Sets a precedent to extend to other sectors.

Cutting penalty rates will not deliver significant jobs growth according to a group of Australian economists. More than 75 professionals from economic and related disciplines have issued a public statement to the effect that cutting wages will not create jobs, but will ultimately undermine household incomes and national economic growth.  

According to Market Economics managing director, Stephen Koukoulas (pictured below) consumer spending is the main driver of employment in the retail and hospitality industries not wage fluctuations.

Koukoulas, who was senior economic advisor to former Prime Minister, Julia Gillard, said most employees in retail, hospitality, pharmacy and fast food would see their Sunday and public holiday wages fall by 25 to 50 percentage points of the base rate.  “For some, that amounts to lost earnings of $10 an hour or more.  While this will have a major impact on the individual pay packets of affected employees, the overall impact on hiring decisions for hospitality and retail businesses will be minimal.”

He said it was unlikely that businesses would undertake significant new hiring because of a reduction in their relative operating costs on a Sunday. “At most we will see a reallocation of work to Sunday from other days of the week, with little net change.

“There is strong economic evidence that changes in statutory pay rates have small, indeterminate impacts on employment.  However, cutting wages for some of Australia’s lowest paid employees, already struggling to make ends meet, will only lead to a greater gap between rich and poor.  It will mean increased welfare payments and reduced income tax revenues,” Koukoulas said.

“We are living through a period of unprecedented wage stagnation, the worst in post-war history,” according to Dr Jim Stanford, economist and director of the Centre for Future Work, a labour and employment think tank based in Sydney and associated with the Australia Institute.

He said this is reflected in weak household spending, which is a direct contributor to national economic growth and prosperity.

“Women, newly-settled Australians and young people would be disproportionately affected.  These employees are often earning low-wages and are often in precarious and unstable work arrangements.  Reducing take-home pay for retail and hospitality employees will result in greater inequality.

“It is reasonable to presume that the precedent set by this decision will extend to other parts of the economy and make it easier for employers to argue for penalty rate cuts in other sectors,” Stanford said.