Can we fix Australia’s ‘deteriorating’ labour rigidity?

The Global Competitiveness Index (GCI) 2013-2014 showed that Australia fell out of the top 20 for the first time in history, and it’s the country’s rigid labour market that could spell trouble ahead.

Falling one spot – from 20 to 21 – is hardly cause for concern in the grand scheme of things. A list is just a list. However, what should be noted are a few of the specific reasons the GCI gave for the slip from the top 20.

The GCI touts Australia as a country that “delivers a consistent – and essentially unchanged – performance across the board”. It ranked 7th in the financial market development pillar and 15th in higher education and training.

The report also applauded Australia’s improving macroeconomic conditions, budget deficit and debt-to-GDP ratio.

This is where the rich candy coating ends, though. The report goes on to say that the country’s biggest struggle will be the “rigidity” of its labour market, which dropped 12 places to a ranking of 54th. The most concerning aspect was the poor hiring and firing practices of Australian firms, which have “deteriorated” over time.

The awful truth about Australia’s labour rigidity

This ranking should speak volumes. Of all 148 countries named in the report, Australia fell to 137th place for the rigidity of hiring and firing practices, and 135th for the rigidity of wage setting – startlingly close to the bottom of the list.

This ranking, as John Varvarigos of Naked Business Consulting describes it, is “horrendous”.

The poor placement is a clear sign that companies need a much better grasp of how to work hiring and firing into business planning in Australia. Luckily for many Aussie organisations, it may just take a little tweaking of strategic processes to climb the ranks once again.

“You’ve got to really plan appropriately for the hiring and firing of people, making sure you’re bringing the right people on at the right time and in the right positions,” Mr Varvarigos explained.

“Because getting rid of people these days can be a real pain in the butt.”

If you don’t get it right, you’re going to get bitten

It may be tempting for businesses to put hiring and firing strategies on the backburner, or at the very least view them as more trivial than other business areas. But the reality is there’s an entire structure that should be in place when it comes to bringing new people on.

A strategic approach should bear in mind timing, appropriate recruitment selection, company culture and other factors.

“Be strategic,” Mr Varvarigos stated in a recent interview. “If you don’t get it right the first time, it has the potential to really come back and bite you. And the numbers are telling us this.”

Although countries with relatively rigid labour policies – such as those in Europe – have traditionally fared economic slumps better than those with flexible labour market policies, recent trends have shown rigidity may in fact keep unemployment higher in the long run.

This is further evidence that Australian businesses may need to implement flexible labour solutions amid these rigid policies.

If that’s all that is holding Australia back from reclaiming a spot in the top 20 most competitive countries for business though, the situation as a whole isn’t dire.