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Penalty rates debate a symptom of broader issues

Penalty rates debate a symptom of broader issues

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Originally written May 23, 2016. Updated and published 22 October, 2017.

Penalty rates have been in the news recently in Australia. The Fair Work Commission recently lowered these pay rates on weekends for workers in retail and hospitality industries. And there has been quite a strong outcry on these changes in the media.

However, I believe that there are some valid arguments for cuts to penalty rates.  There are, after all, several sides to the issue. Now, before people go berserk, I'm not a ruthless capitalist without concern for the broader social consequences of economic policy. I don’t want to see people exploited, or hard-won conditions stripped back – because once it starts, where does it stop?

But youth unemployment is at its highest rates for over a decade (http://www.tradingeconomics.com/australia/youth-unemployment-rate), and underemployment for 40 years (http://www.canberratimes.com.au/business/workplace-relations/underemployment-of-young-people-is-the-highest-it-has-been-in-40-years-20170323-gv4q1o.html). Likewise, there is some evidence that lower-skilled jobs are fading from the labour market, making it even harder for people to gain relevant experience (http://www.abc.net.au/news/2017-10-19/employment-boom-bypassing-entry-level-job-seekers-anglicare-says/9062620#report).

These trends should be loudly ringing alarm bells at all levels of society, but it’s not happening – yet. Does Australia need a deep recession to awaken our complacent middle and upper classes as to just how tough the job market is?

My personal experiences

I have previously lived in Japan. In that nation, wage negotiations occur at prefectural, industry or enterprise level. In practice, this means the average cost of living is lower than Australia's in many places outside of Tokyo. At an exchange rate of Y100/$A0.85, you can buy a meal for 300yen (roughly $A3.55), and a good meal for 1500 yen ($A17.70). A lot of other services are cheaper than their Australian equivalents as well.

As such, on a daily basis, the average cost of everyday goods and services is affordable for the majority of Japanese people. By contrast, in Australia, people in professional jobs can afford to pay $20-$30 for a meal when necessary. But that's a much tighter argument for those working in child care for only $18-$20/hour. And for Australian service industry workers, paying for professional services is much more expensive relative to their wages.

Japan also has some of the world's best customer service. Part of the reason for it is that most places hire enough staff to assist customers. By contrast, having enough staff, or excellent customer service, is not something most Australian businesses are renowned for. Japan also has a good public health system, and a reasonably well funded public education system. As such, I believe these examples show that the sky will not necessarily fall if Australia changes some of its economic structures and processes.

In 2016, to develop new skills and earn money, I signed up to Freelancer.com…and received a shock. I thought that my skills were worth around $US 19/hour at current exchange rates, and to cover my cost of living. But despite having bid for various projects, people elsewhere can do the same things much more cheaply. On a global scale, my skills are not competitive.

The bigger picture

Much of Australia’s economic structure stems from an Industrial-Age recipe. At a local level, many of the businesses started are cafes/restaurants/bars/shops/real estate agents and branches of existing retail chains. It's nice to have more places to eat or shop, but these add very little to our productive capacity. As such, once the initial burst of economic energy to build a new suburb is spent, the debt remains, and then we wonder why growth doesn’t pick up. It is no accident that economic growth doesn’t pick up when we continue to apply yesterday's answers to today's problems.

The most productive places in Australia (as elsewhere) are in the centres of our big cities (https://grattan.edu.au/report/mapping-australias-economy-cities-as-engines-of-prosperity/). But Australian unemployment and underemployment rates tend to be higher on the edge of our cities, and in regional areas. These areas are competing directly for industries against overseas regions with similar skill levels. Whether we like it or not, that competition is around both investment and labour. If Australians collectively think, in a globalised world, that we will attract investment (and jobs) with the same wages and conditions in every industry as what our parents did back during the protectionist era of the 1970s, we are deluding ourselves.

Likewise, many Australians love to holiday in South East Asia because accommodation, food, alcohol and shopping is so much cheaper. But many of us complain when outsourcing occurs and local jobs go overseas. When are we going to realise that these trends are two sides of the same coin? If we insist upon Industrial Era conditions, then our cost base will become too high for many industries to compete. They will go offshore over time, or will simply fail to expand.

How did it come to this?

I’m not looking to be political or to cast blame here. However, I think we are seeing what happens when several generations believe that someone else is responsible for their standard of living. We're not necessarily doing it consciously, but our system of award wages and enterprise agreements means that we are used to the idea of someone else taking responsibility for thinking about those issues on our behalf.

Australia does not lack the resources or the talent to create new goods and services. I think it is because as a nation, we (collectively) seem to choose to take the easy options much of the time. We have become accustomed to doing so for so long now that it has become our habitual and default setting.

What can we do about this on a personal level?

The broad answer is innovation. The trouble is that many people perceive innovation simply as “job loss”. And that’s understandable. But hoping that change will not occur is not a feasible course of action in the digital era. We desperately need, as individuals, to be thinking about how to be innovative ourselves.

Likewise, how many of us genuinely do activities that are more productive than they were one or even four decades ago? Most of us have swallowed the line about “more education”, so many of us now have tertiary qualifications. But our education system in many cases is not equipping us effectively for the digital era, and the economic changes it is causing. If academic inflation and more pieces of paper do not lead to higher wages, we need to be asking ourselves what we can do to achieve them.

What else can we do to retain the “fair go?”

In light of all this, rather than just screaming blue murder about the removal of penalty rates, what else could we do that would (a) ensure that people earnt a living wage, regardless of what day of the week they worked, and (b) helped to bring our overall cost structure down for everyone?

Could it be possible to apply a lower tax rate on the weekends (both days) across all industries, meaning that while employers did not need to pay more for staff on these days, but that the people working upon these days got to keep more of what they earned? Conversely, those of us lucky enough to work standard hours may need to pay higher taxes to cover the cost of this. It is possible (especially with the removal of penalty rates as a trade-off for this) that such a move could actually help to create employment, and/or to help our customer service levels across many industries.

The Australian public desperately need to have a national conversation on these topics. If we do not wake up and realise that our prosperity depends upon more than natural resources and property speculation, we are in for a very rude awakening within the next decade.

Who is responsible for productivity and innovation?

Who is responsible for productivity and innovation?

In memory of Jo Cox - respect for democratic values

In memory of Jo Cox - respect for democratic values