Penalty Rates and Employment: One Year Later

by Jim Stanford and Tanya Carney

On 1 July 2018, workers in several retail and hospitality industries will experience a second reduction in the penalty rates they receive for working on Sundays and public holidays.  The reductions were ordered by the Fair Work Commission, and follow an initial reduction imposed on 1 July 2017.

Employer representatives argued that by reducing labour costs for work on Sundays and holidays, lower penalty rates would spur a big expansion in employment, via both new hiring and longer hours for existing workers.  One lobbyist predicted 40,000 new jobs.  Another said improved employment was “a certainty.”

But a new report from the Centre for Future Work has examined employment and working hours in the retail and hospitality industries in the year since the first penalty rate reduction.  Far from spurring a jobs boom in the two sectors, they have actually significantly underperformed the rest of the economy on all of the indicators considered.

The report reviews detailed data on employment, full-time employment, average hours of work, underemployment, and the incidence of short-hours work (under 20 hours per week).  By all these criteria, the retail and hospitality sectors performed among the worst of any other industries in the year since penalty rates were first cut.  Most industries where penalty rates did not change, created more work than the two sectors where penalty rates were cut.

The retail sector in particular has performed very badly relative to the rest of the economy.  Total employment was unchanged in the year ending in May 2018 (according to most recent ABS data).  Full-time employment declined by 50,000 positions.  Average weekly hours of work declined by more than a full hour, and the underemployment ratio (share of workers who want more hours) grew almost 2 percentage points.

The report does not suggest that lower penalty rates caused this poor performance (although it probably incrementally worsened underlying macroeconomic weakness, in particular stagnation in consumer incomes, that is the main cause of poor employment performance).  But the data certainly disprove inflated claims by employers and government that by cutting labour costs, the penalty rates decision would unleash a jobs boom in retail and hospitality.

If we really want to strengthen employment conditions (in these and other sectors), we must emphasize stronger wages and incomes, stronger public and private investment, and strong purchasing power throughout the economy.  Cutting penalty rates (and other policy measures that have suppressed wage growth in recent years) won’t solve those problems — it will make them worse.

Full report