Fair work commission decision anything but fair

February 24, 2017

Yesterday the Fair Work Commission cut Sunday penalty rates for hundreds of thousands of Australians who work in hospitality, retail and fast-food. The commission acknowledged the hardship that this decision would cause to many workers yet made the decision anyway.

“Many of these employees earned just enough to cover weekly living expenses,”
Fair Work Commission president Iain Ross

The benefits they cited are increased employment, increased opening hours and, as a result, increased provision of goods and services on Sundays for an increasingly 24-hour-a-day, 7-day-a-week economy.

In other words, it’s OK to push hundreds of thousands of Australians who are already living pay cheque to pay cheque further into financial hardship and poverty if it means it’s easier and cheaper for the rest of us to go shopping on a Sunday.

More insidiously, sitting behind this decision is the debunked philosophy of trickle-down economics. If we cut costs for employers, then employees and everyone else will benefit. The claim is that more hours will be worked overall and more people will be employed. Of course, this will occur at the margins to some extent but, in many situations (perhaps most), it will simply mean same employees, same hours, more profits. For workers on Sundays, it means working longer hours just to stand still.

Penalty rates exist to compensate workers for being at work when most people aren’t. In economic speak, they compensate employees for the disutility of working outside of standard working hours. The disutility is caused by a high opportunity cost, which is more economic speak for the cost of not being able to attend social events, weddings, sports etc.

A very important side effect of penalty rates is that they make it possible for many to engage in education. Studying during the week and working in hospitality or retail during the weekends is so common as to be a kind of stereotype of the undergraduate university student. Cutting penalty rates makes this precarious existence even more precarious and if it drives poorer students out of university then the overall cost to society and to the economy is enormous.

We are increasingly expected to work for the benefit of the economy but we should be pushing back and insisting that the economy be made to work for us. Of course, we then have to ask which of us it should be working for in any particular circumstance. I would argue that in a situation like this, where one decision benefits the relatively well off (Sunday shoppers and business owners) but harms many low-income earners, the greatest consideration should be given to the latter.

Current wage growth across the economy is very close to zero after we account for inflation. Wages have stagnated. This means that any cuts to penalty rates are likely to be real cuts to take-home pay for many workers for years to come. We’re a rich country, we don’t need to be cutting the real wages of our poorest workers.

This is not to say that any change to penalty rates at any time is off the table, but surely the circumstances of the day should be considered. There are valid arguments suggesting the difference between the disutility of working on a Sunday and that of a Saturday are not as great as they once were. However, if a rebalance is required it should be designed in such a way that the harm done to the most vulnerable in our society is minimised. To this effect, for instance, rebalancing penalty rates could be accompanied by an increase in general pay-rate.

Surely, our primary consideration in economic reform should be the impact on those of us who are worst off and least able to adjust. If we’re going to make decisions that negatively affect these people, then we should also consider compensation or other assistance that helps them make the transition. To just announce a significant pay cut to hundreds of thousands of workers, many of whom are already struggling, without any kind of compensation or assistance makes the Fair Work Commission’s name sound like Orwellian double-speak.