Work Choices: the low productivity road to an underclass

The passage of the Work Choices Act 2005 serves to eliminate one of the last symbols of fairness in Australian society; the judicially-determined conciliation and arbitration system and wage-setting machinery. In this paper we examine the flawed conceptual framework, which underpins the Government's view that reducing the rights and protections of workers will produce superior labour market outcomes. We argue that the principal failure of the Work Choices Act is that it ignores the role of macroeconomic policy in directly addressing the efficiency and equity issues that have been said to motivate its provisions. The Act also ignores the different bargaining power of workers and capital and pays no attention to the serious social repercussions that will flow when labour is treated like a commodity. The imperative to minimise labour costs under Work Choices will spur a race to the bottom and the profusion of insecure, low-paid, poor-quality work in an economy characterised by allocative and dynamic inefficiency.