At a time when Australia’s workers are seeing an extended period of record low wages growth, the Fair Work Commission has decided that many of Australia’s low-income earners are overpaid and need their penalty rates cut. 

Today the Fair Work Commission, reflecting three years of Coalition government appointments to the industrial relations body, decided that Sunday penalty rates are too high for retail and hospitality workers and should be wound back. The hospitality sector, despite evidently being hampered by having to pay its workers too much, has grown its employment by 11.4% since 2011, far outstripping  the overall workforce, which grew by just 6.8%. But at least Commission has partially solved the problem of major retailer franchisees like 7-Eleven, Caltex, Domino’s and others systematically underpaying their workers — now they don’t have to pay them as much in the first place.

Inconveniently, however, the decision comes less than 24 hours after the Australian Bureau of Statistics revealed that the long streak of non-pay rises for Australian workers is continuing, with seasonally adjusted private sector wages rising just 0.4% in the December quarter, for an annual growth rate of 1.8%. That’s yet another record low for the wage price index series.

It means that workers are getting a small real wages rise, on average — but only because inflation is so low: 1.5% annually in the December quarter, and 1.3% before that.

[The dirty secret of penalty rate opponents: business is booming]

This extended period of record low wages growth is both giving voters the sense of going nowhere and getting nothing from the economy — which feeds into the toxic populism that is growing like a cancer in politics — and crimping the government’s revenue. The Mid Year Economic and Fiscal Outlook cut forecast wages growth by half a percentage point to 2.25%, but that will still need a substantial rise in the March and June quarter to come close. The Fair Work Commission’s War on Waiters and Savaging of Shop Assistants won’t help the 2017-18 forecast of 2.5% (itself revised down) either. And remember, hospitality and retail staff tend to be our lowest-income earners — and thus spend a whole lot more of their income than middle- and high-income earners, who save more. So that cut in penalty rates will flow straight through into spending by low-income earners. Retailers will thus earn a nasty little dividend from their long-sought victory over their employees.

The Reserve Bank has been looking for signs of wages growth and an uptick in inflation (to carry it up into its target band of 2-3%), but there’s none on the horizon, and a look at the labour market shows why: full-time employment continues to be very soft, with 40,000 full-time jobs lost in 2016 in trend terms and overall employment growth less than half the long-term average. Today’s capital expenditure figures (with their well-known flaws) don’t provide much confidence for the coming year: the tail end of the mining investment boom fall-away is still working through, so actual investment is down this year compared to last and forecast investment is also down compared to last year’s forecasts. Manufacturing investment is continuing to perform, but not as strongly as last year; only “other industries” is showing growth.

[Get Fact: are penalty rates killing small business?]

All of that means, despite the resurgence in commodities prices, the economy is continuing its recent tepid form. And whatever is ailing the retail sector, cracking down on all those greedy sales assistants isn’t going to fix it. In contrast to hospitality, retail employment has grown at a slower rate than the overall economy in the last five years, and there have been a number of high-profile collapses. But Dick Smith wasn’t caused by high wages — instead, by a management and board out of touch with stock levels and actual sales. Then there’s Target, victim of bad decisions, including at Wesfarmers (its owners); Woolworths’ failure in hardware that cost it and shareholders billions of dollars as the result from a poorly planned diversification (now Big W is in trouble for Woolies — the chain has had several CEOs in three years and is now burning up millions of dollars in trading losses a month as well as write-downs and impairments).

The collapse of fashion chains such as Marcs and kids’ retailers such as Pumpkin Patch reflect weak demand and the arrival of new entrants — Solomon Lew’s Seed is carving up the children’s fashion sector and growing rapidly. JB Hi-Fi, even before its near $1 billion takeover of The Good Guys, has a growing history of meeting of exceeding its sales and profit targets. Gerry Harvey’s various chains are doing well, some brilliantly so as the grow rapidly here and expand offshore.

Retail is profitable if you have smart management — exactly the way it should be. And hospitality has been going gangbusters for years. But apparently we need to get stuck into some of our lowest paid workers, many of whom are already being ripped off by unscrupulous employers. Talk about being agile and innovative.

Peter Fray

Fetch your first 12 weeks for $12

Here at Crikey, we saw a mighty surge in subscribers throughout 2020. Your support has been nothing short of amazing — we couldn’t have got through this year like no other without you, our readers.

If you haven’t joined us yet, fetch your first 12 weeks for $12 and start 2021 with the journalism you need to navigate whatever lies ahead.

Peter Fray
Editor-in-chief of Crikey

JOIN NOW