Wage Determination System In Australia example essay topic

WAGE DETERMINATION IN AUSTRALIA, BRITAIN, THE UNITED STATES OF AMERICA, GERMANY, SWEDEN AND JAPAN Industrial relations systems and processes of wage determination vary depending on the relevant country. Historically Australia, Britain, Sweden Germany, The Untied States of America (USA) & Japan all have strong centralized industrial relations systems. All countries have undergone transformations in their processes of wage determination with a general trend towards decentralization with Sweden experiencing the most drastic transformation. Collective bargaining has been usurped by enterprise bargaining and individual contracts, such as the Australian Workplace Agreements (AWA's). The State plays a nominal role in the implementation of processes in each system remaining mostly as an implementer of the legislative framework and guidelines in almost all countries. Trade union density is declining in all countries due to economic and demographic issues.

It is evident that a trend towards decentralization will continue throughout the various countries (EURO 2002) due to the ever-increasing global competitiveness and labor market changes. Thus wages are more and more being negotiated and set at the enterprise or individual level. In light of the increased international competition it is apparent that decentralization of wage determination systems is advantageous. It allows for greater flexibility in job roles and links pay to performance-based criteria.

Workers are more capable of establishing the rate they believe they are worth as they can individually negotiate pay rates with organizations. The history of the establishment of industrial relations systems in countries is a crucial aspect when comparing and contrasting wage determination in each country. It sets the parameters to comprehend the use of divergent systems as well as putting into context the changes that each country has and is currently undergoing. For example, Sweden has embraced a dramatic transformational change towards decentralization, as well as to a lesser extent, Germany, Australia and Britain. Moreover the membership rates of the trade union is vital in representing drift towards decentralization of wage determination from collective bargaining agreements to enterprise and individual contracts. Germany, Britain, Sweden, and Australia are countries that have historically had centralized wage determination systems in place with a current move towards decentralization.

Germany and Sweden represent countries that have shifted towards wage determination at predominantly the sectoral level (Carley 2001) with Australia also displaying this level of bargaining alongside enterprise level bargaining. Britain, the USA and Japan represent countries that determine wages predominantly at the company or individual level (Carley 2001). Whilst all countries participate in wage determination processes at both sectoral and company level in varying degrees, Japan represents a country that takes part in company level bargaining only (Carley 2001). Thus it is evident that collective bargaining for determining wage parameters remains more centralized in the European countries and Australia than in Japan and the USA. Table 1 highlights the wage bargaining levels in each country. Germany, Sweden, Australia and Britain represent countries with traditionally highly centralized wage determination systems in place.

Sweden is a nation where wages were developed at the national level utilizing collective bargaining with a low degree of wage differentials. Germany too utilised collective bargaining as a system of wage determination and work practices. The German system is seen to be highly 'ritualized' and 'formalized' (Furstenberg 1998). The same can be said about Sweden and Japan. However the Japanese system is based on of policies at the company level. Australia also began with a highly centralized system based on the federal conciliation and arbitration system deployed in 1904 (Wailes & Lansbury 2000).

Multi-employer bargaining or national bargaining had a well-established history in Britain (Goodman et al 1998) highlighting the 'formalized' approach to wage determination. The USA has experienced a longer history of implementing enterprise level bargaining structures. Whilst centralized agreements have been in place in the unionized sector (Wheeler & McClendon 1998) of the country, for the most part of the twentieth century the USA is a country with a strong focus on de centralised approaches. Trade union density and membership rates have decreased in all countries with the move to decentralization (Carley 2001), which in turn, affect the way in which wages are determined in several countries. In order to remain globally competitive countries have adopted policies that allow the infrastructure to be more flexible. As systems have shifted to increasing the use of enterprise bargaining to establish wages the need to join a union has diminished.

The role of the union to 'protect and advance the interests of its members by negotiating agreements with employers on pay and conditions of work' (ACAS 2004) has become more of an intermediary role providing assistance, training and guidance to its members. Trade unions have had to reinvent themselves. Trade unions density has declined in Germany, Australia, Sweden & Japan (Hassel 1999). Germany has seen a drop to about 30% (Schmidt & Dworsak 2003) membership and Japan at about 21% membership (The Economist 2003). Australia too has experienced a drop in trade union density (Wailes & Lansbury 2003) with a density of 31% in 1996 (Davis & Lansbury 1998). USA & Britain have maintained a fairly constant density rate (Carley 2001).

The role of the trade union was principally to negotiate collective bargaining agreements and assure suitable working conditions for employees. As countries moved towards enterprise level agreements, the role of the trade union decreased. Yet, trade union activity is a major constituent of how wages are determined in each country. In Sweden 87% of the workforce is unionized (NetCent Communications 2003).

Union formation is an accepted part of the countries system. Unions are strong due to their 'organisational and political power' (Regin i 1997, pp. 271). Trade unions do not require government approval to be founded. Moreover any trade union that is established is automatically covered by labour legislation. Therefore, it is rare for a new union to be founded as the unions in place perform well for their members.

There is no minimum wage in Sweden as in Germany (Seibert 2002) and wages were established primarily by way of collective bargaining contracts. In addition unemployment benefit schemes were managed and maintained by the unions. The system was so well established in Sweden that non-unionized organizations followed the standards laid down by unionized organisations (NetCent Communications 2003). Sweden is based on full employment strategies (Baccaro & Locke 1998 pp. 293) thus strengthening its inclination toward centralized wage determination and operates in a collective wage bargaining environment (Agell & Lunborg 1999, pp. 5). The steadfastness of the Swedish system relied upon the fact that employers and unions and the state respected each other's role and was 'social partners' (Hammarstrom & Nilsson 1998) and the employee's accepted the system that is in place (as in Germany & Japan).

As stated by Baccaro & Locke (1998 pp. 301) 'The "Swedish Model" assumed that union action would be confined to the sphere of distribution while production issues would be left to management'. The strength of the union aided the system to remain a constant as well as the fact that the Swedish economy remained strong. However towards the end of the 1990's Sweden transitioned towards enterprise level bargaining in order to accommodate the needs of organizations. Management called for a move to decentralization of wage determination to compete effectively in the international marketplace.

Workers too demonstrated a need for wage determination to be altered so that jobs were paid according to skills levels and not based on across the board standards between industries. Germany exemplifies another country where union activity was and is a strong facet of wage determination. Trade unions in Germany maintain institutional power, due to the fact that German society by tradition accepts and affirms the role and power of the trade union, as seen with Sweden. German trade unions embrace policies that range into the general social well being of society as a whole and are powerful structures that incorporate wider social issues into their spectrum of authority and can greatly influence political and social existence. Trade union activity in Germany is governed independently from government authority (International Reform Monitor 2003).

That means that employers and the respective trade unions act under their own power and influence within certain guidelines set down by legislation and the Basic law. Due to the fact that wage determination is set at the sectoral level in Germany, collective agreements represent a contractual agreement between the employer association and the trade union that regulates pay. These agreements take precedence over any other forms of industrial accord (such as individual contracts or work agreements) excluding those agreements that are more favourable for the employee. Therefore it is the duty of the parties involved in the collective agreement to construct a uniform system of employment standards within each collective bargaining region (EMPIRE 2003) and trade unions and employer associations are held accountable for 'regulating the terms of labour as a commodity' (Schmidt & Dworschak 2003). Germany has faced a decrease in trade union density and collective agreements (Hassel 1999, pp. 484) due to the changes in the economic environment with the reunification of Germany. That is many enterprises have moved away from the traditional sector wide collective agreements towards individual agreements based on lower pay and more flexible work practices (Crooks & Williamson 2003) where belonging to a union is not imperative.

In Australia, unions historically negotiated with government and established award rates or basic pay levels for specific jobs. As stated, Australian wage determination was traditionally influenced a great deal by the state and was based on the federal conciliation and arbitration system deployed in 1904 (Wailes & Lansbury 2000). Wages were based against a standard of what constituted a fair wage referred to as awards, whilst also on the comparability between occupations based on 'fair relativity' (Wailes & Lansbury 2000). Trade union membership was broad and encompassing and unions were able to assert power in wage determination prior to the shift towards decentralization in the 1980's. However, during the 1980's with the increase impact of global competition employer's found the system to be limiting in terms of flexibility and was not allowing Australia to be truly competitive in the global arena. Thus, in the late 1980's federal policies formed by the Australian Labour Party, agreed to in association with the Australian Council of Trade Unions, referred to as the Accords sought to update the wage determination systems in order 'to manage and coordinate the process of decentralization of wage determination and bargaining' (Wailes & Lansbury 2000).

These policies were aimed at increasing Australia's global competitiveness by removing 'restrictive work and management practices' (Dabscheck 2001 pp. 281). Thus Australia was seen to be involved in 'managed de centralism' (Rimmer and MacDonald, 1989 cited in Wailes & Lansbury 2000) implementing the structural efficiency principle (Dabscheck 2001 pp. 281). The principles set out by the Australian Labour Party were continued with the subsequent government with the election of the National Coalition Government. However, the National Coalition Government sought to increase the level of decentralization by continuing to advocate moving wage negotiation to the enterprise and individual level (Dabscheck 2001 pp. 281) and further away from collective bargaining. The National Coalition Party enabled the intensification of government-led policies in the process of wage determination as a way of increasing wage flexibility in the Australian economy (Rimmer and Zappa la 1988: 586 cited in Wailes & Lansbury 2000).

The Reform Act of 1993 allowed for the further employment of enterprise bargaining, individual contracts and AWA's (Australian Workplace Agreements) as a major form of wage determination from the early 1990's (with the election of the National Coalition Government) as Table 2 highlights. The approach away from collective bargaining towards enterprise level and individual contracts is similar to the approach undertaken by Britain during the Conservative Party reign in Britain during early 1990's (Rimmer, 1997 cited in Wailes & Lansbury 2000). Cully, Woodland & O'Reily (1999) stated that the British 'traditional system of industrial relations has been transformed'. Britain historically employed highly centralized and structured industrial relations processes due to their traditional class structure and hierarchies. However, the succession of Conservative Party Government bodies transformed the system away from collective bargaining and union dominance towards enterprise level and individual contracts in order 'to foster a competitive enterprise environment' (Goodman et al 1998) and increase flexibility (Brown & Wadhwani 1990: 64, Millward et al. 1992 cited in Lane pp. 181).

Britain adopted a system of 'personal contracts' and managerial influenced employee-involvement schemes (Und 1999 pp. 323) in place of collective bargaining. The upshot being that union activity has weakened with collective bargaining covering only one third of all employees (Carley 2001). Collective bargaining decreased from 70% in 1984 to 41% in 1998 (Schmidt & Dworschak 2003). A similar trend is evident in trade union membership rates, which have experienced a 15% drop over a ten-year period from 1991 to approximately 29.1% in 2001 (Brook 2002 pp 352). Thus, the state has played a major role in wage determination by inducing enterprise level bargaining structures. In 1993 wage councils were abolished as they were seen to restrict the flexibility of the labour market in the global arena.

Moreover in 1999, Britain introduced the national minimum wage (DTI 2003). Britain highlights a country where bargaining occurs mainly at 'company or lower levels' (Carley 2001) and collective bargaining and multi-employer bargaining has disintegrated in the most part (Schmidt & Dworschak 2003). Comparable to Britains system where wage determination is predominantly established at the company level, Japan and the USA signify two countries of company-dominated systems of wage determination (Carley 2001). Japanese trade unions are organized according to the employer / organization and not the industry type (Fuess 2001). In Japan unions fundamentally determine wage rates and working conditions alongside legislation but act in their own sphere of authority. Similar to the USA, Japanese wage fluctuations at the company level have an impact on general wage settings and minimum wages (Carley 2001).

In Japan collective bargaining transpires principally at the enterprise level (Carley 2001, Benson 1999 pg. 215). Wages, working conditions and the like are negotiated dependant on the individual organisation. Japans' industrial relations system is built on an ideal of lifetime employment and seniority based pay. Japanese employees therefore culturally accept the meticulous boundaries of their industrial relations system. This type of flexibility in collective bargaining, that is that it is conducted at enterprise level, has been proclaimed to be one of the benefits of the Japanese system (Keegan n. d. ).

The problems associated here are that employees hired in flexible work practices and micro organization employees are not represented or protected (Benson 1998 pg. 209). Japan has adopted approaches to accommodate to global competition and has seen a shift in its collective bargaining agreements from a national wage bargaining system (Shun to) towards an increase in enterprise level agreements (Kuwahara 1998). Wage determination in the USA since the 1960's (Kochan & Weinstein 1994 pp. 484) has maintained a regime of enterprise level agreements through the non-unionized sector of the labor market. Individual contracts have dominated the American system of wage determination. This is as a result of the USA being a non-feudal based country, unlike Britain, Australia and Germany.

Unions in the USA were viewed as 'socialistic' and 'un capitalistic' and have sustained a strong history of associated problems (Wheeler & McClendon 1998). Trade unions currently represent only a small percentage of the workforce, approximately 15% (Carley 2001). This is due to an economy where the workforce is divided into an unionized sector and a non-unionized sector. Whilst it is evident that the USA has predominantly utilized enterprise bargaining agreements to set wages, the unionized sector of the country has employed and been dependant on collective bargaining agreements (Wheeler & McClendon 1998). However, it is a volatile environment as tension is vast between management and union. Negotiations on pay are conducted via 'pattern bargaining' (Carley 2001).

This means that an agreement is reached in one particular organization (s) and then expanded to impact other organizations in that sector. This is akin to negotiations in Japan and Sweden. Organisations in the USA have principally led the way in wage determination. This was primarily accomplished due to the employment of 'extensive degree of experimentation with employee participation, work-organization and human resource practices' (Kochan & Weinstein 1994 pp. 484).

This enabled organizations to remain non-union. Wages in the USA are strategically linked to specific jobs and desired skill levels. Pay rates are set against the worth of the specific job or role to the actual organization. Principles in wage determination here focus on total remuneration packages that attract and keep superior employees. More emphasis is placed on individual performance reviews and job evaluations (Wheeler & McClendon 1998). In the USA bonuses can often overshadow the base salary (Wahlgren 2001).

Wages are limited and dependant on market fluctuations and the relative worth of a skill. Moreover the USA is able to account for changes in its labour market by possessing flexibility within the market. In addition, employee's here tend to concentrate on the wage differentials within the firm (Agell & Lunborg 1999) and on their past wage history, the organizations financial position and other employees within the organization itself (Campbell & Kaylani 1997 p. 780 cited in Agell & Lunborg 1999 pp. 10). Australian & British employee's tend to view wage differentials similarly, yet this is dissimilar to workers in countries like Sweden and Germany.

The problems that arise with American organizations predominantly setting pay levels is that pay differentials can vary greatly and employers have total control over wage levels. Whilst the state does designate a federal or state minimum wage (as in Australia and Britain) this minimum wage is quite low. It is seen that about 10.1 million employee's in the USA are on wages at or close to the minimum wage (Ridgeway 2000) which averages to be about $5.15 (US) per hour. The USA is currently experiencing a wave of support for what is being coined 'The Living Wage Movement'.

This is where 'public services are being used to raise the standard of living of the working poor through ordinances passed by referendums or legislation that require designated employers to pay wages higher than federal or state minimum wages' (Front Line Defenders 2004). The state plays a marginal role in rep sect to wage determination and due to the fact that voting is elective, organisations are able to continue their stronghold on wage determination issues. Other countries, with the advent of decentralization have embraced the strategy that the USA has been implementing for years. That is focusing on enterprise agreements and individual contracts, more flexible work practices, linking pay to performance and executing pay packages that seek to retain key employee's.

These labour market changes indicate that wage determination is chiefly becoming a role for the organization or company to control. Sweden and Germany have increased their usage of employee stock ownership systems and profit sharing systems (Wahlgren 2001, Hammarstrom & Nilsson 1998). Managers in Sweden are engaged on motivating employees by way of interesting work assignments and increased decision-making responsibilities. (Agell & Lunborg 1999 pp. 16) similar to methods utilised in the USA. However, whilst Sweden's shift towards decentralization has sharply increased it has been found that Swedish managerial staff concentrates less on ' wage hierarchies' (Agell & Lunborg 1999 pp. 16) than the USA equivalent.

This move in Swedish wage determination came about during the Industrial Agreement in 1997 as employers called for individualization and decentralization of the wage determination system in order to promote industrial development, and global competitiveness (Bergstr " om 2002, pp. 2). Australia's transfer to 'managed decentralization' was too in essence due to a need to be more internationally competitive. Industries introduced competency-based job structures, broader job classifications and total quality management (TQM) methods. (Wailes & Lansbury 2000) in order to streamline their practices. This inherently changed the wage determination system in Australia as it provided organizations with a larger 'responsibility for the development and implementation of organizational level pay systems' (Brown 2000).

Changes to pay structures accompanied decentralization by experimenting with performance-related pay (Cardona 2002). Pay is now being increasing linked to performance, the introduction of competency-based job structures, broader but more specific job classifications and descriptions, the introduction of total quality management (TQM) systems and related skill development activities. It has been cited that most staff in Australian companies have some form of performance-based pay (web n. d. ). In addition wages are continuing to relate to performance outcomes (Lansbury & Kitty 1997 pp. 33).

The same is evident in Britain and Germany (Cardona 2002). Britain experienced support from the government towards this system as a form of wage determination during the 1980's - 1990's (Gilman 1998). Britain has been utilizing this scheme for decades and for many employees 'all of their annual pay increase' is granted via performance-based pay (Gilman 1998). Moreover this scheme has been promoted as the best alternative to wage determination (Whiteside 2000). Japan differs as its wage determination system is still heavily reliant on seniority or tenure based pay systems, where the worker is paid not based on performance but rather length of service to a position. Therefore salaries are generally associated with the person not the job (unlike the USA).

Yet in order to remain internationally competitive Japan has budged and introduced performance related pay due to a 'decade of economic troubles'. (Wahlgren 2001). Labour market changes also affect system of wage determination. With the emergence of flexible labour markets the concept of full employment has buckled in Britain (Whiteside 2000) and Sweden especially. British governments for the past decades has been supporting labour market flexibility in terms of outsourcing, subcontracting and individual employment agreements (Whiteside 2000).

Flexibility in work situations has also transformed wage systems. There has been an increase in part-time and casual workers in Australia (Wailes & Lansbury (2000) and Britain (Whiteside 2000). This has coincided with an ageing population in all countries, Britain (Seibert 2002, Sheen 2001), Sweden, Germany, Japan, Australia and the USA (see Table 3) that again highlights labour market changes. These labour market changes affect the way in which wages are determined as each country evaluates and analyses the types of workers it represents and must accommodate to their needs. The trend towards decentralization of the wage determination system in Germany, Japan, Sweden, Australia and Britain is advantageous. As the world increasingly moves towards capitalistic regimes, enterprise bargaining agreements and individual contracts of employment are the key tools to enabling employees to have pay reflect worth.

In terms of individual contracts, workers are better able to gain skills and experience between jobs (job mobility) and be paid according to their performance. Individuals can negotiate directly with an organization in order to form a contract that indicates their real value to the organization. Moreover, workers do not have to adhere to strict guidelines imposed by collective bargaining agreements that may restrict outstanding performers from accomplishing beyond the norm. Relating to enterprise agreements, organizations can design contracts that cater specifically to the needs of the workers. Despite these advantages enterprise bargaining agreements and individual contracts can be inhibiting.

Managerial control over wages is high and the worker can basically only negotiate as high as the organization is willing to pay. In all countries wage determination has shifted towards salary being negotiated and set at the enterprise and individual level. This shift has occurred due to demographic and labor market changes, global competition and a trend towards decentralization. Britain and the USA are countries that have utilized decentralized approached to wage determination traditionally longer than other countries. Australia, Germany, Sweden and Japan highlight countries where decentralized wage determination systems are on the rise. This tendency to wages being determined at the enterprise and individual level is seen to be advantageous in order for countries to compete efficiently in the demanding and highly competitive international arena.

The future will show a consistent move towards wage negotiations being set at the enterprise and individual level as countries continue to adopt total quality management approaches an performance-based pay systems to set wages. This appears to be the greatest system of wage determination for free enterprise focused countries. Table 1: Wage Determination in EU Countries, Japan & USA COUNTRY INTERSECT ORAL LEVEL SECTORAL LEVEL COMPANY LEVEL Germany x Sweden x UK x USA x Japan = existing level of wage bargaining; XX = important, but not dominant level of wage bargaining; = dominant level of wage bargaining Source: Carley 2001 Table 2: Australian Wage Determination FORM OF LABOUR MARKET REGULATION PERCENTAGE OF EMPLOYEES COVERED ESTIMATED ANNUAL WAGE INCREASE (in %) Awards only 35 1.3 Awards & registered enterprise agreements 30 4-6 Registered enterprise agreements only 5 4-6 Individual (common law) contracts 30 0-8 Source Buchanan et al., 1997: 8 cited in Wailes & Lansbury 2000. Table 3: Persons aged 65 years and over as a percentage of the population Country 1995 2050 Britain 15.5 22.6 USA 12.6 20.8 Australia 11.9 24.1 Japan 14.1 30.2 Sweden 17.3 22.3 Source: ABS (1998) Population Projections 1997-2051, Cat No. 3222. cited in Sheen 2001

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