Cutting penalty rates will reinforce wage stagnation

The Australia Institute's picture

The Fair Work Commission’s decision to reduce penalty rates for Sundays and holidays in retail and hospitality jobs will reinforce wage stagnation and further widen income inequality, which is bad news for the economy as a whole, according to Dr. Jim Stanford, Director of the Centre for Future Work at the Australia Institute.

“It’s painfully ironic that the Fair Work Commission’s decision was released just a day after the ABS confirmed the pace of Australian wages had already slowed to the worst in the history of their data,” Dr. Stanford said. 

With household incomes going nowhere, and the economy slowing accordingly, now is the time to support the wages of low-income workers, not suppress them further.

“The economic argument that business will open longer, creating jobs has no basis. It will simply spread limited demand, and therefore jobs, over a longer period without increased employment.”

ABS data released on Wednesday showed annual wage increases in the year to December 2016 fell to just 1.87 percent. Wages in retail and hospitality already lag far behind economy-wide averages, and part-time and casual jobs are the norm. 

“Worse yet, workers in these sectors also face widespread wage fraud and violation of minimum wage laws, as documented at employers like 7-11 stores and Domino’s Pizza.”

“By cutting Sunday and holiday penalty rates to as low as 125 percent, the Commission’s decision will significantly damage incomes for workers who already face precarious schedules and incomes.”

Dr. Stanford was especially critical of claims that lower weekend wages will spur new job-creation in retail and hospitality. 

“It is elementary economics that employment in service sectors like retail and restaurants is constrained by the level of consumer demand, not by the level of wages.”

“Lower wages will not lead to lower prices, they cannot boost consumer spending, and they will not create new jobs.  In fact, by further suppressing labour incomes, this decision will undermine economic growth and job-creation even further.”

“The idea that more businesses will open up on a Sunday and this will lead to more employment is also flawed logic. Since total demand will remain unchanged, a business will simply sell the same amount over 7 days instead of 6 days,” Stanford said.

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