Penalty rates reform should be considered as way to reduce youth unemployment

New labour force data from the ABS yesterday showed that Queensland ended 2015 with solid employment growth, and with the unemployment rate falling slightly further to 5.8 per cent, as the Queensland economy remains resilient at the end of the mining boom (see charts below). However, as the Courier-Mail has pointed out this morning, the good news at the macro level should not distract us from high rates of youth unemployment, particularly in regional areas such as Cairns and Townsville.

While youth unemployment is expected to be higher than prime-age unemployment, due to the lower skill levels and years of experience of young people, I suspect that a significant part of youth unemployment is due to policy settings that mean that many young people are priced out of the labour market. I am referring, of course, to minimum wage and penalty rates. At a minimum, the Productivity Commission’s recommendations regarding the alignment of Saturday and Sunday penalty rates should be adopted, which would no doubt boost employment in hospitality, a major employer of young people. See my post from March last year:

Addressing youth unemployment requires reform of workplace relations policies

As former Treasury Secretary Ted Evans once famously said, in a sense, we choose the level of unemployment we have. Unfortunately, political considerations get in the way of economic policy changes that would significantly boost job opportunities.

urate_Dec15

emplgrowth_tty_Dec15

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11 Responses to Penalty rates reform should be considered as way to reduce youth unemployment

  1. Glen says:

    Great points Gene, I am always amazed at the amount of businesses in Townsville that are closed on a Sunday. Even on the Sunday night after the V8 event the doors of half our restaurants are closed in town, embarrassing really. If penalty rates were lowered it would allow many of these to open, it would also allow them to compete with large places like the Leagues club and Casino. The state govt also must shoulder some of the blame with their ridiculous restrictions on opening hours in regional centres, it’s useless having competitive labour rates but businesses not allowed to open.

  2. Matthew says:

    It is at least worth mentioning the huge social impact of flippantly suggesting that less trading hour restrictions and disbanding penalty rates is a cure-all, especially in regional centres. Coming from a small town I know that trading hour restrictions and weekend penalty rates are the only thing keeping sports and other social activities like church & club attendance alive. Some things are better than more money.

    • Gene Tunny says:

      Thanks for the comment, Matthew. Yes, I accept there will be social impacts. Different people will make different judgments about what value to place on those impacts. Obviously, my view is that the producer and consumer surplus gains from deregulation would far outweigh any adverse social impacts.

      • Matthew says:

        I think Glen’s comment shows that too rigid a rule on opening times does affect both consumer and producer surplus. In that case of the V8’s it would obviously be much better for businesses and consumers for the restaurants to be open.

        However, I don’t accept that producer and consumer surplus would necessarily be improved a great deal in normal circumstances. You may be right, but having been both a worker and owner of businesses in regional areas I can tell you that the benefit to a business owner of not having to be part of a race to the bottom in opening hours was a great benefit. Most workers in regional areas also must work the hours that are asked of them and don’t have any base for negotiations, meaning that a lot of people would then be required to work when it means less family and social time. So I see a negative impact for both workers and business owners in most circumstances that may or may not be made up by the consumer surplus of having longer shopping times.

        Obviously more flexibility is needed, but I doubt an across board de-regulation of opening hours would be good for anyone.

  3. Nimrod says:

    Under a fully deregulated environment a business would choose to open when it wanted. It doesn’t necessarily mean excessively longer hours. Canberra (small regional city) is fully deregulated and most businesses do not open 24-7. If an employee doesn’t like the hours he/she could change employer. Labour is a highly mobile resource, especially in retail and hospitality. There is no need for government regulation for trading hours. In Western Australia many local governments in south west regional areas have freed up hours in recent years (eg Bunbury, Busselton, Eaton) and nobody is calling for a return to highly restrictive hours. Queensland seems to be taking its time to reform compared to other jurisdictions, but it will happen, hopefully in my lifetime!

  4. Mark Beath says:

    There is a juxtaposition here which I can’t reconcile. It is a policy position in Queensland which refuses to consider reform of retail trading hours while demanding no change to penalty rates. There would seem to be retailers prepared to pay the penalty rates being denied the opportunity to do so?

  5. Gene. Certainly valid points and I would support your call for a relaxation of labour regulation. You mention the youth unemployment situation in Cairns; however it is worth noting that data here shows some very steep improvements in the unemployment rate. The ABS original data for Nov (too volatile to put too much store by) showed the youth unemployment rate in Cairns at just 8.2%…its lowest level since July 2012. Our own Conus Trend showed a rate of 13.1% (lowest since Jan 2013 and down from highs of 25% a little over 2 years ago)) and even the slow moving (and very lagged) 12 month moving average is at its lowest level since Aug 2014.
    Part of the decline in the unemployment rate in Cairns can be pegged to a decline in PR, nevertheless we have seen positive Trend youth employment for 9 straight months. We haven’t seen that for a very long time (March 2009 to be precise).
    Youth unemployment levels remain too high in some regional centres, but let’s not ignore the fact that (at least in Cairns) there has been some positive improvements.

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