An unlikely army of young shift-workers who pull beers into the early morning hours, wait on tables and serve coffees on weekends could swing the federal election, as a proposed rollback of Sunday penalty rates and industrial reform raises the spectre of WorkChoices.

That's because young Australians make up the majority of weekend shift workers who would bear the brunt of cuts to Sunday penalty rates and any wage inequality.

Labor and unions are hoping this week's recommendations from the Productivity Commission's review of the Australian workplace relations system explodes into a defining election issue, but the federal government is trying to keep itself at a safe distance.

While the Liberal Party treads cautiously – its political courage diminished by lacklustre performance in recent polls – Labor and unions are planning a national marginal seats campaign. They will exploit voters' still fresh memory of John Howard's WorkChoices policy, which helped defeat his government in 2007. Younger voters may need some reminding, but they will understand the impact of the penalty rates issue on their hip pockets.

In 2010, Tony Abbott declared WorkChoices "dead, buried and cremated". But unions warn the zombie is rising.

The notion of difference between Sunday and Saturday has radically changed over time. Saturday was once a normal workday for many and Sunday was a day of rest and religious reflection. For many, Sunday is now a busy shopping day.

While just a small proportion would consider Sunday holy, it still represents for many a sacred time with family, which if sacrificed, demands compensation. That has long been the logic of higher penalty rates for Sundays. But for small business operators like Sydney coffee roaster and cafe owner, Paul Jackson, Sunday penalty rates are "crucifying employers".

"I have been opening on Sunday because I am a cafe and coffee habits are essential. But to make any money on a Sunday is very difficult," he said. "It's an offer and a service we provide to our customers.

"We have customers who don't open [their businesses] on a Sunday because of that reason".

But from the other side, it's a different picture.

Nicolette Marks, 24, relies on penalty rates she gets doing bar work to pay the rent while she studies for a master's degree in environmental science at the Australian National University. While Sunday is not set aside for church, it remains for her, a special time with family. The sacrifice of working Sundays is only worth it, she says, because of the penalty rates which have helped secure her independence.

"Without the penalty rates for weekend and night shifts, I'd have to consider moving back home," she said. "I would have to work more hours and my degree would take longer."

Ms Marks said she has worked at restaurants that add a surcharge to bills on Sundays.

"I found that people are happy to pay it and it makes up for the penalty rates," she said.

Similarly, Sydney airport retail worker Terry Salamastrakis, who supports his partner and three-year-old son, relies on Sunday penalty rates – at double time – to boost his modest weekly pay packet.

"Because of the award we are under, any penalties we get are crucial," he says.

"There is only one income coming in and I have a family. I wouldn't work for less on Sunday. You are giving up a lot of family time to work on a Sunday."

On the whole, the Productivity Commission's diagnosis of Australia's industrial relations system is positive. It found the existing system was not "dysfunctional", but in need of "repair" – "not replacement". But it has disappointed unions and the business sector, which wanted deeper reform.

Surprisingly, the Productivity Commission accepted a need to equalise bargaining power between employers and workers.

"Without regulation, employees are likely to have much less bargaining power than employers, with adverse outcomes for their wages and conditions," the report says.

It blamed toxic relationships between employers and employees on poor relationship management, rather than flaws in the industrial relations framework.

And contrary to assumptions, Australia's labour market performance and flexibility is "relatively good by global standards".

Yet ACTU secretary Dave Oliver argues the Productivity Commission's recommendations are "worse than WorkChoices" in undermining the award and paving the way for the introduction of a new "enterprise contract" which employers could put on the table on a take it or leave it basis, without any scrutiny from an independent umpire.

The Productivity Commission's proposal to create a two-tiered penalty rates system, dividing hospitality and retail workers from paramedics, nurses and other essential service providers, (whose Sunday penalty rates will be protected) is being used as a political wedge. Sunday penalty rates for cafes, restaurants, hospitality, entertainment and retailing would be aligned with Saturday rates.

"The real question is will the penalty rates issues in particular get traction among young people. If they do, the government is in a lot of trouble. If they don't, they will have really dodged a bullet," the assistant general secretary of the NSW ALP, John Graham, says.

"I think Abbott has problems with younger voters and this could easily become one of the symbolic issues that moves young people away because they are concentrated in these industries that have been singled out".

Peter Lewis, the director of political campaign consulting company EMC, said Essential polling over the last couple of weeks on penalty rates finds the issue is "every bit as unpopular as WorkChoices".

Former ACTU official Tim Lyons who is now a research fellow at a progressive think tank says the issue of penalty rates and individual agreements has the "potential to resonate incredibly strongly with young people and motivate them to change their vote".

"But it will need to be explained to them what it means because they weren't voting at the time of WorkChoices".

Lyons says the draft Productivity Commission report produced by the relatively new chairman Peter Harris, "is considerably more nuanced than you would have got from ex-chairman Gary Banks, who regularly attacked workplace regulation in principle, condemning it as a relic of the past".

"Nevertheless, the draft recommendations continue to exhibit a significant degree of hostility to basic important features of labour market regulation in Australia, and a level of prejudice against powers for the tribunal (and unions) in particular," he says.

The report must have been "a massive disappointment to anyone in the Coalition or in the business community who strongly believes in the need for labour market reform", says University of Adelaide Professor of Law, Andrew Stewart.

"This is not the blueprint for deregulation that many people had expected or feared," Professor Stewart says.

"What it is, is a renovation plan. They are not looking to tear down the current system. They are looking to leave the architecture of the current system pretty much as is and just do some tinkering."

Professor Stuart dismissed comparisons between the Productivity Commission review and WorkChoices, but said it "does have that element of 'take it or leave it' contracts".

"The way they have drafted it appears that an employer could negotiate an enterprise agreement with its existing workers and then undercut its own enterprise agreement by imposing an enterprise contract on new workers.

"I can't seen how that doesn't undermine the whole system of enterprise bargaining."

"I'll be very surprised that if we don't see some changes to that proposal in the final report."

The business lobby has welcomed what they see as balanced recommendations. Australian Chamber of Commerce and Industry chief executive officer Kate Carnell said the enterprise contracts would be underpinned by national employment standards which cover hours of work, leave and redundancy payments as well as a "no disadvantage test". Unions point out that later model of WorkChoices also included a no disadvantage test.

But overall, Carnell said, the review was not attempting significant reform.

"If it had, it probably would have been put on the shelf in the too-hard basket," Carnell says. "They have come up with a report that has some pretty balanced middle-of-the-road recommendations.

"They don't go as far as we'd like them to go. But the thing that makes us happy is that these are recommendations that are doable in the current political environment.

"You've got more checks and balances than exist in most places."

Carnell rejects as union scaremongering claims that the WorkChoices spectre is looming.

"The position that the unions have taken even on these very moderate proposals shows that it is really hard to get any real change in this space. What the Productivity Commission has put on the table are very incremental changes," Carnell said.

The bottom line is that the proposed changes "will deliver new jobs", she says. "We have 280,000 under 25s that are out of work and it is becoming an intractable figure," Carnell says.

University of Sydney Professor John Buchanan, says the productivity commission review is on the same trajectory set by Paul Keating in the 1980s and "not wildly different" from the Gillard government's review of the Fair Work Act took in 2012.

"The Productivity Commission report is perfectly in the frame of where Keating was going," Buchanan said.

Buchanan says the Productivity Commission's proposed "enterprise contract" is a "red rag to a bull".

"That is WorkChoices pure and simple. It is a collective arrangement which the employer can work out unilaterally. It doesn't have to be proved advance. And it can be offered to workers on a take it or leave it basis."

Mark Lennon, who was among those celebrating at a Unions NSW Christmas party in December 2007, a month after Kevin Rudd defeated John Howard largely on the industrial relations battleground, said the Productivity Commission review had unveiled a plan for industrial relations reform that was more nuanced than the blunt-edged WorkChoices policy.

"The Howard government tried to introduce IR reform by smashing down the front door. This is IR reform sneaking through the back door and the side windows. They are doing it by piecemeal approach, but it will have the same effect," Lennon said.

The debate may prove academic, for now. Tony Abbott wants to make it "crystal clear" he will make no changes to workplace relations in this term of parliament.