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MRPs and equity in the personal distribution of income


MRPs can have conflicting effects on equity in the distribution of income.  The benefits of reforms are generally obtained by ‘squeezing’ more out of Australia's existing resources.  Squeezing more out of labour involves existing workers producing more output (i.e. increase labour productivity).  This can mean labour redundancies or unemployment for some workers (following industry restructuring), or even reduced wages and conditions, particularly for the unskilled in a more deregulated labour market.  


Higher unemployment and reduced effective wage rates for the low skilled will have negative implications for equity in the distribution of income.  This is particularly the case in the short term, but over the longer term, we could see improvements in equity as unemployment falls in line with the job creating benefits of micro reforms.  This occurs because lower unemployment levels provide more people with access to incomes, improving their access to goods and services and decreasing the incidence of absolute poverty.  


However, the reforms to the labour market makes it possible that low skilled workers will suffer in the longer term relative to skilled workers, thereby having a negative impact on the distribution of income (increasing the size of the gini coefficient).  Some economists refer to the possible emergence of a class of workers fitting the description of 'the working poor'.  This occurs when we have a number of workers employed at wage levels that are considered too low and only just above the net benefits they would receive on welfare.  Note that this problem could diminish in size as low skilled workers will have even more incentive to improve skills in an effort to earn higher wages.  This would further boost productivity and the supply potential of the economy.


The ability for microeconomic reforms to simultaneously improve both productivity and equity are highlighted in the report  'Towards more productive and equitable workplaces - an evaluation of the Fair Work Legislation' (www.deewr.gov.au)


'the Panel did not accept that enhancing productivity and enhancing equity are conflicting goals.  Increased productivity permits both higher wages and higher profits. Increased equity need not come at a cost to productivity. Indeed, by supporting harmony in the workplace, increased equity may well reduce turnover, training costs and employee dissatisfaction, all of which enhance a productive workplace culture.'


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