Magazine of Socialist Action in Australia

Penalty rates: The logic behind the extra pay

Reading Time: 3 minutes

Employers say that the economy is evolving and that the industrial relations system needs to adapt to cater for ‘seven-day’ industries like retail and hospitality. Businesses claim that they want to open longer and employ more staff but they can’t afford the higher rates of pay on the weekends.

Leaving aside the fact that many businesses in retail and hospitality don’t even adhere to the current requirements, there is no evidence to show that reducing pay rates leads to higher levels of employment.

Higher rates of pay for working anti-social hours have been paid in Australia for around 100 years. The basic idea is that employers should have to pay a ‘penalty’ for imposing conditions that disadvantaged workers. It was also hoped that the extra amount paid would act as a disincentive to working longer hours and help to protect rest days.

In a 1919 case the Commission ruled that: “…the extra rate for Sunday work is given because of the grievance of losing Sunday itself – the day for family and social and religious reunion, the day on which one’s friends are free, the day that is the most valuable for rest and amenity under our social habits…”

While the Commission made its judgement partially on moral grounds, the trade union movement campaigned for penalty rates on the basis of an understanding of how workers are exploited throughout the course of the working day. Influenced by Marxist ideas, trade unions of that era knew that longer hours meant workers were exploited more.

In many cases workers create wealth equivalent to the employers’ entire weekly wages bill in just a few days. But they do not get to go home once they have covered their costs. They continue to work and produce ‘surplus value’ for the rest of the week.

Workers are exploited in the sense that they only get paid a portion of the wealth they produce. The rest is kept by the employer in the form of profits. This process is obvious to any retail worker who counts the till at the end of the day and compares it to their wages!

The longer the boss can get the employee to work past the point of covering their costs, the more profits they make. Alongside protecting designated rest times, penalty rates were fought for in an attempt to claw back some of the unpaid wealth that is created.

That some modern day unions have traded away penalty rates shows a total lack of understanding of how workers are exploited. Many actually agree with the economic theories of the bosses.

Reducing penalty rates, or wages in general, only means that the employer covers their costs sooner. In other words the pie consisting of wages and profits is cut up with an even bigger slice going to the boss. If the size of the slice had any relation to employment levels the bosses could always find more money by reducing their portion of profits.

Even if more profits were created by reducing wages there is no guarantee that the employer would reinvest it to create more jobs. They would most likely just pocket it for themselves.

In retail and hospitality decisions about whether to open for longer are made on the basis of whether or not the business can sell their goods or services at that time. If there is scope to sell, the pie will grow bigger and penalty rates only mean that the worker lays claim to a little bit more of the extra wealth that is created.

The push by some sections of business to cut penalty rates is happening at a time when wage growth is already at its slowest in 15 years. The idea that low paid workers in retail and hospitality should be asked to sacrifice more is truly insulting. If anyone should pay the price for the slowing economic conditions it should be those who profit at the expense of working class people.

The key to stopping the push to slash penalty rates lies in a fight with employers over how the wealth created is distributed. Workers struggling to win a bigger slice of the pie could put a halt to the employers offensive and help to reverse the trend towards wealth inequality in Australia.

By Anthony Main


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