Explain how wages are currently determined in Australia

Wages in Australia are currently determined by the interaction of demand and supply of labour in the labour markets. The wage rate is the equilibrium of demand and supply of labour. At the point, the amount of labour supplied is equal to the amount of labour demanded. If the real wage rate is above this point, then there is excess supply of labour, thus causing unemployment. The unemployed people would then be willing to work at a lower wage, hence put downward pressure on the wage rate which eventually move down to the equilibrium wage rate. If the real wage rate is below the equilibrium wage rate, then there is excess demand then supply. In order to continue production, firms will be willing to offer higher wages to attract labour. This will thus lead to higher wages which eventually move to the market equilibrium.

There are many factors affecting the demand and supply of labour in the Australian labour market. As the demand for labour is a derived demand. This means that labour is demanded by the firm when there is demand for the firm’s goods or services. Thus, the demand for the firm’s products is the most important factor affecting the demand for labour. Generally, when the economy is booming, the firm will experience increasing demand for its products. This will directly lead to higher demand for labour. However, during an economic downturn, more labour will be laid off as the demand for the firm’s products decreases. Secondly, the productivity of labour is another important factor. The productivity of labour is defined as the output per unit of labour per unit of time.

Thanks to the government policies aiming to increase labour productivity, during recent years the productivity of Australian labour has raised significantly. This means that the firm can maintain the same amount of production will less labour employed. Thus, the firms will lay off the excess labour. However, this can be offset by increasing demand for the firm’s products in the economy. Lastly, the cost of other inputs also plays an important role in the labour market. Nowadays machines are becoming more important in the production process enabling firms to have choices of combining both capital and labour. If the cost of labour, eg wage rate, becomes too high, the firm will choose the less expensive capital to maintain production. This will trigger a decrease in the demand for labour.

On the supply side, there are also many factors affecting the supply of labour. As people work for a return, namely wages and salaries for example. The pay levels will largely affect the supply of labour. The higher the wages and salaries, the more people who are willing to work and vice versa. Secondly, nowadays people demand better working conditions and flexible working hours. Therefore, if a firm is prepared to offer these, in return, more workers will be willing to work for this firm, thus causing an increase the supply of labour. Moreover, during recent years, more and more firms require labour with better skills, high education attainment and past working experiences.

These requirements will narrow the supply of labour as significant amount of time and effort is required to achieve these requirements. Lastly, the labour force participation rates will also affect the level of supply of labour in the economy. The labour force participation rate is defined as the percentage of the working age population, who are aged 15 years and over and are working or been actively seeking jobs. Generally, the higher the participation rate, the more supply of labour a firm will be able to get. However, people may choose not to participate in the labour force due to various reasons such as study, family and early retirement etc.

Just as there is constant interaction between the demand and supply of labour, there are also constant conflicts between employees and employers. This is due to the nature of employees and employers. Employees will constantly demand for higher wages as this is the most important drive for them to work. On the other hand, employers view wages as the major cost of production, thus try to keep wages as low as possible. These natures of employees and employers will constantly disturb the Australian labour markets causing it to be ever unresting. There are three major organisations in the labour market: trade unions, employer associations and industrial tribunal.

A trade union is an association of workers that aims to advance the interests of its members by improving their wages and working conditions. There are many types of trade unions in Australia including occupational unions; industry based unions; enterprise based unions and general unions. Most unions are affiliated with the Australian Council of Trade Unions(ACTU), which is the national representative of various trade unions. The trade unions play a significant role in the labour market. First, it can restrict the supply of labour. By organising industrial actions such as strikes, trade unions are able to restrict labour from working, thus decrease the supply of labour. These actions are normally aimed for higher wages. Secondly, trade unions have stronger bargaining power in negotiations with employers. As the trade unions represent a large amount of workers, they have much stronger power when dealing with employers as employers will find it very hard to continue operating the firms once their workers are on strikes. Therefore, unions have more chances to succeed when bargaining for higher wages.

In order to offset the enormous power the trade unions have on employers, employers have formed their own organisations when dealing with unions. Such organisations are called employer associations. However, comparing to the well-organised unions, employer associations have weaker power as different employers may have various interests over a particular issue, thus causing it hard for them to unite. Nevertheless, employer associations still play two main roles in the today’s Australian labour market. First, they represent and promote the interests of their members by lobbying the government on matters such as industry assistance and industrial relations policies. Secondly, they assist employers in managing industrial relations issues, such as by representing their members in the various industrial tribunals set up to settle industrial disputes.

Just like the ACTU, employers associations have their own national representatives. One is the Australian Chamber of Commerce and Industry (ACCI) and the other one is the Business Council of Australia (BCA). Although employer associations will not have the same strong power in wages bargaining issues as the trade unions, they are still playing important roles in the labour market. As they are able to lobby the government over issues, they can affect some of the government policies such as protecting the domestic industry. Such lobbying activities will benefit both employees and employers as it secures the employment and profits.

When employees and employers are at conflict and there do not seem to be a possible solution, an organisation is needed to solve the dispute fairly. Such organisation is the industrial tribunals. The most important industrial tribunals are the Australian Industrial Relations Commission (AIRC) and the Federal Court of Australia. When resolving issues relating to industrial relations, the AIRC takes two steps. First, the AIRC will provide a mediator in the effort of bring about a mutual beneficial agreement between employees and employers. If this process fails to reach an agreement, then the AIRC will solve the matter by arbitration. This means that a decision will be made by either the AIRC or the court to become a legally binding ruling on both parties. Apart from resolve and settle disputes between employees and employers, the AIRC also determine the minimum set of work and pay condition by setting awards. The awards serve as a safety net for employees and ensure the basic need of employees is met.

In conclusion, trade unions, employer associations and the industrial tribunals play significant roles in today’s dynamic Australian labour market.