Jennifer Westacott, chief executive of the Business Council of Australia (BCA), is the latest to support the cut to Sunday penalty rates on spurious job creation grounds. From The Australian:
…those who choose to walk away from this decision are effectively giving up on additional jobs and hours. And the people who will miss out are those who are currently locked out of working Sundays but dearly need their first job opportunity or some extra cash to pay the bills.
We cannot afford to do this when more than one in five young people is unemployed across 13 regions of Australia — including NSW’s Shoalhaven and southern highlands, Townsville and outback Queensland, and north and west Adelaide…
Reducing Sunday penalty rates in four industries recognises that the community’s view has changed. When one in five Australians makes Sunday their main shopping day then surely a Sunday is more sociable than a night shift…
If parliamentarians choose to walk away from this decision, then they are also walking away from opportunities for young unemployed people in regional towns, and from small businesses that want to grow. We cannot shirk the tough decisions required to give all Australians a fair go and build prosperity for the future.
First, the FWC believed there may only be “modest” employment impacts from cutting penalty rates:
“Any potential positive employment effects from a reduction in penalty rates are likely to be reduced due to substitution and other effects… On the basis of the evidence before us, we have concluded that reducing penalty rates may have a modest positive effect on employment…”
Moreover, FWC noted that it is “improbable that … existing workers’ hours on Sundays would rise sufficiently to offset the income effects of penalty rate reductions”.
Thus, the evidence that cutting penalty rates alone will boost employment is weak.
Second, it is worth pointing-out that workers in Accommodation & Food Services and Retail Trade already suffer from the highest underemployment in the nation:
Third, wages growth in Accommodation & Food Services has been the lowest of all sectors over the past 12 years, whereas retail trade has also experienced some of the lowest wages growth:
And this comes on top of record low earnings growth across the broader economy:
Thus, the FWC’s decision would adversely affect workers in sectors already containing Australia’s most vulnerable and poorly paid workers.
It is a bit rich for the BCA to lecture the electorate on the merits of cutting Sunday penalty rates at a time when underemployment is near record highs and wages growth is non-existent, in contrast to corporate profits and CEO salaries.
Australian workers’ share of Australia’s Total Factor Income (TFI) has been falling for decades, whereas business’ profits share has been increasing:
In 1974, the share of TFI taken by wages was 62%, whereas as at December 2016 it had fallen to just 53% – a 9% decline. By contrast, the share of TFI taken by profits was 17% in 1974, whereas as at December 2016 it had risen to 26% – a 9% increase.
Moreover, the fall in workers’ share of TFI has nothing to do with productivity. As shown in the next chart, Australian labour productivity (real GDP per hour worked) has risen by just under 80% since 1978, whereas real average compensation per employee has risen by just 28% over the same period:
In any event, if high wages are such a big issue, then restraint must be shown by all and sundry – not just the poorest segments of the population. Executives, politicians, and other elites must also take a haircut and lead by example. Where’s the outrage over CEO pay or our many politicians with their faces in the trough?
More broadly, if the the BCA is so concerned about small businesses, then why not lobby to fix Australia’s energy crisis that is crushing small business by supporting a ban on third party LNG exports and domestic gas reservation? Why not lobby for policies that will genuinely reduce land costs and rents, which are a key input cost for small business?
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