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The Penalty Rates Cuts: Everything You Need to Know

The following is a very detailed analysis of the political economy of the Australian Fair Work Commission’s cuts to the minimum wage in retail and hospitality. It was written by Janet Burstall, my comrade in Workers’ Liberty. For the main Workers’ Liberty website, click here. The original article Janet wrote is posted here.

This article is intended primarily to inform Australian readers and bring them up to speed on the economic situation about the minimum wage cuts.

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The Fair Work Commission’s Cuts

Penalty rates included in the awards for Hospitality, Clubs, Restaurant, Fast Food, Retail, Pharmacy workers will be cut for Sundays and Public Holidays by between 25-50%. The larger cuts are to the pay of non-casual retail and pharmacy workers, from double-time to time and a half, chiefly benefiting the bottom line for the large retail employers. Fast food workers remain the worst off, with Sunday penalty rates cut to Saturday level. The cuts to Public Holidays take effect from July 2017, with possible “transitional arrangements” for Sundays. The Fair Work Commission will hear this in May 2017.

The Restaurants award was not cut to the same extent in this decision because Sunday loadings had already been cut from 175% to 150% in 2014. Full and part time (non-casual) workers, in retail and restaurants, will feel the pressure to take on extra hours to make up for their lost pay, and employers will have an incentive to take those hours away from casuals who retain higher penalty rates.

The SDA Victoria estimates “that every year more than $1 billion dollars will be ripped from the pockets of Australia’s retail and fast food workers.” While the cuts apply only to awards, not enterprise bargaining agreements, as the SDA Victoria acknowledges “employers will use these cuts in penalty rates in negotiations for new agreements.”

And the Winners Are…

The two top Australian companies by annual revenue in 2016 are Wesfarmers at $66.2 billion and Woolworths at $58.6 billion, ahead of 3 major banks next on the list (IBISWorld).

Whilst Wesfarmers and Woolworths are known for their retail brands, both have significant liquor and hospitality investments, including poker machines and gambling. The SDA had already made agreements with Coles and Woolworths that have cut penalty rates even further than the Fair Work Commission. The FWC penalty rates decision further strengthens Coles and Woolworths to continue the downward pressure on take home pay.

Wesfarmers claims to be the largest private sector employer in Australia, paying around 220,000 people who spend their time working for Wesfarmers, over $8 billion a year, only 4 times the total of $2 billion paid to shareholders. Employees are paid on averages less than $36,400 a year. The 530,000 shareholders are paid on average almost $3,800 a year each just for owning shares, (Wesfarmers Annual Report 2016) and we can be sure there are many shareholders with well above average holdings. Woolworths employs over 205,000 people, with 111,000 of these in “stores, distribution centres and support offices.” Woolworths took $1.5 billion revenue from hotel investments in 2016. (Woolworths Annual Report).

According to newspaper reports, “Citi Research analysis shows cutting penalty rates would boost shareholder earnings by 8 per cent for Myer and JB Hi-Fi and 5 per cent for Wesfarmers.” It also shows that in November 2016 “most of Australia’s ASX-listed retailers have expired enterprise agreements. Those with expired agreements included Big W, Bunnings, Coles Supermarkets, JB Hi-Fi, Just Group, Kmart, Myer and Target…”The reason most retailers have expired EBAs in our view is the hope that wage reform will be implemented lowering penalty rates,” the Citigroup report says.

Franchising in the fast food and hospitality industries makes it more difficult to identify the size of operations for companies such as Retail Food Group, Bakers Delight, Pizza Hut and Dominoes, all covered by the SDA. Casinos are the largest single site employers in the hospitality industry, and covered by United Voice.

The proportion of employees working weekends has grown since 2008 in hospitality from 58.6% to 60.8%, and in retail from 44.4% to 47.6%. This compares to the proportions across all employees growing from 25.9% to 276.5%. The penalty rates cut is targeted to benefit employers and penalise workers in the industries that pay the most in penalty rates.

The Squeeze

In 2011 The Productivity Commission found a “long-term downward trend in the growth rate of retail sales” largely because of cheaper goods. The PC quotes research showing that larger retail firms in Australia have historically enjoyed relatively high returns on shareholders’ funds” and that labour productivity growth in retail is similar, on average, to that of the rest of the Australian economy. However retail grew more slowly than overall gross domestic product between 2003-2013. And the level of productivity in the retail industry remains lower “in terms of output per hours worked …than most OECD countries.” Growth in all but 2 categories of retail ranged between 1.2% and minus 2.1% between 2003-2013. The higher growth was in clothing, footwear and personal accessory retailing at 2.5%, and in non-store retailing (mainly online) at 17.6%.

In January 2017 Fairfax Media reported on “confidential supermarket scan data” illustrating “how dire the outlook might be for the Australian grocery sector, and how aggressive discounting has pushed Coles and Woolworths down a road of mutual profit destruction.”

This competition between companies in the retail industry is being taken out on both farmers, with intense downward pressure on prices, and on retail workers, with intense downward pressure on wages. You can be pretty sure that it is not the corner store that drove the Fair Work Commission decision to cut penalty rates.

The Unions

The workers whose take home pay will be cut are covered by the unions that are parties to the relevant Awards, the SDA (Shop, Distributive and Allied Employees’ Association), United Voice, Meat Industry Employees Union, and Professionals Australia (representing employed pharmacists).

The most visible union campaigning against the penalty rates cuts has been petitioning and signing up to a “Save our weekend” campaign, driven by United Voice.

The 230,000 member SDA has been complicit in eroding penalty rates, despite officials claiming to defend them. In September 2013 its website announced a “massive defence of penalty rates and overtime.” But 4 months earlier in May 2013 the SDA had already struck a template enterprise agreement with Business SA which abolished Saturday penalty rates and reduced Sunday penalties. And in August 2016 “ Fairfax published a massive investigation revealing that the SDA had cut deals with some of the country’s biggest retail and fast-food chains that left more than 250,000 workers being paid below what they’re worth.” Agreements with Woolworths, McDonald’s and Coles have since replicated the trade off of penalty rates. The SDA claimed that the deal offered higher base rates of pay, guaranteed annual pay rises and improved rostering and shift breaks, but it left many employees worse off.

After unsuccessful attempts to reform the SDA from inside, a group of dissatisfied members worked with Josh Cullinan to form a new union: “The Retail and Fast Food Workers Union” (RAFFWU) in November 2016. Josh Cullinan reacted to the February 2017 penalty rates cut. “Workers at the major retail and fast-food outlets have already had these penalty rates cut. That’s half a million workers out of the fight. We don’t think the Commission could have cut rates today if those 500,000 workers were in the fight.”

Meanwhile the SDA and the trade union movement are calling on Malcolm Turnbull to “intervene[e] immediately to protect take home pay and then review… the laws that have led to this decision.”

Labour councils and the ACTU officials are speaking out against the penalty rates cuts and organising public meetings. Daniel Andrews announced a parliamentary inquiry in Victoria into the changes to penalty rates, and said the Labor government will be looking at ways to protect “thousands of Victorians from these attacks on their living conditions.” Bill Shorten is proposing a private members bill to stop the FWC cuts being implemented. It won’t get through the House of Representatives. The Save Our Weekend lobbying campaign, a partnership between United Voice and peak union bodies, is aimed at the next election. Given Labor’s record on replacing Work Choices with Work Choices Lite aka the UnFair Work Commission, a political campaign will not be enough to win back penalty rates.

The driving force behind these cuts is the large corporations that benefit from them, and there is no way to win without taking on those employers, by demanding restoration of penalty rates in enterprise agreements. There are many EBAs that have already expired or expire shortly.

However, the SDA leadership is incapable of this, United Voice may not have the confidence, RAFFWU doesn’t have the membership base, and Professional Australia membership is less concentrated and perhaps less likely to have enterprise agreements. The Meatworkers have stood up in large meat processing plants in the past, but there is no obvious sign that they have been able to take on the retail giants.

The power to win back full penalty rates is industrial. The affected unions should organise for enterprise agreements that include the old level of penalty rates, and that withdraw previous clauses that traded off penalty rates. The leaders of peak union bodies, and all left trade unionists should be organising and looking for ways to make this happen, despite obstruction by individual union leaders. This includes exploring how to support the efforts of RAFFWU to overcome the sellouts by the SDA leadership.

Main Points Behind the Labour Theory of Value

The following text comes from a pamphlet I am collaborating on. Myself and another comrade are working on distilling Value, Price and Profit down into an even simpler-to-digest form. All the text below is a summary of section 6 of Value, Price and Profit. It deals with the Marxist labour theory of value in its entirety, and its basic relationship to the expression of value in terms of money, price. The rest of the pamphlet will obviously deal with profit.

VI. VALUE AND LABOUR

A. The Labour Theory of Value

1. We need to begin our investigation by asking “what is economic value?” Bourgeois economists don’t have a good answer to this question, but Marxists do.

2. Everyday we become involved in acts of economic exchange. Transactions that you make at the cash register are acts of exchange. We exchange the commodity of money for other commodities, like clothes, TVs, milk, fruit and vegetables, etc.

3. Marx points out that a single commodity is exchangeable for countless other quantities of other commodities. The ratios of commodities required for a successful exchange change depending on the commodity, but the value of the commodities always remains the same.

4. The value of the commodities is the mysterious third thing that makes the exchange of commodities possible. This third thing common to all commodities in exchange, value, is able to be separated out of the equation and analysed separately on its own. We are able to express this identical measure of commodities independently of their physical existence.

5. The value of commodities when they are exchanged is a social function of commodities. It has nothing to do with a commodity’s physical existence. Value is the “social substance” of a commodity, and this “social substance” is Labour. Marx says: “To produce a commodity a certain amount of labour must be bestowed upon it, or worked up in it” (Marx: 1960, 71).

6. This labour is not the individual labour of a single person, but Social Labour. Marx says:

A [person] who produces an article for their own immediate use, to consume it themselves, creates a product, but not a commodity. As a self-sustaining producer they have nothing to do with society. But to produce a commodity, a person must not only produce an article satisfying some social want, but their labour itself must form part and parcel of the total sum of labour expended in society (Marx: 1960, ibid).

7. Crucially, this labour must be integrated into the Division of Labour in society. In order for a commodity to be a commodity, and for it to have value so it can be exchanged, the labour expended on it must be performed as part of the social process of capitalism.

8. The value in commodities is therefore crystalised labour. It is fixed inside the commodity. The only way the value of a commodity can change is if more labour is worked upon it. The more labour a commodity has bestowed upon it, the more value it will have.

9. How do you measure the quantity of labour in a commodity, in order to work out its value? Marx answers this question. The time that the labour lasts. The amount of labour in hours, minutes, seconds. Perhaps even months, or years.

10. It might be pointed out that this theory might not get us any closer to understanding value. Don’t people work at different paces, and at different levels of skill? The lazier worker would bestow much more labour on a commodity, and would therefore make it worth more than someone who worked harder. In the same way wouldn’t someone clumsy make a commodity worth the same, or even more than someone with great skill? Marx has an answer for this:

This, however, would be a sad mistake. You will recollect that I used the world ‘Social labour’, and many points are involved in this qualification of ‘Social’. In saying that the value of a commodity is determined by the quantity of labour worked up or crystallised in it, we mean the quantity of labour necessary for its production in a given state in society, under certain social average conditions of production, with a given social average intensity, and average skill of the labour employed (Marx, 1960: 74).

Marx gives an example on this point. The introduction of the power loom into England in the industrial revolution appeared to make workers work even more. They went from working nine or ten hours daily to working seventeen to eighteen hours a day. But the value of the cloth that weaver dropped by half. This was because it now took only half the time using the new machines to weave the same amount of cloth out of yarn. The product of twenty hours labour now had the same value of what used to take ten hours.

The name for this concept is called Socially Necessary Labour Time. It is easy to work out the average value of labour time in this way. The average of the overall skill, intensity, and productivity of labour, the “aggregate” ratios of all these factors, can be taken from statistics about global or national economic output.

11. If the amount of time it took to make the same amount of commodities stayed the same, the value of those commodities would stay the same. But the productive powers of society are constantly changing. Labour productivity goes up and down all the time. In the short term, labour might be less productive, and create less product per hour, minute, second. But in the long term, since the industrial revolution, labour has become continuously more productive. It is simple to find graphs on the increasing productivity of labour. It is a law of capitalism that the greater the productive powers of labour, the less value will be bestowed upon the commodities created. The less productive labour is, the more values individual commodities will have. This is because there will be less labour bestowed upon more productively made commodities, and vice versa.

12. The productivity of labour also depends on other factors. Apart from the skill and intensity of labour, the productive powers of labour depend on:

First. The natural conditions of labour, such as fertility of soil, mines, and so forth.

Second. Upon the progressive improvement of the Social Powers of Labour, such as are derived from production on a grand scale, concentration of capital and combination of labour, subdivision of labour, machinery, improved methods, appliance of chemical and other natural agencies, shorting of time and space by means of communication and transport, and every other contrivance by which science presses natural agencies into the service of labour, any by which the social or cooperative character of labour is developed (Marx, 1960: 75).

B. Value and Price

13. None of the above theory applies to the price of a commodity. It only applies to a commodity’s value.

14. Price is a particular form that value assumes in the capitalist system. Price is the monetary expression of value. Price is the form of value in money form. This can be put another way. Price is the value of money.

15. The price of money used to be the value of gold. This was called the “gold standard”. Working out the value of money in this way was easy. The pound or the dollar would be set to a specific weight of gold. The amount of socially necessary labour time that it took to produce that specific quantity of gold was the value of the British pound or the American dollar.

16. The international gold standard for the US dollar was abolished by Richard Nixon in 1971. All major currencies are now “free floating”. This means that the price of money is now self-referential. The value of money now changes every millisecond. The value of money is now determined by speculation, by the rapid exchange of money for other commodities on the global market.

17. This doesn’t contradict the Marxist labour theory of value in any way at all. Money is a commodity like any other. Because money is a commodity, it is exchangeable in definite ratios with other commodities. This means it has value. It now no longer necessary to explain conceptually what the value of money is. It can be determined empirically at every instant with a computer.

18. Money is the universal equivalent commodity. It is the commodity that every other commodity uses to express its value in order to be exchangeable on the market. Money is the appearance of value, where socially necessary labour time is the essence of value.

19. Under normal, stable conditions, the price of a commodity will coincide with its value. This means that the price of a commodity will exactly express the amount of socially necessary labour time crystallised in it. This means that identical commodities produced under different concrete regional conditions will have the same price.

20. The market is a dynamic system, and the price of money and of commodities is constantly changing. Market prices may coincide with the values of commodities, but that is not always the case. Contrary to the slander levelled against the Marxist labour theory of value, Marx holds a place for the market forces of supply and demand in his economics. Marx follows Adam Smith in holding that two different concepts explain the reason why prices have the quantities they do. The first concept is market price. The market price of a commodity is determined by the laws of supply and demand. The second concept is the natural price. The natural price of the commodity is the price a commodity should have, and to which all market forces are tending the price to become under equilibrium. Under normal, stable conditions, conditions of equilibrium, a commodity will have its natural price. A commodity’s natural price expresses its value exactly.

21. All of what has been said above assumes that the capitalist system being discussed is a perfectly free market. Contrary to what the enemies of Marxist economics say, Marx assumes in his model of capitalism that it is a perfectly free market. The existence of monopolies under capitalism will distort market forces, and will cause commodities to avoid having their natural price. But that is not our concern here.

References

“Value, Price and Profit” in The Essential Left (Unwin Books: London, 1960).