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Federal

Mar 12, 2014

Hunting for the penalty rates evidence proves a tricky task

The evidence for the impact of penalty rates on the hospitality sector proves surprisingly hard to find. But there are some important clues ...

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Despite what is now an extended period of moderate, indeed historically low, wages growth, Australian workers are again being told they are paid too much. But while the call for wages cuts has come from some business figures and Wall Street bank economists, the government itself has been more wary.

As Crikey has previously noted, Prime Minister Abbott has been at pains to say he does not support wage cuts per se, but has focused instead on workplace conditions and loadings. In his haste to do so, he was caught out making stuff up about SPC Ardmona’s workers. But increasingly, the Coalition focus has been on penalty rates for work outside normal business hours and in particular on weekends.

The attempt to distinguish between “real wages” and penalty rates is a furphy: a worker who loses her penalty rates will be just as out of pocket as if she had her basic wage cut; her spending will be just as reduced; the impact on those businesses that benefit from her spending exactly the same. Cutting penalty rates will cut consumer spending; one business’ gain will be another’s loss by the same amount, unless income obtained from penalty rates has some magical property that we don’t know about. Moreover, the people dependent on penalty rates tend to be low-income earners, who save little and for whom even small reductions in income can have significant impacts on their standard of living.

The case for cutting penalty rates is primarily anecdotal: lots of business figures and commentators claim that many businesses in the hospitality and retail sector don’t open on Sundays because it is too expensive to do so, that the problem got worse under the Fair Work Act because it curtailed the ability of employers to demand “flexibility” and trade-offs of workers, that workers are in effect being priced out of jobs because of an anachronistic, 19th century idea that weekends are somehow different from the ordinary working week.

Let’s put aside whether this is just more of the relentless encroachment of capitalism on those periods of our daily lives when we’re not dutifully consuming or producing, and look specifically at the hospitality sector and see what the data tells us about it. In 1996, food and beverage services (the Australian Bureau of Statistics classification that covers cafes, pubs, clubs and restaurants) employed around 450,000 people, or about 5.3% of the entire workforce. In 2013 it employed around 670,000 people, or around 5.8% of the entire workforce. In 2007, under WorkChoices, it employed around 560,000 people or about 5.6% of the workforce.

So whatever impact penalty rates might have, they haven’t stopped the food and beverage service sector from growing both in size and as a proportion of the overall workforce over most of the last two decades. If anything, it has grown faster in the last six years than in the previous decade.

“If the hospitality sector is being forced to close its doors on weekends, it’s absolutely coining it the rest of the time …”

But what about part-time workers, the group said to be especially problematic in terms of weekend employment? In 1996, around half the food and beverage service sector was part-time. Now, around 60% of that workforce is part-time. That is, part-time employees have grown even faster than the overall food and beverage service workforce. It is true, however, that much of that growth as a proportion of the workforce occurred before 2006; part-time employment merely grew at a similar, if slightly faster, level to full-time workers in recent years.

The reason for the growth in that workforce even as a proportion of the rest of the Australian workforce is because we’re spending much more on food and drink. In the 1980s we spent less than 10% of retail turnover on cafes and restaurants; as recently as 2009 we were spending 12%. In January, for the first time, we spent 14 cents in every retail dollar in cafes and restaurants — over $3.2 billion.

If the hospitality sector is being forced to close its doors on weekends, it’s absolutely coining it the rest of the time in a sector that is enjoying the results of a significant lifestyle shift by Australians. Moreover, employment in the sector hasn’t grown as fast as turnover, which means employers are getting more turnover per worker (despite the alleged “productivity crisis”).

However, what has happened is that growth in the actual number of outlets has slowed. You’d assume that with a big rise in the level of consumer spending, the number of, for example, cafes and restaurants would similarly increase. In 2012 (the most recent ABS figures; the 2013 data comes out later this month) the number of cafes and restaurants across the country was just below 32,000; it had been 31,000 in 2007, and 27,500 in 2003.

Is this, finally, some evidence that penalty rates have affected the sector? Alas, no: it was the financial crisis. In 2009, the number of outlets had fallen to 28,000 as consumers hunkered down in the face of a global economic crisis. So penalty rates haven’t prevented a rapid recovery in the number of new cafes and restaurants since then as consumers have re-opened their wallets.

None of this clinches the penalty rates argument, of course: this is only one sub-sector. And perhaps it’s easier to absorb the impact of penalty rates when you’ve got more money coming in through the door compared to, say, traditional retail, which has had it tougher in recent years. But it’s hard to see how penalty rates have curbed the rapid growth of the hospitality sector in recent years.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics.

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