Government and business leaders have poposed a range of possible 'transition' mechanisms to ease the economic hardship, and defuse political anger, following the Fair Work Commission’s decision to cut penalty rates for work on Sundays and public holidays in the retail and hospitality industries. The Commission’s order would reduce payment for Sunday and holiday workers by 25 to 50 percentage points of base wage rates, ultimately affecting hundreds of thousands of workers.
The Fair Work Commission is now considering proposals for implementing reduced penalty rates. Its initial decision acknowledged that affected workers would face hardship in 'adjusting' to this change, and hinted it could be phased in through two or more step adjustments over some unspecified time period. Government and business leaders are also advancing various proposals for “phasing in” or deferring the reduction in penalty rates.
The briefing note by the Centre for FutureWork critically reviews several of these proposals. Whether they are motivated by sincere concern for affected workers, or by more cynical interest in managing a challenging political issue, proposals for 'transition' and 'adjustment' cannot alter the ultimate regressive effects of the Fair Work Commission’s decision. After all, the essence of the decision is to reduce compensation for a large group of workers—who already experience lower-than-average wages, and great instability in hours and incomes. These workers are disproportionately female, young, and immigrant. Significantly cutting their incomes, and/or requiring them to work many more hours to earn the same incomes, will inevitably impose financial and social costs on them and their families. This is true no matter how long it takes to phase in the wage reductions.
Moreover, deferring or phasing in the change cannot avoid the negative macroeconomic impacts of lower penalty rates. Significantly reducing wages for Sunday and holiday workers in these two large sectors of the economy will exacerbate wage stagnation, further undermine personal incomes, and incrementally widen inequality. These factors are posing significant constraints to Australia’s national economic performance, and they will be made worse by the Fair Work Commission’s decision—no matter how slowly it is phased in. In short, a gradual transition to a bad place, still leaves you in a bad place.
The briefing note will consider four scenarios for phasing in lower penalty rates for work on Sundays and public holidays. It finds that none are successful in neutralising the negative effects of lower penalty rates on workers, their families, and national wage trends.
Jim Stanford is the economist and director of the Centre for Future Work, based at the Australia Institute.