integrative bargaining. An integrative negotiator displays a willingness to listen to the other side and cultivates lateral thinking that can allow for the uncovering of unexpected options to satisfy both parties. This can occur through ‘unbundling’ of claims to ‘expand the pie’ and then ‘logrolling’ on issues uncovered. These terms — in a context of trust, openness and honesty — signify much of what differentiates integrative from distributive bargaining. As Fisher et al. (1999) point out, integrative negotiators work hard at gaining their own substantive objectives while also working hard to maintain or build a mutually-fruitful relationship with the other party. When negotiators attempt to ‘expand the pie’ by ‘unbundling’, they break up a claim or issue into as many separate parts as possible. This increases the number of issues that the parties can negotiate over — thereby expanding the pie. It offers the opportunity for the parties to identify additional

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interests and needs that they can use to craft the final outcome. For example, if an employee wishes to negotiate for higher pay, unbundling (and expanding the pie) may include — beyond the question of the total amount or percentage claimed — the starting date for the pay rise, whether it is to be backdated in whole or part, whether the pay increase will arrive in one amount or be staggered over time, whether it is linked to working hours, performance, training, seniority or qualifications, or changes to working patterns or responsibilities. Clearly, for such a negotiation to be more fully integrative, an employee would need to have a better sense of their employer’s financial resources and the organisation’s total remuneration structure than is usually the case. When integrative negotiators ‘logroll’, they trade off issues of less value to themselves in order to secure issues of greater value. As well, they work to accomplish the same logrolling tactic for the other party. WorkChoices undermined unbundling and logrolling as the Minister had the power, unilaterally, to make ad hoc regulations specifying ‘prohibited’ bargaining matters. Once these regulations became current, the government’s Workplace Authority had to ‘remove any prohibited content from an agreement, even if the agreement has already been approved’ (Riley and Sarina 2006: 349. See also Cooney 2006). This allowed the Minister ‘to make up the rules’ and ‘to shift the goal posts’, calling into question ‘whether any registered workplace agreement will in fact represent the parties’ own “work choices” ’: In effect, this could mean that parties who have negotiated a five year agreement may later be informed that a number of elements that were essential to reaching such an agreement have now been removed, so that they are obliged to operate under an agreement that does not reflect the trade-offs that the parties initially agreed upon (Riley and Sarina 2006: 349). Few employees have the opportunity to learn negotiation skills in a structured setting. Although we all negotiate different things in our lives every day, most employees have limited experience in employment or business negotiations. The negotiation literature uses the terms, ‘naïve’ or ‘novice’ negotiators, to describe such people (Thompson 1990). Very few people know that a negotiation has a framework with well-defined components and that there are different strategies available. Few understand that they need to plan carefully for a negotiation, starting with a very clear understanding of their BATNA, resistance point and how these can help them frame and structure their negotiation. In comparison, employers are ‘expert’ or ‘experienced’ negotiators (Thompson 1990) as they will have had much more relevant negotiation experience — whether with clients, suppliers or employees. They also have ready access to expert advice and even training through membership of an employer association. Employer association membership and use of consultants and employment lawyers are tax deductible business expenses. Even small employers have a great deal more resources and experience than individual employees. Larger employers with their own HRM units and in-house lawyers are much more advantaged.

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Before the 1996 Act, union membership and widespread employee coverage under awards and collective agreements reduced many of these imbalances from employees, including most non-union employees. Yet, with the planned large-scale shift under WorkChoices to AWAs, inexperienced employees, these naïve negotiators, faced negotiating their AWAs with their employers who were much more expert negotiators. As well, unions could not financially or organizationally support millions of individual employees — most of whom were not union members — in their engagement on AWAs. As employers are far fewer than employees and have greater financial resources for paying their associations, lawyers or consultants for advice, this allowed employers to access advice, training and support undreamed of by individual employees. Another way of thinking about this has to do with the important question of negotiation planning, assuming that an employer will allow any genuine bargaining. For example, an employer proposing AWAs to each of their 20 employees had, theoretically, 20 times more experience in designing and implementing an AWA than any one employee. The larger the firm, the more the expertise gap increases. One vital source of negotiation power is access to useful knowledge and time to process and use it. This is particularly vital for naïve negotiators. Secrecy provisions for AWAs under WorkChoices bound each individual employee to silence about the contents of their AWA. In the case of a firm with 20 employees on AWAs, theoretically each employee may only have known about their own AWA, contradicting the notion fundamental to integrative negotiation theory that free flow of information is highly desirable. On the other hand, the employer knew about all those 20 AWAs and could use that knowledge accordingly. While, in practice, employees may indeed have shared information on their AWAs, the design of the system itself undermined openness, trust and honesty as well as the ability of employees to properly plan. It also stymied the capacity for an employee to get relevant pay information from their own AWA negotiation process. Further, under the 1996 Act, employers were obligated to provide employees (or potential ones) with the proposed AWA 14 days ahead of their intended day for signing it. They also had to take ‘reasonable steps’ to explain the meaning of the proposed agreement to the employee. WorkChoices reduced the notification period to seven days and allowed an employ to ‘consent’ to waive this period in the interests of speed. As well, the employer no longer needed to provide an explanation of the proposed AWA (Briggs and Cooper 2006; van Barneveld 2006). This weakened what little bargaining power employees retained, undermined openness, trust and honesty and encouraged a highly competitive takeit-or-leave-it attitude from employers. Faced with these changes, employees had little time or resources to plan properly even if there were to be a genuine rather than faux negotiation. Realistically, for most employees at the lower levels of the labour market, there was the choice of consent without bargaining or, as naïve negotiators, bargaining oblivion. How were they to approach this and how could they have understood what happened to them? Here, the concept of negotiation ‘scripts’ becomes very important.

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Negotiation Scripts A script describes events or behaviours, or sequences of them, appropriate for a particular context. The most important, defining characteristic of a script is that it is socially shared; people agree on the same essential action elements (Abelson 1981; Gioia and Poole 1984; O’Connor and Adams 1999). For example, there is a script for going to the movies. People can describe such a script, and are able to distinguish it from other similar scripts, such as going to a football match, or going out to dinner. These scripts will generally match in basic characteristics from person to person. According to research by O’Connor and Adams (1999), negotiations are also scripted activities and the term ‘negotiation’ will prompt particular scripts from memory. We can acquire scripts directly and indirectly. Direct script acquisition occurs through real life experience or through role playing. Indirect script acquisition occurs via modelling, that is, watching others enact the script either live or through media (television or videos, for example). Indirect acquisition can also occur via communication with others, such as discussing how to act or behave with someone who is experienced in the activity, or by reading about appropriate behaviour, such as in a book of instructions. Generally, direct script acquisition has the greatest impact on script formation and retention. O’Connor and Adams (1999) found that when naïve (or novice) negotiators anticipate a negotiation, they expect a sequence of behaviours they believe are appropriate for that negotiation. Most employees are naïve negotiators, especially for contract of employment negotiations. Novice negotiators — such as most employees entering an AWA — overwhelmingly agree about the actions that they consider to constitute a negotiation, as well as the temporal sequencing of those actions. Naïve negotiators, when characterising a script for a negotiation, created a script based on a distributive format with the following elements. The two parties have incompatible goals, they resolve negotiation issues sequentially, and behave competitively. These components that naïve negotiators deem important are those that comprise a distributive negotiation and are detrimental to formulating integrative agreements. When an employee is told they will be ‘negotiating’ an AWA, there are several possible responses and the response repertoire can include both direct and indirect script acquisitions. Direct acquisition means the employee has engaged in similar negotiations in the past and can use these scripts for guidance. Employees without this experience can use indirect acquisition to create a script. Most commonly, a person may discuss the situation with a family member, friend or work colleague. In addition, the Howard government assiduously publicised AWAs in the media and assured the public that help was available for employees. An employee with access to the Internet could view, for example the webpage ‘Tips for negotiating your workplace agreement’ (Australian Government Workplace Authority 2007). At first glance, the ‘tips’ appeared to foster integrative negotiation. In line with a standard script for an integrative negotiation and, under the heading ‘What’s in it for me?’, the website told employees that an AWA was ‘an opportunity’ for employers and employees to reach an agreement that suited them

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both. The word ‘opportunity’ generally indicates a favourable situation. However for many employees, the start of an AWA was a forced arrangement. Few, if any employees actively looked for the ‘opportunity’ to move to an AWA from a collective agreement or state award because the AWA regime offered fewer and lower employment standards and was considered the harbinger of harsher conditions. The website nevertheless continued for a short time with elements of a plausible integrative script, asking the reader to ‘consider the other person’s point of view’ and ‘prepare options’ and, even, to bear in mind, ‘What are the needs of the business?’ The whole script provided by the website created a powerful negotiation frame in favour of the employer while framing the employee to concede his or her interests. Next, the webpage counselled the reader to ‘be realistic’ about what they want from their AWA and to approach discussions with ‘an open mind’. Taken together, these tips are not supportive of integrative negotiation where we would expect encouragement to an employee to ‘be creative’ while pursuing their own interests. Rather, the implication was that employees would make unrealistic demands on their employers, in the context of a fixed pie, and therefore needed to exercise greater self-monitoring and self-control. One of the fundamental questions when negotiating an employment contract is pay. Telling individual employees to ‘be realistic’ when negotiating an AWA represented an effort to persuade them, or frame them, to shift their resistance point away from their own interests, such as a certain percentage or absolute wage increase, to points closer to the interests of their employer. In the context of no award safety net — and hence a much weaker BATNA — it may well also have included acceptance of reduced pay. This interpretation receives confirmation from the way the webpage also reminded the reader to consider: ‘What do you want in your AWA?’ and proceeded with the statement: ‘Although more pay may be a legitimate request, you may have concerns other than money’ [italics added]. This statement answers our previous query regarding what the employee needs to be realistic about. It sought to frame the reader to refrain from asking for a wage increase. Despite what the government suggested here, asking for more pay is always a legitimate request, particularly in a country where the economy has been robust, with corporate profits at record levels and consumer prices rising (Polygenis 2007; Polygenis et al. 2007). The webpage then advised the reader to consider: ‘What are the needs of the business?’ and, in particular, ‘Who can help with my work when I am absent?’. This was an odd question to ask of any individual employee when discussing making an employment contract, particularly if the employee was new to the business or only knew about part of the organisation they worked in. How could an AWA, as a contract of employment, bind this third imaginary party (who was to do the covering) into the terms and conditions of employment? It was more like a question that might come up in informal discussions with a manager in the course of an employment relationship. In the context of establishing an AWA, it sought to shift the responsibility for any concession gained

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to that individual employee, transferring to the employee tasks that are standard managerial responsibilities. However, consider this statement ‘What are the needs of the business?’ as a framing statement. It invited the employee to step into the frame of the employer, to consider, when making a legitimate request, that the employee take on the role of employer. It framed the employee to expect very little, to restrict their expectations to whatever seemed immediately available and convenient to the employer. It coached both employee and employer to view management activities as a fixed pie, uncreative and not open to problem-solving. The problem with this framing attempt was that it came from the federal government, and one that claimed to be assisting individual employees as naïve negotiators. After having coached the employee to ask for little if anything and to expect to graciously concede to employer demands, the government’s website then asked the employee to contemplate: ‘What can you offer?’. Most importantly, the reader received advice to ‘think about changes or improvement you can offer to cover the cost of the things you want.’ This implied a lean work environment without anyone to cover for absent employees. Once again, this was a framing statement suggesting only a fixed pie was available and that anything the employee asked for, such as flexible hours or working at home had to be ‘paid for’ by that employee. What if the requests came at no cost or little cost to the employer? What if these options were trade-offs for other work issues? What if employees had the temerity to expect improvements in their working lives as their share of greater corporate and national productivity and prosperity? Why was the employee always expected to cover the costs of any improvements? The website then instructed the reader to: ‘Do your homework’, in this case, to be aware of their current workplace pay and conditions — which, given that WorkChoices makes AWAs confidential, may be legally impossible. Employees then received admonishment to ‘Be reasonable’. Together, these statements were condescending in their tone, mimicking the power-laden hierarchy of employer to employee. Yet, in the first sentence of this section the reader was told that: ‘Negotiating your AWA should take place in an atmosphere of trust where everyone has the chance to express their views.’ There are two points to consider. First, this statement described two of the most important elements in an integrative negotiation. Resolving the ‘dilemmas’ of trust and honesty (Lewicki et al. 2006) are essential to the integrative script. The foundations of an integrative strategy are establishing trust and acting honestly within the negotiation. Achieving this comes, in part, through both parties revealing information about their underlying interests. This webpage encouraged, or framed, its readers to act in an open, honest and trusting manner (Keren 2005). However, for integrative negotiation to be successful, both parties need to be open, honest and trusting. Otherwise, the less open or honest party can exploit the trust and openness of the other and, the great power imbalances in these negotiations encourage employers to behave in competitive ways. The second point is that while an ideal negotiation will take place in an open, trusting atmosphere, this does not describe all — or even perhaps most — employment relationships. Many employees work in situations where being open and

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honest could work against their main interests. The webpage gave no advice for employees in less-than-ideal work negotiation environments and did not countenance the possibility that this may occur. It provided a Pollyanna-like script that, given WorkChoices had removed almost all their regulatory or institutional BATNA options, left many employees even more defenceless. Under the command to ‘Be reasonable’, employees received the advice that ‘An outcome where everyone feels they benefit is the best in the long term even if compromise is necessary in the short term.’ This was a troubling sentence. First, the reader learnt that they should evaluate the negotiated outcome purely on subjective feelings rather than on substantive attainments and that they should be looking out for the feelings of their employer as well. This goes against basic negotiation principles where the advice is to ‘separate the person from the problem’ (Fisher et al. 1999), and again encouraged the employee to step into the employer frame. Given that WorkChoices robbed employees of unfair dismissal protections, it was also not clear what the ‘long term’ here meant for them. What appears clear though is that the short-term compromise meant that, in exchange for getting or keeping their job, the employee had to accept losses of entitlements from that legacy of rights that carried over from the award system. Further, in negotiation theory (and practice), a compromise strategy is not the same as integrative bargaining. It assumes a fixed pie. As well, where there is asymmetric power, such as when negotiating AWAs, a script that leads an employee to compromise is a recipe for prioritising employer needs and power; a recipe for employees to concede. Once again, this webpage was framing its readers to adopt a strategy of conceding. Encouraging employees to adopt this strategy limited their ability to negotiate advantageous outcomes for themselves and further advantaged employers. Additionally, the website provided the reader with ‘Some negotiation tips’. These included useful actions that do fall under integrative negotiating planning and tactics and that work well when both parties engage in them as well. However, the website also admonished the reader not to argue. Under ‘Don’t argue’, there was the warning: ‘Remember, at the end of the day you are talking to your employer. Be clear about what you want but also consider your ongoing work relationship in the way you approach talks.’ The phrase, ‘at the end of the day’, signals what is believed to be the most important fact of a situation (Cambridge Dictionaries Online 2007). In this situation it was: you are talking to your employer. The frame was for the employee to understand that they were not approaching the negotiation as an equal, but as subservient to their employer. The instructions were to keep the employee in his/her place. As the employer received identically worded webpage advice, both parties received the same frame: one that legitimated the great disparities in dependence and power between them and that then coached them to approach an AWA ‘negotiation’ accordingly. Finally, the reader received advice to: ‘take your time’, when, as we know, WorkChoices greatly restricted employee rights to information and preparation time. For the employer, there may have been many similar employee ‘negotiations’, but for the employee, a naïve negotiator, there was only one. It deeply

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concerned their working life and yet they had a minimum seven days to prepare and obtain advice, if indeed they had not ‘consented’ to waive even this. How can we explain the apparent purpose of this webpage? First, there was the overall impression, or framing, of the information for the naïve negotiator facing an AWA. It attempted to frame employees to accept potentially unfavourable employment and work conditions. Different framing strategies were evident on the webpage, but one of the most significant frames was one that meshed financial and organisational to focus the employee into considering the needs of an imaginary, archetypal employer. Underlying the advice provided was a frame that, in general, businesses were struggling and that the employer could (legitimately) barely cope with the organisational demands of the business. In this frame, each employee was negotiating their AWA with an employer whose business was teetering on the brink of insolvency, one that could not afford any real concessions to employees and one where the employee (or anyone else) could not expect the employer to manage their way through inconveniences that such concessions might have created. It was a frame of employer powerlessness and vulnerability in the face of external change. This frame was so pervasive that it coached employees to restrict their demands but also to be realistic about suffering losses of existing entitlements. The webpage invited the reader to step into this financial frame at the start, when advising ‘realistic’ expectations and that requests for more pay were, in fact, not inherently legitimate. It continued by directing the employee to couch any requests in terms of off-sets — organisational as well as financial — that they could provide to the employer in advance. Not only did this managerial frame persuade the employee to accept the situation from the employer’s point of view, at the same time it discouraged the employee from focusing on his or her own employment and other needs. The second frame was a managerial/hierarchical frame that, on the contrary, stressed the uncontested power and legitimate dominance of the employer in the employment relationship (Fiske 1992 and 1993; Keltner et al. 2003). It coached the employee to be very aware of their powerlessness before the employer, reinforcing a subservient role under the ‘don’t argue’ heading. Thus, one frame portrayed the employer as powerless to deal with challenges facing the organisation and the other had that same employer as omnipotent within the employment relationship. What could an employee, as naïve negotiator, make of this framing while considering an AWA? The answer returns us to the discussion of scripts and strategies used when negotiating. As mentioned previously, novice negotiators instinctively tend to use a distributive strategy when approaching a negotiation. This strategy, while often very limiting, at least explicitly addresses the substantive needs of the individual negotiator. An integrative strategy can be far more sophisticated and rewarding if it successfully addresses the underlying interests and needs of both parties. On the Howard government’s Workplace Authority webpage, the style of information given appears, at least superficially, to support an integrative strategy. However, closer inspection of the webpage as a whole reveals that the Howard government chose to coach millions of individual employees to willingly embrace a strategy of concession to their employers.

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Conclusion: What did Individual Bargaining Mean under WorkChoices? The 1996 and 2005 Acts stripped awards of their attractions to employees and gave employers almost all the initiative and leverage in determining the timing and type of agreements they may have wanted (Considine and Buchanan 2007). In these conditions, it was likely that rapidly increasing numbers of AWAs under WorkChoices would soon turn into a flood, mitigated only by the administrative inconvenience, to employers, that the 2007 Act presented. What conclusions flow from our analyses? It is clear that the design of WorkChoices further increased the power of employers — and government — in the AWA-making process and in the employment relationship that the AWA created. Individual employees had almost no protections or support when facing an AWA and little hope of gaining an alternative form of agreement unless they took collective action or moved to a new employer. The whole fabric of WorkChoices, by reducing the pre-existing safety nets to a charade, intensified asymmetric relations in the labour market, particularly as they pertained to employees in less advantaged circumstances. Simply put, WorkChoices took from an employee — as an individual entering an AWA — almost any chance of a BATNA related to bargaining over that job. It provided nothing to support employees who may have wished to bargain. On the contrary, its effects made genuine bargaining much less widely available by strengthening the hand of the more aggressively distributive employer seeking cost-savings and greater control in the workplace at the expense of their employees. They were able to achieve this by making acceptance of a pattern AWA a condition for future or further employment. Where bargaining occurred, employees with less labour market power — the main focus of our article — were most likely to face employer bargaining that was highly distributive. This reflected the connection between strongly asymmetrical interdependence and bargaining strategy evident in the negotiation literature. Without a viable BATNA — apart from finding another employer — and a plausible resistance point, an employee was likely to face having to make repeated concessions irrespective of the financial health of the organization and higher rewards flowing to its senior management. In fact, the employee may have preferred not to bargain at all but had no choice given the impending losses from the AWA. To return to the Workplace Authority website’s admonition, at the end of the day, an individual employee was indeed talking to their employer but increasingly in circumstances that created what Dabscheck (2006: 15) has called a ‘chilling effect’ on bargaining. Nevertheless, in its WorkChoices experiment with AWA-making, the Howard government did not limit itself to providing employers with substantially greater legal, institutional, resource and personal power at their employees’ expense. Beyond depriving employees of their most useful BATNA options, it also sought to further disempower them through actively reframing their approach to an AWA negotiation. In doing this, it took advantage of many of those employees being naïve negotiators who — short of experience, resources and knowledge regarding negotiating an AWA — may have taken government advice at face value and with some goodwill. Our analysis shows that the gov-

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ernment was engaged in misrepresenting the notion of an AWA negotiation on its WorkChoices website, allegedly dedicated to informing and coaching employees facing an AWA. Superficially, the government purported to advocate an integrative style of negotiation — one that the website held out as offering to employees a range of concessions otherwise unobtainable. On closer examination, the clear intent of the website was to frame the employee reader to willingly adopt a strategy through which they consistently conceded on their interests and desires to accommodate those of the employer. Adoption of this strategy and its script would almost inevitably have resulted in an erosion of an employee’s already compromised employment and working conditions. However, if all had gone to the website’s plan, the employee would have lost but would still have felt as if they had won. This was because the frame completely robbed them of any real, material expectations for making gains from the negotiation. On the contrary, it also conditioned them to accept reduced standards now — for some nebulous future gains — and to help the employer with the business. This was a particularly manipulative approach to people already deprived of support, knowledge and labour market power. So what might this combination of dispossession — of BATNA and a viable bargaining frame — have meant for, in particular, the more disadvantaged sections of the labour market engaged in AWAs? One way to think about the implications of what our analysis suggests is to briefly digress to an analogous experience. The WorkChoices AWA model largely followed Western Australia (state) legislation of 1993 and its individual Workplace Agreements (WPAs) ‘that operated outside the jurisdiction of the WA Industrial Relations Commission … and were to replace the relevant state award’ (Todd et al. 2006: 509). Underpinning WPAs were ten minimum entitlements — double the five under WorkChoices. According to Todd et al. (2006: 509–10), labour-intensive service industries, in particular, used pattern-style WPAs to reduce costs by widening standard working hours and removing penalty rates, loadings and sundries related to the work. Employee needs or wants for flexibility were of little or no concern to these employers. Overall, those employees shifted onto WPAs were worse off than under their previous award. In sectors like contract cleaning, access to WPAs allowed some employers to drive down their tender prices and thus force competitors to match their downward pressure on wage costs. Furthermore, as new small business owners started up under this greatly reduced employee-protection regime, many appeared to have decided they had no regulatory obligations to meet at all. Such was the level of exploitation WPAs encouraged that even some employer associations advised the state government to strengthen protection of employees under the No Disadvantage Test by basing it on the award rather than the ten statutory minima (Todd et al. 2006: 510–11). That such a level of exploitation occurred was a telling warning of the likely effects, on employees, of AWAs and individual bargaining under WorkChoices.

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Notes 1. Whereas, there were also awards that set minimum that were also maximum ‘paid’ rates, these were much less common.

References AAP (2007) ‘Low-paid workers unhappy on AWAs: Study’, Sydney Morning Herald, 22 November, available http://www.smh.com.au/news/National/Lowpaid-workers -unhappy-on-AWAs-study/2007/11/22/1195321924656.html [accessed 27 Nove­ mber 2007]. Abelson, R. (1981) ‘Psychological status of the script concept’, American Psychologist, 36, pp. 715–729. ACCC (Australian Competition and Consumer Commission) (2007) Guide to collective bargaining notifications, Commonwealth of Australia, Canberra, available http://www.accc.gov.au/content/index.phtml/itemId/776299/fromItemId/776294 [accessed 11 November 2007]. AHRI (Australian Human Resources Institute) (2007) WorkChoices: Its impact Within Australian Workplaces. Survey Findings, 23 August, AHRI, Melbourne. AIRC (Australian Industrial Relations Commission) (2007) Village Cinemas Australia and Carter, [2007] AIRCFB35, 15 January. Anderson, C. and Thompson, L. (2004) ‘Affect from the top down: How powerful individuals’ positive affect shapes negotiations’, Organizational Behavior and Human Decision Processes, 95(2), pp. 125–139. Australian Government (2005) WorkChoices: A Simpler, Fairer, National Workplace Relations System for Australia: Overview, available: https://www.workchoices. gov.au/NR/rdonlyres/6F58B4CC-C8E5-4D53-B489-E0B78F844277/0/ WorkChoices_Overview_Statement.pdf [Accessed 11 November 2007]. Australian Government Workplace Authority (2007) Tips for negotiating your workplace agreement, available: http://www.oea.gov.au/graphics.asp?showdoc=/ employers/tips_for_negotiating_agreements.asp [accessed 11 November 2007]. Bacharach, S. and Lawler, E. (1981) ‘Power and tactics in bargaining’, Industrial and Labor Relations Review, 32(2), pp. 219–233. Briggs, C. and Cooper, R. (2006) ‘Between individualism and collectivism? Why employers choose non-union collective agreements’, Labour & Industry, 17(2), pp. 1–23. Cambridge Dictionaries Online (2007) Cambridge International Dictionary of Idioms, available http://dictionary.cambridge.org/define.asp?key=end*2+0 &dict=I [accessed 20 November 2007]. Clegg, H. (1976) Trade Unions Under Collective Bargaining: A Theory Based on Comparisons of Six Countries, Basil Blackwell, Oxford. Considine, G. and Buchanan, J. (2007) Workplace Industrial Relations on the Eve of WorkChoices: A report on a Survey of Employers in Queensland, NSW and Victoria, Workplace Research Centre, University of Sydney, September. Cooney, S. (2006) ‘Command and control in the workplace: Agreement-making under work choices’, Economic and Labour Relations Review, 16(2), pp. 147–164.

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Kirby, M. and Creighton, B. (2004) ‘The law of conciliation and arbitration’, in J. Isaac and S. Macintyre (eds), The New Province for Law and Order: 100 Years of Australian Industrial Conciliation and Arbitration, Cambridge University Press, Cambridge, pp. 98–138. ILO (International Labour Organisation) (2007) ‘Freedom of association cases’, Documents Available in ILOLEX for Australia, ILO, Geneva, available: http:// www.ilo.org/ilolex/cgi-lex/countrylist.pl?country=Australia [accessed 18 November 2007]. Lawler, E. (1992) ‘Power Processes in Bargaining’, Sociological Quarterly, 33(1), pp. 17–34. Lee, S. (2006) ‘Labour market institutions under threat? The case of working time’, Labour & Industry, 17(2), pp. 41–56. Levin, I., Schneider, S., Gaeth, G. (1998) ‘All frames are not created equal: A typology and critical analysis of framing effects’, Organizational Behavior and Human Decision Processes, 76(2), pp. 149–188. Lewicki, R., Saunders, D. and Barry, B. (2006) Negotiation, 5th ed., McGraw Hill/ Irwin, Boston. Mannix, E. (1993) ‘Organizations as resource dilemmas: The effects of power balance on coalition formation in small groups’, Organizational Behavior and Human Decision Processes, 95, pp. 1–22. Mitchell, R., Campbell, R., Barnes, A., Bicknell, E., Creighton, K., Fetter, J. and Korman, S. (2005) ‘What’s going on with the “No Disadvantage Test”? An analysis of outcomes and processes under the Workplace Relations Act 1996 (Cth.)’, Journal of Industrial Relations, 47(4), pp. 393–423. Neale, M., Huber, V. and Northcraft, G. (1987) ‘The framing of negotiations: Contextual versus task frames’, Organizational Behavior and Human Decision Processes, 39, pp. 228–241. Niland, J. (1978) Collective Bargaining and Compulsory Arbitration in Australia, University of New South Wales Press, Kensington. Norris, K (1992) ‘The wages structure: Does arbitration make any difference?’ in J. E. King (ed), Readings in Australian Labour Economics, Macmillan, Melbourne, pp. 105–135. Norris, K. (1993) The Economics of Australian Labour Markets, 3rd ed., Longman Cheshire, Melbourne. O’Connor K. and Adams, A. (1999) ‘What novices think about negotiation: A content analysis of scripts’, Negotiation Journal, 15(2), pp. 135–147. Perlman, M. (1954) Judges in Industry, Melbourne University Press, Melbourne. Polygenis, R. (2007) Economics update: Australian Q3 2007 CPI: Accelerating core inflation to force RBA’s hand, ANZ Bank, available http://www.anz.com.au/aus/ Corporate/EcoComm/AustEconUpdates.asp [accessed 28 November 2007]. Polygenis, R., Rabinov, A., Yuen, W., Beaini, F., and Rodrigues, M. (2007) Economic update: Australian GDP Q2 2007: Full steam ahead, ANZ Bank, available: http:// www.anz.com.au/aus/Corporate/EcoComm/AustEconUpdates.asp [accessed 28 November 2007].

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Riley, J. and Sarina, T. (2006) ‘Industrial legislation in 2005’, Journal of Industrial Relations, 48(3), pp. 341–356. Rollins, A. (2007) ‘Employers win wider power to sack’, Australian Financial Review, 16 January, Factiva Document AFNR000020070331e31g003e8 [accessed 27 November 2007]. Stewart, A. and Williams, G. (2007) Work Choices: What the High Court Said, Federation Press, Sydney. Strauss, G. (1988) ‘Australian labor relations through American eyes’, Industrial Relations, 27(2), pp. 131–148. Thompson, L. (2005) The Mind and Heart of the Negotiator, 3rd ed., Prentice Hall, New Jersey. Todd, P., Caspersz, D. and Sutherland, M. (2006) ‘Employers’ choices in workplace regulation’, Journal of Industrial Relations, 48(4), pp. 507–522. Ury, W. (1993) Getting Past No, (Revised Edition) Bantam Books, New York. van Barneveld, K. (2006) ‘Australian workplace agreements under WorkChoices’, Economic and Labour Relations Review, 16(2), pp. 165–192. Westcott, M., Baird, M. and Cooper, R. (2006) ‘Re-working work: Dependency and choice in the employment relationship’, Labour & Industry, 17(1), pp. 5–17. Workforce (2006) 1541, 2 June. Workforce (2007) 1612, 16 November.

The Economic and Labour Relations Review Vol. 18 No. 1, pp. 143–154

‘We’ve Got This New Legislation’: A Review Article on [email protected] and Other 2007 Reports on WorkChoices Diane Fieldes * Abstract The WorkChoices legislation was controversial at the time of its introduction. The controversy has continued as to what its outcomes have been, and in whose interests it has operated. One outcome of the legislation has been a proliferation of extremely comprehensive analyses of its effects to date. This review article on those reports concludes that the overwhelming weight of evidence is that the legislation has benefited employers at the expense of employees. However, this article provides a materialist analysis of WorkChoices and the wider employer offensive which contrasts with the dominant interpretations amongst the critics of WorkChoices. The paper situates WorkChoices as part of a longer-term employer offensive designed to maintain profitability by increasing the rate of labour exploitation.

Introduction The Howard government made a variety of claims about the benefits of WorkChoices (for example, Hockey 2007). These were generally put forward without any research or data to support them. Thankfully we now have a series of studies that have been conducted on the impact of WorkChoices. The purpose of this article is to review these studies and to propose an explanation for the negative outcomes of WorkChoices and the broader employer offensive. The article critically reviews the main findings of the rapidly expanding field of research on the effects of WorkChoices on Australian workers, the overall thrust of which is that the legislation has benefited employers at the expense of employees. This article provides an alternative materialist analysis of WorkChoices and the wider employer offensive which contrasts sharply with the dominant interpretations amongst the critics of WorkChoices — that

* The University of New South Wales

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WorkChoices simply results from the ‘outdated ideology’ of John Howard and his Ministers, or that its problematic outcomes are due to a failure to understand the productive contribution that unions can make to the competitiveness of Australian business. Instead, this article concludes that outcomes detailed in the reports are consistent with an approach to labour relations that has an underlying conflict of interest between capital and labour at its heart.

Proliferation of Reports In the last year of the Howard government, there was a proliferation of reports on the effects of WorkChoices, much to the displeasure of that government (Hockey 2007). One reason for this proliferation was undoubtedly the lack of information coming from government sources, concerning the impact of the legislation. [email protected], the most recent and most comprehensive of these reports, pointed out that ‘the WorkChoices changes were preceded by no systematic study, involved only a week’s consideration in Parliament, and were not subsequently subject to any systematic evaluation strategy’ (van Wanrooy et al. 2007: 98). In fact, the amount of information released by the government diminished over the life of the legislation. In May 2006, Office of the Employment Advocate head Peter McIlwain revealed to a Senate Estimates Committee that every Australian Workplace Agreement (AWA) lodged under WorkChoices had removed at least one protected award condition. Sixteen per cent had removed all award conditions and replaced them with only the government’s five minimum standards. Subsequently, as Peetz points out: dissemination of such data was terminated, due to the Advocate’s ‘serious concerns about the methodology’ and his view that ‘focusing on certain characteristics in isolation, without considering what else the parties may have agreed, had the potential to produce misleading and distorted results’ (Peetz 2007a: 5). In this context of little official data, the large number of reports by academics and others over the course of 2007 has produced some extremely useful material. So far there have been 14 major reports (Baird et al. 2007; Charlesworth and Macdonald 2007; Ellem et al. 2007; Elton et al. 2007; Elton and Pocock 2007; Evesson et al. 2007; Forsyth 2007; Gahan 2007; Jefferson et al. 2007; Macdonald et al. 2007; NFAW 2007; Peetz 2007c; Peetz and Preston 2007; van Wanrooy et al. 2007), plus two reports by state industrial relations commissions (Industrial Relations Commission (SA) 2007; Queensland Industrial Relations Commission 2007). In addition, academic research papers appear to be emerging at a great rate (for example, Knox 2007; Peetz 2007a; Peetz 2007b at a single conference). This review will focus on the impact of WorkChoices on working life as revealed in [email protected] The Benchmark Report (van Wanrooy et al. 2007) while referring to additional insights available from other studies.1 [email protected] Work is the largest and most comprehensive of this year’s studies. Over five years, 8,343 participants in the Australian labour market are scheduled to be surveyed and interviewed to assess the impact of the legislative changes and

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their changing perceptions of working life (van Wanrooy et al. 2007: vi, 13). As van Wanrooy puts it: [email protected] The Benchmark Report provides an overview of results from the first survey that gathered data on working conditions in March 2006 (before the implementation of the WorkChoices legislation) and 2007. The findings should be considered within an economic context of almost full employment, a booming economy and skill shortages (van Wanrooy et al. 2007: vi).

The Context of the Legislation In his study of Australian profit rates over the period 1965 to 2001, Simon Mohun attributes the recovery of the rate of profit since the early 1980s to a rise in labour productivity arising from ‘a war of attrition by capital on the working class’ causing a shift from wages to profits, which from the late 1980s was reinforced by rising capital productivity (Mohun 2003: 103). Between 1982 and 2000, real wages rose more slowly than labour productivity, boosting the profit share in national income and underpinning business prosperity in recent years. Figure 1: Wages Share of Total Factor Income

Source: Australian Bureau of Statistics (2007)

However, this was not a linear process. With the introduction of enterprise bargaining in 1991, real wage growth began to accelerate, partly because of the collapse of centralised control over wages, and partly because, in the context of falling unemployment, workers began to win back a portion of their higher productivity in wages (Bramble 2004: 11). As a consequence, to maintain profitability in the 1990s, employers looked to increase the rate of labour exploitation. It is this which has underpinned both government industrial relations ‘reforms’ and the shift towards a more

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aggressive employer stance towards unionism in the past decade, most clearly on the waterfront and in the construction industry, but also in the meat industry, the mining industry and the airlines (Peetz 1998). In the past decade there has been a significant shift in the balance of power towards the capitalist class, at the expense of the working class. One indication of this is that ‘profits are at record levels, continuing a trend established under the Workplace Relations Act [1996]’ (Peetz 2007a: 9). To maintain the rate of profit, Australian employers have used large-scale expenditure on information and communication technology, a weakening of the trade union movement, and a more hostile anti-union legal environment (Mohun 2003). There has been a ‘shift towards part-time, temporary, casual work, labour- and agency-hire arrangements, outsourcing, unpaid overtime, 24 x 7 operations, and short notice call-ins’ (Bramble 2004: 12).

Results of the 2007 Studies: A Confirmation of Existing Trends [email protected] provides some confirmation of the trends described by Bramble above. Conclusions drawn by Peetz earlier in 2007 that the arrangements established under WorkChoices have led to a real wage decline for most awardreliant (low wage) workers (Peetz 2007a: 8), despite the economic boom, ‘and in the short term at least a drop in real and relative earnings for women’ (Peetz 2007a: 9) are also backed up by [email protected] A comprehensive national quantitative study of low paid women workers also found a consistent picture of ‘significant negative outcomes in relation to employment security, the level and predictability of pay and hours, overall earnings and employee voice and say’ (Elton et al. 2007: 7). When asked ‘How are you managing on your current household income?’, a majority (53 per cent) described themselves as ‘coping’, ‘finding it difficult to get by’ or ‘finding it very difficult to get by’ (as opposed to ‘living comfortably’ or better) (van Wanrooy et al. 2007: 64). To summarise the results that emerge from these reports: real wages are being reduced for at least low paid and low skill workers. Payments for overtime and penalty rates are being reduced or even eliminated. The intensity of work is increasing. AWAs and employers’ greater freedom to fire employees under the new unfair dismissal arrangements, combined with restrictions on trade union activities, have facilitated these changes. Wages have been reduced in a variety of ways. Employees in the lower skilled occupations such as labourers and sales assistants were receiving the worst outcomes, in terms of pay and hours, under AWAs (van Wanrooy 2007: vii). An extremely comprehensive analysis of the survey deemed by the government to be the most reliable earnings data, the Australian Bureau of Statistics Employee Earnings and Hours Survey, yielded similar findings (Peetz and Preston 2007). In hospitality, the only industry where the majority of workers are reliant on awards, AWAs paid on average two per cent below awards in both 2004 and 2006 (Peetz and Preston 2007: 23). In 2006, employees on AWAs earned $2.00 an hour less than those on registered collective agreements. When median figures rather than averages were used (to remove

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the distorting effect of a small number of AWA employees with extremely high earnings), AWA employees were $4.00 an hour below the median earnings for collective agreement employees — an overall shortfall of 16.3 per cent (Peetz and Preston 2007: 12, 31). The gaps were greater for women than for men (Peetz and Preston 2007: 13). All of the gains in reducing the gender pay gap between 1996 and 2004 had been removed by 2006 (Peetz 2007c: 55). AWAs, which cover only a small proportion of the workforce, were not the only cause of reduction in real wages. In 2006, average wages for workers in the lowest paying occupations stagnated or fell regardless of the industrial instrument which covered them (Peetz 2007c: 49, 52; Peetz 2007a: 8). Recent Australian Council of Trade Unions (ACTU) research shows that workers on the federal minimum wage had a real pay increase of just six cents a week while all other minimum award workers received a real pay cut of between 28 cents a week and $15.67 a week (ACTU 2007). In addition to falling real wages, employees experienced a loss of other conditions, mainly related to payment for and control over the hours they worked. Peetz and Preston’s findings indicate that AWAs have been used for cost minimisation through cutting penalty rates, overtime pay and other ‘protected’ award conditions (2007: 17). It is not only AWAs that have been used in this way. The Employer Greenfields ‘Agreements’ (EGAs) created by WorkChoices (which are not agreements in any known sense of the word as employers are required only to agree with themselves) are not widespread. However, those that do exist generally provide little compensation for the loss of protected award conditions and have been the instrument for the removal of a range of other non-protected award conditions (Gahan 2007: 6). Award conditions were removed in 79.3 per cent of EGAs (Gahan 2007: 14). As [email protected] points out, ‘the Award system creates a safety net not only for income but for other conditions such as working hours. Full-time working hours have increased since the early 1980s and stabilised at high levels in the last decade as the only form of regulation, overtime penalties, has become relatively scarce’ (van Wanrooy et al. 2007: 48). While nearly half of employees reported being paid for ‘standard hours’ (between 35 and 40 hours per week), only one third usually work these hours (van Wanrooy et al. 2007: 61). About two million workers (21 per cent) wanted to work fewer hours (van Wanrooy et al. 2007: 71). Thirty-two per cent of non-managerial workers disagreed that they had control over their working hours (van Wanrooy et al. 2007: 81). While the period of WorkChoices has seen a rise in the relative importance of fulltime work, ‘AWAs have been associated with the casualisation of jobs at the expense of permanent part-time work’ (Peetz 2007c: 65). The overall picture that emerges is one where the hours that many employees work are not under their control or at their own choice. Nor are they being remunerated for all the hours they work. A further change reported in [email protected], and the issue about which the authors of the report indicate the greatest concern, is work intensification (van Wanrooy et al. 2007: 94). When non-managerial employees were asked

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their opinion of the statement ‘More and more is expected of me for the same amount of pay’, 51.7 per cent agreed (van Wanrooy et al. 2007: 75, 85), while: 34 per cent were decidedly worse off in 2007 as they had seen a decrease in their real income at the same time as their hours had increased (15 per cent) or had not changed (19 per cent) … Worryingly, 11 per cent of those who had a decrease in income saw an increase in the skill level of their job (van Wanrooy et al. 2007: 60). Another factor in reductions in wages and conditions were the new unfair dismissal arrangements. At the time of writing, one in three (2.7 million) employees do not have protection from unfair dismissal (van Wanrooy et al. 2007: 22). The WorkChoices legislation introduced two new categories of exclusion from unfair dismissal claims. All employees in firms with up to 100 employees were excluded. In addition, for employees in firms over that size, there was ‘a specific exclusion of unfair dismissal claims where the dismissal is based on genuine operational reasons’ (Forsyth 2007: 5). Forsyth’s comprehensive study makes clear that the apparently small shift from ‘operational requirements’ to ‘operational reasons’ was successfully used to exclude employees from making unfair dismissal claims. More than that, even businesses that were expanding were able to use to ‘operational reasons’ exclusion ‘as a basis for labour cost reduction strategies’ (Forsyth 2007: 10). For example, employers have been able to dismiss existing workers and hire new ones to do the same work for less money, or to remove conditions available to workers under collective agreements (Forsyth 2007: 11–12). The growth in ‘agreements’ which are arrived at without any negotiation is another way to force these changes on workers. Over a million employees (13 per cent) changed the form of instrument governing their pay and conditions between 2006 and 2007, primarily by changing jobs. ‘The change overwhelmingly involved moving onto non-union arrangements such as AWAs, non-union collective agreements or award-free common law contracts’ (van Wanrooy et al. 2007: 55). Of these, more than 200,000 AWAs in 2007 did not provide opportunities for negotiation (van Wanrooy et al. 2007: 51). Workers on non-negotiated AWAs earned the lowest hourly rates of pay, at all skill levels (van Wanrooy et al. 2007: 53). It is no wonder, then, that employers saw the virtues in WorkChoices’ restrictions on unions’ rights. ‘Unions are facing more legislative barriers, through restrictions on ‘rights of entry’, balloting, and industrial action that have been implemented by the Federal Government and retained in the ALP’s industrial relations policy’ (van Wanrooy et al. 2007: 86). Union action makes a difference. With the exception of the highest skilled employees, there was a substantial ‘union wage premium’ for all male employees — as much as $6 an hour. ‘Women who are union members consistently earned higher hourly rates than non-union employees across all five skill levels’ (van Wanrooy et al. 2007: 87). Reports of workers being docked four hours’ pay for being a few minutes late in returning from a union meeting, or not being paid at all for a full week’s work because they had an overtime ban in place (Peetz

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2007c: xii) give an indication of the effect of the WorkChoices environment in strengthening employers’ resolve to resist union action. Hostility to union organization can also explain some of the higher paid AWAs. AWAs can also be a method of union avoidance. Large organisations used ‘wage premiums to induce workers to sign AWAs and/or financially [penalise] those who seek to remain on collective agreements’ (Peetz and Preston, 2007: 17).

Analytical Frames It is not the intention of the authors of any of the reports to draw Marxist conclusions. The assumptions implicit in the policy prescriptions of [email protected] indicate this clearly. Contrary to the Marxist conception of an irreconcilable conflict of interest between capitalists and workers, ‘our ideas for policy … are based on the assumption that the key objectives of any new laws or programs are to simultaneously improve efficiency and fairness in the labour market’ (van Wanrooy et al. 2007: 95). Yet, the outcomes reported fit a Marxist analysis of society in which class conflict is central, in which the basic dynamic of industry is the provision of profit for its owners, that ‘what is income for the employee is a cost for the employer’ (Hyman 1972: 86–88). It is the logic of this which dictates ‘the extreme intensification of work pressure for some employees’ (Hyman 1972: 87–88) and hence the capitalist ‘takes up every means of increasing the output of the labour power … purchased’ (Braverman 1974: 56). Increasing the rate of exploitation — in other words, the degree to which the capitalist is successful in pumping surplus labour out of the worker (Callinicos 2004: 115) — is what WorkChoices was designed to achieve. There are two ways in which capitalists can increase the rate of surplus value. These are the production of absolute and relative surplus value. Absolute surplus value is created by lengthening the working day (Callinicos 2004: 115). Clearly, working hours have been raised in Australia under WorkChoices. More than one-fifth (23 per cent) of workers are on 50 hours a week or more. While this is more common amongst managerial employees, the vast majority of those working these long hours are not managers (van Wanrooy 2007: 66). Three-quarters of employees sometimes work extra hours in their main job (van Wanrooy 2007: 70). There are, however, objective limits to increasing absolute surplus value — worker exhaustion and the length of the working day itself, i.e. ‘however much the rate of exploitation rises, it is not possible for the total surplus labour (and hence surplus value) extracted from each worker to rise above the length of the working day’ (Harman 1999: 28). The other limit is the possibility of worker resistance. Capital can nonetheless also raise the rate of surplus value by the production of relative surplus value. One way in which this can happen is an increase in the productivity of labour which lowers the value of commodities, or a technological improvement which cheapens the cost of consumer goods. ‘Less social labour will now be needed to reproduce labour power, and the portion of the working day devoted to necessary labour will fall, leaving more time spent creating surplus value’ (Callinicos 2004: 116). Mechanisation, automation or increased capital intensification to reduce the value of the product (by reducing

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the amount of labour hours involved in its creation) can produce this outcome. If employers do not want to go down this path, there is another method by which they can raise the rate of relative surplus value — by cutting wages, or extracting more value from workers in a given hour by work intensification. This can take the form also of increasing flexibility of working hours, allowing bosses to avoid slack periods of work: hence the increase in unsociable hours worked by employees (van Wanrooy 2007: 70) and the proportion of nonmanagerial employees (32.4 per cent) who felt they had little or no control over the hours they worked (van Wanrooy 2007: 75). Pressure to increase the rate of exploitation is unrelenting. The ability of capital to increase the rate of exploitation of each worker is one of the countervailing tendencies to the falling rate of profit (Harman 1999: 27).2 As the resulting class struggle is a battle carried on as an ‘uninterrupted, now hidden, now open fight’ (Marx and Engels 1986: 35), evidence of this should also be available from the analyses of WorkChoices. The reports make no mention of the open expression of this conflict, such as the mass union rallies in 2005–2007, or the more recent industrial action by Victorian nurses which saw the Victorian Labor government threaten them with WorkChoices penalties (Oakley 2007). There is, however, some recognition of the more hidden aspect of conflict: ‘The population is evenly split between those reporting that they are living comfortably and those just coping or having difficulty getting by. There are clearly pockets and issues around which discontent is smouldering’ (van Wanrooy et al. 2007: 94). Bramble’s analysis of the extremely common discontent with prevailing economic and social trends, illustrated in Australian social attitude surveys, reinforces this point (Bramble 2004: 27). The widespread attribution of the Howard government’s electoral defeat to WorkChoices (West 2007) is perhaps another recognition of it.

Conclusion From the perspective outlined in this article, the comprehensive data provided by [email protected] and the other reports hardly come as a surprise. WorkChoices was introduced to assist employers in the class struggle over production. The data show that the government has had some success. But the context is important. Employer attempts to raise the rate of exploitation pre-date WorkChoices. In other words, these outcomes are explicable in terms of the overall needs of capital, rather than merely a particular industrial law regime. Hence, as [email protected] points out, ALP policy keeps much of the content of the current WorkChoices law (van Wanrooy et al. 2007: 86). The comprehensive data provided by [email protected] and the other reports are consistent with a view of labour relations as a contest over surplus value. WorkChoices has shifted the balance of power in the struggle between employers and employees towards the former. By weakening unions, WorkChoices has reduced the ability of workers to challenge speed up, wage cuts and longer working hours. As a number of writers point out, the full effect of WorkChoices (or its ALP replacement) will probably only be seen when the boom slows and economic conditions deteriorate (Peetz 2007c: 14; Elton et al. 2007: 8).

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Acknowlegdements Thanks to musicians Allan Caswell and Catherine O’Brien for their WorkChoices song, ‘New Legislation’ http://www.etu.asn.au/2007/fair_go.html  . Thanks also to the anonymous Economic and Labour Relations Review referees for their helpful suggestions.

Notes 1. While it is beyond the scale of the argument made in this paper, it would be remiss not to point out the very important insights about the effects of WorkChoices on women workers, contained in consolidated form in Elton et al. (2007). The authors have not confined themselves to the effects on working life narrowly defined, but through qualitative research which allows women workers much space to speak for themselves, they show the effect that attacks on rights at work can have in undermining such hardwon gains of the women’s liberation movement as a degree of financial independence when the gender pay gap was closed by union action. 2. For a detailed argument on this, see Mohun (2003).

References ABS (Australian Bureau of Statistics) (2007) Australian System of National Accounts, 2006–07, Catalogue No. 5204.0, Commonwealth of Australia, Canberra. ACTU (Australian Council of Trade Unions) (2007) ‘Real wages go backwards under Work Choices: Harvester decision anniversary’, 5 November, available: http:// www.actu.asn.au/Campaigns/YourRightsatWork/YourRightsatWorknews/ RealwagesgobackwardsunderWorkChoicesHarvesterdecisionanniversary.aspx [accessed 5 November 2007]. Baird, M. Cooper, R. and Oliver, D. (2007) Down and out with WorkChoices: The impact of WorkChoices on the work and lives of women in low paid employment. A Report to the Office of Industrial Relations, Department of Commerce, New South Wales. Prepared by the Women and Work Research Group, University of Sydney, June, available: http://wwrg.econ.usyd.edu.au/Events/2007/ Women_and_Work_Choices_Report_2007.pdf [accessed 17 November 2007]. Bramble, T. (2004) ‘Contradictions in Australia’s “Miracle Economy” ’, Journal of Australian Political Economy, 54, pp. 5–31. Braverman, H. (1974) Labor and Monopoly Capital. The Degradation of Work in the Twentieth Century, Monthly Review Press, New York. Callinicos, A. (2004) The Revolutionary Ideas of Karl Marx, Bookmarks, London. Charlesworth, S. and Macdonald, F. (2007) Going too far: WorkChoices and the experience of 30 Victorian workers in minimum wage sectors. A Report to Industrial Relations Victoria, prepared by the Centre for Applied Social Research, RMIT University, available: http://www.nfaw.org/social/www/2007/ Going_too_far.pdf [accessed 17 November 2007]. Ellem, B. and Women and Work Research Group (2007) More work, less choice: the impact of national labour re-regulation on low-paid women workers in the Australian Capital Territory, A Report to the Department of Disability, Housing

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and Community Services, prepared by Work and Organisational Studies and Women and Work Research Group, University of Sydney. Elton, J. Bailey, J. Baird, M. Charlesworth, S. Cooper, R. Ellem, B. Jefferson, T. Macdonald, F. Oliver, D. Pocock, B. Preston, A. and Whitehouse, G. (2007) Women and WorkChoices: Impacts on the low pay sector: Summary report. Centre for Work + Life, Adelaide, August. Elton, J. and Pocock, B. (2007) Not fair, no choice. The impact of WorkChoices on twenty South Australian workers and their households. A Report to SafeWork SA and The Office for Women. Prepared by the Centre for Life + Work, University of South Australia, July, available: http://www.nfaw.org/social/www/2007/ WandWC_Summary.pdf [accessed 17 November 2007]. Evesson, J. Buchanan, J. Bamberry, L. Frino, B. and Oliver, D. (2007) Lowering the standards: From awards to WorkChoices in retail and hospitality collective agreements: Synthesis report. Report prepared for the Queensland, New South Wales, and Victorian Governments. Workplace Research Centre, Sydney, September. Forsyth, A. (2007) Freedom to fire: Economic dismissals under WorkChoices. Report for the Victorian Office of the Workplace Rights Advocate, August. Gahan, P. (2007) Employer Greenfields agreements under WorkChoices: Interim report. Office of the Workplace Rights Advocate, Melbourne, August. Harman, C. (1999) Explaining the Crisis. A Marxist Re-appraisal, Bookmarks, London. Hockey, J. (2007) Transcripts. AM, Australian Broadcasting Corporation, 2 October, available: http://www.joehockey.com/mediahub/transcriptDetail. aspx?prID=547 [accessed 14 October 2007]. Hyman, R. (1972) Strikes, Fontana/Collins, Glasgow. Industrial Relations Commission (SA) (2007) Inquiry into the impact of WorkChoices in South Australia, Interim report, Industrial Relations Commission of SA, Adelaide. Knox, A. (2007) Fear and loathing in Australia: Gauging employee responses to the WorkChoices act, paper presented to 21st conference of Association of Industrial Relations Academics of Australia and New Zealand, Auckland, 7–9 February. Jefferson, T. Preston, A. Chapple-Fahlesson, S. and Mitchell, S. (2007) A study of low paid work and low paid workers in Western Australia. Prepared by WiSER (Women in Social and Economic Research), Curtin University of Technology, August. Macdonald, F. Whitehouse, G. and Bailey, J. (2007) Tipping the scales: A qualitative study of the impact of WorkChoices on women in low-paid employment in Queensland, A Report to the Queensland Department of Employment and Industrial Relations, prepared by the School of Political science and International Studies, University of Queensland and Department of Industrial Relations, Griffith University, June. Marx, K and Engels, F. (1986) Manifesto of the Communist Party, Progress Publishers, Moscow.

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Mohun, S. (2003) ‘The Australian rate of profit 1965–2001’, Journal of Australian Political Economy, 52, December, pp. 83–112. National Foundation for Australian Women [NFAW] (2007) What Women Want: Consultations on Welfare to Work and Work Choices, 1 June 2007. Oakley, C. (2007) ‘Nurses show the way to fight’, Socialist Alternative, 122, November. Peetz, D. (1998) Unions in a Contrary World. The Future of the Australian Trade Union Movement, Cambridge University Press, Cambridge. Peetz, D. (2007a) Brave new WorkChoices: What is the story so far?, paper presented to 21st conference of Association of Industrial Relations Academics of Australia and New Zealand, Auckland, 7–9 February. Peetz, D. (2007b) Collateral damage: Women and the WorkChoices battlefield, Diverging employment relations patterns in Australia and New Zealand? Paper presented to 21st conference of Association of Industrial Relations Academics of Australia and New Zealand, Auckland, 7–9 February. Peetz, D. (2007c) Assessing the impact of WorkChoices — One year on. Report to the Department of Innovation, Industry and Regional Development Victoria. Industrial Relations Victoria, Melbourne, March. Peetz, D. and Preston, A. (2007) AWAs, collective agreements and earnings: Beneath the aggregate data. A report prepared for Industrial Relations Victoria. Industrial Relations Victoria, Melbourne, March, available: http://www.business.vic.gov. au/busvicwr/_assets/main/lib60013/awa-ca-earnings-paper.pdf [accessed 17 November 2007]. Preston, A. (2007) ABS data most comprehensive guide to employee earnings under AWAs, WiSER Information Sheet, October, available: http://www.asu.asn. au/data_man/campaigns/rightsatwork/preston-infosheet2007.pdf [accessed 27 November 2007]. Queensland Industrial Relations Commission (2007) Final report — Inquiry into the impact of WorkChoices on Queensland workplaces, employees and employers, January. van Wanrooy, B. Oxenbridge, S. Buchanan, J. and Jakubauskas, M. (2007) [email protected] Work. The Benchmark Report, Workplace Research Centre, Sydney, September. West, A. (2007) ‘Inside the work laws demolition’, Sydney Morning Herald, 26 November, available: http://www.smh.com.au/news/national/andrewwest/2007/11/25/1195975870579.html [accessed 30 November 2007].

The Economic and Labour Relations Review Vol. 18 No. 1, pp. 155–156

Book Review Mordy Bromberg and Mark Irving (eds), Australian Charter of Employment Rights, Hardie Grant Books, Melbourne, 2007, pp. xiv + 158, $29.95 (paper). Reviewed by Braham Dabscheck * A. B. Fields and W. D. Narr, in ‘Human rights as a holistic concept’ (1992: 6), view ‘the world as a field of struggle over rights without any guarantee of success’. The price of human rights, like freedom, is eternal vigilance. Rights have to be fought for and defended, over and over again. There is no guarantee that even when a nation has ratified various human rights instruments developed by the international community, such as the Universal Declaration of Human Rights, the International Covenant on Economic, Social and Cultural Rights, the International Covenant on Civil and Political Rights and various Conventions of the International Labour Organisation — what Binion (1995: 525) has referred to as ‘beautifully crafted ... documents’ — they will be observed. Since the mid 1980s, there has been an assault on, and an erosion of, employment rights in Australia. Various business and employer groups, the Liberal and National Parties Coalition, at both the federal and state level, and various ‘think tanks’, such as the H. R. Nicholls Society, have mounted attacks on the rights and benefits of workers, trade unions and traditional regulatory instruments, such as the Australian Industrial Relations Commission. The election of the federal coalition in 1996 enabled such plans to be implemented. They occurred in two stages. The first, was the passage of the Workplace Relations Act 1996 (Cth.), and the second, the Workplace Relations Amendment (Work Choices) Act 2005 (Cth.). Commentaries on these developments are contained in the May 2006 issue of this journal. In response to these changes, The Australian Institute of Employment Rights has developed A Charter of Employment Rights. In the Introduction, Mordy Bromberg writes that the Charter ‘is a back-to-basics attempt to define the rights of workers and employers’ (p. 1). It ‘has been built upon the guarantee of individual fairness and reasonableness’ (p. 5). Bromberg maintains that: A successful workplace relations system will be built on the premise that high productivity and high worker satisfaction are both enhanced by investment: workers investing in their workplace and employees investing in their workers. This workplace investment compact will be * University of Melbourne

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founded on an appreciation that the legitimate expectations of workers and those of employees are not mutually exclusive but are largely complementary (p. 7). The rest of the book comprises short chapters, written by legal practitioners, economic, industrial relations and legal scholars, on items contained in the Charter. They are good faith performance, work with dignity, freedom from discrimination and harassment, a safe workplace, workplace democracy, union membership and representation, protection from unfair dismissal, fair minimum standards, fairness and balance in bargaining and effective dispute resolution. In addition, there is a chapter on extending the scope of the Charter to ‘workers’, including labour hire workers and dependent contractors, rather than the more restrictive definition of ‘employees’ adopted by the courts, one on how policies promoting ‘fairness’ enhance growth and productivity, and a chapter advocating Keynesian policies to promote full employment. The respective chapters identify the major employment instruments developed by the international community and their implementation or otherwise in Australia, the role of the common law and past Australian experience is canvassed, including the activities of industrial tribunals and advocacy of various policies which should be pursued in either implementing or strengthening different strands of the Charter. Given the policy orientation of this project, the book mainly focuses on the enunciation and development of normative statements. The great strength of this volume is the clarity and accessibility of the various chapters. The editors and/or the individual contributors are to be congratulated for the straight forward manner in which they have presented information and ideas on the respective issues which they have examined. In terms of entering (or is it re-entering) the fray over employment rights, this volume provides an excellent starting point in countering the dominant paradigm that currently exists in Australia for those involved in the never ending struggle of defending and advancing workers’ employment rights.

References Binion, G. (1995) ‘Human rights: A feminist perspective’, Human Rights Quarterly, 17(3), pp. 509–526. Fields, A. and Narr, W. (1992) ‘Human rights as a holistic concept’, Human Rights Quarterly, 14(1), pp. 4–20.

Notes for Contributors 1. Original articles which are concerned with contemporar y issues, developments and policymaking may be submitted for consideration for publication in ELRR, provided they have not been published elsewhere or are not under consideration for publication elsewhere. 2. Articles submitted to ELRR are subject to a doubleblind refereeing process. Electronic submission is preferred. Otherwise, three hard copies should be submitted. 3. Submissions should be up to 8,000 words and contain an abstract of less than 150 words describing the major points made in the paper and the main conclusions reached. 4. Copyright of articles published in ELRR is vested in the journal, the CAER and the IRRC. Permission to reprint should be sought from the Editors. This will be granted in normal circumstances. 5. Manuscripts should be typed single spaced on one side of A4 paper (210mm x 297mm). A separate title sheet should provide the contributors’ names, affiliation details and postal and email address. Do not include the contributors’ names on the first page of the article, but please do include the title of the article. 6. If you use acronyms or abbreviations, use the full title the first time, followed by the acronym in brackets. 7. Mathematical notation should be provided in both symbols and words. Articles of a mathematical nature should also contain a clear statement of the

arguments in plain English, with substantial amounts of mathematical material placed in an appendix. 8. Quotations of four lines or more should be indented. Shorter quotes should be included in the body of the text. 9. Endnotes, which should be kept to a minimum, should be numbered serially and included at the end of the article. 10. Tables, charts and/or figures should be numbered consecutively and included at the end of the text in Word or RTF format. Indicate their approximate placement in the text and provide titles and captions (citations) for each. 11. In-text references should include the author’s name, year of publication and page: ‘Chapman (1983: 230) has argued … ’, or ‘Many questioned the equality of working Japanese women (Sano 1983: 420)’. Where an author has more than one publication in the same year, use alphabetical ordering to distinguish: for example, (Dabscheck 1986b: 46). 12. A references list should be included at the end of the text. This should cite all works referred to. The reference list should be arranged in alphabetical order by author. 13. Authors are responsible for obtaining permission to quote from, or reproduce, the copyright work of others, including graphs and tables. In submitting an article containing such material, evidence must be provided of such permission..

Examples For Books Hagan, J. (1981) A History of the ACTU, Longman Cheshire, Melbourne.

For Chapters within Books Deery, S. (1989) ‘Unions and technological change’, in G.W. Woods and D.H. Plowman (eds.), Australian Trade Unions: An Industrial Relations Perspective, Macmillan, Melbourne, Second edition, pp. 269–287.

For Articles in Journals Whitehead, T. (1987) ‘Stocks and flows: Current policy issues in Australia’, Economics, 22 (2), pp. 10–17.

Citing from Internet Sources A web page with an author: Winston, J. (1999) A look at referencing, available: http//www.aaa.edu.au/aaa.html [accessed 20 October 2000].

An unauthored web page: (1999) Available: http://www.aaa.edu.au/index.html [accessed 20 October 2000].