Few winners from penalty rate cut

05_Few winners from penalty rate cut

Garry Shilson-Josling, AAP Economist


(Australian Associated Press)

Amid all the talk about who would lose out from a cut in weekend wage rates, there’s been little talk about who would be the winners.

And much of that has been wrong.

The Productivity Commission’s report on Monday recommended bringing Sunday wages rates in the hospitality, entertainment, retail, restaurant and cafe (HERRC) industries down into line with Saturday rates.

For some employees, the cut would amount to one third or more off their Sunday wage rates.

But the commission said the main beneficiaries of the proposed change would be consumers, including tourists,

But it wouldn’t boost business profitability, as widely thought.

“Just as the imposition of higher penalty rates on Sundays have no long-run effects on profitability, similarly their reduction will also have no long-run impacts,” it said.

Competition in the HERRC industries is high, so businesses will quickly cut their prices to protect their market share, leaving profit margins right back where they were before wage rates were cut.

The commission said there would be a positive influence on employment, especially for the currently jobless and the young wanting entry-level jobs, it went out of its way to downplay the effects.

It’s inherently hard to demonstrate the effects of something that hasn’t happened yet, the commission said.

“Moreover, it can be expected that partisan advocates for lower penalty rates will provide evidence that is incomplete, biased or flawed, that exaggerates impacts, and that omits counter evidence and caveats.”

While the winners would be limited to consumers, tourists and some unemployed jobseekers, the commission acknowledged that existing workers will be worse off, especially those relying mainly on weekend work.

But it passed the problem of supporting low-income workers over to the taxpayer.

“This is the primary role of Australia’s tax and transfer system.”

Despite the likely overall increase in hours, the total earnings of HERRC workers, even including those newly hired, looks set to take a hit.

The commission estimates a 33 per cent fall in wage rates would lead to a 27 per cent rise in working hours on Sundays.

That implies a fall of 15 per cent in the total amount earned by Sunday workers, despite the increased hours.

That’s because to make up for a 33 per cent pay cut, you have to increase your hours worked by 50 per cent.

And, because weekday workers would likely have their hours cut as well, it seems highly likely that the positive employment benefits will offset the reduction in wage rates leaving workers in these sectors worse off overall.

But at last we’ll be able to get a nice brunch on Sunday morning.


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