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Chapter 3: Decision making. No, it will not get simpler.

Third time’s a charm! Ready to flex those managerial synapses? Today’s task is a real world-class brain-twister… get ready to take the heat!

Let’s get cracking…

…by reading back over the content on decision making in Chapter 3 of the textbook.  Once you’re done, you should be fully equipped to deal with a simple problem called “penalty rates”.  Easy! Right?...

Summarising very briefly:

Before you start reading this, quickly record your views on penalty rates: are they good for the economy? Are they destructive? Will cutting them be of benefit to Australia as a whole? Keep these records for the end of the reading piece.

On Friday, the 24th of February, the Fair Work Commission ruled that Sunday and public holiday penalty rates be reduced for full-time and part-time workers in the hospitality, retail and fast-food industries.  Although the commission acknowledged that this will create difficulties for some workers, it justified its decision by claiming that the cuts would lead to increased services and trading hours on public holidays and Sundays.

This decision, which is likely to affect many people like you, was received with a heated discussion from businesses, workers, families, and politicians. 

As you can imagine, people who benefit from penalty rates are not usually very high earners as it is.  Typically, workers in the affected industries rely on these penalty rates to make ends meet and to cover their necessary expenses.  The Australian Council of Trade Unions (ACTU) said nearly half a million people, including some of the country's lowest-paid workers, would lose up to $6,000 a year.  For some people, this could make the difference between earning enough to survive, and going bankrupt.  Union groups are getting ready for a long and persistent battle on social media, targeting not only employees from the affected industries, but other industries as well.  They sense concern in other workers because of the precedent that this decision may set for them.

On the other hand, retailers claim that reducing penalty rates will result in more shifts and more work opportunities for the workers, as well as extended services to customers.  However, a similar cut to penalty rates in Perth back in 2015 did not show convincing evidence that this was successful. 

Although this ruling presents an opportunity for businesses to spend less money on labour, not all businesses intend to take advantage of that.  In smaller communities, like Maitland, there are voices from local businesses rejecting the cut.  Keeping the interests of their workers in mind, and keeping in mind that the workers are often friends and family, these businesses promise to continue to pay their employees as before.

Other business groups continue to fight for this rates but against the unions, claiming that this decision has been underway for two years, and will create more jobs.  But then again, having a job does not protect you from poverty, as shown by multiple economic researchers.

Politicians are also part of this discussion, as they are the ones who are responsible for setting the relevant legislation.  Decisions among this group often include contradictions.  For example, although the unions are fighting this decision, in September 2016 one of the has signed off on an agreement which raised the wages of weekday retail workers, but left weekend workers worse off. 

The Fair Work Commission provide reasons for their decision (see Chapter 6 of the decision), and the factors they considered, including the patterns of employment, the needs of the industries, and the social changes in weekends activities over time.  This list of considerations was compiled over a long period.  The committee heard evidence and submissions over 39 days of hearing in 2015 and 2016.  They received evidence from 143 lay and expert witnesses, and cross-examined 128 of them.  They received more than 5,900 submissions from the principal parties, State and Territory Governments, Church based organisations, political entities and individual employees and employers. This is a lot of information, as you can imagine, to make one complex decision!

 

Consider the following questions for discussion…

  1. This will be easy to answer, but you will surprised how often this issue is overlooked in managerial discussion: is the penalty rates cuts question a structured, or an unstructured problem?
  2. Why would bounded rationality play a part in how people normally consider the penalty rates issue?
  3. Most penalty rates issues are discussed in group forum – at least among policy makers.  What kind of problems, biases, and benefits does this group setting bring to this problem?
  4. If you were the manager of a business in hospitality, pharmacy, retail, or fast food, would you cut back your employees’ penalty rates? How would you approach that decision?  What considerations would guide you, and how would they relate to the decision making process in Figure 3.1?
  5. What kind of biases listed in Figure 3.2 do you think affect a decision to cut penalty rates for the Fair Work Commission?  And for businesses?  How would they affect you if you were one of the managers?
  6. It may be tempting to follow the rational decision-making approach to every problem you encounter as a manager, but keep in mind realistic conditions, that are similar to those in managerial workplaces: time pressure, tasks overload, and multiple stakeholders.  How would you recommend to address this problem? 

 

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