The government clearly doesn't understand the consequences of its actions - The Centre for Independent Studies
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The government clearly doesn’t understand the consequences of its actions

Despite strenuous protests from the business community, it is hardly surprising that Workplace Relations Minister Tony Burke’s economically-damaging Closing Loopholes IR law passed recently. The left is in the political ascendancy, and many of them cling to long outdated paradigms for industrial relations.

They may be well-meaning, but they clearly do not understand the adverse economic consequences of their policies.

The gig economy organically grew from new technologies that allowed win-win opportunities for consumers and workers by avoiding Australia’s restrictive and costly IR laws. The lightly regulated gig economy was good for employees and consumers, which is why it grew so rapidly.

However, the unions strongly resisted these innovations . A number of the industries being revolutionised by the gig economy were highly unionised and the unions have struggled to get similar traction in the gig economy model. Unfortunately, but unsurprisingly, the government chose to side with the unions, regulating and constricting the gig economy instead of embracing change.

It is pursuing its blinkered view of the greater good, in thrall to what American economist Thomas Sowell calls the zero-sum fallacy: “the fallacious assumption that economic transactions are a zero-sum process, in which what is gained by someone is lost by someone else”.

The government, and its union donors, will not countenance the possibility that some gig economy workers prefer their current working structure and will not welcome the ‘certainty’ gained by closing ‘loopholes’. To the government, these workers are being exploited, even if they don’t know it.

This outdated industrial relations model cannot accept that individuals have different preferences and make different choices. As is inevitably the case with government regulation, the costs will be passed onto consumers wherever possible. Australian consumers will face higher rideshare fares and delivery app charges, for a start.

Cynics may even argue that increasing costs through regulation is at least partially the point: the unstated aim is to make union-dominated competitors to these gig economy companies (e.g., taxis) more competitive. But it is not just consumers who will cop it. Gig economy workers should brace for fewer opportunities to work.

Higher charges will reduce demand for their services, and platforms will limit workers’ use of the apps to share the reduced workload, as DoorDash’s Rebecca Burrows has warned.

You only have to look at New York’s experience with a gig economy minimum wage, which resulted in additional customer fees and limitations on when workers can log on to work. Adverse impacts such as this are the likely outcome of the federal government’s plan to have the Fair Work Commission (FWC) set minimum standards for gig economy workers. These minimum standards could include payment terms, insurance, and delegates’ rights (i.e., union representation).

It either does not realise — or does not care — that the more it constrains the terms of work arrangements, the fewer work opportunities.

The Senate Education and Employment Legislation Committee’s inquiry report into Closing Loopholes wrongly dismisses legitimate concerns about employment and adverse consumer welfare impacts associated with the gig economy provisions.

Rather than considering how harmful such impacts could be — and how many people could lose gig economy opportunities — it focussed instead on an optimistic take from IR and business academics that any such impacts would be minor relative to the impact of general economic conditions.

That’s wishful thinking. It ignores the logical and well-proven negative association between the cost of labour and employment, all else being equal.

Indeed, the FWC’s precursor, the Fair Pay Commission, published research showing the trade-off between wages and employment.

Centre for Independent Studies research predicts that the adverse impact of Closing Loopholes could be at least 10 per cent fewer hours being available for gig economy workers. It could be even more, depending on how many dollars per trip or delivery the FWC’s minimum standards determination adds to charges.

The government’s lack of economic analysis of the potential impact of its proposal is highly concerning. The Coalition’s dissenting report rightly recognised the lack of detail in the government’s analysis as a common theme of stakeholder criticism.

This is not to say all is perfect with the gig economy. There are clearly safety concerns, but these should be dealt with by appropriate transport and safety regulations at the state and local levels.

There is a bigger picture risk here too.

The past four years have shown just how valuable flexibility in the workplace can be — both to the economy as a whole and to employers and employees.

Yet the economy’s flexibility and ability to withstand economic shocks is under continual threat from the unions. Unlike most other participants in the economy, unions place little value on workplace flexibility, often arguing flexibility only benefits employers and should be substantially curtailed.

These mistaken beliefs come from several places.

First, the union presence in the economy has shrunk over time, but has not contracted evenly.

Aside from government, unionised jobs — such as shift workers, retail and other customer-facing roles — tend to be in workplaces and industries where some of the benefits of workplace flexibility (remote working, variable start times, flexible scheduling etc) are harder to find.

In addition, workplace flexibility tends to be far more focused on individuals rather than shared collectively. Employers are often willing to grant flexibility for individual people or positions, but will resist agreeing to it for everybody. Consequently, a more flexible system doesn’t mesh well with a culture driven by collective bargaining and workplace ‘rights’.

Together, these forces may crush one of the few positive outcomes from the lost years of the pandemic. In reality, these changes are about far more than the gig economy: it’s about whether the future of employment will be collectively or individually determined.

Consequently, describing the government’s IR philosophy as closing so-called ‘loopholes’ is misguided. It is closing opportunities instead.

Simon Cowan is Research Director and Gene Tunny is an Adjunct Fellow at the Centre for Independent Studies. Gene is also a Director of Adept Economics.

Photo by Vie Studio.