QIRC hearing important case on retail trading hours

The Queensland Industrial Relations Commission is currently considering an application from the National Retail Association, which represents big retailers such as Coles and Woolworths, for standardised trading hours across South East Queensland, which would extend opening hours, e.g. up to 9pm on Saturdays, in many locations (see this ABC news report). The first day of the hearing considered a report into the economic benefits of retail trading hours deregulation. The report was prepared in early 2014 by Professor Henry Ergas, Dr Alex Robson (now PM Turnbull’s senior economic adviser) and Joe Branigan, a former Treasury colleague and old friend of mine, who had to appear before the QIRC and defend the report yesterday. The report includes an estimate that up to 2,000 extra jobs could be created if there were full deregulation of retail trading hours across the State.

The methodology and data sources supporting the economic report were subject to an intense line of questioning from the counsel representing the independent grocers (e.g. IGAs) who are opposing the NRA’s applications. Despite the intense pressure, Joe was able to offer some moments of brilliance, such as when he referred to former Treasury Secretary Ted Evans’s observation that “in one sense, we can choose the level of unemployment which we are willing to bear” (see my 2014 post Unemployment rate is partly a policy choice). That is, the choices we make regarding economic and social regulations, such as on retail trading hours, can affect the level of unemployment. I have previously argued that removing restrictive regulations such as those on retail trading hours would boost employment, particularly among young people.

It would be good for the Queensland economy if the NRA case were successful. Unfortunately, in the hour-and-a-half I attended the hearing yesterday, I received the impression that the NRA team was a little under-prepared for the case. It became apparent that the NRA had not fully briefed Joe on the exact nature of its application, and this meant Joe had to concede to the counsel for independent grocers that he was unaware the definition of SEQ relevant to retail trading hours is significantly different from the definition of SEQ used by the Queensland Government and the ABS for economic statistics. This seems like a pretty important fact that the NRA should have picked up and briefed Joe on, given the NRA is relying on Joe to provide credible expert evidence to advance its case. Let us hope the NRA improves its game over the remaining days of the hearing.

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8 Responses to QIRC hearing important case on retail trading hours

  1. Matthew says:

    Is the case taking into consideration the already weighty monopoly that Coles and Woolworths enjoy. While I agree that a deregulation of hours would be good for jobs, by how much would that positive be outweighed by the negative of even more market share to the big two? I think they have both proven that they haven’t been very responsible with their monopoly, particularly to Australia suppliers. In some locations I’m sure that they only reason the IGAs survive is because they can open different hours.

    • Gene Tunny says:

      I think the independent grocers will certainly make an argument along those lines to the QIRC. Unfortunately their submissions to the QIRC don’t appear to be publicly available. Ultimately I expect the threat from other players (e.g. Aldi) or of new entrants will restrain the abuse of market power by Coles and Woolworths so I’m less concerned about this as an issue. Thanks for the comment, Matthew.

  2. Jim says:

    Gene

    I don’t mind the policy proposition at all, but I just find some of the arguments I’ve seen in the press a bit spurious.

    I assume there is no material change in aggregate demand from the change in shopping hours (i.e. we won’t just eat more, wear more clothes etc.), so the increase in employment must simply be due more labour inputs per unit of sales. Isn’t that actually inefficient as it either reduces producer surplus (higher variable costs with no change in revenue), or requires an increase in prices to offset the additional costs (reduction in consumer surplus)?

    So as far as I can see, the most legitimate and honest argument for longer trading hours is simply more convenience for consumers (i.e. better access). But we need to be honest and acknowledge that the tradeoff is probably a mix of higher consumer prices (retailers try and recover additional costs), lower retail margins and asset values for retail businesses, or a loss of some retailers altogether (squeezed out of the market).

    Longer retail hours is not a recipe for growing the economic pie, just a means of changing the size of the slices.

    • Gene Tunny says:

      Jim, you make some good points, and highlight the need to consider this in a general equilibrium model. I agree the best argument for the deregulation is consumer convenience. I’d expect, however, that there could be a boost to employment and incomes if the economy is not at full employment.

    • Jim says:

      Gene

      I’m no macroeconomist so I might be out of my depth here, but can you explain why there would “be a boost to employment and incomes if the economy is not at full employment”, particularly where there is no change in aggregate demand?

      Last time I read a text book, reducing efficiency was not a great strategy for income growth and job creation.

      That aside, I think the responses in some sectors will be quite intriguing and really driven by the specific nature of the market.

      In the supermarket sector (where competition is actually very localised), the impacts are how the local aggregate demand is distributed amongst local competitors. For the larger chains (Woolworths and Coles) I suspect they won’t materially increase total labour inputs (if at all). Why would a supermarket pay additional variable costs for staff beyond an absolute minimum requirement when there is a costless substitute already in place (i.e. the automatic checkout)? Their profit maximising strategy will be to spread their existing labour inputs over longer hours and aggressively promote self checkouts. I suspect some of the smaller chains (like IGA) that don’t have access to better technology or don’t have deep pockets (like Aldi) will be squeezed a lot.

      • Gene Tunny says:

        Yes, I’m assuming they would increase labour inputs so they could open longer. It’s possible there may not be much of an increase for the reasons you’ve mentioned. Great point about automatic checkouts. Indeed, it’s possible in the future there won’t be any human checkout operators at all. I nearly always use the automatic checkout.

    • Jim says:

      It might be very irrational of me, but I make a point of never using the automatic checkout. I’d rather see a local person employed (typically someone from a high unemployment demographic).

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