Chapter 5 Microeconomic Reform 5.2 Deregulation of the Labour Market 5.3 Deregulation of Industries Deemed to Lack Sufficient Competition 5.4 Privatisation of Monopolies 5.5 Social Welfare Reform 5.6 Other Microeconomic Reforms 5.7 Australia’s Productivity Record

Microeconomic Reform Economic policy that aims to improve the productivity and efficiency of the factors of production. This will help an economy push its production possibility frontier outwards and improve the standard of living. Often referred to as “supply side economics”.

Microeconomic Reform Microeconomic reform attempts to achieve: Allocative efficiency Technical efficiency Dynamic efficiency

Microeconomic Reform in Australia In Australia microeconomic reform has been a prominent government policy focus since the early 1980’s. Taken place in the following major areas: Deregulation of the labour market Deregulation of industries deemed not to have enough competition. Privatisation of monopolies Social welfare reform Deregulation of the Australian dollar Removal of barriers to trade

Deregulation of the labour market In 1996 the government introduced the Workplace Relations Act which aimed to reduce the role of trade unions and collective bargaining. Individual workplace agreements allow workers to lobby employers for higher wages if they can prove they are productive workers. This increases incentives for workers to work hard.

Trade Unions Individual workplace agreements allow individuals to act for themselves when bargaining for wages. Under collective bargaining a group of workers form an organisation in order to enhance their bargaining power. Collective bargaining is usually done through trade unions.

Trade Unions Negatives: Higher wages will increase costs for firms, which may increase unemployment as firms can afford less workers. Bad for productivity as workers tend to get paid the same, little incentive to work hard. Employers find it difficult to fire unproductive employees due to high levels of employee protection.

Trade Unions Benefits: Will help reduce the inequality in market power between firms and individual workers. Will stop employees from being exploited e.g: ‘sweat shops’.

Deregulation of Industries Deemed to Lack Sufficient Competition The removal of government regulation in a market is known as deregulation. Deregulation should make it easier for companies to enter a market and therefore create competition and efficiency.

Privatisation of Monopolies Large publically owned firms have been targeted for privatisation. A privatised firm will use its resources efficiently, leading to reduced prices for consumers. However, this is only the case if there is significant competition.

Deregulation of industries deemed to lack sufficient competition Industries deregulated in Australia: The airline industry The telecommunications industry The banking sector The energy sector

Social Welfare Reform The Australian government has attempted to increase incentives for the unemployed to get back into the workforce. Switch from standard income support to case by case management and personal attention from social workers.

Deregulation of the Australian dollar In 1983 government floated the Australian dollar to allow the exchange rate to move in accordance with the forces of supply and demand.

Removal of barriers to trade Since the early 1980’s the Australian Government has been removing barriers to trade such as tariffs, subsidies and quotas to allow Australia to potentially reap the benefits of free trade including increased competition and efficiency.

Australia’s Productivity Record Compared to other developed countries, Australian productivity accelerated quickly during the 1990s. This was due to mix of factors including deregulation of industries, technological innovation, flexible labour and capital markets. Productivity growth has since slowed. This is a major cause of concern for the Australian Government and many policies have been initiated in an attempt to boost productivity. The Productivity Commission and The Department of Innovation and Industry are both directly responsible for increasing productivity.