Chapter 5 Microeconomic Reform 5 1 Microeconomic Reform

Chapter 5 Microeconomic Reform 5. 1 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 Apply Economic Principles to Work in the Financial Services Industry 1

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”. Apply Economic Principles to Work in the Financial Services Industry 2

Microeconomic Reform Microeconomic reform attempts to achieve: • Allocative efficiency • Technical efficiency • Dynamic efficiency Apply Economic Principles to Work in the Financial Services Industry 3

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 Apply Economic Principles to Work in the Financial Services Industry 4

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. Apply Economic Principles to Work in the Financial Services Industry 5

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. Apply Economic Principles to Work in the Financial Services Industry 6

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. Apply Economic Principles to Work in the Financial Services Industry 7

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’. Apply Economic Principles to Work in the Financial Services Industry 8

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. Apply Economic Principles to Work in the Financial Services Industry 9

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. Apply Economic Principles to Work in the Financial Services Industry 10

Deregulation of industries deemed to lack sufficient competition Industries deregulated in Australia: The airline industry The telecommunications industry The banking sector The energy sector Apply Economic Principles to Work in the Financial Services Industry 11

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. Apply Economic Principles to Work in the Financial Services Industry 12

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. Apply Economic Principles to Work in the Financial Services Industry 13

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. Apply Economic Principles to Work in the Financial Services Industry 14

Australia’s Productivity Record Compared to other developed countries, Australian productivity accelerated quickly during the 1990 s. 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. Apply Economic Principles to Work in the Financial Services Industry 15