Penalty rates cut will give youth a chance to find jobs

With unemployment for 15-year-olds to 24-year-olds more than double the national average, at 12.9 per cent, young people simply need more jobs. In an economy growing below trend and with unemployment trending up, barriers to employment need to be reduced.

The Fair Work Commission last week handed down a decision that will boost the job prospects of casual workers, reducing the penalty rate that entry level hospitality workers receive on Sundays – from 75 per cent to 50 per cent.

Where a casual level one worker (the lowest pay classification in the hospitality award) would ordinarily receive $29.49 an hour on a Sunday, they will now receive $25.28. Other penalty rates still apply as normal both to casual and permanent workers. While these hourly rates are still quite significant, the reduction in casual loading will decrease labour costs and allow businesses to hire more staff.

The commission’s decision came as employer groups such as the Australian Chamber of Commerce and Industry pushed to reduce the Sunday penalty rate from 50 per cent to 25 per cent. Full-time and part-time workers receive a 50 per cent Sunday penalty rate while casuals received a 75 per cent penalty.

Though the commission acknowledged that Sunday penalty rates were having “some effect” on jobs, it stopped short of applying the cut to full-time and part-time workers as well. Instead it looked solely at the cost of casuals. This decision will affect only a minority of workers, as it is confined to level one and two casuals who work Sundays in the restaurant sector. Nevertheless it is a positive first step.

About one in five workers are employed on a casual contract, and in sectors such as hospitality and retail, that proportion is higher. There is potential for broader employment benefits if employers can use the principles in this decision to support further cases in other awards.

The most significant element of this decision is the commission’s change in thinking. Where previously the commission tended to emphasise the effects of penalty rates on incomes of the employed, this decision instead emphasises the job prospects of the unemployed.

Just a few months ago, the commission decided to increase the youth wage for 20-year-old retail workers from 90 per cent of the full adult rate to 100 per cent, or $17.98 an hour. The commission didn’t see a material difference in the work duties of 20-year-olds versus 21-year-olds and thus thought they ought to be paid the same award rate.

But this implies that hiking the minimum wage for 20-year-old retail workers wouldn’t cause a drop in employment, or that the drop in employment would be small and a worthwhile sacrifice to raise the pay of employed retail workers.

In this latest case, however, the primary consideration of the commission was the detrimental employment effect of high penalty rates.

The business community has argued for years that minimum award wages and penalty rates are stifling business activity and reducing job opportunities. In several rulings their demands have been rejected on the basis of insufficient evidence.

The Fair Work ruling is a timely decision in the context of recent welfare changes proposed in this year’s federal budget.

Under an initiative titled “earn or learn”, job seekers under 30 not enrolled in further education/training will receive unemployment benefits for a maximum of six months in any one year, and will be required to complete 25 hours of “work for the dole” for the period in which they receive benefits.

Workers will also be subject to an initial waiting period (six months, unless they have been employed previously) before being eligible for benefits.

Welfare reform is always difficult, particularly when the availability of payments is restricted. With these reforms, the government is looking to reduce long-term welfare dependence. This is particularly important for youths because an initial period of unemployment after leaving school has been found to scar career prospects later on.

But if young people are to move from welfare into work, the job market needs to provide the requisite employment opportunities. This is why the government needs to look more closely at labour market reform.

Penalty rates are a significant impost on businesses, and operate in sectors dominated by young workers.

The Fair Work Commission’s ruling on Sunday penalty rates is a small but positive step on the road to reducing youth unemployment.

Alexander Philipatos is a policy analyst at The Centre for Independent Studies.