We can have more jobs and protection for jobs
Date: Friday, October 28 2005
October 28, 2005
The record of several countries undermines the Howard argument.
WHAT is the crux of the Government's case for its industrial relations reforms? In statements by senior ministers over the past few weeks, one point comes up repeatedly: that the only way to maintain employment growth is to reduce protection for employees. It's one of those commonsense claims that often aren't examined too closely. And there's no evidence to suggest that it's true.
John Howard phrases his argument carefully. "The reality," he told ABC Radio earlier this month, "is that countries like Germany, that have very highly regulated labour markets. Germany and France have double the unemployment rates of countries like Britain and New Zealand and the United States, that have less regulated labour markets."
Even superficially, this is unconvincing. Labour market regulations in Germany and France are so notoriously rigid that they are virtually irrelevant to the present debate, and Germany has the added burden of having taken on the post-communist economic problems of East Germany. At the opposite end of the spectrum, the United States, Britain and New Zealand provide notoriously few protections to employees — with, as we'll see, not especially outstanding results. What's happening between these two extremes is much more significant.
But there's a more important problem in the way Howard argues his case. Unemployment rates are a highly unreliable indicator for comparing the health of labour markets between countries. They are fatally flawed because they can leave out a large group of potential employees: those individuals who have dropped out of the jobless statistics.
A much more reliable measure is the proportion of the working-age population in each country who have a job. The OECD provides these figures for each of its member countries.
The OECD has also developed an index of employment protection, designed to measure "the strictness of employment protection legislation" for each of these countries. According to the organisation, the index takes into account "regulations governing the terms and conditions of permanent contracts in case of individual dismissals; additional provisions in the face of mass lay-offs; and regulations governing the possibility of hiring on temporary contracts".
When we match up the two sets of figures — employment rates and the job protection index — for Australia and 16 comparable OECD countries an interesting pattern emerges, and it doesn't offer much support to the Government. Australia is already in the bottom half of the job protection range — 1.5 in an index that ranges from 0.7 (for the US) to 3.1 (Spain), and we're a shade above average on the employment scale (69.5 per cent). The four countries below us on the index — the US, Canada, Britain and New Zealand — do have higher percentages of working-age people in employment. But so do five other countries with higher levels of employment protection: Switzerland (77.4 per cent in employment), the Netherlands (73.1), Norway (75.6), Sweden (73.5) and Denmark (76).
To put it another way: of the six countries with the highest levels of employment, only one has less employment protection than Australia. Each of the other five — Switzerland, the Netherlands, Norway, Sweden and Denmark — has more protection, yet is performing better in terms of providing employment.
What about the Government's favourite labour markets — the US, Britain and New Zealand? The US is really in a class of its own, offering virtually no regulation of either temporary forms of employment or the dismissal of individuals. The social cost can be very high, and the benefits — an extra 1.7 per cent in employment above Australia's rate — are easily matched by the more generous systems in Switzerland, the Netherlands, Norway, Sweden and Denmark. Four of those five countries also out-perform the other low-protection countries — Britain, New Zealand and Canada — in providing jobs.