Construction of an IR wreck

The new industrial relations era ushered in by Julia Gillard has revealed some remarkable changes in the Australian workforce.

Unions that had clear market power in decades gone by have attempted to restore their old positions, where they had control over hiring, shifts and many other aspects of management. Such control was outlawed by the Howard-era legislation.

But as the unions attempted to regain their old rights they found that the game had changed more dramatically than they thought. Having been less involved in the intimate details of the airline's business, the unions hadn't realised just how much ground Qantas had lost, especially on its overseas routes. Accordingly, the unions realised that if their case for control went to arbitration they knew they would lose because no arbitrator would give them management rights.

Qantas did considerable harm to its brand and its relations with the government by shutting down the airline but it brought on arbitration and with the arbitration came the chance of an agreement.

In the mining area, unions are taking a similar stand, but their timing is poor. Commodity prices are falling and the companies know that if they give in they could be saddled with uneconomic cost structures. BHP Billiton is taking a benign approach to its highly-paid coal workers who are taking limited action. But in the end if the dispute can't be settled, or if somehow the workers win, then BHP will abandon its $10 billion coal expansion and spend the money in Indonesia.

Workers in government services are pushing very hard for pay rises and they have had some notable wins. But a little like airlines, governments are being squeezed and don't have the money to pay big salary increases and workers are reluctant to give up their 'conditions', which curb productivity improvements.

So we have a remarkable situation where Australian growth rates are being propelled by mining investment, where large amounts are being paid to those working on the contracts but the flow through is being contained. The most dangerous area in Australia is construction, where the unions are relishing their restored power; we've already seen similar cost blow-outs to those at the Victorian desalination plant threaten to undermine the national broadband network.

Although miners do as much fabrication work offshore as possible, in capital city buildings there seems no alternative but to 'cop it sweet'. The construction workers are looking for big pay rises and a return to controlling work sites. The odds are they will get both, which will make mining projects in Australia much more expensive to develop. It will also boost the cost of high rise apartments and office blocks. The most efficient part of the building industry is home building, but the government is looking to decrease contracting in home building by requiring all builders to log with the government every contract payment they make.

If this reduces contracting in the housing industry, it will substantially increase the cost of housing when we're already in the grips of a shortage. There is no doubt that the Fair Work Act needs amendment in the light of experience. Apart from Julia Gillard, there is probably no better person to make those amendments than Bill Shorten. It certainly can't be done by Tony Abbott.