OECD Report No Argument for Labour Regulation

Letter

Business Age

26th June 2006

Excitement has been aroused in some quarters by the just-published Employment Outlook for 2006 by the Organisation for Economic Cooperation and Development.

At first glance, its questioning of the potential benefits of some forms of reduced labour market regulation appears to support Opposition Leader Kim Beazley in his attack on the Government's Work Choice legislation.

It has been claimed, for example, that the questioning does not support the Prime Minister's view that higher unemployment occurs in countries with more regulated labour markets.

However, the Outlook itself shows that the unemployment rate average for OECD Europe in 2005 was 9.1% compared with Australia's 5.2%.

Further, whereas Australia's rate is now significantly lower than its average for 1993-2003, the OECD average rate is only marginally lower than its average for that period. Australia also has a much higher proportion of its working age population employed than Europe.

Overall, it is clear that Europe still suffers both economically and socially from the direct and indirect effects of heavy regulation of the labour market.

True, a few small European countries have lower unemployment (mostly only slightly lower) and higher employment rates than Australia. But a major reason for this situation has been susidised employment and/ or their shifting of people off the list of unemployed on to other forms of welfare.

Their better rates are thus not the product of better operating labour markets, and their financing by taxpayers of alternatives contributes to those countries' much higher levels of taxation.

Also, the questioning in the Outlook partly reflects the heavy influence of Europeans in the OECD and their defensiveness when it comes to European regulated arrangements. By contrast with this publication covering all OECD members, the OECD's individual country reports on Australia have clearly supported the need for less regulation of our labour market.

Indeed, they have supported less regulation than will be achievable under the Work Choice legislation.