But, as technological progress is generally accessible to all, policy and institutional factors play a crucial role in determining whether conditions are propitious for the application of such progress. Institutional arrangements that are highly regulatory and highly interventionist create a risk averse culture that is cautious about innovation. Australia's labour market arrangements are probably unique in the world in the extent to which third party intervention can occur in management decision-making on employment. We have established institutions that are relatively discouraging to investment and employment creation. Innovation and change are, accordingly, less likely to occur here than in other less regulated labour markets.
Economists tend to focus on wage costs as the main determinant of employment.
What have not so far been widely acknowledged are the costs associated with institutional arrangements that heavily constrain entrepreneurial decision making. While these are mostly hidden, or at least not quantifiable, they are almost certainly large when viewed from a community-wide perspective. First, while the US has a greater dispersion of labour market earnings, our regulatory system has not prevented a widening in the Australian dispersion of earnings or a fall in real minimum wages since the 1970s. Indeed, eleven out of 24 OECD countries have a more egalitarian distribution of earnings than Australia. Importantly, the greater US dispersion partly reflects significant differences in the composition of work forces.