Unions and business groups are at loggerheads over the announcement of a Productivity Commission inquiry into Australia’s workplace relations regime.

Unions say cutting wages and getting rid of penalty rates will increase inequality and harm the economy. Business groups, however, claim such policies would reduce unemployment.

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Ged Kearney, president of the Australian Council of Trade Unions, said she was concerned the Abbott government’s review of industrial relations would target penalty rates and cut workers’ wages.

“Why is the government doing this? Wages growth is at the lowest it’s been on record. Productivity is very high,” she told reporters on Friday.

Ms Kearney said cutting take-home wages would hurt the economy and contribute to even more inequality in Australia.

She said paying penalty rates on nights and weekends compensated workers for a lesser quality of life. “If you talk about cutting penalty rates, you are talking about cutting people’s pay,” she said.

Ms Kearney said the Productivity Commission had a history of focusing on economics rather than people.

“We’re not talking about widgets and cabbages. We’re talking about human beings,” she said.

The Australian Chamber of Commerce and Industry (ACCI), however, welcomed the review into the Fair Work Act.

ACCI chief executive Kate Carnell said, “The wide-ranging review will address major flaws in the Fair Work Act that are driving up unemployment and undermining growth.”

“Fortunately, the issues papers broadly address problem areas identified by business in the lead up to the review.”

Ms Carnell was particularly critical of penalty rates. “Excessive penalty rates and the minimum wage must not be no-go areas, or we will condemn greater numbers of people to unemployment.

“We need to make sure penalty rates are realistic and don’t make businesses unviable,” she said.

Employment Minister Eric Abetz said the government would seek a mandate to enact any recommendations in the 2016 election.

– with AAP