Dec
23
2015

You PC bro?

Recently the productivity commission came out with its workplace place relations draft overview (seen here) and the media has been in a huge spin around one of its key recommendations around Sunday penalty rates. Before making any further comments, lets actually look at the PC’s recommendation.

“Penalty rates have a legitimate role in compensating employees for working long hours or at unsociable times. They should be maintained. However, Sunday penalty rates for cafes, hospitality, entertainment, restaurants and retailing should be aligned with Saturday rates.”

Now the logic from this is clear, essentially workers on Sunday are effectively no different that workers on Saturday, therefore it doesn’t make sense to escalate mandated payments on one day as opposed to the other weekend. I wholly grant that this logic alone doesn’t make the case for dropping Sunday rates, since you could, quite successfully argue that perhaps Saturday workers should be paid Sunday rates. To get to that conclusion you need to understand the market forces at work here.

Australia is one of 2 OECD countries (the other is NZ) with mandated government penalty rates for irregular time and weekend payment loading. So the “US System” the unions frequently complain about (that is, where loading is determined by employers and employees) is actually the norm, not the exception. The reality is that this system doesn’t actually result in a lack of penalty rates. Whether it’s the Nordic approach (EBA’s organised through unions) or Western European model (invidualised contact hour guarantees), everyone ends up paying more for workers to stay irregular hours or work on weekends. If you think about it, it should immediately be obvious why. These periods of time have a restricted supply of labour (how willing are you to work on weekends or late at night, and would you do it without additional financial incentive?).

That means our discussion is really on who sets these rates. As a result of giving this price setting capability to government (and if you think about it, its really a soviet era pricing policy), we experience a few quirks. Where the weekends are the busiest shopping period in most countries, our Sunday’s are comparable to countries where Sunday trading is restricted. The trade-offs between penalty rates and this lack of competitiveness in retail is discussed in a Conversation article here.

Of course, for policy makers, the options are many. We don’t have to be debating between having a soviet era pricing mechanism for labour vs market mechanisms. There are incremental approaches. To take an example from across the ditch, NZ, instead of scrapping the penalty rate system, began to give employers and employees the ability to negotiate how these penalty rates may be paid (including methods like RDO’s and higher average pay, an explanation of some of the restrictions on those can be found here).

Some of these may be preferable to employers (and employees if they understand the system well enough to take full tax advantage of it). It takes away the price shock of employing on Sundays, without really leaving those who work exclusively on penalty rates worse off (shift workers and school children spring to mind). The end result would be a boon for the country, whereas, from a policy perspective, nothing has overly changed. These microeconomic reforms of shifting tax burdens, making regulation less onerous, and making the machinations of government “more efficient” were the mainstay of the Hawke / Keating legacy, and perhaps should be the rally cry of Shorten. Turnbull may be wary, as every conservative that has attempted work place reform has lost government (Stanley Bruce and John Howard being examples front and center).

Its early days, and given the holidays, the policy makers will be postulating over possible changes to workplace relations as a response to this report. Whatever the policy outcome may be, a change to the way this country manages penalty rates must occur if the country wishes to stay competitive in a changing world.

About the Author: Vikas Nayak

Vikas is the grand mufti of Taking Liberties Radio and a regular panelist on the show. Troll Troll Troll this stream gently down your feed, Merrily merrily merrily merrily a life is all you need!

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