Penalty rates cut based on a wages myth

Sunshine Coast Daily - - YOUR WEEKEND | OPINION - John Quig­gin

A SE­NATE com­mit­tee has fi­nally handed down a re­port on the Fair Work Com­mis­sion’s de­ci­sion to re­duce Sun­day penalty rates for work­ers in a range of ser­vice in­dus­tries.

The re­port rec­om­mends the gov­ern­ment bring in leg­is­la­tion to over­turn the de­ci­sion, cit­ing mixed ev­i­dence of the im­pact of the penalty rates cut.

How­ever, as I pre­sented in ev­i­dence to both the Se­nate and the Com­mis­sion, there needs to be more of a fo­cus on the ad­verse ef­fects of lower wages for the econ­omy as a whole.

Wages pol­icy dis­cus­sion in Aus­tralia over the past 40 years has been dom­i­nated by the be­lief that we have a prob­lem with ex­ces­sive wages and re­stric­tive work­ing con­di­tions.

The ob­jec­tive of wages pol­icy has been to push down the wage share of na­tional in­come and re­move re­stric­tions on work­ing con­di­tions. But this view is not backed by the re­search.

In my ev­i­dence, I pointed to sev­eral stud­ies show­ing the im­pact of min­i­mum wages, be­gin­ning in the 1990s, that over­turned the older idea that cuts in min­i­mum wages could yield em­ploy­ment gains.

The pol­icy con­sen­sus on the need to cut wages can be traced back to the 1970s, when there was an up­surge in the wage share of GDP with a sub­stan­tial im­pact on prof­itabil­ity and em­ploy­ment.

This led to the no­tion of a “real-wage over­hang” (wages grow­ing more slowly than pro­duc­tiv­ity), which could only be re­solved by a lengthy pe­riod of re­straint.

The real wage over­hang was largely elim­i­nated as a re­sult of the 1980s Prices and In­comes Ac­cord. How­ever, as in other ar­eas of eco­nomic pol­icy, the con­cerns of the 1980s have con­tin­ued to dom­i­nate think­ing on wages pol­icy.

As re­cently as 2014, the Gov­ern­ment was warn­ing of the dan­ger of a “wage ex­plo­sion”. This dan­ger was non-ex­is­tent and the real prob­lem is the op­po­site: the wage share is too low.

In the 1970s and 1980s, high in­fla­tion was a ma­jor prob­lem and the pol­icy re­sponse was to con­strain wages growth as much as pos­si­ble. In re­cent years, how­ever, in­fla­tion has been too low, not too high.

Vir­tu­ally all the changes that have been made to in­dus­trial leg­is­la­tion over the past 40 years have had the ef­fect of weak­en­ing the unions, and thus re­duc­ing work­ers’ bar­gain­ing power.

Un­der LNP gov­ern­ments, these poli­cies have been re­in­forced by the overt use of power against unions.

The mas­sive ef­forts to de­tect and pun­ish triv­ial wrong­do­ing by unions (such as a fine of $50,000 for en­cour­ag­ing work­ers to wear shorts to work) con­trasts with the softly-softly re­sponse to mas­sive lev­els of wages theft ex­posed in cases such as that of con­ve­nience store chain 7-Eleven, where un­der­pay­ments of more than $100 mil­lion re­sulted in no civil or crim­i­nal penalty.

The de­ci­sion by the Fair Work Com­mis­sion to re­duce penalty rates con­tin­ues the trend of la­bor mar­ket pol­icy which has driven the wage share of GDP to an all-time low. It seems un­likely this pol­icy is po­lit­i­cally or eco­nom­i­cally sus­tain­able as dis­con­tent with un­fair and un­equal in­come dis­tri­bu­tion in­creases.

In­stead of con­tin­u­ing to pur­sue poli­cies that the Fair Work Com­mis­sion now ad­mits will leave work­ers worse off, it’s time to pro­mote fairer poli­cies that are in work­ers’ best in­ter­ests.

Cut­ting the in­comes and en­ti­tle­ments of Aus­tralia’s low­est-paid work­ers is the wrong way to go.

■ John Quig­gin is a Pro­fes­sor at Queens­land Uni­ver­sity’s School of Eco­nom­ics. This ar­ti­cle first ap­peared on The Con­ver­sa­tion web­site.

PHOTO: MIKE KNOTT

OFF THE MARK: The de­ci­sion to cut penalty rates in many ser­vice in­dus­tries was based on a wages myth, says ex­pert John Quig­gin, from Queens­land Uni­ver­sity.

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