Economics of Labour Assignment

Essay by MitchandoA, May 2006

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In an economy, markets determine prices and quantities. In the labour market, prices refer to wages and quantity refers to the number of people employed. Relative wage levels are an extremely important device in our economy because of the way they allocate productive resources. Using Ceteris Paribus labour will tend to move to sectors where wage levels are highest. As such there are a number of methods by which wages and conditions are determined in the labour market.

The wage rate, in a free market would be determined by the forces of supply and demand. In the real world, this is not a realistic model as many of the assumptions are not accepted. For example, a company operating kilometres out into the ocean will pay higher wages to its workers than a company operating within the CBD. This automatically discounts the perfect mobility assumption which suggests workers can move anywhere quickly and easily.

Historically, Australia operated under a highly centralised industrial relations system far from the outlines of the free labour market. Bargaining between management and unions occurred within a system of obligatory conciliation and arbitration by industrial tribunals.

Tribunals play the role of 'umpire' in conflicts between unions and employers with the main one being the Australian Industrial Relations Committee or AIRC. This role comprises of two forms: Find resolution through conciliation and arbitration and determine awards for industry and occupational groups. It used to also determine 'cost of living' pay rises however the act of actually giving a pay rise was amended by the use of innovative methods to maintain the social wage. Some of these methods include cuts in income tax which allows workers to maintain disposable income and earlier introduction of compulsory superannuation. As the main umpire so to speak, the AIRC is still a major...