Nobel laureate Joseph Stiglitz warns on penalty rates cut

Nobel prize winning economist Joseph Stiglitz has backed unions on penalty rates, saying cuts to Sunday rates in Australia are an indication that workers’ power has been eroded.

"The economy is supposed to be helping increase people's living standards - and part of living standards is enjoying leisure," Professor Stiglitz said.

"If you have to work on a Sunday, you should get compensated ... And the background of this [is that] the bargaining power of workers has been eviscerated. They would want to say 'I don't want to work on a Sunday' - but they can't say that."

Joseph Stiglitz, economics professor at Columbia University, says governments must act to address inequality.Credit: James Brickwood

The respected American economist and Columbia University professor, who is in Australia to accept the Sydney Peace Prize, also supports the Australian Council of Trade Unions' demand for industry-wide bargaining, which he sees as necessary to address weak wage growth.

"When you don't have any collective voice for workers, obviously workers are not going to do as well," he said.

It comes as the latest data from the Australian Bureau of Statistics reveals that hourly pay rates increased 2.3 per cent nationally over the past 12 months, marking the highest annual growth rate in three years.

Industrial Relations Minister Kelly O'Dwyer said the figures were "encouraging and show wages are heading in the right direction".

But unions argue the increase, which came after the Fair Work Commission raised the minimum wage by 3.5 per cent, is insufficient to offset the rising cost of living.

In a speech at the National Press Club in Canberra on Wednesday, Professor Stiglitz called on governments to address inequality and warned that doing so was crucial to a well-performing economy.

He urged Australia to learn from the mistakes of the United States, where he said worker rights had been eroded through a series of policy failures based on trickle-down economics.

"It used to be that we thought that you could only get more equality by sacrificing economic growth," he said.

"That view is no longer accepted ... Having a progressive agenda with greater equality leads to higher economic growth and that higher economic growth then generates more tax revenue-  and that more tax revenue gives you a source of funding for more progressive reforms that can make a more inclusive society."

Labour, competition and taxation laws had been restructured in a way that led to "slower economic growth and more inequality", he said, adding: "What paltry economic growth has occurred, the benefits have all gone to the top."

Professor Stiglitz said large segments of the population had been locked out of the middle class as corporations increased their profit margins while refusing to pass on productivity gains to workers.

He said penalty rates should not be eroded, and that governments must act to protect workers.

"Having a life where you don't get the same time off that everyone else does is really interfering with your wellbeing," he said.

"That's why there's a really important role for a government to set hours and overtime standards."

The Fair Work Commission decided to cut Sunday and public holiday penalty rates for full-time and part-time workers in February.

Opposition Leader Bill Shorten has promised to reverse penalty rate cuts within 100 days of a Labor government being elected.

The Morrison government supports the Fair Work Commission's decision to cut penalty rates.

Mr Shorten has also said he will consider the ACTU's industry wide bargaining proposal, which would empower workers to strike across industries.

But many expect Labor to support a watered-down version, restricting pattern bargaining to particular sectors in which workers have struggled to negotiate pay rises, such as childcare.

Unions lost a bid to overturn the commission's penalty rates decision in the Federal Court last month.

Hospitality workers' Sunday rates were cut from 175 per cent of their standard wage to 150 per cent; in the retail sector, the drop was from 200 per cent to 150 per cent.

The public holiday cuts came into effect on July 1, while the Sunday penalty rate cuts are being introduced over several years.