The Tide Is Turning On Penalty Rates, But How Far Will Turnbull Go?

All the ducks are lining up for changes to penalty rates under the Turnbull Government.

First, there’s political momentum: the employment minister Michaelia Cash is open to changing to penalty rates. The Energy and Resources Minister Josh Frydenberg supports changes.

Warren Entsch, Dan Tehan, Russell Broadbent, Wyatt Roy, Sean Edwards, Craig Laundy, Alex Hawke, George Christensen, Dennis Jensen, Zed Seselja and Andrew Nikolic support changes.

Obviously aware of this drum beat, Malcolm Turnbull has signalled he is open to penalty rate reform.

Second: penalty rate reform is backed by analysis that looks both independent and authoritative. The Productivity Commission’s draft report into Australia’s Workplace Relations Framework, released in August, recommended that penalty rates for Sundays be reduced to the same rates as those on Saturday for hospitality and retail workers. The PC argues this would boost both employment and consumer choice on Sundays. (The PC’s final report will appear in November.)

Third: penalty rate reform might not be that challenging a contest. Bill Shorten is hardly up to the task of a debate on minor industrial relations changes. Yesterday he claimed penalty rates were the difference between parents sending their children to a public school or a private school.

Clearly, WorkChoices hyperbole infects both sides.

It’s been a decade since the Howard government announced WorkChoices in May 2005. The penalty rates debate is deeply symbolic. Being able to move, even in a small way, on penalty rates would be a major arrow in Malcolm Turnbull’s quiver. Industrial relations has always been the high ground of economic policy in this country.

In fact, reducing Sunday penalty rates would be a very minor reform. The Productivity Commission is usually parodied as a bunch of dry-as-dust economic rationalists. But their penalty rates recommendation is hardly revolutionary. They have rejected any change to penalty rates for long hours or night work. And workers not employed in the entertainment, retail and hospitality industries would keep their Sunday rates.

Indeed, their whole workplace relations report is cloyingly moderate.

Take, for instance, the PC’s conclusions on the minimum wage. Back in January the PC wanted to prove once and for all whether minimum wages cost employment. (I wrote about this ambition in The Drum at the time.) Yet the draft report concludes “it is not possible to pinpoint the impacts of minimum wages on employment”. And despite admitting that the minimum wage mainly favours middle income households and there are better anti-poverty devices than the minimum wage, it believes that the minimum wage is good policy.

More generally, the PC report holds firmly to the idea that there is unequal bargaining power between employers and employees thanks to labour market “frictions” – things like how hard it is to find new work. (Without those frictions employees would play firms off against each other for higher wages.)

The PC does nothing to challenge the popular belief that unregulated labour markets are unfair to workers. Quite the opposite: the PC implicitly agrees with the union movement that the world of employment is characterised by exploitation and inequality.

The PC should have challenged that belief.

Labour economists often say that labour is unlike any other commodity because many low wage labour markets are characterised by “monopsonistic competition”. This refers to situations where buyers have quasi-monopoly power and can effectively set wages in their favour.

But every commodity is unlike any other commodity. While the idea of monopsonistic competition is an interesting theory, it is hard to see how such competition would be sustained in the real world, where every market imperfection is an opportunity for entrepreneurial disruption.

To be fair to the PC, they’re reflecting a stream of economic scholarship published in the last two decades that seems to suggest labour markets function in this strange way.

But that scholarship is the centre of an extremely active debate. Nor is there any consensus on what the strange behaviour of this market might mean for labour market law.

After all, regulation can create monopsony effects. In this sense, labour market regulation is a self-fulfilling prophecy. When you make it harder to hire and fire workers, you might create the frictions that reduce workers’ bargaining power. That lesser bargaining power means we need to regulate hiring and firing even more. And round it goes.

Nobody expects the Turnbull Government to push radical labour market deregulation right now. We’re having a penalty rates debate precisely because it is such a small area of dispute.

After all, the PC only called for aligning Sunday penalty rates for entertainment, hospitality and retail workers with the Saturday rate.

Under Tony Abbott the Coalition government wasn’t even game to consider that. Abbott and his industrial relations minister Eric Abetz ran a mile when the PC released its draft report.

If Turnbull can’t bring in this small change, then the possibilities for more substantial labour market reform in the future are slim indeed.