Communication 7/2017: The ban on Sunday trading - the conclusions of the government are partly in line with the conclusions of FOR
On 22 March 2017, Sejm received the official position of the government on the citizen bill restricting trade on Sunday, pushed through by unionists. The government expressed its official support for the citizens’ project, but its impact assessment contains many critical remarks that are partly overlapping with the conclusions of FOR. In previous publications, Civil Development Forum showed harmful effects of the ban both for consumers and for businesses and employees in the retail sector. The following quotes from comments to RIA1 (Real Impact Analysis) relate to the most important effects of the introduction of the new regulations that have been mentioned in the earlier publications of FOR as well as in the governmental analysis.
1. The impact of the ban on Sunday trade on companies
a) The decline in turnover of enterprises in the trading sector
"Possible decline in revenue of stores located in shopping malls."
In the literature, reviewed by the FOR, the impact of restrictions on the turnover of the sector is not
fully clear, but e.g. in Canada deregulation of Sunday trading increased sales by 1%-3% (Skuterud, 2005). It is certain, however, that the ban on Sunday trading will prevent customers from shopping when it is most convenient for them. Given the higher opportunity costs2, customers will be less likely to make their purchases. There is also a risk that prices in shops will rise - if the shops will have to be closed for 1/7 of the week, return on entrepreneurs' investment for these stores will fall, which will directly translate into higher prices. Higher prices discourage customers from making purchases. According to research, restrictions on the opening time raised prices in Germany (Reddy, 2012), the Netherlands (van Bergeijk and Haffner, 1997) and Sweden (Civildepartment, 19913.
These incentives will contribute to the reduction of sales, so the argument put forward in the government's position is rational and plausible.
At this point we should also mention the frequent argument concerning the trade turnover, cited in the public debate by supporters of the ban. The increase in turnover in the retail sector in Hungary in 2015, after Sunday trade was banned, is often quoted. However, it is rarely mentioned that no research attributes this increase to the ban.
Moreover, the report "Hungary 2015" of the Hungarian statistical office clearly states that the turnover began to rise as early as 2013, and a further increase in 2015 was due to the improvement of the economic situation in the whole economy: an increase in real wages, improved situation on the labor market, moderate inflation and a decline in oil prices.4 The situation in Hungary is also quoted in a footnote to the Polish government's position.
b) A reduction in the competitiveness of the shops of the border with Germany
"It is possible that the competitiveness of Polish enterprises will be reduced as compared with foreign companies, especially those from the neighboring countries of EU (e.g. large shopping centers located near the border with Germany, where the trade restrictions on Sunday are in force)."
The ban on Sunday trading will reduce revenues of Polish stores on the western border, and thus the state budget revenues from VAT. Currently, many Germans
from the border village go shopping in Poland, because not only the prices are lower, but also Polish shops are open on Sundays. It is widely described in the analysis 12/2016 by FOR4.
The conclusion of the government's position is right and consistent with the conclusions in FOR publication.
c) The ban on Sunday trading favors small individual shops
"Increasing the protection of small, independent shops (usually closed on Sundays) from the competition of larger shop networks."
FOR in its previous publications drew attention to the fact that the ban on Sunday trade favors unfairly small individual shops over larger, more efficient companies. This results in a reduction of productivity growth of the sector, and consequently slower growth of its wages. It also adversely affects consumers, who are forced to buy on Sunday in small individual shops, often offering higher prices or lower quality products than the largest stores. Favoring small individual shops by the legislator is also harmful to the employees because they are most often abused in such stores. For example, underpayment or non-payment of salary and overtime allowance happened to 13% employees of small shops in 2013, and to almost 24% in 2013 (National Labor Inspectorate, 2015).5
d) Penalties against entrepreneurs for breaking the ban on Sunday trade
"The proposed sanctions should be regarded as excessively harsh in relation to the good that is to be protected."
The draft law presented by the union provides for a drastic and inadequate criminal sanction of up to 2 years in prison for conducting trade on Sunday. Such is a penalty for driving under the influence of alcohol, the threat to commit a crime against another person, and the production of child pornography. Such punishment is too harsh, and FOR drew attention to it in previous publications.
2. The impact of the ban on Sunday trading on the labor market in Poland
a) Reduction of employment in the trade sector
"The final effect on the labor market, including the level of employment in trade, will depend on the individual behavior of businesses and consumers. It is not expected that the number of unemployed should increase as a consequence of changes in regulations. In the current, relatively good situation on the labor market, (...) one can assume that people who lose their jobs in one place, should quickly find another job."
The government's position is based on the assumption that the good situation on the labor market is permanent and will not change in the future. Although the author of the text correctly estimates that the impact on the labor market will be dependent on "individual behavior of businesses and consumers," he seems to ignore the occurrence of business cycles in the economy and forgets that the labor market situation varies in different parts of the country. The author of the government's position underlines that in the current situation on the labor market ban on Sunday trading will not lead to job cuts, because it will increase the flow of workers between companies in the industry and, in some cases, working time will be reduced. This assumption is true only if the upturn in the labor market continues. However, even then the adjustment will be associated with severe costs on the part of the redundant workers, and a deterioration in the labor market will result in a decline in employment
in this industry. A review of empirical studies carried out by the FOR5 shows that in the majority of examined cases, limitations of opening days and hours led to a reduction in employment. According to research, shop opening time restrictions contributed to the decline in employment in the Netherlands (Centraal Planbureau, 1995), Germany (Pilat, 1997), Canada (Skuterud, 2005; Burda and Weil 2005 (about 5-12%)) and the USA ( Goos, 2004; Burda and Weil, 2005). PwC (2016), in connection with the ban on Sunday trading in Poland, assumes a decline in employment by 36.4 thousand people, of which 21.2 thousand in the trade itself. Other people may lose their jobs in the services that are dependent on trade operating on Sundays, such as cleaning, security, catering and other services in shopping centers. This is consistent with the results of foreign studies.
Therefore, the ban on Sunday trading is another dangerous state interference in the labor market, which, like abrupt raise in the minimum wage, the introduction of a minimum hourly wage, lowering the retirement age and 500+ program can contribute to reduction of employment.
b) The situation of people who prefer to work on Sunday
"People who want to work on Sundays, and in consequence of the legal changes will not be allowed to continue their previous work, will seek employment elsewhere. In the current situation on the labor market, finding another job on Sundays should not be a problem, but it cannot be ruled out that in some of local labor markets it may be difficult."
The government, like FOR in previous publications, draws attention to the situation of people who want or need ( e.g. in connection with their studies) to work on Sunday. The government's position, however, downplays the problem, once again relying on the so-called. "employee market" and the good situation on the labor market. However, it should be remembered, that the boom will not last forever, and the search for a new job always involves some effort and stress, inflicted on young workers solely because of legal regulations. As a result of the ban on Sunday trading, this relatively weaker professional group will bear unfairly high costs.
Furthermore, the statement "finding another job on Sundays should not be a problem" shows the hypocrisy of the position of the government - on the one hand the policy makers support the ban on Sunday trading, so that workers can rest, on the other hand, they argue that people who want to work on Sunday will find employment e.g. in gastronomy. or in culture. This is an inconsistency and it favors unfairly one selected group of employees.
c) Wages in the trade sector
"The proposed rule changes will have little impact on wages. (...) Taking into account other regulations that are in force or being introduced, in particular the raise of the minimum wage to two thousand zł, and the introduction of a minimum hourly rate for contract work, as well as good economic situation, overall you can expect a further increase in the level of wages in the trade sector next year.”
"Salaries in the trade sector may grow more slowly if restrictions on Sunday trading is introduced, but the differences are too small for a precise estimate (changes in remuneration result from simultaneous operation of many different factors, some of which are difficult to predict)."
Wages in the economy depend on the productivity and grow with it, because higher productivity means that workers produce more added value for the employer. Productivity comes not only from the labor of workers, but above all from the improved organization of work (e.g. the economies of scale in larger stores/chains, reduction of the share of fixed costs, more even distribution of customer purchases in the week), or from capital shared by the employer with the employee (e.g. the organization of cash register enabling faster customer service, or more suitable software). The ban on Sunday trading is a regulation that protects less productive, individual, small shops from competition, which will contribute to lowering the overall increase in the level of productivity of the sector, and thus to decrease the wages of its employees. As a result, the proposal's position is fair and consistent with FOR writings, e.g. the analysis 12/20166 - sector employees wages will grow more slowly than without the ban.
In the justification of the position of the government's unfairly high credits are attributed to the regulation of labor market by increasing the minimum wage. It is productivity, not state regulations, the most heavily influences the level of wages. However, if the abrupt increase in the minimum wage, from 1850 zł in 2016 zł to 2000 zł in 2017, results indeed in faster wage growth, this growth is separated from the improvement of labor productivity, which in turn will strengthen the negative impact of the ban on employment, which can be particularly evident at an economic downturn. In this case, a high minimum wage constitutes a temptation - or necessity – for dismissals or transition to a gray zone7.
3. Examples of countries where Sunday trade is banned or restricted
"It should also be noted that in Austria, Germany, Norway, Switzerland, France, Great Britain, Greece, Belgium, Denmark, there is either a total ban on Sunday trading or it is limited depending on the region, the season, or the size of the store."
The position of the government presents examples of countries that apply the ban or restrictions on Sunday trading. The author of the draft copied them without verification from the justification of the bill prepared by the unions. It repeats after unionists the erroneous example of Denmark, which in fact since 2012 has nor restricted Sunday trading. While in other cases, regulations indeed occur, it is worth remembering that countries regulating trade on Sunday are a definite minority in the EU. Currently, 19 of the 28 EU Member States do not apply any restrictions on Sunday trading, and 8 of the EU countries decided in recent years liberalize the restrictions (including those mentioned in the RIA: Denmark, France, and Greece). Furthermore, no state that joined the EU after 2004 applies any restrictions on Sunday trading.6
4. Summary
The government's impact assessment, despite its chaotic structure, accurately indicates the main disadvantages of a ban on Sunday trading in Poland. New restriction of the trade sector will have a number of negative consequences not only for workers and businesses but also for consumers. The policy makers should draw the right conclusions from their own assessment of the effects of this harmful regulation and abandon the idea of introducing the ban.
Communication by FOR (in Polish) available to download here.
1http://orka.sejm.gov.pl/Druki8ka.nsf/0/106F4C649219510CC12580EC0046AD22/%24File/870-s.pdf
2The opportunity cost is the cost of lost opportunities. Because the stores will be closed on Sunday, customers will be forced to go shopping on Saturday rather than going to the movies. Although cinemas will be open on Sunday, the opportunity cost for customers who prefer shopping on Sunday will increase, because they will be forced to give up their habits.
3https://for.org.pl/pl/a/4274,komunikat-for-12-falszywych-argumentow-za-zakazem-handlu-w-niedziele
4https://for.org.pl/pl/a/4109,analiza-for-zakaz-handlu-w-niedziele-szkodliwy-dla-konsumentow-pracownikow-i-sektora-handlu
5https://for.org.pl/pl/a/4109,analiza-for-zakaz-handlu-w-niedziele-szkodliwy-dla-konsumentow-pracownikow-i-sektora-handlu
6https://for.org.pl/pl/a/4109,analiza-for-zakaz-handlu-w-niedziele-szkodliwy-dla-konsumentow-pracownikow-i-sektora-handlu
7https://for.org.pl/pl/a/3949,komunikat-for-placa-minimalna-rzad-szkodzi-gospodarce-nie-pomagajac-najbiedniejszym
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Maciej Orczyk, junior analyst at FOR
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