As this paper goes to press, Australia’s industrial relations system stands on the brink of a major overhaul, an ‘industrial revolution’ in the words of the Sydney Morning Herald. The Howard government’s control of the Senate from July 2005 is leading to sweeping changes in the legislative framework governing industrial relations in Australia, both at a Federal and State level. Not only will these changes see attempts made to wind back collective bargaining and union influence at workplaces, but those workers outside the bargaining sector will see major changes in how their wages are set. For those currently dependent on the Safety Net Adjustment (SNA) Review conducted annually by the Australian Industrial Relations Commission (AIRC), the prospects are grim.

The government proposes establishing a ‘Fair Pay Commission’ which will comprise five members, including two academic economists, a business representative and a union or employee representative. Such a commission is likely to be dominated by neo-liberal thinking, an outlook which sees pay increases automatically costing jobs. It is unlikely that low paid workers can expect the kinds of wage increases they have gained in recent years to continue under such a regime. For those workers outside the bargaining sector and dependent on individual contracts (either formal or informal), the growing reach of commercial law principles, rather than labour law principles, will also see them further disadvantaged in the future.

In this paper we set out a framework for wages policy in an era of deepening wage inequality – the situation Australia faces at the start of the twenty first century. Ironically, it was at the turn of the last century that many of the industrial relations institutions and principles which now stand on the edge of dissolution were first established. We have argued elsewhere that these institutions have generally served Australia well, despite much unevenness in their outcomes. However, the economic and labour market realities which these institutions sought to regulate have changed profoundly, particularly during the last twenty years. We would argue that in reacting to the sweeping changes which the Howard government will unleash, we should not look nostalgically backward. Rather, we need to develop a framework which grapples with these new realities, which recognises the true worth of current and past institutions, and which highlights the policy gaps that must still be plugged.

We do not provide here a comprehensive overview of wage determination in Australia, nor an overview of economic policy more generally. Rather, we aim to integrate a number of disparate threads whose logic is often seen in isolation. We draw the connections between developments in commercial law and the wages system, between the welfare-to-work debate and low wages, and between life-cycle issues and wage setting. Moreover, we also engage in a modest amount of (philosophical) ‘under-labouring’ by clearing the terrain of some of its confusing terminology and its anachronistic dualisms – unhelpful dichotomies like ‘centralised versus decentralised’ and ‘regulated versus unregulated’. We propose a new concept – coordinated flexibility – as one way of moving forward in this area.