On 23 February 2017, the Australian Fair Work Commission (AFWC) handed down a decision to vary...

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On 23 February 2017, the Australian Fair Work Commission (AFWC) handed down a decision to vary certain penalty rate provisions in some awards for the hospitality, restaurant and retail industries. Workers in fast food or hospitality will have Sunday penalty rates reduced by 5 per cent this year, and 10 per cent in both 2018 and 2019 bringing the final rate down to 125 and 150 per cent respectively. Retail or pharmacy sector workers will have their take-home Sunday pay cut by 5 per cent this year, but then it will reduce by a further 15 per cent every year until 2020.
Do you believe that this decision will harm or help the Australian economy in general? Use at least 5 economic theories you have studied in this unit to justify your answer.(750 words)

Robert · Accepted Answer

Running head: ECONOMICS
Effect of Penalty Rate Cut in Australia 
Student Name 
Student ID
ECONOMICS 
The decision of fair work commission regarding pay slash has a significant impact on the 
economy. Sunday penalty rates have been decided to cut in different industries such as retail, 
hospitality, pharmacy and fast food companies. This decision has a considerable impact on the 
entire economy especially labour market, production cost and consumption demand of people. 
The effects of penalty rate cut in the economy are discussed below using five economic concepts.  
Effect of penalty cut on labour market 
Sunday pay cut will discourage workers from overtime work but encourages employers 
to recruit more (Toscano & Patty, 2017). Hence, penalty rate cut has a positive effect on labour 
demand.
Figure 1: Labour market 
E1 
Ls 
LD1 
wage 
Labour supply 
LD2 
E2 
L1 L2 
W1 
W2 
ECONOMICS 
(Source: created by author) 
As Sunday penalty rate is decided to go down, the effect is greater on workers. Demand 
for labour and hence employment is likely to rise in the Australian economy due to this decision, 
whereas supply of labour is uncertain. Wage rate is likely to rise in aggregate as the demand for 
labour rises. Large corporations are better off with this decision. At low penalty rate, they are 
expected to create more jobs in the economy (Dosi et al., 2016). The unemployment rate may fall 
in Australia. However, there are several arguments that penalty rate cut would not able to create 
much employment as it has been seen over the years that Australian people are unwilling to work 
at low wages.  
Effect on GDP 
GDP = C + I+ G + NX 
As consumption expenditure and government spending decreases, low paid workers may 
unwilling to work on Sunday.

On 23 February 2017, the Australian Fair Work Commission (AFWC) handed down a decision to vary certain penalty rate provisions in some awards for the hospitality, restaurant and retail industries....

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