Pain of penalty rate cuts can not be avoided through transition measures

Analysis from The Australia Institute’s Centre for Future Work has shown that proposals for phasing in lower penalty rates for work on Sundays and holidays will not “protect” the workers affected by those cuts, and in some cases would make things worse.

Simulations of various proposals from political and business leaders for deferring lower penalty rates, making offsetting adjustments in base wages, and/or “grandfathering” the wages of people already employed in the sector, suggest that none are capable of truly avoiding the resulting hardship.

“Taking several years to implement a painful, damaging policy does not erase the impacts of that policy,” said Jim Stanford, Economist and Director of The Centre for Future Work, and the report’s author.

“There appears to be a lack of understanding by some as to how much Sunday and holiday wages will fall under these proposals.  A wage cut of that scale can’t be disguised simply by introducing it in stages.”

The Centre’s report investigates the Prime Minister’s suggestion that penalty rate cuts could be “offset” by the impact of normal wage increases over time.  At current rates of wage growth, it would take 17 years until higher base wages for retail workers fully offset the effect of lower penalty rates on nominal incomes.

CFW Pen rate

Making matters worse, ongoing inflation during those 17 years would reduce the real purchasing power of wages by 22 percent: almost equal to the reduction in Sunday pay proposed.

Another transition proposal is to lift the minimum wage for retail and hospitality workers – either gradually or all at once.  The report shows that this would substantially increase weighted average labour costs across retail and hospitality sectors by up to 25 percent (since the higher base wage must be paid to workers on other days of the week, too).  This approach would be fiercely resisted by retail and hospitality employers.

“Grandfathering” wages of existing retail and hospitality workers is also not feasible, largely because employers can easily reschedule existing workers to other days of the week, or even end their employment altogether.

“The reduction in penalty rates for retail and hospitality workers will have a significant, negative impact on hundreds of thousands of employees, who are already among Australia’s most low-paid, insecure workers.

“It is impossible to imagine a phase-in system to protect their compensation, when the whole point of this decision is to reduce it,” Stanford said.

Stanford noted that lower penalty rates will exacerbate the problem of wage stagnation, which he argues is a more serious threat to growth and job-creation in Australia than penalty rates.

Related research