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Cutting penalty rates: who benefits?

Alexander Philipatos | 13 June 2014

alex-philipatosThe debate over whether to reduce or abolish penalty rates is often couched in the opposing interests of two groups - employers and employees. Employer groups argue that penalty rates are too high and inhibit the ability of businesses to stay open at the hours consumers demand. Unions argue that the additional pay is fair compensation for work performed at unsociable hours.

In reality there are around five groups at stake.

The most obvious is the group of employees who work at times that attract penalty rates. These workers are generally low-skilled, low-paid and young. They usually work in the service sector, such as in retail, hospitality or tourism, and will see their pay reduced if penalty rates are cut.

Then there are employers. Once again, they dominate the same service sectors. Some are large organisations, such as Woolworths and Myer, but most are small proprietors. All stand to gain from a reduction (or abolition) of penalty rates.

Currently, some employers are unable to operate on Sundays and public holidays because their wage bills are prohibitively expensive, fuelled by penalty rates. A reduction in penalty rates would mean many of these enterprises would be able to open on Sundays and public holidays, offering jobs to workers, services to customers and profit to the proprietor. Finally, some employers dealing with current penalty rates would not need to employ more workers and would see a reduction in their overall wage bills.

The unemployed (particularly the young and low-skilled) stand to gain, for they will move off the unemployment roll and into work. There is also a subset of underemployed workers whose productivity may enable them to attract additional work - were it not for penalty rates.

The remaining two groups are often forgotten.

The first, consumers, face fewer choices and/or higher prices during hours when penalty rates are in effect. There are fewer businesses open at these times, and many operate below capacity. Some charge their customers surcharges to cover the additional labour costs.

The second group, taxpayers, benefit indirectly from a reduction in penalty rates through employment. To the extent that reducing penalty rates creates a new job for an unemployed job seeker, the cost of providing welfare benefits is reduced.

Of these five groups, only one group loses if penalty rates are reduced.

If it were as simple as a two horse race, with the interests of employers rubbing up against the interests of workers, it might be understandable that Australians favour the group in a greater state of need. But there are many more interests at play. Surely, the most important should be the unemployed.

Alexander Philipatos is a Policy Analyst at The Centre for Independent Studies.