Scrutinising the argument for reducing penalty rates

Abstract

The issue of weekend penalty rates has been an important area of contention in Australian industrial relations in recent times, with employers seeking reductions in penalty rates or their elimination altogether. In its recent review of Modern Awards, the Fair Work Commission decided to reduce Sunday penalty rates in a number of awards. The decision was in part informed by a recent review by the Productivity Commission, which had gone so far as to recommend that penalty rates on Sundays be made equivalent to Saturdays. In this article, we examine two of the main justifications for reductions in Sunday penalty rates. We begin by examining the question of whether Sundays are still ‘special’ in a sense likely to warrant penalty rates additional to those on a Saturday. We find that Sundays remain the least preferred day to work, are most valued by employees, and occupy a particular role in time shared with family. We also examine the key claim by the Productivity Commission – accepted by the Fair Work Commission – that a reduction in penalty rates would necessarily result in increased employment in the industries considered. We find that there is little direct empirical evidence for this, and that minimum wage studies have been largely unable to find a net employment effect. The relationship among wages, policy and unemployment is complex in a way that defies simple predictions. There is a need for more direct evidence of the effects of penalty rates on employment.