Cuts to penalty rates will hasten the "mass casualisation" of Australia's workforce, leading to a decrease in job security, less paid leave and more workplace stress, a new report warns.

The McKell Institute says the Fair Work Commission's "alarming" decision to cut penalty rates for a range of retail, hospitality and fast food workers will further discourage employees from pursuing secure part-time or full-time work, pushing them instead into less secure but higher-paying casual jobs.

"For many workers, casual work can be an attractive and flexible option," the left-leaning think-tank says in the report.

"But for others, casual work means less job security, less annual work breaks, and a more tenuous relationship between them and their employer. These factors result in enhanced job insecurity, which can lead to financial stress and poor health outcomes."