Are Sunday penalty rates a job killer?

penalty rates pic

By Serena Yu, senior research fellow, University of Technology Sydney and David Peetz, professor of employment relations, Griffith University.

Two big claims underpin attempts to cut penalty rates for Sunday workers in the retail and hospitality sectors: that they are no longer needed or relevant, and that they cost jobs.

These claims are at the centre of a review by the Fair Work Commission of awards in those industries. The review began in late 2014. Employers have applied to have those penalty rates cut.

Penalty rates were the subject of debate before and during the 2016 election campaign. Unions claimed the seats they targeted over this issue swung more heavily against the government.

The commission, speculation goes, will make its decision on the review next month.

No longer needed or relevant?

Employer groups contended the higher wage for Sunday workers is no longer justified in a “24/7 economy” where young employees especially see no difference in working on Sundays. Prime Minister Malcolm Turnbull referred to penalty rates as an accident of history.

But evidence shows weekend work is significantly associated with work-family conflict for fathers. Data from a major national survey showed that working Sundays in particular is linked to higher work-life interference.

Other recent Australian studies showed Sunday remained a day for family and civic activities, more so than Saturday or any weekday.

Penalty rates are certainly an important component of workers’ incomes in the industry. More than half (57 per cent) of retail industry employees receive penalty rates. Of these, almost one-third (32 per cent) report relying on them to meet normal household expenses.

What about the job impacts?

But set aside, for the moment, whether penalty rates are still relevant. Do they kill jobs?

Employers argued that existing Sunday penalty rates lead to shorter opening hours, fewer jobs and a less desirable mix of employee experience.

The difficulty in validating such claims is in disentangling employment effects from economic conditions or general workforce changes. It isn’t easy, for example, to establish whether any jobs lost are due to higher penalty rates, an economic downturn, or something else.

Our research, however, takes advantage of a rare “natural experiment” to estimate the effect of higher Sunday penalty rates. The experiment could be done because the commission’s earlier award-modernisation process had standardised state-based industry award rates.

In particular, Sunday penalty rates for New South Wales retail award employees rose from 150% (or “time and a half”) to 200 per cent (or “double time”) between 2010 and 2014. Over the same five years, rates remained unchanged (at 200 per cent) for comparable Victorian workers.

By comparing the two states, and using Victoria as a “counterfactual”, we could estimate the separate effect of raising Sunday penalty rates in NSW.

The research relied on publicly available data and on widely accepted econometric methods and checks. It looked at common underlying employment trends in the two states and controlled for state-specific factors including labour market conditions, youth employment rates and industry demand.

Our research led to an initial report and then some updated estimates.

It found higher Sunday penalty rates in NSW did not have a consistent or systematic effect on retail employment as measured by the Australian Bureau of Statistics. While there was a large and significant negative effect in the first year — a drop of more than seven per cent in the number of employees and total hours – the total effects over the five years were a mix of positive and negative but statistically insignificant.

Most importantly, the cumulative effect on jobs over the five years was not significantly different from zero. That is, between them the five increases in Sunday penalty rates in NSW retailing did not significantly affect job levels in that industry. If there was an effect, it was too small to show up.

A different, longitudinal dataset showed no change in the number of people in NSW working on Sundays. There was, however, weakly significant evidence of a drop in the number of total hours worked in NSW retail.

Together the results suggest that in an industry dominated by casual and part-time workers, what adjustment in employment does occur happens through changing hours and not the number of employees in jobs.

Finally, on the mix of available employees, do penalty rates really mean that employers can roster only inexperienced, casual employees on Sundays?

National data show that permanent workers are more likely to say they would not continue to work unsocial hours without penalty rates.

So, labour-supply effects mean that reducing penalty rates would probably mean even less experienced workers on Sundays. And that’s what it looks like when you walk into a New Zealand supermarket – without penalty rates – on a Sunday.

What does it mean?

The implications are stark.

If changes in Sunday penalty rates have no significant effect on the number of jobs, then cutting them would do two things.

It would reduce compensation for workers employed at unsociable hours – when that compensation is, for many, very important for meeting normal household expenses. And it would constitute a transfer of income from employees to employers, likely without an offsetting increase in jobs.

The most likely outcome, then, would be retail workers working longer hours for lower earnings, with little or no improvement in the number of jobs.

This article was originally published on The Conversation.

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  1. Avatar

    Brett Stevenson posted on August 22, 2016

    Mmmmm? This only could come from an 'ivory tower' source. One presumes no subjective leanings toward the left or the unions by the two authors? My gut feel suggests otherwise. I suggest they try to do some research with employers, especially in small business. A pretty obvious weakness in their hypothesis I suggest. reply

  2. Avatar

    lew hoek posted on August 22, 2016

    Can we also do a analysis of the current state of retailers going under and the reduction of margins due to higher occupancy costs as wages are certainly a large component of the issues confronting the profitability of retailers. Margins have increased due to higher costs but profits have decreased and many traders have had to vacate their locations and many have gone bankrupt. At what point do we get to a level and acceptable playing field. Majors with the biggest voice and the smallest O/C costs have little trouble with bottom line results however specialties with rising O/C cost are finding unsustainable ? reply

  3. Avatar

    Peter sedgley posted on August 22, 2016

    We currently do not open on Sundays due to penalty rates. Your research does not take into account how many stores would trade on Sundays if there were lower or no penalty rates, therefore creating many more jobs. We would definitely be one of those. reply

  4. Avatar

    Peter posted on August 22, 2016

    Clearly this study does not take into account the largest employers in retail, small businesses with less than 5 employees. In my own case I lose money on the rare occasions when I put employees in on Sunday. The two extra public holidays in Victoria last year resulted in four shifts lost to my employees, not only did they not get penalty rates, they lost hours they could reasonably have expected to work otherwise. In their haste to study these things, only the big retailers who can afford to cop a loss are studied. The small employers who are the biggest employers (by sheer weight of numbers) are always ignored and their employees interests are also ignored. reply

  5. Avatar

    Andy posted on August 22, 2016

    Not sure which side the authors are on. I have an independent smkt in Vic where I pay the 200% for sunday and Publics. I agree there should be a penalty for wend work as the family unit is important and kids need to be able to spend time with parents on wends. However the 200% is just too high, i would be happy with 150% for sat, suns, & publics. i would then trade until 8pm sunday instead of my current 6pm as well. reply

  6. Avatar

    Oksanna posted on August 22, 2016

    Directed to this article from Shop Distributive Allied Union website. Interesting, as it was SDA, with Shorten, who brokered the EBA which was struck down recently in the Tribunal, which cut weekend and penalty rates, to favour weekday employees. Now the 2011 SDA Coles EBA which was Coles' fallback position, is in the Tribunal again and under challenge by, of all people, an SDA shopfloor union rep. This is a union which has a close relationship with large employers (direct debit of union fees being one example, employers receiving substantial kickbacks for facilitating it) and is protected by the ACTU, which undermines the poorest workers' pay with sweetheart deals with said employers. Omitting the turmoil, the very interesting battles being waged by little people - all those who successfully challenged the dodgy wage deals were relative nobodies - leaves this article with scant credibility and relevance. It is mere smoke, the really interesting story is to be found elsewhere. reply

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