MicroSpam alert: Gary Banks is wrong to bash penalty rates

Last week I posted about why econocrats’ should show humility in their advice. I coined the term “MicroSpam” to refer to the dogmatic devotion to simple MICRO101 intuition as an all-purpose policy solution. In its classic form, MicroSpam contains traces of both arrogance and naivety.

recent economists’ poll about penalty rates contained some very astute analysis from Australian economists, but unfortunately also a couple of sneaky pieces of pure MicroSpam.

The poll asked whether cutting Sunday penalty rates would increase employment and service availability on Sundays. As an aside, that’s not actually a useful question for policy, as comments by John Quiggin and other economists pointed out. Employment probably will increase on Sundays, but what matters for the economy is overall employment. The effect on overall employment is not clear at all, as work might just substitute to Sunday from other days. Unfortunately a very narrow question engineers a positive response.

Anyway, let’s look at the comment by Gary Banks – former head of the Productivity Commission – for some vintage MicroSpam.

After indicating a “strong agreement”, with a confidence of 10/10 that cutting penalty rates would increase Sunday employment, he comments:

And why stop there? Penalty rates penalise organisations that need to work seven days and workers for whom weekend work is preferred — including within the participation priorities of women and youth. Penalty rates as currently structured are the vestige of a bygone era. The only policy question is how best to effect the transition to modernity.

Umm, I have no idea Gary Banks, why stop there. What on earth could all these silly workers, unions and citizens be on about? They must actually oppose modernity! It’s well-known that the fundamental principles of modernity are sanitation, human rights and the absence of penalty rates.

The answer to Banks’ question, obvious to all people who haven’t headed the Productivity Commission, is that the proposal would transfer money from workers who give up their Sunday to employers (or possibly consumers). The question is therefore at least partly distributional, and questions of distribution depend on our values.

The second obvious answer is that it would be a step towards normalising the weekend as a regular working time. Maybe you like this, but many don’t. The answer is not self-evident.

In the real world, workers can be pressured to work weekends when they don’t really want to. Such work can hurt relationships with family and friends.

To use micro-speak, weekends have network externalities. A network externality refers to situations when the benefit of something to an individual increases with more people also taking part. I wouldn’t get much benefit from the internet if I owned the only computer in the world. But with each additional participant, my potential gain from the internet increases.

Weekends are similar. Most people do not work on the weekend, and their availability helps us have family and community activities. The weekend is therefore an institution that supports positive network externalities for social engagement.

There are some powerful arguments, from both the political left and the political right, that our communities are weakening and fragmenting. Do we really want to weaken them further?

Gary Banks also claims that penalty rates penalise workers. In some contorted language, he refers to women and youth. Is he actually suggesting the net impact on the welfare of weekend workers would be positive? I don’t think he really knows that, hence the contorted language.

A linguistic fudge gives an expert a licence to bullshit. They can’t be proven wrong because their words are ambiguous. This allows them to continue to sound confident even if they can’t actually prove what they’re insinuating.

Rather than knee-jerk scorn of popular social policies, econocrats should reflect on deeper reasons why these policies might be valued by the community.

Any economist should agree that people’s preferences are fundamentally important. Now that’s just MICRO101.

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