This experiment shows the majority of Australians probably support the current penalty rate system

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Yesterday the productivity commission released a draft report looking at Australia’s Workplace Relations Framework.

It said a lot of things on both sides of the industrial relations divide including that “Australia‚Äôs labour market performance and flexibility is relatively good by global standards, and many of the concerns that pervaded historical arrangements have now abated.”

The report also suggested changes to the Fair Work Commission (FWC) approach to its determinations, to the way Commissioners are appointed, and highlighted that sometimes the FWC can give too much weight to procedure and too little to substance, leading to compliance costs and, in some cases, poor outcomes.

“Minimum wages are justified, and the view that existing levels are highly prejudicial to employment is not well founded,” the report said. It did however caution on further increases from here.

But, the change that has attracted most attention in the report appears to be the ones it’s suggesting about penalty rates.

Penalty rates have a legitimate role in compensating employees for working long hours or at unsociable times. They should be maintained. However, Sunday penalty rates for cafes, hospitality, entertainment, restaurants and retailing should be aligned with Saturday rates.

Calling out these less skilled workers for a reduction in penalty rates while other workers, like front line emergency workers, continue to receive current loadings seems to imply a two-tiered penalty rate framework.

That lit up the airwaves yesterday with rival claims from the ACTU and Business groups.

The ACTU highlighted that businesses claims that we live in a 24/7 economy belie statistics that there has only been a 1% change in the percentage of people working weekdays only in the past 20 years or so from 70% to 69%.

But anecdotally most Australian’s would probably agree that we do live in a 24/7 world. We expect to be able to contact service providers when we need them and we want to be able to get our Saturday and Sunday morning cappuccino when we want one. We want our hotels to be staffed and any issues dealt with.

It’s just that 68.9% of Australia’s workforce only work, or want to work, Monday to Friday. Which is one of the reason we have penalty rates. Saturdays and Sundays are special and Sundays more special than Saturdays.

But, business says Sunday and public holiday penalty loadings make it uneconomic to open. Former Labor front-bencher Martin Ferguson who is now the Chair of Tourism Accommodation Australia highlighted that:

Current awards, under which some permanent staff receive 175 per cent of their normal rates for working Sundays and 250 per cent for working on public holidays, with even higher penalties for some casual workers, are unrealistic and a dampener on employment.

That feeds the ACTU’s fear that the Productivity Commission report is just a stalking horse to drive down rates for Australia’s lower paid workers.

The trouble is both sides are probably right.

The stats say most of us work Monday to Friday and we all know that we now live in a 24/7 world.

But it also seems true that even in this 24/7 economy weekends are still important to most people. Kids still go to school Monday to Friday. Kids sport is on the weekend. Overall, parliament still generally sits Monday to Thursday. There is a statistically significant impact on outcomes if you go to hospital on the weekend. Most AFL and NRL matches are on the weekend. All Rugby tests are. Only Cricketers, keen to get the 5 days over straddle the weekend with days either side.

So it seems service and goods should simply cost more on a Sunday and on public holidays to cover the business cost of having those workers in place.

It’s not about business and workers – its about consumers. It seems that consumers should accept that there is a cost for having others serve them during their relaxation time.

Here’s an experiment that makes that point clearly.

Nobel prize winner Daniel Kahneman along with Amos Tversky and Richard Thaler are the fathers of behaviour economics and finance. Their experiments help better understand humans interaction within the economy and markets.

They also help explain why many Australians might expect someone to serve them coffee and a cake on a Sunday or public holiday but would never consider working themselves.

In a paper with co-authored with Jack L. Knetsch Kahneman and Tversky tell the following story:

A wine-loving economist we know purchased some nice Bordeaux wines
years ago at low prices. The wines have greatly appreciated in value, so that a bottle that cost only $10 when purchased would now fetch $200 at auction. This economist now drinks some of this wine occasionally, but would neither be willing to sell the wine at the auction price nor buy an additional bottle at that price.

In 1980 Thaler called this pattern -“the fact that people often demand much more to give up an object than they would be willing to pay to acquire it” – the endowment effect. The other side of that coin, the authors say – something they call loss aversion – is the “disutility of giving up an object is greater that the utility associated with acquiring it.”

So how much would you want to be paid to give up your Sunday to work? Now think how much would you be willing to pay someone to work for you this Sunday?

Adjusting for employment type, if the amount you expect to be paid is greater than the amount you would pay then you support the current penalty rates system.

Kahneman, Thaler, and others experiments on the endowment effect and loss aversion over the years suggest that is the most likely result for most people.

Which means we all inherently support penalty rates.

So maybe it’s just time for $8 cappuccinos on a Sunday or public holiday so we can square the circle of business owners, workers and consumers in this 24/7 economy.

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