The effect of penalty rates over time

Aussie dollar

Productivity Commission’s manager affirms penalty rates don’t affect businesses over time as exits from the industry will boost profits of those left in it

Penalty rates have no effect on the ‘long-run’ profitability of businesses, says the Productivity Commission.

Labor senator, Jenny McAllister, asked Dr Ralph Lattimore, the commission’s executive manager, at a Senate estimates committee hearing on Thursday whether he agreed with former treasurer Joe Hockey’s comment that penalty rates were ‘profit murder’.

‘Penalty rates had, one way or another, little effect on overall long-run profitability of enterprises,’ Dr Lattimore said, citing a recent report.

In the short term, if penalty rates were increased, the profitability of individual companies would fall, but exits from the industry would boost the profitability of those left in it, he said.

If penalty rates were to fall, profits would initially rise, but the entry of new businesses seeking to supply the same market would force down profitability.