We Asked an Expert What Cutting Penalty Rates for Hospitality and Retail Will Do for Australia

I remember starting my first job, flipping burgers at McDonald's; aged 13. At that time I was pumped to be getting $5.55 [$4.08 USD] an hour, but the real juice came from working weekends and public holidays. That's when penalty rates kicked in and my wage surged to as much as $8.30 [$6.10 USD].

The same setup still occurs today with workers receiving a 125 – 150 percent increase in wages on Saturdays, a 175 percent increase on Sundays, and a 250 percent increase on public holidays. Why does this happen? Because it sucks to work when others are kicking back.

With Australia's latest Productivity Commission draft report just released, this may all change. While it recommends more traditionally skilled workers—those in the nursing, emergency, and police sectors—keep their penalty rates under the workplace relations system, the report calls for hospitality and retail workers to have weekend and public holiday rates cut.

Hospitality and retail comprises 17.6 percent of the Australian workforce, or just over two million people, and you won't be surprised to hear that the largest portion of these workers are young adults (15 - 24 year olds). Under the changes, Sunday wages would be cut to Saturday loading rates, and public holiday rates would go down to Sunday's penalty rates, meaning less money for some of Australia's lowest earners.

The plus side? According to Jetty Research conducted on behalf of the Commission's report, 39,000 extra staff would be employed nationally on Sundays and public holidays as a result of reduced penalty rates, and 60,000 extra hours of employment would be generated.

When I spoke about this to a representative at the Australian Industry Group, a specialist group on policy, workplace relations, and the economy, they sent me a statement which said "Australia's current system is not delivering the adaptability that employers and employees need." In other words, business leaders feel the cuts are necessary, and that employees will ultimately benefit.

To find out how likely these aforementioned benefits are, and to get a picture of what a post-penalty Australia might look like, we chatted to Professor William Mitchell, an expert on Economics from the University of Newcastle. He gave us a different view on the matter.

VICE: Do you think it's a good idea to cut back penalty rates?
Professor William Mitchell: I don't agree with it. We need to maintain penalty rates. They serve a valid function and allow for lower income workers to receive a better income.

If the cuts go ahead, what will it do for workers in the hospitality and retail industries?
It will result in much lower wages for workers. It will result in workers being pushed closer to the poverty line.

But the report is saying the penalty cuts will result in more work. That's a good thing, right?
People say that it will stimulate employment but I believe it is erroneous. All this will do will give bigger profits to business owners.

So you don't think those profits will flow on to workers?
Many businesses that are currently affected by penalty rates are already highly profitable. Employees will be the ones that suffer, as business owners won't pass the extra profits onto workers.

Will the cuts at least make things better for consumers? Will prices come down?
Prices will remain the same; it's just that owners will increase their profits. At the end of the day workers are consumers as well. If it's about stimulating the economy it won't happen, as people are making less money and therefore will not spend it.

What will it do for the economy as a whole?
I believe the economy will slow down. This will take out a considerable portion of wages and that will result in the economy slowing. Consumers won't find cheaper food, it will just undermine spending because, as I mentioned before, workers are consumers.

Doesn't it all come down to the idea of a meritocracy? Restaurant owners have been advocating for a US style tips-based structure in which customers reward workers for good service. Would such a system work in Australia?
It isn't in our culture to do that. It would be extremely hard to implement, as we have never done that. Although I often tip when I dine out, it's not embedded in Australian society to do so. We should get a decent wage for the work that we do, especially if we are going to give up our weekends and public holidays.

The recommendations imply weekends are more valuable to skilled workers than unskilled workers. Is this an economic principal?
The economic claim is that if you lower prices, spending will increase and so will employment. This has always been the argument, especially by the Australian Arbitration Commission. There is, however, no substantive proof on this though. If you cut the wages of workers there will be less spending in the economy.

If it were up to you, what would you do with penalty rates in Australia?
I would keep them. They serve as a good function for low-income workers to earn a better wage. They serve to assist workers. They are giving up precious time with families, especially on the weekends and they deserve to be rewarded for that.

What advice would you have for young people working in these industries?
Not really my place to comment. I would advise to try and get a higher education and leave but that is not for me to decide, it's up to the individual.

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