Critically evaluate the following statement
The wages policy adopted by the ALP Federal Government is a hybrid of theoretical approaches and aims to benefit the interests of both employers and wage and salary earners. This approach has not achieved its aims.
The ALP government has adopted a multifaceted approach to constructing an outline to wage and salary setting. The movement to “collective agreement making will be available under the ALP proposal,” (Retail Times 2008) which means that individual agreements will be abolished, which was part of the policy for WorkChoices under the liberal government. There are clear differences between the two theories, Neoclassical and Institutional, both of which can be argued are present within the current approach to wage setting. The possible combination of both of the theories illustrates the more recent wage setting agenda that is being applied by the current ALP government. The central idea of the neoclassical theory has two main objectives in regards to wages and salaries, these are demand and supply. As stated in the (Lecture notes Week 2 slide 7 2010) the neoclassical theory “can be understood through the interaction of the demand for labour (or how much employers are willing to pay), and the supply of labour (or how much workers are willing to accept).” The neoclassical theory determines wages through the natural interaction of supply and demand and the “supply of labour depends on the willingness of individuals to provide labour to the market at different levels of real wages.” (Lecture notes week 2 slide 14 2010) Intervention within the labour market is a large part of setting wages and also with the level of engagement for decentralised wage fixing, which is a large focus of wage systems that are underpinned with the neoclassical theory. In regards to approaches to intervention, neoclassical theory does not support intervention as it is believed to create market “imperfections” so consequently a more individual approach is established. In contrast with this theory, Institutional theory can be understood through a more straight forward approach, basically through more orthodox market principles. Institutional theory is a multifaceted concept that draws from all parts of the labour force, not just supply and demand. The theory acquires information for constructing the wage setting from a vast range of sources including political, sociological, economical and parts of industrial relations. The institutional theory focus’ heavily on organizations within the labour market as well, and this reinforces the idea that the institutional theory encourages intervention. The theory supports collective agreements and union bargaining, and only an individual agreement if it will favour the employee. Rather than perceiving unions as an imperfection they believe that they are a natural development “as a means of ensuring that goals of social equity are met.” (Lecture notes week 2 slide 29 2010) The “regulation involves the imposition of restraints on the actions of employers and/or their workers – the shape of such regulation, does however, vary with the intellectual, ethical and political climate of the time.” (Lecture notes week 2 slide 29 2010) This statement implies that the regulation of the market must be adjusted to the different elements that can occur with each individual. The purpose of having an intervening body is so that “institutions determine the structure and existence of labour markets, which in turn determine their behaviour and performance.” (Buchanan, Wanrooy, Oxenbridge, Jakubauskas 2010 p. 427) Intervention is a significant part of the institutional theory in that “whatever the efficiency properties or claims of the market it cannot be relied upon to produce a distribution of earnings that is fair and guarantee those on the lowest earnings a standard of living relevant to the standards of the day” (Richardson, 1999: 23). Wage setting, under institutional...
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