Disgraceful cut in wages for more than a million low-wage workers in Australia

In case you thought that neo-liberalism had gone and buried its head in shame after all the disasters that it has wrought after several decades of privatisation, outsourcing, pernicious welfare changes, fiscal austerity, out of control banksters, dramatic increases in income and wealth inequality, then Australia’s most recent effort will remind that it is still alive and well and morphing into something more nasty than we have previously seen (in this country). On Thursday (February 23, 2017), the Fair Work Commission, which is the judicial body empowered by the Federal Government to set minimum wages and conditions in all sectors (so-called ‘awards’) determined that the lowest-paid workers in Australia – more than a million of them (in an employed Labour Force of just over 12 million) – were getting too higher wages and incomes. Accordingly, they decided to cut wages – not just the real equivalent but the actual wage rates that these workers earn. The judges (who I guess do not work as a matter of course on Sunday) have fallen prey of this 24/7 greed for more profits and determined that Sunday work no longer justifies the existing penalty rates. Their decision to savagely cut them just means the bosses pocket more profits and workers move closer or into poverty with rising bankrupcties, mortgage and credit card defaults and the rest of it. The decision is a disaster for the lowest-paid (hospitality, retail and cafe) workers in this country and it will feed through to other sectors before long. The Federal government could easily legislate to stop the cuts. It won’t. The trade unions could rebel. They won’t. So it is really left to us – the citizens to do everything we can including boycotts of firms who exploit the decision to proctect the wages of the poor.

Please read my previous blogs in the topic for more background:

1. Penalty wage rates are still justified for non-standard hours work.

2. No case made to cut penalty rates.

I was also quoted in the press following this decision – for example, Penalty rates won’t reduce prices for consumers: employers.

On Thursday, I also noted in the blog – Australia’s wage outcomes – a race to the bottom and nowhere – that wages growth in Australia was now at record lows and that real wages growth has stalled completely, despite on-going productivity growth.

Meaning: profits as a share of national income have grown substantially in this neo-liberal period at the expense of workers.

I have also shown that Australia is becoming a part-time employment nation with rising underemployment and a collapse in full-time work. See blogs under the Labour Force category on the right.

But that isn’t good enough is it.

Not content to hold all workers down to low rates of wages growth, the business sector (top-end-of-town) has waged a long campaign to get rid of penalty rates – which are bonuses on top of the normal wage rate to compensate workers for working in non-standard hours (like night shifts, weekends and public holidays).

While I usually do some work on Sundays, I also treat it as a day for other things – recreation, playing sport, catching up on maintenance of housing, bikes, shopping etc. I go to the football and play in my band some Sundays.

The vast majority of people do the same sorts of things because they know Sunday is a special day – a non-work day.

Weekends and public holidays, in general, mean that people work on their houses/gardens, they walk in family groups around the beach and engage in a plethora of community and sporting events – that tells you something.

It tells you that public holidays and weekends are special and quite different to the standard 9 to 5 (8 to 4) working week from Monday to Friday.

But the employer groups have been trying to say that the world has changed and that there is nothing special about weekends or public holidays.

They run the line that work is now 24/7 and there is nothing significant about people giving up all these social and other personal activities to work.

These employer groups have consistently tried to get penalty wage rates cut so that their members can more fully exploit their workforces.

In many cases, the workers who earn penalty rates are in the lowest pay sectors such as accommodation, hospitality, food, and retail. There is pure greed involved in their on-going demands but also gross inconsistency. Many business groups repeatedly mount challenges to the penalty rates system that Australia has in place to protect workers’ rights. But then when their own ‘conditions’ are threatened by deregulation, they argue that the world will end. Hypocrisy has no bounds when dealing with these characters.

For many years now, I have written expert testimony and research reports on a commissioned basis for several trade unions in their defense of the penalty rate system and minimum wages in general. These cases are heard in Australia’s unique wage tribunal system and determined by a judicial body under usual rules of evidence and cross examination.

The tribunal (currently called Fair Work Commission) sets minimum award conditions that are legally binding on employers across an array of occupations and sectors. Fair Work Australia also sets the minimum wage.

I wrote briefly about that experience in this blog – No joy for Australia’s low paid workers.

The pressure from the employers to abandon the penalty rate system has been relentless over many years and up until now they have been largely unsuccessful in their endeavours because their argument always denies the obvious (the specialness of public holidays) and rely on the flawed reasoning that mainstream microeconomic textbooks inflict on students in our universities, which conclude (erroneously) that cutting wages increases employment.

Last Thursday, the Fair Work Commission morphed into a neo-liberal support group and finally gave the employer groups their wish.

In three sectors – retail trade, hospitality and fast food – the FWC handed down its – Penalty rates decision.

For background material from the FWC (submissions etc), please see Penalty Rates Case.

The FWC also published a – Summary – of its decision.

The ‘awards’ that are affected by the outcome are:

– Fast Food Industry Award 2010 (the Fast Food Award)

– General Retail Industry Award 2010 (the Retail Award)

– Hospitality Industry (General) Award 2010 (the Hospitality Award)

– Pharmacy Industry Award 2010 (the Pharmacy Award)

– Registered and Licensed Clubs Award 2010 (the Clubs Award)

– Restaurant Industry Award 2010 (the Restaurant Award)

So wages and condition minimums that tend to affect the lowest-paid workers.

The FWC cut the penalty rates for Sunday work and Public Holidays in various ways and you can read up the detail if you are interested.

For example, for a workers in retail they have cut the Sunday rate from 200 per cent to 150 per cent (for full-time or part-time workers).

Similar cuts are proposed for the other awards noted above.

The FWC claimed variously that:

1. ” the extent of the disutility is much less than in times past” for Sunday work.

2. “Any potential positive employment effects from a reduction in penalty rates are likely to be reduced due to substitution and other effects” – in other words, the overall employment effects are likely to be minimal.

3. “A substantial proportion of award-reliant employees covered by these modern awards are low paid and the reductions in Sunday penalty rates we have determined are likely to reduce the earnings of those employees who currently work on Sundays … most existing employees would probably face reduced earnings as it is improbable that, as a group, existing workers’ hours on Sundays would rise sufficiently to offset the income effects of penalty rate reductions” – in other words, work harder for less hourly pay if you can find it to make up lost income but don’t expect to be able to find the extra work.

4. “Many of these employees earn just enough to cover weekly living expenses, saving money is difficult and unexpected expenses produce considerable financial distress. The immediate implementation of the variations to Sunday penalty rates would inevitably cause some hardship to the employees affected, particularly those who work on Sundays. The Full Bench concluded that appropriate transitional arrangements are necessary to mitigate the hardship caused to employees who work on Sunday” – in other words, many workers will default on existing liabilities (house mortgages, credit cards) and be deprived of other essentials.

5. It also noted that there is a growing number of employers who are already cheating the system and exploiting their workers illegally by paying less than legal wages. The FWC decision just means these bastards can go on doing the same thing – because now wages have been cut.

The decision is a disaster for the lowest-paid (hospitality, retail and cafe) workers in this country, which will feed through to other sectors (for example, nursing) before long.

It consolidates what has been going on for a long-time under the misnomer of ‘structural reform’. The employers claim that the decision will increase hours of work, increase jobs growth, reduce prices, increase the quality of service. They don’t mention profits.

The reality of the situation is that there is no reform element about the decision – where we use that term to imply making everyone better off after adjustment costs are borne.

The employers are only pursuing an even greater share of national income – rent-seeking – than they already enjoy. They don’t want to ‘do things better’ – they just want more profit.

The first point is that total sales in an economy are determined by total spending, which is intrinsically related to total incomes.

Low-income groups spend more per dollar received (most, if not all of it) than high-income groups. Are transfer of income from poor to rich will reduce overall spending for sure.

The estimates are that more than a million workers will be negatively impacted by this decision. That is a significant amount of lost income (some estimates are saying average workers will lose $A6,000 per year) and a lot of lost spending.

Even if more services become offered on Sundays (and I don’t expect there to be) and total spending somehow remains the same, the overall macroeconomic constraint will just mean that there will less purchases on other days of the week.

The FWC hasn’t a clue on these distributional impacts across the week.

The employers claim that if their costs fall they will push the benefits out to all – sound familiar? The old Maggie Thatcher/Ronald Reagan Trickle-Down! That ruse proved a failure then.

It will remain so.

Much has been made by the employers that we ‘don’t go to church anymore’ and so Sunday’s have lost their original meaning.

We might have stopped being churchgoers, but, ss noted above, we do a range of other activities on Sundays including family, shopping, homemaintenance, grooming ourselves and family, sport, rest and other things that all preclude working.

These are mainstream activities that consume our time on a and are essential for our on-going health and balance through the rest of the week.

Further, there is no evidence that employment is held back in the sectors targetted as a result of the higher Sunday and Saturday (and public holiday) rates.

As I have shown before, the data shows that the Cafe and Restaurant and hospitality sectors have higher growth rates of new enterprises than the rest of industry and higher employment growth.

Retail lags behind in employment growth but that has been the result of a major shift in preferences and the slowdown in the overall economy as a result of fiscal austerity.

In past work, I have examined profitability, business growth, and a range of other indicators and have never found any evidence to support the case for scrapping penalty rates.

The FWC decision also intensifies the class division and the income inequality in our society. The well-heeled will continue to enjoy leisure on Sundays and be waited on and serviced by an increasingly impoverished lower class of working poor as a result of the decision.

Most of the workers who receive penalty rates are low paid and rely on the extra rates to stay above the poverty line.

Summary points against the decision

1. While perceptions of standard and non-standard working hours have evolved, the overwhelming majority of people still work standard working weeks and require weekends to rest, socialise, play and worship.

2. Studies show that extending weekend work compromises these non-work activities and reduces quality of life.

3. Penalty rates ensure that employers can attract staff in non-standard hours under terms that society considers to be reasonable given the required sacrifices involved. There has been no abandonment of long-held cultural and social arrangements with respect to the standard and non-standard work division.

4. The trend to two-income families as mortgage debt has risen to record levels has forced families to compromise some of their traditional leisure time to make ends meet. While casual work provides flexibility for some workers, working non-standard hours in precarious, low-paid and disagreeable working environments becomes a necessity for many given the deficient overall jobs growth. Penalty rates help protect living standards of these low-paid workers.

In other work I have done (with Scott Baum) – The CofFEE Employment Vulnerability Index V2.0 – we identified suburbs in Australia that have not been previously considered to be highly disadvantaged, but which may become so as a result of declining labour market conditions.

We termed these the emerging disadvantage job loss localities.

These are the mortgage belt suburbs that have grown on the periphery of our major cities. The neo-liberal debt binge saw household debt in these areas rise to record levels and families buying into the property boom running very precarious home economies.

Typically the young families are way out of the margin of the cities because land and housing was cheaper there. The husband works in sectors that are highly sensitive to the economic cycle (for example, construction) and the wife works part-time (casual) in an unskilled job. The casual hours, which are the first to go in a downturn, are the difference between insolvency and being able to pay the huge mortgage each month.

In addition, these are the areas where housing prices fall the most in a downturn and leave higher proportions of home buyers in negative equity.

So while these families were lauded by successive governments as living the Australian dream and built McMansions on the periphery of our cities, clogged their driveways up with huge SUVs to run the kids to school in, and a boat or two, they are actually very exposed to an economic downturn.

A significant slowdown will see the casual hours drop quickly, the trades contract and their housing values fall. All three impacts then push these families to the brink or into insolvency.

While the vulnerability we identified then was in relation to a loss of casual hours, the FWC decision means that these workers will lose income even if hours remain constant.

Expect to see rising mortgage and credit card defaults, which will multiply.

5. Textbook models that predict employment will grow if wages are cut have no evidential basis. Employment is driven by the strength of spending. Wage cuts reduce income and undermine spending.

6. Time use is indivisible and there is diversity. While all people might attend a sporting event, for example, on “average”, for a small time per weekend, actual spectators at each event spent a large chunk of time there.

Adding extra hours of casual work wipes out the basic social and recreational activity for most people. That sacrifice requires penalties to be paid.

7. Employment decisions by firms are not solely based on costs. Businesses supply output and hire workers in response to sales. Cut income and spending and employment fall.

8. Conservatives are always bemoaning the breakdown of the family and the need to promote family values again as a presumed source of social stability. Meanwhile, they advocate economic policies that undermine the capacity of families to engage together.

The fact is that penalty rates are one of the barriers that protect the rest of us from increased employer exploitation. If we accept that workers who give up the usual leisure times and work at the same rates as any time is reasonable then we will then be compelled to defend things such as the standard working day, holiday pay, equipment and safety allowances, sick pay and the rest of the conditions that make work for a capitalist tolerable.

If penalty rates go, we are allowing capital to drive wedges into things that we consider to be important as a society.

What we can do about it?

Already, some businesses have said they will ignore the FWC’s decision and continue to pay their casual and weekend workers the same rates as now. In other words, they reject the rationale that wages are too high.

We should all start supporting those firms and boycotting firms who take advantage of the FWC decision.

This is the thin end of the wedge.

The employer groups in other sectors are already lining up and falling over each other to file demands in their areas for penalty rate cuts.

The rationale presented by the FWC is so general that it is hard to see how they could consistently not flow the wage cuts on to all sectors.

So we have to do something about it.

The fact is that the unions are now virtually powerless. Successive governments on both sides of politics (which have effectively morphed into the same neo-liberal unit) have deliberately legislated and regulated to weaken the power of unions.

The unions haven’t helped themselves – they ignored the rise in mass unemployment in the 1980s, were male-dominated and hostile to female dominated industries, didn’t embrace the youth, and went along with the Labour Party’s shift to the neo-liberal right. The unions still fund the Labour Party which is one of those things that defy reason.

The upshot is that the unions can no longer (or won’t) engage in serious hostile action that brings the economy to its knees. They are effectively easy beats.

A broader citizen action at the grass roots level is needed if significant changes are to be made.

Conclusion

While the conservative media and spokespersons have been salivating since Thursday about the FWC’s decision, there is a growing sense of hostility in the community about this outcome.

Somehow, attacking the incomes of more than a million of our lowest-paid workers doesn’t seem like a good thing to do for many Australians.

Perhaps, they see it as the thin end of the wedge and that they will be next.

Or perhaps, and we can only dream, that they see it as a pernicious and indecent assault on our comrades who already are on the brink of poverty (if not over it) and need every chance they can get to make their lives a little more tolerable.

If I was the Government I would sack the FWC and legislate so that wage cuts are illegal. But our conservative government is lying low (because it knows how unpopular the decision is) but quietly salivating along with the rest (because they actually have been supporting this attack on living standards for years.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.