How would we know if the labour market was ‘flexible’? One way is to look at how the jobs market responds to economic shocks. During the GFC, when the Howard Government’s labour laws were still in effect, the number of hours worked in Australia fell while the number of people in employment didn’t fall.

The Chamber of Commerce and Industry advanced this as evidence that the flexibility of the then-legislation helped to prevent a big rise in unemployment as seen in other countries:

The fact that large scale job losses have been avoided through the voluntary action of employers and employees highlights a major benefit of the current flexibility in the industrial relations system. If the only alternative for a struggling business to cut costs was to reduce employment the increase in the unemployment rate would have been much more severe. (p. 13)

Judith Sloan has a similar view. Yesterday in The Australian she said, while discussing the financial crisis, that:

A flexible labour market at the time – the Fair Work Act had not come into effect – meant that working hours were cut, rather than the number of employed persons.

I don’t want to take issue with the ACCI and Sloan’s analysis of the 2008-09 period, but with their implicit critique of the Fair Work Act. Sloan seems to be suggesting that the presence of the FW Act means that we no longer have a flexible labour market; presumably this would mean that a period of weak economic activity would result in a fall in employment, rather than hours.

The problem for Sloan’s argument is that in 2012 we saw a (mild) re-run of the 2008-09 slowdown. Economic activity slowed, and some of this was felt in the labour market. But instead of seeing hours and employment fall at around the same pace, as they did in the recessions of the early 1980s and early 1990s, the number of hours worked fell while employment kept growing (albeit slowly). So the very criterion that Sloan (and ACCI) use to judge that we had flexible labour laws before July 2009 tells us that we still have a flexible labour market in 2013.

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