Fair Work’s Penalty Rates Decision: A Rational Analysis

The Fair Work Commission this morning delivered a landmark decision on Sunday and Public Holiday penalty rates in four industries regarding their industrial awards. The decision is result of lobbying by both business groups and also recommendations by the Productivity Commission that there are likely to be some positive employment effects from a reduction in penalty rates.

Already the unions and left wing parties are outraged and are demanding the federal government intervene to override the decision. The President of the Australian Council of Trade Unions Ged Kearney said after the decision “Unless there is severe intervention, we are on the way to seeing a whole class of working poor in this country’’.

At her press conference, she also wheeled out a causal hospitality worker Erin Gibbins who claimed “It will mean that people will be forced to make up for that cut, whether it is through getting a second or third job, whether it’s through becoming more dependent on their family and friends or turning to or becoming more dependent on welfare’’.

By the way the unions and the leftist mouthpieces are carrying on you would think that this is the end of Sunday penalty rates. But this decision delivers a modest reduction in penalty rates across a small number of industries. In this decision, the Fair Work Commission has tried to strike the right balance between easing the burden on business and also not dramatically reducing wages for some workers in the short term.

The exact details of the decision are in the hospitality award Sunday penalty rates for full and part time employees have been reduced 175 to 150 percent. In the fast food award Sunday penalty rates have been reduced from 150 to 125 percent for full and part time employees and from 175 to 150 percent for causals. In the retail award Sunday penalty rates have been reduced for full and part time employees from 200 to 150 percent, for casuals it is reduced from 200 to 175 percent. The other award affect is pharmacy award and public holiday rates across all those industries will be reduced by 250 to 225 percent for full and part time employees however for casuals it will remain at 250 percent.

A rational analysis is in order about why this decision is in the long-term interest of all parties involved. We live in a modern world where most consumers expect to be able to go out shopping or dining seven days a week and outside the traditional working hours from 9 to 5. Penalty rates are a left-over relic from a previous era when the shops and restaurants were all closed on Sunday. While some people may nostalgically look back at say that these were good times but most people today have no desire to go back to that.

Sunday and to a degree Saturday penalty rates make it unprofitable for many small businesses such as the family run café or corner store to be open on those days. The big corporations are much more easily able to absorb these high penalty rates so they benefit the corporate giants while crushing the little guy. It should also be added the large corporations are able to negotiate cosy enterprise bargaining agreements which some actually have reduced Sunday penalty rates already which is allowed under the law.

The result of many small businesses not being open on Sundays is that many workers miss out on the option of working that day when it might be one of their only available days to work. There is not much fairness in earning zero dollars. The unions never mention the people who receive no pay on Sundays because their employer cannot afford to open. The extra rates earned by workers on Sunday come at the expense of those who are excluded. This is not to mention the people who cannot gain employment at all thanks to businesses not being able to open on Sundays.

Another way penalty rates are unfair is that it pays people who work the same amount of hours different wages because they happen to work on different days. Sundays are no longer considered holy days so why should someone who is available to work on Sundays earn more than someone who is unavailable to work on Sundays? It goes against the principle of equal work for equal effort.

While some people will be disadvantaged in the short term by a reduction of penalty rates, both workers, consumers and small business people will benefit in the long term. Many businesses will now be able to open to Sundays or no longer have Sunday surcharges which means that consumers will get greater services and at reduced prices on Sundays. Businesses will now become more profitable which means there is more opportunities for them to expand their operations and payrolls which in the long-term increases employment and real wages for workers.

As economist Henry Hazlitt said in his famous book Economics in One Lesson we must focus not just on what is seen but what is unseen. While the unions may be able to point to workers who will be disadvantaged what is not likely to be seen for a while is the benefits of this decision in the coming years. This decision on penalty rates is a step in the right direction to help our staggering economy and when our businesses and industries are becoming uncompetitive.

  • Philip Lillingston

    It is an unfortunate reflection of our time that we even
    have this incredibly dumb mandatory award system in place in the first place.
    The government, due to its omniscience, regulates what the correct wage is for these
    people to be paid on Sundays and public holidays etc. It apparently never occurs
    to these bureaucrats that there is no honest good these awards can manifest.

    If they declare the award above the market price for weekend
    / holiday labour then all they do is deny a job from someone who really needs
    it over someone only tempted by the exceedingly high rate. Not only that but
    high rates can also close businesses for weekends, or sometimes if the business
    depends on weekend traffic, close them for good.

    And if, for the sake of the business owner, they
    declare quite a low rate then this will have no affect anyway because no, or
    not enough, prospective and competent workers will accept the offer.

  • Deplorable Steve

    ‘…dependent on their family…’

    Wouldn’t this be a positive for society? Families actually looking after each other…