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The Albanese government is pushing ahead with  to protect  for about 2.6 million workers under the . Those workers are more likely to be female, younger and work casual or part-time.

Penalty rates are higher rates of pay to compensate for working overtime or at unsociable hours, such as weekends, late nights or public holidays.

Australia is not unique in having penalty rates. Other countries, especially in Europe, have . It’s less common in the United States and the United Kingdom.

But while penalty rates and overtime may be good for workers, they’re bad for business – right?

Surprisingly, it’s not that simple. Past experience in Australia and overseas shows that when workers’ pay or conditions get worse, it can end up creating headaches for business – especially those facing worker shortages.

The Albanese government’s  would enshrine a new “” into the Fair Work Act.

It’s designed to  cases currently before Australia’s workplace relations regulator, the , where industry is pushing for greater flexibility on penalty rates and overtime.

If passed, the bill would  the Fair Work Commission from allowing penalty or overtime rates to be “rolled up” into a single rate of pay “where it leaves any individual employee worse off”.

The Coalition says  with small business is needed. But there are  the Greens could support the bill, which would be enough for parliament to pass it.

The industries most affected by Labor’s proposed change include retail, hospitality, care and clerical work, where many workers are “”, or who often work at irregular or unsociable hours.

The government  the bill does not prevent awards from being made more flexible for employers – provided workers are not financially disadvantaged.

���Ծ��DzԲ��� Labor’s bill. They  workers on awards are typically in lower-paid roles, where penalty rates form a significant part of their take-home pay.

Earlier this year, the Australian Retailers Association and employers including Woolworths, Coles and Kmart  letting retail managers opt in for a , while trading off penalty rates, overtime and rest breaks.

While that proposal relates to managerial staff, some are concerned it could set a precedent for those arrangements to be extended to non-managerial workers. (The retailers’ association  “it never sought to remove penalty rates from the award” for those not wanting to opt in.)

This followed employers seeking similar changes to , affecting around 2 million workers.

The Australian Industry Group says Labor’s new bill is a “” and

Labor should trust the independent umpire [the Fair Work Commission […]] to set fair terms for awards, not simply change the rules to ensure unions get their way.

Others warn it  about how they’re paid, and will undermine workplace productivity – just when the government is .

For decades, employer groups have pushed for more flexibility to cut penalty rates, while unions have fought to keep them.

What can we learn from those past clashes?

We don’t have to look back far. In 2017, the Fair Work Commission  to reduce Sunday and public holiday penalty rates for more than 700,000 workers covered by the retail, hospitality, fast food and pharmacy awards.

In that case, the Fair Work Commission agreed with employer groups that these reductions would create more jobs.

However, that conclusion did not bear fruit.

In 2019, researchers Martin O’Brien and Ray Markey analysed employment data and did a survey (with union funding) of more than 1,800 employees and 200 owner-managers in retail and hospitality. Their  found no evidence of jobs being created by the 2017 penalty rates reduction.

A 2017 report from the Australian Institute’s Centre for Future Work  the additional income generated by penalty rates adds $14 billion each year to the economy, which boosts aggregate demand. So when penalty rates are cut, there can also be consequences for the wider economy.

And arrangements exchanging penalty rates for higher base salaries have often led employees to be worse off overall – .

While workers are most likely to suffer when penalty rates are cut, there may also be negative consequences for employers.

The hospitality and retail industries, where workers are among , are also . Both industries are characterised by .

My research with Susan Belardi and Angela Knox on the hospitality industry  pay competitiveness is important for attracting and retaining workers – and addressing job vacancies.

 point to uncompetitive pay contributing to worker shortages.

�ճ���� (OECD) has found collective bargaining – rather than individuals negotiating their own pay – can:

benefit not only workers, but also firms, as lower turnover and longer tenure can reduce hiring and training costs and increase productivity.

���ٳ����� also shows sector-wide agreements with workers can help drive greater business productivity.

The evidence suggests that without penalty rates, not only would workers be disadvantaged, but business problems relating to worker shortages and productivity might end up worse than before.

This article was originally published by . Chris F Wright is a Professor of Work and Labour Market Policy at the ������ Business School. He currently receives funding from the Canadian Social Sciences and Humanities Research Council. In the past he has received funding from the Australian Research Council, the UK Economic and Social Research Council, the International Labour Organization, the Australian and NSW governments, and various business and trade union organisations. None of the funding he has received relates to the legislation discussed in this article.