August 11, 2015

Horse 1956 - We Want You To Work For Less Pay II

Much has been made in the news recently about the Australian Chamber of Commerce an Industry's proposal to abolish penalty rates at the weekend under the premise that this would create more jobs. This is Economics 101, right? If you lower the costs for a good  (in this case labour) then you shift the supply curve downwards, thus creating a new lower equilibrium position and selling more as a result. The theory says that if employers don't have to pay as much for their labour, then they're going to hire more labour and this will lower unemployment. The problem with the ACCI's suggestion is that it isn't actually true. I think that this is a serious case of synthetic a priori. We've moved into some sort of Kantian fantasy where thinking about a thing will change the thing. The world simply doesn't work that way.

When economists talk about incentives, its often unclear about what they mean by that term. I've read several texts and come to the conclusion that even within the text you're reading, an economist will propose some model about how incentives work and that proceed to ignore that model throat out the rest of the text. Like Kant who never strayed more than about 70 miles from.his house in his whole life, economists have a tendency to live in their own little thought bubble and cultivate friends such as managers and politicians and then wonder why things don't work out in the real world.
I also don't understand how the ACCI arrived at their conclusions either. The example which has frequently been put forward in the media is of cafés and restaurants but having been a member of the Mossman Chamber of Commerce for more than a decade, I can tell you that we do not see any café or restaurant owners. The members of the local Chamber of Commerce tend to be professionals and semiprofessionals like financial planners, legal and paralegal practitioners, real estate agents and the local managers of banks and building societies. These sorts of people tend to want to become members because they can see a synergy in referring clients between each other. Someone who wants accounting work done is also semi likely to want financial planning help as well. Likewise, someone buying property often needs legal assistance in the conveyancing and drafting of legal documents in conjunction with that property. Café and restaurant owners do not become members of the local Chamber of Commerce because they're too busy out in the real world running their cafés and restaurants.
My question in broad teams for the ACCI is who the heck did they speak to? Not once have I seen a single survey conducted and the results published. You can't just think about something and say that that's how the world works.

Yesterday this blog actually bothered to conduct the research. The Horse Independent Poll (which was me armed with a clipboard) went into the streets of Mosman and tested the proposal to see it if was true. I was truly HIP.
I was surprised at just how many cafés there are in Mosman. There are two in Bridgepoint, one across the street from the ex-cinema, six just in the region of Myagah Mews and from Spit Junction through to Mosman Junction on Military Road there are twelve cafés and this doesn't include places like the charcoal chicken shop, the bakeries, the cheese shop or the burger place. There were twenty-one places that I managed to visit in an hour; which I'll freely admit is too small to be a statistically useful sample size but it's better than nothing.

The two questions I asked were:
1. If penalty rates at the weekend were abolished, would this encourage you to employ more people?
2. If penalty rates at the weekend were abolished, would this encourage you to remain open for longer?

The results were surprising. Of the 21 cafés that I surveyed, 0 would employ more people if penalty rates were abolished at the weekend and 0 would remain open longer.
The reasons given for these responses (and that also surprised me, that people will just talk to you without prompting) ranged from "Mosman is dead at the weekend and so there wouldn't be any point", through "I'm not looking to employ any more people", to "It's rude for the Prime Minister to think that we'd remain open just for him. We need our weekends too."
This latter response, or something like it, was echoed by 12 people with 3 specifically name checking the Prime Minister. Cafés it seems, are driven either by more than just money, or come up against hard barriers as to why they don't remain open longer at the weekend.
Maybe this is also worth that Mosman lies within the electorate of Warringah, which just happens to be that of the Prime Minister. In the eleven and a half years that I have worked in Mosman, I've only seen the Prime Minister on the street once and that was during the 2010 election campaign.

The reason why penalty rates exist is because people are in effect rewarded for working in conditions that in some way suck. Overtime exists because it sucks that people need to work longer than their allotted 37.5 or 40 hours a week. Penalty rates for dangerous or dirty jobs exist because those conditions suck in some way. Penalty rates for working at the weekend or during late hours exist because it sucks to be working those hours. Granted that people aren't as religious as they once were and so perhaps the rationale that people want to go to church isn't there any more but working at 11pm on the weekend is crap. Leaving work in the nighttime and in the cold sucks. If an employee is in the city, they also face increased risk of being stabbed.
The thing is that it also sucks for employers to be open longer and later. They have to make sure that everything is locked up, that their employees aren't stealing from them and they also face the fact that leaving work later sucks.

The abolition of penalty rates seems to me like an airline reducing its fare in the hope that people will want to travel 75% of the way to Auckland. Price is not the only thing at issue here. If 0/21 cafés that I surveyed would neither employ more people or remain open longer then the aim of abolishing penalty rates is completely missed. I would suspect that employing one extra person is a bigger step than just slashing people's pay. In the end, the only people who would get thrown off the plane though, are the workers.

Also See:
Horse 1830 - We Want You To Work For Less Pay

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