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Save the weekend! (now with link)

October 12th, 2017

I have a piece in The Conversation about the decision to cut weekend penalty rates. This decision needs to be put in the context of forty years of policy aimed at pushing down wages, eroding conditions (such as the weekend) and weakening the position of unions.

I talked to Fran Kelly on ABC RN Breakfast just now.

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  1. Greg Pius
    October 12th, 2017 at 06:15 | #1

    Professor Quiggin this could not be a more timely wake up call to all labour economists. The Sydney Morning Herald yesterday (11-10-2017) had a front page article giving the latest global warning from the IMF. With over one million members of the Australian labour force now considered to be underemployed, these attacks on penalty rates could not be more damaging to consumption expenditure. On page six of that day’s SMH, the editor used the term ‘Gig economy’ to describe a work environment being warped by operations such as Uber. The inference from Eryk Bagshaw’s article seems to be that structural change has entrenched low wage rates and declining productivity. No labour economist would be surprised to see these two march downwards together. Often politicians forget that wage rises occur because of increases in productivity. No worker can be expected to increase their productive if underemployment reduces job satisfaction and specialization. To then attack penalty rates for the most productive section of the workforce is idiotic. In economic speak we call it suboptimal.

  2. I am and will always be Not Trampis
    October 12th, 2017 at 08:29 | #2

    As a social conservative , possibly the only whom comments here I can only applaud.

    Sunday is about the time time a family can get together.Everyone needs a day of rest and technology means people are working from home on saturdays.(the repercussions are only starting to permeate into junior sports!)

    If consumers wish to purchase goods or services then let them pay for it. If I want a tradie on a sunday I have to pay for it. Why is it different for for anyone else?

  3. October 12th, 2017 at 09:23 | #3

    In the UK, the Anglican bishops in the House of Lords put up a lonely fight against the widening of Sunday trading. They were supported by Catholics and other Christian groups – IIRC also leaders of other religions. The neoliberals won of course, pleading liberty for shoppers – at the cost of liberty for shop workers.

  4. Moz of Yarramulla
    October 12th, 2017 at 10:31 | #4

    Maybe ask Scott Morrison to step in? He’s banking on wages rising at 4% and he’s the treasurer so presumably he has a plan to achieve that.

  5. Smith
    October 12th, 2017 at 10:56 | #5

    @Moz of Yarramulla

    Did he say 4% per year? He might have meant 4% over 4 years.

  6. Moz of Yarramulla
    October 12th, 2017 at 12:48 | #6

    @Smith

    http://www.abc.net.au/news/story-streams/federal-budget-2017/2017-05-16/federal-budget-2017-wages-forecasts-not-likely/8528540

    Here are the numbers the Treasury is using.

    On the most reliable indicator, the official wage price index, it reckons that the pace of wages growth will lift from a record low of just 1.9 per cent to 3.75 per cent — or almost double — within four years.

    Pay gains will more than double to 5.25 per cent a year on a broader compensation measure, if you believe the Treasury.

    I read that as annual growth numbers.

  7. Urbie
    October 12th, 2017 at 14:42 | #7

    Is this an error in the transcript?
    https://theconversation.com/slashing-penalty-rates-a-misguided-response-to-problems-of-the-past-85317
    6th paragraph:

    “This lead to the notion of a “real wage overhang” (wages growing more slowly than productivity), which could only be resolved by a lengthy period of restraint.”

    Should that be the other way around? “productivity growing more slowly than wages”

  8. John Quiggin
    October 12th, 2017 at 23:34 | #8

    @Urbie

    It is an error inserted by The Conversation editors. I’ll write and see if I can get it changed. I also see a typo, which they missed.

  9. Ernestine Gross
    October 13th, 2017 at 17:13 | #9

    Let me play devil’s advocate by proposing there is a strictly positive probability that reducing or eliminating weekend penalty rates is the proverbial butterfly which triggers big (economic) weather changes (called a recession in the language of many applied macro-economists).

    It starts with some families who rely on the higher paid week-end work to pay the mortgage (or rent) and eat and pay other bills. Take away the higher pay and there is a financial household crisis. Since there are potentially many families in this situation, something will have to give system wide. The rest of the story is a deflationary spiral downward. By the time restaurants, coffee shops , etc notice the decline in demand for their offerings, a lot of other sectors in the economy have noticed, including property investors and property owners.

  10. Greg McKenzie
    October 15th, 2017 at 07:52 | #10

    Ernestine is once again exactly correct in her causality scenario. Last century John Maynard Keynes warned about encouraging thrift by threatening workers’ incomes. He was observing the greatest deflationary spiral even seen. For once in the 150 year capitalist systems reign, there was no self correction. There was a lot of destruction of established but little creation of new businesses. And, as Ernestine pointed out, all this is predicated on the demand side. Politicians in this country are obsessed with supply side economics. That’s like calling tails all the way through a game of two up. It is just a silly thing to do. Ignoring the demand side gets an economy into the predicament that Japan found itself after the end of its long boom. Stagnation is very difficult to recover from, yet our government is racing us towards the cliffs of deflation.

  11. Ikonoclast
    October 15th, 2017 at 09:42 | #11

    @Ernestine Gross

    I agree. We don’t agree about everything (and I say so in such cases) but it is certainly worth flagging where we are in agreement.

    It’s such a short-sighted policy to cut the wages of those who are already low income workers. It clearly has bad social effects. It also clearly has a high probability of putting recessionary pressures on the economy.

    When will we ever be able to stop this austerity nonsense in Anglophone countries? Anglophone countries are the worst but not the only offenders re “austerity” policies.

  12. Ernestine Gross
    October 15th, 2017 at 15:46 | #12

    Greg, I come from the analytical branch of theoretical general equilibrium models and their subsequent agent models. Quite big names in this area have no problem with Keynes’ work. On the contrary, some credit him with spelling out flow on effects and out of (Walrasian) equilibrium trading (leading to forward dynamic models with critical parameter values in bifurcation situations). My comments are merely IMHOs, based on comparing theoretical conditions with statistical information on observables. Economists who come from the Keynesian literature see the dynamics very easily (but they tend to forget the environmental constraints). As they say, there is more than one way to skin a cat.

  13. Greg McKenzie
    October 17th, 2017 at 07:37 | #13

    Ernestine, Keynes was a professor of mathematics not really an economic academic. His father John Keynes (Snr) was an economist and a personal friend of Alfred Marshall. It was Marshall who tutored Keynes in his economic theory. No surprise then that Keynes ignored environmentally sustainable development constraints. Either, because of his mathematics background, or, for some other reason John Maynard Keynes stayed in the short term time period. Some times he went into market period analysis. He was always critical of the Marshallian tendency to concentrate on the long run. This may also explain, but not excuse, his blind spot as regards the environmental damage that can be done by fiscal surpluses that just “throw money” at macroeconomic distortions. I take your point about the cat. I remind you that cats have nine lives and can, theoretically, be skinned nine times. Keynesian economists certainly need help with ecologically sustainable development theories. I know that I certainly do. So thanks again for your insights.

  14. Charlene MacDonald
    October 18th, 2017 at 23:06 | #14

    Australia is unique with the payrate changing by the time of day, or the day of the week.
    That quirk aside, If lowering of the pay is bad for the economy, why it is that the burden of paying penalty rates falls mainly to battling small entrepreneurs (2 ladies who open a coffee shop & the like) and the reward goes mainly to unskilled young people?

    A totally unskilled teenage girl earns more for plonking down a cup of coffee on a Sunday than I do for perusing the contract for financing of the Intercontinental hotel.
    My salary is ultimately paid by the (in this case) Intercontinental hotel, while the teenage girl is paid by a neighbour who has identified a demand for a coffee shop & bakery in their suburb.

    Penalty rates in retail & hospitality are illogical. They ultimately will disappear from Australia (this may take 300 years).

    Penalty rates in emergency services & hospitals are a totally different kettle of fish. They are not subject to the same elasticity of demand or price, and are not paid by the person who gives up the money. They are paid with money confiscated from workers via tax.

    And no, people will not pay more for Sunday service. Why then are small scale employers (job creators) forced to pay more?

    Illogical. No matter which way you look at it.

  15. Ikonoclast
    October 19th, 2017 at 10:52 | #15

    @Charlene MacDonald

    We need to know the history of penalty rates. Once we know that history, and once we also take into account what appears fair for workers and for employers then we can then start making judgements or decisions about penalty rates.

    According to the ACTU, “Penalty rates were established in 1947, when unions argued in the Arbitration Commission that people needed extra money for working outside normal hours.” The detail of this argument at the hearing is not easy for me to find. However, I believe the gist of such arguments are (and they are historical arguments admittedly);

    (1) There is a normal working week of 40 hours at 8 hours per day Monday to Friday.
    (2) Workers are entitled to a recreation day (Saturday) and a religious rest day or social day (Sunday). I did say these were historical arguments,
    (3) If workers have to forego these worker rights then they should be compensated with penalty rates. The same applies to weekday overtime.

    Now, times have changed that is true. Some of the above assumptions might not hold. But over time some workers became accustomed to normal pay plus some overtime and weekend penalties to make up a pay that they could live on. Wage setting of base rates, it could be argued, was set (arbitrated originally) in some cases at least with the penalty rates in mind so that the likely total of wages for certain workers was a reasonable or living wage.

    To be continued.

  16. Collin Street
    October 19th, 2017 at 11:58 | #16

    But of course McDonalds and Coles spend vast sums of money on penalty rates.

    I mean… if a person’s opinion is demonstrably falsified by information they can’t plausibly not have… giving them more information isn’t plausibly going to help, is it. What they need isn’t more info, it’s how to comprehend the info they already have… and for adults, the way our society is set up that’s something done through the mental health system.

  17. J-D
    October 19th, 2017 at 14:30 | #17

    @Charlene MacDonald

    A totally unskilled teenage girl earns more for plonking down a cup of coffee on a Sunday than I do for perusing the contract for financing of the Intercontinental hotel.

    If that’s true, what is the reason that you aren’t plonking down cups of coffee instead of perusing contracts?

  18. MartinK
    October 19th, 2017 at 17:27 | #18

    @Charlene MacDonald
    For someone who talks about logic, you’ve built your argument on a string of unsupported assumptions. Plus a couple of contentious side remarks. There is a big difference between disagreeing with someone and putting up a reasoned case to the contrary.

    Here are your assumptions:

    – That if something is of benefit to the country, employers/businesspersons involved should get a direct benefit too – even if they get the indirect benefit.
    – Moreover they should never loose out.
    – That they should always get more of the direct benefit than employees.

    – That a teenage waiter should not get paid more per hour on a Sunday than you get during normal hours – or even than you get paid on Sunday. I’m sure you get paid much more overall and have much better career prospects.

    – That there is something important about an international hotel or financing it.

    – That penalty rates in critical services such as hospitals has anything to do with the argument. In this case it simply doesn’t, it is irrelevant.

    – That elasticity in demand should have a substantial influence on policy. I am sure you would argue that this is do to with job creation, but that is a separate issue and one that is far from being settled on your side and so carries very little weight.

    – That employers shouldn’t have to pay their staff more if customers don’t pay more. What is inherently wrong with lower margins on the weekend? And I should point out plenty of pub and club patrons seem only too happy to pay weekend surcharges.

    And then there are the side remarks that businesspeople (presumably small business people) are job creators and that tax is confiscation. These are both highly debatable, absurd in the case of tax for hospitals, and as such don’t help your argument.

    I agree with John that any reduction in benefits over the last few decades has no motivation besides pushing down wages and conditions. There are no benefits for most of us, and I support that claim by the fact that that is the expected direct consequence and that their has been no evidence of indirect benefit over the decades.

  19. Charlene MacDonald
    October 23rd, 2017 at 17:21 | #19

    @MartinK
    Interesting set of assumptions you lump onto me. I’ll clarify your assumptions of my assumptions;

    -If a course of action doesn’t benefit the person doing it, there’s a fair chance they won’t do it, or at best, will do it most reluctantly.
    -If someone is going to lose out, then they are unlikely to take a certain course of action.
    -If there is not a benefit to the employer, there is little to no chance they’ll hire an employee to perform a task.
    -I am not the only person to have observed the (very) high Sunday pay rate for unskilled teenagers. This high pay rate won’t be doing much to increase the chances of unskilled teens, or anybody else, having a Sunday job.
    -My point was a large corporation can afford a few bucks on a Sunday and possibly not notice it. Someone living hand-to-mouth will not only notice a Sunday cost, but may well be unable to pay that cost.
    -I made no assumption that critical services have anything to do with the argument, I was specifically excluding. Thus you may wish to polish up on your reading-for-comprehension 😉
    -Elasticity in demand influencing policy wasn’t my point. The influence upon willingness to supply was, however.
    -I don’t know where you live, but in most of Australia increased prices on weekends is a killer. The result is often a total black-ban of that business.

    -Small businesses ARE the employers of the Australian population.
    -Tax IS confiscation (what else can it be?)

    Got a quick opinion on why the rest of the world not only gets by without pay rates changing according to the time of day, but how they get by with significantly lower pay rates in retail/hospitality?
    Certainly the high pay rate in Australia does not lead to improved service, quite the opposite in fact – as can be attested by anybody who has been overseas.

    If “public good” is a goal, by the yardstick of “the lower the pay the better the service” then pay rates in hospitality/retail should be halved tomorrow Australia wide.

    You got about half of my assumptions correct.

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