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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

Friedman, AWA's, economic freedom « Previous | |Next »
October 11, 2007

The Australia@Work report by the WorkPlace Research Centre argues that AWAs reduce wages of unskilled workers and increase their working hours – in short that AWAs decrease their hourly wage rate.

The response by Sinclair Davidson and Alex Robson to The Australians at Work report is from the perspective of Milton Friedman, who opposed the New Deal, stood against Keynesianism, and deemed economic freedom to be superior to political freedom. Friedman, Davidson and Robson say, argued that unions raise the wages of their members at the expense of the unemployed and that higher union wages price workers out of the labour market and force those lucky enough to have a job to work longer (unpaid) hours.

Davidson and Robson's interpretation of The Australia@Work report is that it suggests Friedman was right. The report's headline statistics state that workers on collective agreements (aided by unions) enjoy higher wages. This is deemed to be a bad thing. Lower wages are good. Since AWA's produce lower wages for less skilled workers, then they are good. It is bad to employ low skilled workers on high wages that exceed their low productivity, as this will generate unemployment.

Dead simple really. What is really needed is further labour market reform---more deregulation and flexibility --- to reduce the minimum wage and allow for the quick shredding of workers in economic downturns. Harry Clarke outlines the rationale:

The wage system should pay workers their worth in terms of production. With enough competition firms are forced to do this because workers will otherwise quit and accept bargains that benefit both employers and themselves elsewhere. This competition increases the more workers are employed – with higher unemployment, because wages are too high, it becomes harder for unemployed workers to get a job and harder for employed workers to shift out of a job they don’t like. If firms have to pay more than the opportunity cost of labour, perhaps because of trade union activity, then fewer workers will be employed. Minimally prescribed pay and conditions do simply create unemployment.

Labour market reforms keep costs in line with productivity. Social justice is not the concern. The minimum wage is an obstacle to full employment.Obstacles to full employment should be removed. As Friedman argued there is no meaningful content to the "ideas" of common good, public interest, or social justice.

| Posted by Gary Sauer-Thompson at 8:30 AM | | Comments (7)
Comments

Comments

Gary,
the new Rights agenda agenda is one of defining democracy in terms of economic freedom and restoring the power of the executive branch.The market defines the totality of human fulfillment, and the policy aim is to to cut back on social expenditures and the welfare state in order to re-establish “fiscal probity”.

Peter,
the days of the rigidly specified, inflexible job are over now that union power is broken. Bring on the free market. The light of the worldwide movement toward freer markets shines ever more brightly. Economic freedom beckons, given the acceptance of the superior efficiency of free markets to government as a means of resource allocation. Government's should get out of the way.

A reform job needs to be done.Governments need to strike obsolete and overly restrictive laws and regulations from the books.Ours is a world where the law of supply and demand holds sway.

In the free market utopia to come workers have no right to organize unions and bargain collectively.

This is a post modern text---I've just strung together sentences from googling 'Milton Friedman and labour market reform.' I know nothing about economics.

But see "here.

James K Gailbraith is of help here. In a 1996 article entitled The Surrender of Economic Policy he says:

… The conservative macroeconomic creed is built on three basic elements. They are, first, monetarism - the idea that the Federal Reserve’s monetary policy controls inflation, but has little effect on output and employment except perhaps in the very short run. Second, there is rational expectations, which is the idea … that individual economic agents are so clever, so well informed, and so well educated in economics that they do not make systematic errors in their economic decisions, especially the all-important choices of labor supply. And third, there is market clearing: the idea that all transactions, including the hiring and firing of workers, occur at prices that equate the elemental forces of supply and demand.

Taken together, these assumptions conjure an efficient labor market that yields appropriate levels of employment and wages. The employment level generated by this abstraction is the core policy concept of mainstream macroeconomics, known as the natural rate of unemployment. If unemployment is above the natural rate, the theory dictates that prices and wages will fall. If unemployment is below the natural rate, the theory dictates that inflation will rise. Sustainable, noninflationary employment growth occurs only at the natural rate.

Gary
one gets the impression that Friedman and the other free-market schools are today’s “progressives,” offer new bold solutions to public issues in education, welfare, and fiscal policy, while Galbraith and the old-style Keynesians are the “reactionaries,” unwilling to entertain the new market solutions to public problems.

this argument assumes there is asingle undiffeenitated labour market. It clearly is segmented. Once you start making adjustments to reflect reality the attraction of simple models starts to disappear.

Sinclair Davidson was that imbecile pratt on a recent episode of "Difference of Opinion" concerning the uses of the federal surpluses, whose (lack of) imagination could extend him no further than to suggest middle class tax cuts ?
Even John Hewson could come up with something half-useful; in this case a major move to develope
infrastructure to sustain us for survival a climate changed world.
But Sinclair?
Not a hope.
Typical neoliberal autist.

There's an interesting piece on WorkChoices by a Harvard Economics/Law prof at VoxEU (2007-10-03) "From fair-go to rip-off: Australia’s new labour code". It's very critical, not just from an economic standpoint, but from it's departure from traditional western values.