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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 …

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.

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  • 1
    MJPC
    Posted Wednesday, 12 March 2014 at 2:06 pm | Permalink

    This whole penalty rate argument is a con. The LNP (and their willing allies in business) have focused on the hospitality sector (particularly food/drink) because it is an easy hit. Large casual and part time workforce, often school children doing menial jobs, low unionism; they’ll cop it sweat.
    So, they will sacrifice their rates for a few dollars more and that’s one domino to fall.
    We can also look forward to none of those weekend surcharges on restaurant bill..no?
    Next it will be the federal public service, can’t have the public service at an advantage over the ordinary worker and, besides the PS are a bunch of bludgers; another domino falls. Then it will be state PS workers turn , a bit harder to deal with as they are the people who look after the society; Nurses, firemen, Police, Ambo’s etc. I would’nt want to be a politician attending hospital when they have just screwed the staff over wages.
    Penalty rates are 30% of staff wages on full time work on a normal shift roster; for instance it enough that Nurses have often to look after society’s problems, but at a reduced pay. I guess there are always 457 visa staff from Africa or some other third world country.

  • 2
    klewso
    Posted Wednesday, 12 March 2014 at 2:19 pm | Permalink

    re what Abbott says/craps - he also has a Senate election coming up in WA, and stands to lose 33% of those winnings made last throw of the dice.

  • 3
    Kevin
    Posted Wednesday, 12 March 2014 at 2:36 pm | Permalink

    Working permanent-part time . I earn only $400 per fortnight more than the ‘dole’, and that includes afternoon/night/ weekend work. Taking away penalty rates will severely impact on my ability to pay rent, health insurance, utilities let alone food.
    This neocon obsession with kicking the lowest paid is counterproductive at best, and will remove any incentive to work all together.
    After all wasn’t our current PM the one who went crying to Rudd asking for more money, after loosing the 2007 election, about not having enough money to live on a lowly opposition back benches wage?

    Maybe all the numpties who voted this vile government in, will realise they have been taken for a ride?

  • 4
    Crew.Doug
    Posted Wednesday, 12 March 2014 at 2:37 pm | Permalink

    Bernard, I’m struggling to see why you chose the hospitality sector to illustrate your point on penalty rates. Maybe it’s different in Canberra, but in the inner west of Sydney you’d be lucky to find 5% of restaurants or cafes that paid the award wage, let alone penalty rates. Cash in hand is what is offered and accepted.

  • 5
    Jimmyhaz
    Posted Wednesday, 12 March 2014 at 6:43 pm | Permalink

    I think that in the end, it boils down to one simple question.

    What is the role of government, to ensure business profits, or to ensure the wellbeing of its constituents?

    If it is the first, scrap penalty rates, if the latter, keep them in place.

    There is, of course, some wiggle room here, but given that percentage of business earnings going to wages are at record lows, its hard to argue that it is penalty rates that are impacting upon the private sector’s sluggish recovery. (It’s lack of government spending, but don’t tell the LNP.)

  • 6
    Nicola Heath
    Posted Wednesday, 12 March 2014 at 8:04 pm | Permalink

    I worked in hospitality for years & it was rare to find an employer who paid anything but cash in hand, which means the discussion about the effect of penalty rates on the industry tells only half the story.

  • 7
    Jill Baird
    Posted Wednesday, 12 March 2014 at 9:17 pm | Permalink

    Kevin, why do you need to pay health insurance?

  • 8
    mikeb
    Posted Thursday, 13 March 2014 at 7:53 am | Permalink

    I have 3 kids and all 3 work penalty hours. 1 of them is paid partly cash in hand but the other 2 are strictly paid by the book. The penalty rates compensate them for being basically “at call” and not just the odd hours. Just this weekend a fishing trip was cancelled with an hours notice because of a late call by the employer. She could have refused to work but that tends to not go down well in the long term. Penalty rates if nothing else encourages the employer to be judicious in their demands. If it was open slather then no time would be sacred.

  • 9
    Kevin
    Posted Thursday, 13 March 2014 at 9:59 am | Permalink

    @Jill Baird, do you have perfect teeth, vision and hearing? The cost of dental care and optical is enough to justify paying for health. BTW I am not young, my parents relied on the public dental system of the late sixties/ early seventies, which has resulted in every remaining tooth in my head having a filling, which require maintenance. My vision is failing, requiring specialist treatment.
    If you don’t believe in private health care, that’s fine and your opinion.

  • 10
    Observation
    Posted Thursday, 13 March 2014 at 3:22 pm | Permalink

    This is Abbott attacking low paid workers. You dont see any reforms for bonus payments to CEO’s etc. They have their eyes fixed on attacking unions and what they represent at any cost, which is of course penalty rates which the unions fought for and won.

    Its a typical Abbott shot in the engine room policy from deep in the conservative magazine. A policy that is in their DNA and will push to implement at any cost. Divide and conquer the low income and public service sector. This will be the result of many of the effected being on a work for the dole scheme.

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