The polarisation of earnings and hours in Australia under a decentralised industrial relations system: the lessons for economic policy

In Australia centralised wage determination and collective arrangements prevailed over the period 1983-86, through an award system that specified minimum wages and working conditions across enterprises. Since then the industrial relations system has been significantly reformed by both state and federal governments. The federal Workplace Relations Act 1996 (Cwlth), in particular, has facilitated both non-union agreements and direct employment contracts. Using a technique developed by Morris, Bernhardt and Handcock (1994), we show that the period of labour market reform, 1986-98, has coincided with increasing hours and full-time weekly earnings dispersion that has typically taken the form of polarisation. We conclude that labour market reform in Australia has been a contributory factor in the polarisation of earnings, but that a polarised earnings distribution is not necessary for the achievement of full employment. Finally we briefly consider the implications of the Australian findings with respect to earnings and hours of employment for equity, employment opportunities and living standards.