Penalty Rates Reform

Penalty Rates Reform - November 2015

Aligning Sunday penalty rates for hospitality, entertainment and retailing industries with the current levels for Saturday, as proposed in the Productivity Commission's draft report, will lead to more employment and greater availability of services in these industries on Sundays.

Overview of this month's poll results by Professor Bruce Chapman

This brief offers commentary on the second issue raised for consideration by the Economics Society of Australia Panel of Experts and is related to Sunday penalty rates. 

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Poll responses

Chart 1 responses

Chart two responses

Panel responses

Name Response  Confidence Comment
Peter Abelson

Kym Anderson
Strongly agree10 
Gary Banks

Strongly agree10And why stop there? Penalty rates penalise organisations that need to work seven days and workers for whom weekend work is preferred -- including within the participation priorities of women and youth. Penalty rates as currently structured are the vestige of a bygone era. The only policy question is how best to effect the transition to modernity.
Gary Barrett
Harry Bloch
BLOCH, Harry
Agree7The question ignores the potential impacts elsewhere in the economy. Declining penalty rates reduce the income and expenditure of those already working on Sundays unless fully compensated by higher hours. Also, higher trading on Sundays may simply divert expenditures from other days, leading to employment losses on those days.
Jeff Borland
David Butler
Matthew Butlin
BUTLIN, Matthew
Strongly agree9This change will make employment profitable to a service provider at lower levels of demand for the service provided - for example meals and personal services covered by the current structure of penalty rates. All things being equal, this would increase the supply of services in areas where current levels of demand are below what is currently required to make the service profitable as well as areas where there is currently high demand. This could be expected to favour non-metropolitan areas disproportionately - that is, to increase the choices to consumers in those areas in particular.
Lisa Cameron
Agree6This move would likely lead to an increase in these services on Sundays and possibly more employment in response to the lower wage - whether this is desirable or not is a separate point. In my view workers should be compensated for working on a day which is less desirable to many and the impacts on family life of more weekend activity and employment need to be taken into account and may well offset any welfare gains.
Fabrizio Carmignani
Disagree8I think there is not enough evidence in the PC draft report (or anywhere else) to conclude that Sunday penalty rates should be lowered. The fact that there is increasing demand for services on Sunday does not imply that workers should be paid less to provide those services. In fact, one would argue that workers should be paid even more. If the logic underlying the PC's draft report were applied to emergency services (which citizen would like to access 24/7), then what should the salary of a doctor in the ER or a policeman on duty on Sunday be ? I have an additional concern: if longer opening hours on Sundays imply that consumers spend more time and money at cafes and restaurants on Sundays, then the volume of business of these shops in weekdays might decline. If this happens, than the net effect on employment becomes even more difficult to predict.
Bruce Chapman
Deborah Cobb-Clark
Max Corden
Lin Crase
Uncertain (neither agree nor disagree)7The presumption in this statement seems to be that all services in these sectors are equivalent and that labour is easily deployed to various tasks across them. Whilst this policy change would likely put downward pressure on pay rates, highly skilled practitioners in these sectors (many of whom may be in scarce supply on Sundays) should have some bargaining power. This also raises questions about the quality of service received on different days (depending on the service being provided of course and the skill levels required) and the willingness of customers to accept variations. "Greater availability of service" might not translate to "greater availability of the same service".
Kevin Davis
DAVIS, Kevin
Strongly agree9There is a problem with what is actually meant by penalty rates. Is it the rate for "overtime" eg someone doing more than 35 hours per week with the overtime being on sunday, or simply a rate paid to someone who works on sunday regardless of whether they work at any other time of the week. If the latter, it is not clear why sunday rates should differ from other days - but arguably should differ (given social views on "weekend") if weekly employment contract offered by employer requires some part of work to be on weekend.
Brian Dollery
Strongly agree9 
Uwe Dulleck
Strongly agree9This is a bit of Economics 101 that is very likely to work, the harder judgement is to judge whether a) this is wanted per se (taking family time from at least some families but offering more potential for joint experiences to others - hopefully also at lower prices) and b) whether one supports the implied redistribution of surplus away from workers that currently enjoy higher penalty rates on Sunday. But both of these do not affect that it will increase employment and service available on Sundays.
Mardi Dungey
Uncertain (neither agree nor disagree)7This is a more complex question than it first appears as there is both a demand and supply side.There are many experienced and well qualified workers in this sector who choose to work only on days where they make penalty rates. Will these workers still choose to offer labour to this sector when their wages are effectively reduced? Can more/less skilled labour be simply substituted? Currently retailers tend to absorb this cost into their overall cost decisions - we don't pay higher prices in supermarkets on Sundays, so the difference is not likely to lead to much price change. Businesses which open on Sunday currently will receive some gain, but as they are already operating at minimum efficient levels of employment why would they increase their staffing levels? Small business seems the most likely to see possible increases in activity and employment. The net outcome is not clear.
Chris Edmond
Agree8I agree with the statement, but want to note that this statement only speaks to potential benefits from such a policy change and does not even mention the various costs. My agreement with the statement should not be taken to imply that I believe such a policy change is socially desirable.
Henry Ergas
ERGAS, Henry

Saul Eslake



Allan Fels
FELS, Allan
Strongly agree8The case for this reform is very strong. It is worth noting that the 7-Eleven case and other disclosures indicate considerable non compliance with this law in a significant number of cases.
Gigi Foster

Strongly agree9The Commission's arguments are well-founded theoretically and accurately describe current realities. These realities include frustrated would-be Sunday buyers, long hours of weekend work by owner-managers who cannot afford Sunday rates, and dysfunctional incentives for workers to substitute Sunday work - if they can find it - for investments in further skills. Arguably the very social activities that the Sunday pay rates supposedly support are presently hampered by the inaccessibility of places to buy goods and services that are complementary to those activities (e.g., cafes, restaurants, alcohol, etc.). The potential countervailing force against employment rising as a result of this change is workers' unwillingness to work on Sundays. I suspect that this imagined unwillingness is not the binding constraint in the market at present, and that the binding constraint is instead the present unwillingness of employers to provide jobs on Sundays at outlandish rates of pay.
John Freebairn
Agree9A first round story assumes (i) labour supply for Sunday similar to Saturday, which seems reasonable, and (ii) no other changes to labour remuneration, which seems both unreasonable and unlikely. For second round, offsetting compensation will have little effect on Sunday services and would reduce magnitude of first round employment increase.
Paul Fritjers
Strongly disagree8I think it will have almost no effect on overall employment, merely shifting activity from Saturday to Sunday. Its main effect will be to reduce the rent-sharing of workers and normalize Sunday as a regular working day, both to the detriment of workers but to the benefit of large employers. It is hence mainly a distributional issue.
Lata Gangadharan
Uncertain (neither agree nor disagree)5While this may mean that employers can pay a lower rate on Sundays, some employees may choose to not work at the lower rate. So it is not clear if employment would definitely increase.
Ross Garnaut
Robert Gregory
Stephen King
KING, Stephen
Strongly agree9The employment and service effects are likely to be modest (but the statement "will lead to more" is fairly weak). As the PC notes, the real winners will be the consumers with some increase in available services and a reduction in 'Sunday surcharges'. The higher Sunday penalty rates seem a left over from last century. If workers need protection from being required to work too many days in a row then the wage system should directly address this - not by picking 'Sunday' as the day to either have off or be paid significantly more.
Geoff Kingston
KINGSTON, Geoffrey
Strongly agree8The current industrial-relations practice of differentiating Sunday from Saturday has become an anomaly, in view of the current levels of church attendance.
Michael Knox
KNOX, Michael
Strongly agree10

Penalty rates actually penalise the unemployed by reducing the demand for service employees.Aligning Sunday rates with Saturday rates would increase output in the services sector as well as increasing employment.

The Australian services sector need all the help it can get to help it to grow while Australia continues to suffer from the slump in non residential construction at the end of the mining construction boom.

Rodney Maddock
Strongly agree9There should be a positive impact on trading and on employment on Sundays. Part of this will involve a switch in spending from other days and other categories with a very small overall impact. Consumers will gain from greater convenience: some employees will lose.
Tony Makin
Agree8To the extent that penalty rates force hospitality, entertainment and retailing outlets to close, there is less choice for households to spend on and at leisure, and less employment for those Sunday suits to work.
Warwick McKibbin
Strongly agree9 
Doug McTaggart
Agree7For many people, weekends are not what they used to be, and are just another part of the week. Given there would be a willing supply of labour, and a demand for it from those entities that currently close due to higher weekend costs, there should be a market outcome that suits many.
Menezes photo Flavio Menezes
Uncertain (neither agree nor disagree)9While there is some empirical evidence that penalty rates may reduce demand for labour, the impact of the reduction of the Sunday penalty on employment will depend on both demand and supply responses, and it could in principle go either way. However, there is no empirical evidence that I am aware of that supports the proposition that the overall effect on employment will be positive although it is plausible proposition -- many workers will have a limited opportunity to choose between Sunday and Saturday or weekday work in the absence of a Sunday penalty rate. Moreover, there is also no empirical evidence to support the proposition that a reduction in the Sunday penalty rate will be sufficient to result in more businesses opening on Sundays. Again, this is a plausible proposition to the extent that wages constitute a high share of costs for hospitality, entertainment and retailing businesses.
James Morley
Strongly agree8A casual glance at experiences in other countries with similar cultural histories (e.g., Canada) would suggest that this is so.
Margaret Nowak
NOWAK, Margaret
Uncertain (neither agree nor disagree)8The proposition that the reduction in penalties would lead to greater employment implicitly considers only the labour demand side. On the supply side we have to consider the preferences for leisure (at times when most of the community have leisure). The leisure/wage rate trade-off would result in lower supply at lower penalty rates? Is there an over-supply of people willing currently to work at Sunday rates which may still see enough supply to meet any increase in demand?
Adrian Pagan
PAGAN, Adrian
John Piggot
Strongly agree7 
John Quiggin
Strongly disagree10

My rating reflects the fact that this question is ill-posed, and should not be used as a basis for policy analysis.

Very probably, reducing wages *on Sundays* will increase employment and service provision *on Sundays*. But this will be wholly or largely offset by reductions in employment and service provision on other days of the week. The question excludes this effect from consideration.

The exclusion of this substitution effect, a standard prediction of intermediate micro,  earns this question a Fail grade in my view.

Rana Roy
ROY, Rana
Agree7The answer is probably "yes" but the question itself is a little under-cooked. The proposed re-alignment of penalty rates should lead to an increase in employment and output "in these industries on Sundays" (though the interaction with other aspects of the labour market as well as the tax and social security systems may well limit the gains). But perhaps the more relevant question – and one that is more difficult to answer – is whether such a re-alignment alone would lead to an "economy-wide" increase in employment and output.
Peter Sheehan
Agree8The more interesting question is whether this change produces a net benefit to society, and whether the benefits to some outweigh the costs to others.
Jeffrey Sheen
SHEEN, Jeffrey
Hugh Sibly
Strongly agree9The PC is almost certainly correct on the impact of the change. Of course it is a separate question whether the change is desirable.
stepledon photo (2)Nigel Stapledon
Strongly agree10 
John Tisdell
Joaquin Vespignani
Strongly agree9I believe penalty rates are bad for the economy, any reduction and/or elimination of penalty rates will be good for both employment and the economy.