## Youth Rates and Youth Unemployment

February 9th, 2010 at 10:00 am by David Farrar

I’ve previously blogged on my belief that the massive rise in youth is due to Labour’s decision in 2008 to abolish for the .

has gone better than mere belief, and analysed the relationship between overall unemployment and youth unemployment.

The graph has (thanks Stephen Hickson!) the unemployment rate for those aged 15-19 and the unemployment rate for everyone else (aged 19 and up). It looks to me like the proper relationship is a combination of a level shift and a multiplicative effect. When the adult rate is very low – below four percent or so – the youth rate bounces around at a point about 10 to 12 points higher than the adult rate. When the adult rate is high, the youth rate exceeds that constant by a multiple of the adult rate. …

Both the constant and the adult rate come up highly significant. So, over the period 1986 to present, we can expect the youth rate to be 1.44 times the adult rate (the multiplicative effect – about 44% above the adult rate) plus a constant of 9 percentage points. So if the adult rate is 5, the youth rate should be 16.2. We’ve ruled out the “it’s just ratios” argument – there is a constant term in there; we’ve also ruled out that it’s just a level shift because the coefficient is significantly greater than 1.

So Eric has calculated the best fit of the data is that the youth unemployment rate will 9% higher than 1.44 times the adult unemployment rate.

He then plots the “residuals”, which is how much greater or smaller the youth unemployment rate has been, compared to what the formula predicts.

So that formula looks pretty good up until, umm well 2008. Eric continues:

If we look at the top graph, we see youth unemployment rates went up a lot during the recession of the early 1990s. But over that period, youth unemployment rates were never more than a couple of points above what the very simple model predicted (residuals graph, above). In recessions, it does look like the youth rate gets hit harder than the adult rate. But look at what happens starting around fourth quarter 2008. We now have residuals that blow up the model. Something really weird starts happening to the youth unemployment rate at the end of 2008. Youth unemployment is now about 10 points higher than we’d expect using the simple model.

And if one goes for different formulas:

I tried a few different variations allowing the constant and the slope to shift for high and for low levels of adult unemployment.  But none of that made any substantial difference.

So the conclusion:

The econometrics here are very simplistic and do nothing to account for differences in labour force participation rates or the obvious problem of serial correlation in the time series data.  But the simple model is still pretty telling.  If we allow youth unemployment rates to vary both as a level shift above the adult rate and as a multiple of the adult rate, which is what we’re doing when we run the simple regression with a constant term, we still have a jump in the current youth unemployment rate that is well above that seen in prior recessions.

My first cut explanation remains the abolition of the youth minimum wage.

Now this does not prove beyond doubt it was the abolition of youth rates that pushed youth unemployment up an extra 10%. But it is the most likely explanation.

The challenge for those who think abolishing youth rates did not contribute to the increase in youth unemployment, is to put up their own data and credible explanations to explain the massive gap between youth and adult unemployment.

### 109 Responses to “Youth Rates and Youth Unemployment”

1. berend (1,908 comments) says:

The most likely explanations? Employers hate Labour so to punish Labour and make the statistics look bad they’re not hiring young people.

Fits the data perfectly!

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2. Johnboy (20,823 comments) says:

Reminds me of a…….of a…….of a…… hockey stick. 🙂

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3. KiwiGreg (3,584 comments) says:

As we know labour is not like any other good or service; pushing up the price does not reduce demand so it cant be caused by artificially high minimum wages. I’d therefore go with berend’s explanation.

[DPF: Except pushing the price up does massively reduce demand]

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4. Ryan Sproull (7,975 comments) says:

Wouldn’t one be likely to see a rise in female unemployment if a government abolished women rates?

I’m not sure I see the problem. The statistics suggest that a number of employers were taking advantage of the government-assisted discount on youth labour, and when the discount was dropped, those employers couldn’t afford to pay the full price.

And now it seems that 75% of youth are employed by employers who run their businesses well enough to pay the full price.

To use these statistics to argue that youth workers are being replaced by adult workers after the change, you’d have to include evidence that youth workers were dropped and adult workers hired to fill exactly the same role, rather than just discount roles being made redundant now that they cost full price.

[DPF: Oh you really need to work in the private sector before you sound off about people running businesses well enough to pay full rates.

Secondly in case you had not noticed, being a woman is not a temporary phase.

Thirdly there is no discount for youth – just a lower artificial floor. They are not the same thing.]

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5. freedom101 (731 comments) says:

The actual data fits the predicted data. When youth rates were abolished this was predicted. Labour has always pedalled free lunches to a gullible public. Of course when the labour market is very tight the effect is masked, but as soon as it turns employers (buyers) have a lot more choice and without youth rates young people are just not in the hunt. The Maori Party ought to most concerned about this as guess which segment of society is most affected?

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6. LeftRightOut (622 comments) says:

Correlation does not equal causation.

What would the youth unemployment rate be if wages dropped to 75 cents an hour?

Have you noticed the youth unemployment rates in, say, Somalia or Zimbabwe or Laos? Or do you consider begging to be employment?

To lift youth employment there needs to be suitable jobs, but that rush to globalisation and free trade agreements sees those jobs exported to wherever the labour cost is lowest and the conditions the harshest. How many more youth jobs will be lost to an FTA with India?

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7. Pete George (24,828 comments) says:

I disagree with the dropping of youth rates. As far back as, well, a long time ago, when I was in my early twenties, I worked a season picking fruit on a small orchard. I was the sole picker, able to match what two “youth workers” had done the previous season.

So I agree that dropping youth rates will probably have an effect on youth employment. But looking at this as the sole effect when:

we see youth unemployment rates went up a lot during the recession of the early 1990s

In recessions, it does look like the youth rate gets hit harder than the adult rate.
Something really weird starts happening to the youth unemployment rate at the end of 2008.

Something really weird also started to happen to the international economy at the same time. So it was a double whammy for youth employment, not just another Labour hitting stick.

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8. KiwiGreg (3,584 comments) says:

Man your sarcasm meter must be turned off DPF

[DPF: Sorry – I did wonder!]

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9. malcolm (2,000 comments) says:

At whatever point you set a minimum wage, it will always result in less people working and less opportunity for new entrants into the workforce. There will always be a job which is worth less than the minimum and someone who would be happy to have that job. The minimum wages treats people like idiots.

A high minimum wage (in the context of NZ) results in teenagers being priced out of the market and NZ becomes a country where adults do work which is done by teenagers in more economically literate countries.

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10. JayMal (29 comments) says:

Lets not over simplify things here. You also need to look at the demographic breakdown of those youth unemployed to understand it (which to be fair I haven’t).

It would be meaningful to understand changes in youth unemployment rates for skilled and unskilled youth. I suspect that a big chunk of the rise is in the unskilled category.

Also what is the impact of the ageing population is. How much longer are people staying in work before retirement and what impact does this have on youth employment. Also what about companies operating LIFO policies for redundancy (last in first out), this tends to hit younger workers hardest (particularily in a recession where people already in jobs are less likely to be changing jobs).

What about the effect of immigration policy, with low paid skilled workers now competing for jobs traditionally held by “youth”.

I am not convinced getting rid of youth rates has made a big difference, although I will conceed it probably has made some difference in the low skilled end (i.e., I have noticed my burgers are getting served by older people these days).

I think a proper and in depth analysis is needed of the numbers. Todays youth are tomorrows elders and we need them in work and developing the life skills needed to be successful. Heck, why do we have kids if not to support us in our old age!! 🙂

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11. vibenna (305 comments) says:

Lucky there wasn’t a global financial crisis, or youth unemployment would have been even worse !

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12. KiwiGreg (3,584 comments) says:

On a tangentially related topic….whatever happened to paperboys (and girls)? Our papers all seem to be delivered by adults using cars rather than kids on bikes.

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13. KiwiGreg (3,584 comments) says:

@ Vibenna I think the point is that the previous correlation of adult and youth unemployment has significantly changed post the removal or youth rates, irrespective of the recession (which started in NZ well before 2008) – and yes, my sarcasm meter IS turned on!

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14. Pete George (24,828 comments) says:

Same for my paper delivery Greg. Are adults more reliable? Or are kids not interested in earning money any more? Have to wonder about the economics of using a vehicle for it.

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15. KiwiGreg (3,584 comments) says:

I’m also wondering if modern obsessions with safety (not just parents but employers as well) precludes kids doing it.

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16. freedom101 (731 comments) says:

A point often missed is that enabling young people to work, even at a very low rate, allows them to build a CV and get experience. People don’t stay on a low rate for very long if they apply themselves. It’s important to get people on the employment ladder. That gives them opportunity. If they are locked out of the labour market and spend time on the dole then there are very serious problems down the track. Crime, suicide, etc etc are all much more prevalent amoungst the under employed or unemployed. Having a job, routine and social contact has enormous benefits for the individual. We should all be very very concerned at the high youth unemployment rate. Abolishing the minimum wage is actually a highly socially desirable thing to do. The left seem to imagine that a high minimum wage somehow produces better outcomes. I don’t think so.

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17. Johnboy (20,823 comments) says:

I think it is just too dangerous for kids to walk the streets these days doing a paper round due to the sub-humans of all ages who frequent the same streets.

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18. JC (1,102 comments) says:

There’s limited “churn” in a recession. So the guy/girl on \$15-17 at PaknSave isn’t going move to Aussie or to another job now he has a good track record.. and his employer is more than happy to hang onto his now more experienced and reliable worker and get more work out of him.. he might even introduce a bit more innovation to help keep manpower requirements down.

Said manager might also be listening to his supervisors telling him the staff are not that willing to tolerate gormless youths and training them up in a tight employment situation.

JC

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19. Ryan Sproull (7,975 comments) says:

[DPF: Oh you really need to work in the private sector before you sound off about people running businesses well enough to pay full rates.

I’ve also never been on the dole, and I sound off plenty about that too. But yes, that was a bit cheeky. “Running businesses well enough” is just one of the many possible reasons 75% of youth are employed by businesses who can afford to pay full rates.

Secondly in case you had not noticed, being a woman is not a temporary phase.

My point is that an increase in unemployment doesn’t mean the removal of the discount was a bad thing. If we were measuring things by employment, we could increase employment of women by introducing women’s rates. The higher unemployment youth rate as a result of abolishing the discount is simply youth unemployment finding its equal balance with adult employment.

I was going to say “natural”, but of course, it’s not.

Thirdly there is no discount for youth – just a lower artificial floor. They are not the same thing.]

Effectively, they are. If you employ youth, and you can pay youth less than you pay an adult for doing the same thing (or, to put it another way, you’re forced to pay adults more for doing the same thing), you’re being given a discount on the same labour. So you’ll buy more than you otherwise would.

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20. KiwiGreg (3,584 comments) says:

Ryan you are really missing the point. The market can decide how much to pay people. The only “force” adopted to pay adults more is the same market-distorting mechanism of arbitrary minimum wages. You “run bisinesses well enough” comment was just mindless.

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21. swan (777 comments) says:

Ryan

“If you employ youth, and you can pay youth less than you pay an adult for doing the same thing (or, to put it another way, you’re forced to pay adults more for doing the same thing), you’re being given a discount on the same labour. So you’ll buy more than you otherwise would.”

Pretty much the point the post was making, except for the ‘you’re being given’ bit. Who gives this discount? I only see two parties freely agreeing to trade.

The important thing to remember is this is not just about youth unemployment, but about all marginal workers. It is just that because of historical facts, we are able to assess the affect of the minimum wage on this particular group. The minimum wage effects every other marginal worker just the same

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22. Kimble (4,636 comments) says:

“If you employ youth, and you can pay youth less than you pay an adult for doing the same thing (or, to put it another way, you’re forced to pay adults more for doing the same thing), you’re being given a discount on the same labour.”

Yep, just like the lower tax rates are really just discounted tax rates. You are an idiot.

The minimum wage creates a surplus of labour. Given the lower value of youth labour a lower minimum youth wage just goes some way to balancing the degree of surplus between youth and the adult population.

Again, you are an idiot if you cannot see this basic fact.

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23. Ryan Sproull (7,975 comments) says:

The state was providing the discount on youth rates, Swan. Or, alternatively, the state was forcing up the cost of adult labour. A surcharge on adult labour.

Whether or not there should be a minimum wage is a different question altogether.

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24. Spam (414 comments) says:

Effectively, they are. If you employ youth, and you can pay youth less than you pay an adult for doing the same thing (or, to put it another way, you’re forced to pay adults more for doing the same thing), you’re being given a discount on the same labour. So you’ll buy more than you otherwise would.

Quite. But it assumes that youths actually do “the same thing”. Ie that they are just as productive. They’re generally not.

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25. freedom101 (731 comments) says:

DPF – what has happened to the “yes” “no” voting and rating system which used to be in the blog?

[DPF: It led to DOS attacks as net baddies would try to bring the blog down by voting every comment up or down at the same time]

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26. Ryan Sproull (7,975 comments) says:

Ryan you are really missing the point. The market can decide how much to pay people. The only “force” adopted to pay adults more is the same market-distorting mechanism of arbitrary minimum wages. You “run bisinesses well enough” comment was just mindless.

Your problem then is with the minimum wage, not the differing minimum wage for youth.

And my comment was glib, but it wasn’t mindless. There is a degree to which some businesses failing is part of the ecology of commerce. But nothing in this post or its comments has actually established that any businesses are failing as a result of having to pay the same minimum to all of their workers. All we can see is that fewer businesses are employing youth, probably as a result of abolishing the youth rates.

The question is, are those roles being made redundant or are employers finding adult workers to replace youth workers?

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27. Ryan Sproull (7,975 comments) says:

Yep, just like the lower tax rates are really just discounted tax rates.

No, not like how lower tax rates are really just discounted tax rates.

The minimum wage creates a surplus of labour. Given the lower value of youth labour a lower minimum youth wage just goes some way to balancing the degree of surplus between youth and the adult population.

You are assuming a lower value of youth labour. Plenty of youth labour is more productive than plenty of adult labour.

But is all very very far from my point, which is that a rise in youth unemployment is not sufficient to make youth rates a bad thing.

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28. Ryan Sproull (7,975 comments) says:

Quite. But it assumes that youths actually do “the same thing”. Ie that they are just as productive. They’re generally not.

Yes, it does assume that youths do the same thing, that they are just as productive. If they are failing to do the job they were hired to do, fire them. Same goes for unproductive adult workers.

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29. Ryan Sproull (7,975 comments) says:

But is all very very far from my point, which is that a rise in youth unemployment is not sufficient to make youth rates a bad thing.

Sorry. That should read:

A rise in youth unemployment is not sufficient to make the abolition of youth rates a bad thing.

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30. Kimble (4,636 comments) says:

“You are assuming a lower value of youth labour. Plenty of youth labour is more productive than plenty of adult labour.”

No, on average the entire world assumes a lower value of youth labour. Your point is completely irrelevant as the better productivity of SOME youth labour over others is not adequately signalled to the consumers of youth labour. Differentiating between the two is not possible so the consumer will err on the side of caution and, rightly, ASSUME the average youth worker to be of less value.

If a disproportionate rise in youth unemployment is not enough to make the dropping of youth rates a bad thing, we have to wonder what on earth would?

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31. Crampton (224 comments) says:

Other fun bit in the residuals: you’ll note that the first period has a sustained negative residual (youth rates much lower than expected). That’s the period before the youth minimum wage was implemented; prior to that, no minimum wage at all for kids.

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32. trout (1,132 comments) says:

The unavoidable truth is that labour is just another component in the capitalist system (which we have, like it or not) and has its price. Business is not welfare. The relationship between the employer and the employed is mutual exploitation. As long as the Government continues to interfere in the market by screwing business in the guise of protecting the weak then the inevitable result is that the goose that lays the golden egg will be killed. On one hand the left complains about unemployment and on the other wants to dictate the price of labour. We now have busineses that have to close on statutory holidays because the cost of labour has been ratcheted up by the Government; both owners and employees miss out because of decisions they had no part of.

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33. KiwiGreg (3,584 comments) says:

Ryan “A rise in youth unemployment is not sufficient to make the abolition of youth rates a bad thing.”

I must confess I didnt read that into your comments. I cant think of a circumstance where the abolition of youth rates is a bad thing.

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34. malcolm (2,000 comments) says:

Yes, it does assume that youths do the same thing, that they are just as productive. If they are failing to do the job they were hired to do, fire them.

An employee with common sense, initiative and experience will always be better than one without. It’s naive to imagine that an employer can get the same results from two people, one who has those abilities and one who doesn’t, simply by instructing then on how to do the job.

If you force this illusion onto employers by mandating a high minimum wage then you price inexperienced young people out of the market. As someone above explained, getting young people into the workforce rather than the dole has many long-term benefits for society.

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35. Kimble (4,636 comments) says:

“If they are failing to do the job they were hired to do, fire them.”

Umm.. which is exactly what employers are doing. In other cases employers just arent bothering taking the risk on the young.

Setting youth wages at the same level as adult workers means that youth are at greater risk of being dismissed. You said it yourself. any lower productivity is not going to be tolerated.

Well done, you have just displayed the trail of logic we recognised from the outset. And that was confirmed with the observation that the removal of youth rates was followed by a disproporionate spike in youth unemployment during poor economic conditions.

You should recall that before the youth rates were abolished, many of us were making the point that the new law was not appropriate because we wouldnt always have an world economic boom to hide the costs of it. What happened? The world economy tanked and what we said would occur has occured.

So instead of making things better, the removal of youth rates has caused greater youth unemployment, more uncertainty of employment for those already employed, a higher expectation of productivity for young workers, and a greater financial strain on working parents. What a fucking mess.

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36. Ryan Sproull (7,975 comments) says:

No, on average the entire world assumes a lower value of youth labour. Your point is completely irrelevant as the better productivity of SOME youth labour over others is not adequately signalled to the consumers of youth labour. Differentiating between the two is not possible so the consumer will err on the side of caution and, rightly, ASSUME the average youth worker to be of less value.

I agree with you that differentiating between a very productive 16-year-old and a very unproductive 16-year-old is difficult.

If a disproportionate rise in youth unemployment is not enough to make the dropping of youth rates a bad thing, we have to wonder what on earth would?

The argument you provided above, for one, has a better chance of succeeding in arguing for youth rates.

If it is true that youth rates are bad, then the increase in youth unemployment after their abolition is simply the labour market changing to how it “should” be, after years of unequal laws increased demand for it as an alternative to adult labour.

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37. malcolm (2,000 comments) says:

Is there any good reason to have minimum wage? At whatever level one is set, there will always be people who are prevented from making a mutually exchange. Most countries have one, but that doesn’t qualify as a good reason in my book.

On a similar note, here’s a good short article by an expat kiwi, Jamie Whyte:

“Why visible benefits always trump invisible costs”

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38. Brian Smaller (4,332 comments) says:

On a tangentially related topic….whatever happened to paperboys (and girls)? Our papers all seem to be delivered by adults using cars rather than kids on bikes.

As far as I remember it, a law was passed that limited employment to those aged 14 and over. This meant the end of the paper round. It was something to do with ratifying some UN convention on child labour that was aimed at preventing Indians and Pakistani kids being worked 27 hours a day but in our NZ case meant my son couldn’t get a real paying job outside the home until he turned 14. It is also why we now have grown men doing lawns when it used to be a kid’s job. Cheaper too.

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39. Ryan Sproull (7,975 comments) says:

So instead of making things better, the removal of youth rates has caused greater youth unemployment, more uncertainty of employment for those already employed, a higher expectation of productivity for young workers, and a greater financial strain on working parents. What a fucking mess.

Why shouldn’t there be an equal expectation of productivity for young workers as for adult workers (assuming they’re working in the same role)? Maybe youth should realise that they’re actually going to have to do a job if they want to be paid for it. Plenty already know this, and others will learn in a hurry.

The uncertainty of employment for those already employed is no different from the uncertainty of employment of anyone already employed. They’re worried that if they don’t do the job they’re paid for, their employer will find someone who will. So they have a good incentive to do the job they’re paid for.

I agree that a greater financial strain on working parents is a concern.

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40. malcolm (2,000 comments) says:

Why shouldn’t there be an equal expectation of productivity for young workers as for adult workers

Experience, common sense and judgement, for starters. Those abilities increase with age and work experience. Most jobs are not robotic factory jobs where an inexperience person with less common sense and judgement would be the equal of someone with those skills.

I think it’s best to let the market and the people involved decide the rate of pay. I.e. the employer and potential employee. It’s nice and simple and no requirement for enforcement of legislation.

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41. Kimble (4,636 comments) says:

“I agree with you that differentiating between a very productive 16-year-old and a very unproductive 16-year-old is difficult.”

Then you must also agree that on average risk-averse employers will be inclined to hire perceived lower risk adult workers than take a chance on a young person.

“If it is true that youth rates are bad, then the increase in youth unemployment after their abolition is simply the labour market changing to how it “should” be, after years of unequal laws increased demand for it as an alternative to adult labour.”

The impact of the youth rate isnt as simple as adults now doing the jobs of youth, some jobs simply will not exist because they were economic at youth rates but not at adult rates. The absolute number of jobs has decreased.

And the minimum wage laws were unequal in the first place. Instead of everyone equally being able to price their labour individually, it set the value of some labour at zero.

Even now that youth rates have been abolished people are still being treated unequally. People will set a price for their labour dependant on their skills, all the way down from the highest earners, right down to the minimum wage. People below the minimum wage level of skills/productivity/experience/etc now cannot set the price of their own labour.

The government has decided that the labour of people at this skill level has no value. The price cannot be set for their employment, so the price from the consumers point of view is infinite and from the suppliers point of view it is zero.

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42. Ryan Sproull (7,975 comments) says:

Experience, common sense and judgement, for starters. Most jobs are not robotic factory jobs where an inexperience person with less common sense and judgement would be the equal of someone with those skills.

Can you list some minimum-wage jobs as examples?

I think it’s best to let the market and the people involved decide on the rate of pay. I.e. the employer and potential employee. Nice and simple and no requirement for enforcement of legislation.

Well, yes. Again, whether or not you agree with minimum wages at all is a different question.

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43. malcolm (2,000 comments) says:

Can you list some minimum-wage jobs as examples?

For town kids:

working at service station, fish and chip shop, cafe, supermarket, shop, library, mowing lawns, odd-jobs, pool attendant etc etc.

My own weekend/holiday jobs starting from about 10 years:

– Moving lawns
– Farm work (docking, wool-pressing, cleaning out under woolshed, etc)
– Market garden (planting, harvesting, tractor driving, irrigating etc)
– Hay carting (while at uni, piece-rate and more than minimum wage)

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44. Ryan Sproull (7,975 comments) says:

Then you must also agree that on average risk-averse employers will be inclined to hire perceived lower risk adult workers than take a chance on a young person.

I do agree. Do you think there are any employers who are similarly inclined to hire perceived lower-risk Pakeha workers than take a chance on a Pacific Islander?

The impact of the youth rate isnt as simple as adults now doing the jobs of youth, some jobs simply will not exist because they were economic at youth rates but not at adult rates. The absolute number of jobs has decreased.

And the minimum wage laws were unequal in the first place. Instead of everyone equally being able to price their labour individually, it set the value of some labour at zero.

Again, whether or not you agree with minimum wages in general is a different question. There is a sense in which I agree with you regarding them.

Even now that youth rates have been abolished people are still being treated unequally. People will set a price for their labour dependant on their skills, all the way down from the highest earners, right down to the minimum wage. People below the minimum wage level of skills/productivity/experience/etc now cannot set the price of their own labour.

The government has decided that the labour of people at this skill level has no value. The price cannot be set for their employment, so the price from the consumers point of view is infinite and from the suppliers point of view it is zero.

Might as well go into the topic of minimum wages in general, since everyone seems to want to 🙂

Has the government decided that the labour of people at that skill level has no value? Or has the government decided that the labour of people at that skill level is the minimum wage, and businesses find that the labour is too pricey for their tastes?

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45. freedom101 (731 comments) says:

It’s simple really. If you raise the cost of youth labour then demand will fall, hence the high rates of youth unemployment. A high minimum wage generates a warm fuzzy feeling amongst the middle class socialist left because their little darling children would never work for so little anyway. Shame about all the Maori and Pacific Island unemployed – but they are tucked away in distant suburbs out of sight. If things get bad then we’ll just have to get our burglar alarm monitored. That’s how it works and that’s how bad policy happens.

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46. malcolm (2,000 comments) says:

Ryan, I think I also missed your original point. Anyway..

Has the government decided that the labour of people at that skill level has no value? Or has the government decided that the labour of people at that skill level is the minimum wage, and businesses find that the labour is too pricey for their tastes?

We know the government doesn’t think like that. Half of them don’t understand basic economics and probably believe that a minimum wage makes people wealthier. The only thing which matters is the outcome. And the outcome is that people below that skill level have been priced out of the market. So the government has effectively made those people unemployable. A minimum wage creates unemployment and it also prevents new economic activity from starting.

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47. Ryan Sproull (7,975 comments) says:

For town kids:

working at service station, fish and chip shop, cafe, supermarket, shop, library, mowing lawns, odd-jobs, pool attendant etc etc.

My own weekend/holiday jobs starting from about 10 years:

– Moving lawns

Good Lord! All by yourself?!

– Farm work (docking, wool-pressing, cleaning out under woolshed, etc)
– Market garden (planting, harvesting, tractor driving, irrigating etc)
– Hay carting (while at uni, piece-rate and more than minimum wage)

Well, I worked in a supermarket as a youth and was paid youth rates.

There was a pay scale that was a sort of spreadsheet of how long you had been working there and how well you were doing your job (regular evaluations). The longer you had been there, and the better your work was evaluated, the higher your pay.

That’s not entirely true. There were actually two pay scales, one for youth and one for adults. They were identical in all respects, including the evaluation of the quality of your work, except that the youth pay was radically lower than the adult pay.

There was nothing adults in my job were doing that I wasn’t doing, and the pay scales explicitly showed that I (and some other youths) were doing a far better and more efficient job than plenty of adult co-workers.

I guess there are three ways of looking at this.

If there were no minimum wages at all, perhaps the adults doing less work than me would have been paid less than me.

If there are low youth minimums and higher adult minimums, adults get paid more for doing a shitter job than me, but I do have a job.

If there is a flat minimum wage, perhaps I get paid equally, or perhaps I don’t get hired in the first place.

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48. Ryan Sproull (7,975 comments) says:

Ryan, I think I also missed your original point.

It was along the lines of, “So what? That proves nothing.” But I got all lippy about it.

Has the government decided that the labour of people at that skill level has no value? Or has the government decided that the labour of people at that skill level is the minimum wage, and businesses find that the labour is too pricey for their tastes?

We know the government doesn’t think like that. Half of them don’t understand basic economics and probably believe that a minimum wage makes people wealthier. The only thing which matters is the outcome. And the outcome is that people below that skill level have been priced out of the market. So the government has effectively made those people unemployable. A minimum wage creates unemployment and it also prevents new economic activity from starting.

Is it that clear-cut? Let’s say there was no minimum wage, and the labour market priced someone’s labour at \$9/hour. Then a \$10/hour minimum wage is introduced. Has that person’s labour really been priced out of the market (reduced to \$0/hour, because no one will pay \$10/hour for that \$9/hour worth of labour)? Or is it more likely that the guy gets a \$1/hour pay increase?

It sounds to me like the people whose labour gets priced out of the market are the people whose labour is valued so poorly by the market that even if they were employed at their market rate, they wouldn’t be able to afford to live off it. Would this then be accounted for by a correlating drop in the price of goods as the sales market adjusts?

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49. freedom101 (731 comments) says:

For those who want to read more about the unintended consequences of youth rates and other things see Roger Douglas’ speech about Goff: http://www.act.org.nz/news

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50. KiwiGreg (3,584 comments) says:

“Is it that clear-cut? Let’s say there was no minimum wage, and the labour market priced someone’s labour at \$9/hour. Then a \$10/hour minimum wage is introduced. Has that person’s labour really been priced out of the market (reduced to \$0/hour, because no one will pay \$10/hour for that \$9/hour worth of labour)? Or is it more likely that the guy gets a \$1/hour pay increase?”

Yes it’s absolutely clear cut – the marginal worker(s) will be priced out of the market until the reduced demand for their labour cuts in at \$10. Those with jobs will get a \$1 pay rise (if they were orignally paid \$9 but the employer values their labour higher than that) but the marginal worker will be unemployed. Unemployed workers wont increase there work skills, if they remain unemployed for any length of time it will be increasingly difficult for them to re-enter the workforce until they effectively become unemployable.

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51. malcolm (2,000 comments) says:

There was nothing adults in my job were doing that I wasn’t doing, and the pay scales explicitly showed that I (and some other youths) were doing a far better and more efficient job than plenty of adult co-workers.

In that case I wonder why the supermarket was employing the adults? Is it possible that they were doing other things which made them worth their extra pay (e.g. opening/cashing-up, pushing the button for alcohol sales etc). Or perhaps it was yet another market distorting piece of labour law? E.g. difficulty of letting staff go when they become too expensive?

If there is a flat minimum wage, perhaps I get paid equally, or perhaps I don’t get hired in the first place

Or perhaps the job doesn’t get created in the first place because the whole endeavour is uneconomic with the minimum wage.

The minimum wage is a good example of “Why visible benefits always trump invisible costs”. As explained by Jamie Whyte in the article above.

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52. burt (11,434 comments) says:

DPF

I think you have missed the point entirely. The cause of the rapid increase in unemployment was national’s fault. Either National’s fault from the failed policies of the 90’s or National’s fault since 2008. The standard had a great post the other day which explained why it was National’s fault and we know that Labour are never to blame for anything bad.

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53. MikeMan (175 comments) says:

My take on this is that youth rates existed on the basis that what a youth was earning was not a LIVING WAGE but a replacement for pocket money. Most of the people that youth rates applied to would have been working part time as a supplement to education. Now that did not cover 100% of the cases but it would have collected the bulk of them.

Now fast forward and we have adults delivering papers from cars, little to no youth labour in supermarkets, petrol stations and small retail outlets like takeaways and dairys.

How are we supposed to instill a work ethic in youth without these roles available?

Ohhh that’s right Labour do not want a work ethic, they want the majority of people dependant on central government for handouts as that is the only way they can retain power.

Like the train set and the ACC poison pill this was designed to keep Labour in power, it just came a little too late.

I say bring back a youth rate but have a sliding scale.

12-15 = 50% of the minimum wage

15-18 = 75% of the minmum wage, means tested assisstance for those that are supporting themselves to bring this up to a living wage.

18+ = Full minimum wage.

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54. Kimble (4,636 comments) says:

“Do you think there are any employers who are similarly inclined to hire perceived lower-risk Pakeha workers than take a chance on a Pacific Islander?”

Of course there are. But I dont think it if as big of a problem in aggregate as the racists would have us believe.

I see what you are doing though. Should we have a lower minimum wage for Pacific Islanders? No. Youth unemployment is distinct from ethnic unemployment. One difference is that there are significant positive externalities of YOUTH employment across all ethnicities, so there is a societal incentive to promote it. A second is that EVERYONE is young once, so the application of policies can be applied equally and without prejudice.

What do you think the removal of the minimum youth wage has done the the relative pakeha and pacific island youth unemployment?

The idea that everyone should be treated equally is the basis of our democracy, but it is absurd to extend that to age. If discrimination by age, such as having different youth and adult minimum wages, is abolished then so should the voting age, the drinking age, and the age at which people can claim super.

“Again, whether or not you agree with minimum wages in general is a different question.”

You missed the point. You said the removal of youth rates removed unequal treatment. My point was that the removal of youth rates is STILL unequal treatment, it is just that that particular inequality is less obvious.

“Or has the government decided that the labour of people at that skill level is the minimum wage, and businesses find that the labour is too pricey for their tastes?”

Given that the way business would react is a foregone conclusion then the actions by the government caused the outcome. By their actions they have set the price at zero. You arent being as profound as you think you are.

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55. Ryan Sproull (7,975 comments) says:

In that case I wonder why the supermarket was employing the adults? Is it possible that they were doing other things which made them worth their extra pay (e.g. opening/cashing-up, pushing the button for alcohol sales etc). Or perhaps it was yet another market distorting piece of labour law? E.g. difficulty of letting staff go when they become too expensive?

I was cashing up, and never stole a cent (while I know at least some adult workers certainly did). And back then, you didn’t need a supervisor to come up and okay an alcohol or tobacco sale. I just asked for ID if I thought someone looked under 21, which was the age limit back then. I was wearing an onion on my belt, which was the fashion at the time.

I can think of two reasons for adult co-workers off the top of my head.

1. I was working part-time because I was a high-school student. I could not have worked during the day while school was in, so they needed adults to do that.
2. There were other (higher-paid) roles that were most effectively filled by people who had experience in my role, and those higher-paid roles did require things you could not expect from a high-school student. They were generally supervisory roles.

Or perhaps the job doesn’t get created in the first place because the whole endeavour is uneconomic with the minimum wage.

Perhaps it doesn’t. But people more or less need supermarkets, so if the increased cost of paying me equally to my co-workers was really going to cause Progressive Enterprises to hesitate in opening a supermarket, I expect supermarket prices would subtly increase across the board to compensate, and since all supermarkets would be in the same boat, I doubt this would put Countdown out of business.

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56. malcolm (2,000 comments) says:

Is it that clear-cut? Let’s say there was no minimum wage, and the labour market priced someone’s labour at \$9/hour. Then a \$10/hour minimum wage is introduced. Has that person’s labour really been priced out of the market (reduced to \$0/hour, because no one will pay \$10/hour for that \$9/hour worth of labour)? Or is it more likely that the guy gets a \$1/hour pay increase?

Yeah he probably would get the extra \$1, in some cases. But what about the kids who was only worth \$7 or \$8 an hour? They get priced out of the market. Or the whole enterprise which was built around their willingly working for \$7/hour would be uneconomic. It doesn’t matter which way you look at, the minimum wage prevents people from engaging in mutually beneficial economic activities.

It sounds to me like the people whose labour gets priced out of the market are the people whose labour is valued so poorly by the market that even if they were employed at their market rate, they wouldn’t be able to afford to live off it.

That may be true, except many of those jobs would be filled by teenagers living at home. They don’t need to earn a living, they just want to make some money.

I accept that there are some people who spend their whole lives at the bottom of the heap, and they may be helped by a minimum wage. However I think the the invisible costs of the minimum wage outweigh the benefits to those people, and they could be helped more directly by the welfare system. In NZ there are lots of market distorting laws intended to help people at the bottom without regard for the general damage it does to the overall viability of NZ, and ultimately the wealth of all of us, at all levels.

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57. Ryan Sproull (7,975 comments) says:

The idea that everyone should be treated equally is the basis of our democracy, but it is absurd to extend that to age. If discrimination by age, such as having different youth and adult minimum wages, is abolished then so should the voting age, the drinking age, and the age at which people can claim super.

Those are all binary matters, not progressive. One is not eligible for the party vote at 18 and the electorate vote at 21. One is not eligible to purchase two drinks at 18 and then ten drinks at 21. Superannuation is not progressively increased as one gets older (I actually have no idea, but I’m guessing). And one should not be eligible for one minimum wage at 15 and another at 20. If you’re old enough to vote, you can vote. If you’re old enough to work, you’re old enough to be a worker and whatever entitlements that entails.

I see what you’re saying – age is a factor in many things. I just do not think that it should be when it comes to work. People aren’t paid for how old they are when they do a job, they’re paid for the value they create in doing the job. If the consequences of this principle is higher youth unemployment, that’s how it goes. Getting rid of the minimum wage entirely would also be an application of this principle.

You missed the point. You said the removal of youth rates removed unequal treatment. My point was that the removal of youth rates is STILL unequal treatment, it is just that that particular inequality is less obvious.

Ah, I see. Apologies.

Given that the way business would react is a foregone conclusion then the actions by the government caused the outcome.

Hey, you’re coming around to my view on there being no free will 🙂

By their actions they have set the price at zero. You arent being as profound as you think you are.

I was actually genuinely asking for your thoughts on the matter.

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58. KiwiGreg (3,584 comments) says:

” I expect supermarket prices would subtly increase across the board to compensate, and since all supermarkets would be in the same boat,”

So your sense of justice is that as long as everyone pays a “tax” in the form of higher prices everyone gets a job? It’s a nonesense even in sectors like supermarkets where there is little international competition, but try your “logic” on a business competing the world stage.

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59. Ryan Sproull (7,975 comments) says:

That may be true, except many of those jobs would be filled by teenagers living at home. They don’t need to earn a living, they just want to make some money.

I accept that there are some people who spend their whole lives at the bottom of the heap, and they may be helped by a minimum wage. However I think the the invisible costs of the minimum wage outweigh the benefits to those people, and they could be helped more directly by the welfare system. In NZ there are lots of market distorting laws intended to helpd the people at the bottom without regard for the general damage it does to the overal viability of NZ, and ultimately the wealth of all of us, at all levels.

I can see what you’re saying.

If the minimum wage was dropped right now, utterly, how do you think that would affect mean and median incomes?

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60. Kimble (4,636 comments) says:

Ryan, your anecdote is pointless.

First of all you may have been doing the same work as adults, but that doesnt mean you were of the same value to the employer. I can think of a couple of other reasons but there is no point heading down that path.

Secondly, you assume that if you had to be paid the same as an adult that you would even have had the opportunity to do the same work as them.

Thirdlly, your anecdote is more an argument that you personally should have been paid more than and argument against youth rates. Youth rates were minimums, not maximums.

Your last argument, that “they can afford it”, is a nostalgic remnant from the economic boom times. But it is stupid and imprudent to set your economic rules assuming that things will be rosy forever, but thats what Labour did, and in more instances than youth labour laws.

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61. Ryan Sproull (7,975 comments) says:

So your sense of justice is that as long as everyone pays a “tax” in the form of higher prices everyone gets a job?

My sense of justice in this case is that people should be paid for the work they do, not the age they are. I recognise that the minimum wage artificially interferes with pay, but if it’s going to do so, I think it should do so equally regardless of age.

It’s a nonesense even in sectors like supermarkets where there is little international competition, but try your “logic” on a business competing the world stage.

I think we would have trouble competing on the world stage with a country that had legal slavery.

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62. burt (11,434 comments) says:

Labour have a way to solve this, they always have had. It’s called nobody earns too much and nobody earns too little. That is why we have one of the flattest income ranges in the OECD. Communism by stealth and National don’t seem to be in a hurry to unwind it.

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63. KiwiGreg (3,584 comments) says:

“I think we would have trouble competing on the world stage with a country that had legal slavery.”

Are you equating the lack of a legalised minimum wage with slavery? That’s even nuttier than your “well run business” comment.

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64. Ryan Sproull (7,975 comments) says:

Are you equating the lack of a legalised minimum wage with slavery? That’s even nuttier than your “well run business” comment.

Do you really think I would equate the lack of a legalised minimum wage with slavery?

Probably not.

So I must have been saying something else.

Hmmm!

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65. malcolm (2,000 comments) says:

But people more or less need supermarkets, so if the increased cost of paying me equally to my co-workers was really going to cause Progressive Enterprises to hesitate in opening a supermarket, I expect supermarket prices would subtly increase across the board to compensate, and since all supermarkets would be in the same boat, I doubt this would put Countdown out of business.

Isn’t that the Broken Window Fallacy?

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66. Kimble (4,636 comments) says:

“I see what you’re saying – age is a factor in many things. I just do not think that it should be when it comes to work.”

So you dont think experience counts for anything?

“If you’re old enough to work, you’re old enough to be a worker and whatever entitlements that entails.”

So combining these two statements, you would be against, for example, an employer paying people differently for how long they have been working for him even if they are doing the same job. You think there is no difference between an old worker and a young one, as long as their tasks are exactly the same.

You would then also think there is no place for paying based on potential future value? These are just outcomes of your own stated position.

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67. burt (11,434 comments) says:

Kimble

The socialist union mentality is fatally flawed. But they like it when it works in their best interest. IE: Time based increments are OK but probation periods and ‘training rates’ are not. Muppets.

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68. Kris K (3,570 comments) says:

While I agree that, perhaps, the removal of youth rates was a bad thing, is this not just the ‘Free Market’ in action?

And while I agree with MikeMan at 1:07 pm;

My take on this is that youth rates existed on the basis that what a youth was earning was not a LIVING WAGE but a replacement for pocket money.

Can we really have our cake and eat it too, in this regard?

I think this highlights the problem with a fully implemented and global ‘Free Market’ – which many here believe is a good thing.
Individuals who fall below what the global marketplace is prepared to bear will simply be without employment. And as we know, and have observed in recent times, if a Chinese worker can produce the same output on 50c/hour to someone here on \$20/hour guess who will be out of the global labour market.

So while I disagree with Labour in their abolishing of youth rates, I also disagree with the common wisdom that a global Free Market is a good thing. The emerging economies (Indai, China, etc) will push those in the developed world out of the global labour marketplace. And so while many of our youth may be out of employment at the moment, given enough time the rest of us may also be in a similar boat.

Bottom line:
I really see the implementation of a Free Market Global Economy as little more than a means by which wealth will be transferred from Developed, First World nations to Emerging/Developing nations. (Is this not the Socialists’ dream?)
And as a result, perhaps many of us will, in the very near future, be lucky to have a job restocking supermarket shelves.

My question is:
Is a Global Free Market Economy TRULY a good thing?

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69. malcolm (2,000 comments) says:

If the minimum wage was dropped right now, utterly, how do you think that would affect mean and median incomes?

Good question. I think both the mean and median would go down. Quickly. Some people would get a pay cut and some new lower pay jobs would appear (However if you consider that those previously unemployed people were earning zero, then the mean and median might actually go up, as more people participate in the economy).

Mean and median are of course very deceptive. We could increase both by setting a minimum wage of \$200k and having 50% unemployment.

So that’s the first order effect. A second order effect would be that economic activity increases and creates a flow-on which over time will increase the wealth of the whole country.

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70. Kimble (4,636 comments) says:

“Isn’t that the Broken Window Fallacy?”

Malcom, as with most economic discussions the lesson of the broken window fallacy is usually pertinent. Trying to get the other side to consider what is unseen is always a struggle.

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71. Ryan Sproull (7,975 comments) says:

So you dont think experience counts for anything?

I do, but what do you say to a situation where an 18-year-old has two years’ experience in a job and is paid less than a 21-year-old who has no experience at all?

So combining these two statements, you would be against, for example, an employer paying people differently for how long they have been working for him even if they are doing the same job. You think there is no difference between an old worker and a young one, as long as their tasks are exactly the same.

You would then also think there is no place for paying based on potential future value? These are just outcomes of your own stated position.

Hmmm, good points. I honestly don’t have an answer to that off the top of my head. I’ll give it some thought.

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72. Ryan Sproull (7,975 comments) says:

Good question. I think both the mean and median would go down. Quickly. Some people would get a pay cut and some new lower pay jobs would appear (However if you consider that those previously unemployed people were earning zero, then the mean and median might actually go up, as more people participate in the economy).

Mean and median are of course very deceptive. We could increase both by setting a minimum wage of \$200k and having 50% unemployment.

So that’s the first order effect. A second order effect would be that economic activity increases and creates a flow-on which over time will increase the wealth of the whole country.

So the first thing that happens is people are paid less, then the second thing that happens is they’re living in a richer economy where their numerically lower pay has higher real-world value (and potential for advancement to even more)?

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73. unaha-closp (1,600 comments) says:

DPF,

Now this does not prove beyond doubt it was the abolition of youth rates that pushed youth unemployment up an extra 10%. But it is the most likely explanation.

The challenge for those who think abolishing youth rates did not contribute to the increase in youth unemployment, is to put up their own data and credible explanations to explain the massive gap between youth and adult unemployment.

What has occured on the supply side of the equation is unaccounted for and throws into doubt the validity of the basic ratio:

So Eric has calculated the best fit of the data is that the youth unemployment rate will 9% higher than 1.44 times the adult unemployment rate.

1 – Over the past 10 years there has been an almost doubling in the number of sickness/invalid beneficiaries, Kiwiblog has at times past pointed this out. It is almost certain that the people removed from the unemployed are older rather than younger. This means current spike in youth unemployment ratio to overall is at least partly due to the fact that the state has decreased the number of older people who are officially unemployed (by about 50,000). To remedy this issue Eric will need to add in or otherwise account for the sickness and invalid beneficiaries.

2 – Also missing in Eric’s assesment is any accounting of basic demographics, the proportion of 15-19 yo.s as a part of the overall job market is not a constant. From 1995 until 2005 NZ had relatively few of them. This period is shown on the graph as flat and lying smack on the normalised line (makes the graph look nice), but if the relative lack of 15 -19 yo.s looking for work were accounted for…

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74. Ryan Sproull (7,975 comments) says:

Isn’t that the Broken Window Fallacy?

No, it’s not. I’m saying what I think would happen, not whether or not it’s a good thing.

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75. Kimble (4,636 comments) says:

“While I agree that, perhaps, the removal of youth rates was a bad thing, is this not just the ‘Free Market’ in action?”

No. The ‘Free Market’ you are thinking of would be one without a minimum wage at all. What is happening is a market mechanism is responding to government interference.

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76. Pete George (24,828 comments) says:

Youth rates and minimum rates are only minimums, there is nothing to stop employers paying more if they think it’s worth it, is there?

With due respect to your abilities Ryan, it’s not uncommon for 18 yr olds to think they are are worth as much as a 21 yr old, but it’s also not uncommon for young people to have inflated perceptions of their abilities and productivity.

One thing I see often is young people in shops who seem to not be bothered dealing with people outside their own age group, they may think they are doing well but they can be a negative for selling to older customers. It stands out (so it isn’t common) for a young person to appear to take an interest in listening to me and serving me.

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77. malcolm (2,000 comments) says:

Malcom, as with most economic discussions the lesson of the broken window fallacy is usually pertinent. Trying to get the other side to consider what is unseen is always a struggle.

Ryan is probably the best bet on Kiwiblog as far as changing someone’s mind based on sound reasoning. From what I’ve seen he’s pretty sharp.

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78. malcolm (2,000 comments) says:

So the first thing that happens is people are paid less, then the second thing that happens is they’re living in a richer economy where their numerically lower pay has higher real-world value (and potential for advancement to even more)?

Yeah, I think that is what’s supposed to happen.

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79. KiwiGreg (3,584 comments) says:

“Over the past 10 years there has been an almost doubling in the number of sickness/invalid beneficiaries, Kiwiblog has at times past pointed this out. It is almost certain that the people removed from the unemployed are older rather than younger.”

Why?

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80. Ryan Sproull (7,975 comments) says:

Ryan is probably the best bet on Kiwiblog as far as changing someone’s mind based on sound reasoning. From what I’ve seen he’s pretty sharp.

No use telling him that. He’s expressed several times in this thread alone his strong belief in my idiocy.

Yeah, I think that is what’s supposed to happen.

What are the valid complaints of those who disagree with you?

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81. Kimble (4,636 comments) says:

“I do, but what do you say to a situation where an 18-year-old has two years’ experience in a job and is paid less than a 21-year-old who has no experience at all?”

That either the employer is factoring in more than you realise into the value of two employees (most likely), or that they are being forced to overpay the 21 year old, but that the extra cost involved with hiring someone else is more than the cost savings.

It is also possible that the 18-year old would be getting paid more if the employer didnt have to pay an inflated wage to the 21 year old.

In any case, in this particular example if the minimum wage for the 18 year old was increased he would be likely to recieve a higher wage. But that is not the case every where for everyone, and in aggregate there are likely to be people left unemployed (and a smaller number dismissed). All you have done is paid for the increase in the income for some, at the expense of income for others.

Not only that, because we live in a civilised society that looks to care for the least fortunate, you will be taxing those in work to pay for the people who are unemployed.

The result of your benevolent actions is that there are more people unemployed and therefore on a lower standard of living, and those working either have to work harder keep their income the same or work the same and get to keep less of what they earn.

In a zero sum economy this wouldnt affect the total amount of wealth, but because you are channelling money through the government there is going to be unnecessary churn and waste, so the total amount of wealth in the country actually drops!

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82. malcolm (2,000 comments) says:

I think I’ll just leave this to Kimble. He’s saying everything I’m trying to say, only better.

Good discussion, cheers.

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83. Kris K (3,570 comments) says:

Kimble 1:56 pm,

“While I agree that, perhaps, the removal of youth rates was a bad thing, is this not just the ‘Free Market’ in action?”

No. The ‘Free Market’ you are thinking of would be one without a minimum wage at all.

I agree, but is that not effectively where we are headed?
Is not the removal of youth rates just a first step in this direction?

What is happening is a market mechanism is responding to government interference.

I agree.
But was not the then Labour government, by removing youth rates, essentially just responding to the Global Marketplace where the common international wisdom is that we are aiming for a Truly Free Market Global Economy; one where there are “no minimum wage[s] at all”?

And as I mentioned in my earlier comment at 1:45 pm; is this not the aim of the UN and those pushing Global Socialism; that by implementing a global “no minimum wage” they will effect wealth transference from First World nations to Emerging/Developing nations?

End result: Global Socialism/Communism by stealth?

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84. malcolm (2,000 comments) says:

But was not the then Labour government, by removing youth rates, essentially just responding to the Global Marketplace where the common international wisdom is that we are aiming for a Truly Free Market Global Economy; one where there are “no minimum wage[s] at all”?

Kris, removing the youth rate increased the minimum wage for youths. I’m not sure how you can see this as moving towards “no minimum wage[s] at all”. It’s the opposite.

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85. Kris K (3,570 comments) says:

Ryan Sproull 1:51 pm,

So the first thing that happens is people are paid less, then the second thing that happens is they’re living in a richer economy where their numerically lower pay has higher real-world value (and potential for advancement to even more)?

Exactly the point I am trying to highlight, Ryan.

Is this not what we are observing currently in the Emerging/Developing Economies (India, China, etc)?
And until THESE economies ‘normalise’, then First World nations will be undercut in the Global Labour Market, and will essentially be on the scrap heap until we can compete on a level footing.

Which in essence, as I said earlier, is the Socialists’ dream mechanism by which wealth is transferred from First World nations to Emerging/Developing nations?

End result: Global Socialism/Communism by stealth?
(I have a Bible verse for this somewhere).

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86. KiwiGreg (3,584 comments) says:

“Which in essence, as I said earlier, is the Socialists’ dream mechanism by which wealth is transferred from First World nations to Emerging/Developing nations?”

It’s not a zero-sum game. The Chinese and Indians can get richer without anyone getting poorer.

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87. Ryan Sproull (7,975 comments) says:

Kimble,

I recognise your arguments for there being no minimum wage, and how increasing the minimum wage for youth draws the same criticisms directed at minimum wages in general.

I still disagree with you that age is so much stronger an indicator of productivity than any other that it warrants a double standard.

I don’t think that distinguishing a productive 18-year-old from an unproductive 18-year-old is that much more difficult than distinguishing a productive 21-year-old from an unproductive 21-year-old. Even a 16-year-old, depending on the kind of work it was. When you’re hiring someone, you look further down their CV than their date of birth, and you meet them and talk to them. It may well be that a higher proportion of under-20s lack common sense, politeness or a work ethic than over-20s, but you can get a pretty good idea from the hiring process.

I certainly agree with you that some jobs are worth far less than minimum wage and are therefore priced out of existence by minimum wage laws, and that therefore some jobs would be created by lowering the minimum wage for youths (just as they would be created by lowering the minimum wage in general, or by lowering the minimum wage for redheads).

Looking back on my own employment history, it certainly helped to have two years of work under my belt before I left high school, and if I hadn’t been able to get that job (because there was no incentive to hire me over an adult), my entry into the workforce may have been delayed and more difficult. I recognise that.

But if everyone in my generation had been in the same boat, employers would have different criteria for evaluating experience and employability. If I had grown up with no youth rates and had consequently never got a job, and if I was reflective of my whole generation in this sense, then getting to 20 years old and looking for a job with no prior experience would not be as difficult as it could have been for me if I hadn’t bothered to get a job as a youth.

I could be convinced by you that the (usually invisible) cons outweigh the (usually visible) pros of minimum-wage legislation, but while minimum wages do exist, I remain unconvinced that grading them by age is fair. To me, a worker is a worker, whatever their age, and they should be valued on their own merits (which would probably include those less tangible merits you listed – potential future value, loyalty, etc.)

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88. Kris K (3,570 comments) says:

Malcolm 2:28 pm

But was not the then Labour government, by removing youth rates, essentially just responding to the Global Marketplace where the common international wisdom is that we are aiming for a Truly Free Market Global Economy; one where there are “no minimum wage[s] at all”?

Kris, removing the youth rate increased the minimum wage for youths. I’m not sure how you can see this as moving towards “no minimum wage[s] at all”. It’s the opposite.

Only for the small proportion of youth who remain in employment.
As is highlighted in DPFs main article; for most youth the removal of youth rates has meant lack of employment and thus, effectively, a labour rate of \$0/hour. So while on paper they may be entitled to the GREATER minimum wage, in reality they’re on the scrapheap and priced out of the market place.

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89. Ryan Sproull (7,975 comments) says:

It’s not a zero-sum game. The Chinese and Indians can get richer without anyone getting poorer.

Just because it’s not a zero-sum game, doesn’t mean the Chinese and Indians can’t get richer by making someone else poorer.

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90. malcolm (2,000 comments) says:

Is this not what we are observing currently in the Emerging/Developing Economies (India, China, etc)?
And until THESE economies ‘normalise’, then First World nations will be undercut in the Global Labour Market, and will essentially be on the scrap heap until we can compete on a level footing.

Which in essence, as I said earlier, is the Socialists’ dream mechanism by which wealth is transferred from First World nations to Emerging/Developing nations?

Kris, I think you need to distinguish between short-term effects and what happens in the long-term.

Sure, adding 1 billion cheap manufacturing workers to the world economy in the space of 20-40 years will put a lot of people out of work in the First World. That has been happening for a very long time (remember when we had “Jap Junk” and “Made in Hong Kong”?). Yet we don’t have ever-increasing unemployment or lowering levels of wealth in the First World. We are actually getting wealthier. The world economy is not static. Those cheaper goods will enable everyone to consume more and everyone can move further up the value-chain. Wealthy Chinese and Indians will buy our products and we will all be better off (materially), at least in aggregate and so long as we keep competing.

Of course there will always be casualties. If you live in the First World but you cannot move up the value-chain of productivity, then you’re stuffed. But this has always been the case and most people seem to manage. If we didn’t then we’d all be out-of-work candlestick makers, wheelwrights and telegram delivers.

If you want to argue that globalisation isn’t better for everyone in the long-term, then you need to show an example where you reduce trade and everyone is better off. In both the short and long-term.

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91. Kris K (3,570 comments) says:

KiwiGreg 2:38 pm,

“Which in essence, as I said earlier, is the Socialists’ dream mechanism by which wealth is transferred from First World nations to Emerging/Developing nations?”

It’s not a zero-sum game. The Chinese and Indians can get richer without anyone getting poorer.

I think many in the manufacturing/export industries may disagree.
How many companies that formerly had their manufacturing base in their First World (native) country have now relocated to China, India, etc? Fisher and Paykel, anyone?
So not only has that part of the labour market been lost, but also much of the tax take to the original First World nation has gone as well.

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92. Ryan Sproull (7,975 comments) says:

I think many in the manufacturing/export industries may disagree.
How many companies that formerly had their manufacturing base in their First World (native) country have now relocated to China, India, etc? Fisher and Paykel, anyone?
So not only has that part of the labour market been lost, but also much of the tax take to the original First World nation has gone as well.

Kris, I believe the idea is that because Indonesia can produce them cheaper, those Kiwi workers who lost their jobs at Fisher & Paykel will – once they find new jobs – be able to purchase whiteware appliance more cheaply than they could before, as can everyone else, and so everyone is more materially wealthy as a result.

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93. malcolm (2,000 comments) says:

Fisher and Paykel, anyone?

By moving offshore for cheaper manufacturing, F&P are positioning themselves to grow bigger and be more profitable. And you and I can share in that wealth by buying their shares.

I think we’ve had this discussion before. It’s always easy to see the loss of jobs etc, but it’s less obvious to see the other side of a changing economy: the new industries and jobs which are created. Look at all the people in Wellington who create software for products which didn’t even exist 20 years ago (e.g. apps for mobile phones, games, online accounting software, movies etc).

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94. Kris K (3,570 comments) says:

Malcolm 2:46 pm

Kris, I think you need to distinguish between short-term effects and what happens in the long-term.

Perhaps so, but I believe what we are experiencing is unprecedented in human history, and thus the long term effects are unknown and unquantifiable.

Sure, adding 1 billion cheap manufacturing workers to the world economy in the space of 20-40 years will put a lot of people out of work in the First World. That has been happening for a very long time (remember when we had “Jap Junk” and “Made in Hong Kong”?). Yet we don’t have ever-increasing unemployment or lowering levels of wealth in the First World.

If we use your model of Japan tooling up, and consequently putting the Western car manufacturing sector on the back foot for a number of years. And then compare the population of China with that of Japan, and the fact that Chine is targetting every available market sector, I think that perhaps your “20-40 years” may be a little ‘light’.

What are the consequences if rather than 20-40 years it’s more like 200 years before the First World nations ‘catch up’? What happens in the mean time?

Global Socialism under a One World Government, anyone?

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95. Kris K (3,570 comments) says:

Ryan Sproull 2:56 pm,

Kris, I believe the idea is that because Indonesia can produce them cheaper, those Kiwi workers who lost their jobs at Fisher & Paykel will – once they find new jobs – be able to purchase whiteware appliance more cheaply than they could before, as can everyone else, and so everyone is more materially wealthy as a result.

Malcolm 3:00 pm,

By moving offshore for cheaper manufacturing, F&P are positioning themselves to grow bigger and be more profitable. And you and I can share in that wealth by buying their shares.

As you highlight essentially the same point, I’ll address you both:
You both assume those people put out of work will find re-employment (elsewhere), and thus they will have access to ‘cheaper products’, or will be able to invest in shares of these (now offshore) companies.

Once again I come back to the youth rates argument; even if a youth is entitled to the GREATER minimum wage, it is of no benefit if he’s out of work and thus earning \$0/hour.
Similarly, even if whiteware is now 50% of the old purchase price because F&P is manufacturing out of the likes of China, then this matters little to the old F&P worker if he has been unable to gain employment.

And Malcolm, to use your “let’s all go develop software in Wellington” analogy – what if someone else in China is prepared to develope software at half your labour rate? And ultimately, what if EVERYTHING WE DO IN NEW ZEALAND is able to be done elsewhere at 50% of our labour rates?
Where’s your software developer in Wellington then?

Do you see what I’m saying?

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96. malcolm (2,000 comments) says:

Kris, I think you’re stating with a conclusion (Global Socialism under a One World Government) and trying to twist the facts to fit. You’ll have an uphill battle to explain how global free-markets will lead to global socialism.

As for this being unprecedented, I don’t believe it is. Increasing trade and new countries entering the world market has been happening for hundreds of years. To show that globalisation is a bad idea, you’d need to point to an example where trade has been restricted and everyone has benefited.

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97. Kris K (3,570 comments) says:

Malcolm 3:23 pm,

Kris, I think you’re stating with a conclusion (Global Socialism under a One World Government) and trying to twist the facts to fit. You’ll have an uphill battle to explain how global free-markets will lead to global socialism.

As for this being unprecedented, I don’t believe it is. Increasing trade and new countries entering the world market has been happening for hundreds of years. To show that globalisation is a bad idea, you’d need to point to an example where trade has been restricted and everyone has benefited.

I’m not starting with a conclusion, so much, but rather commenting on what I observe is happening, and may continue to happen at an increasing rate as China, India, etc continue to gobble up the available labour market by undercutting current labour rates. When have we seen two such large nations as China and India simultaneously tooling up in past human history?

And of course I can’t substantiate something which I believe is unprecedented.
The one resource I could cite to support my assertions is automatically regarded as invalid by many here (and you know what Source I mean).

I am merely floating the possibility that First World nations may never recover from the current ‘Wealth Shift’, and that ‘Shift’ of wealth will effectively usher in Global Governence (under a Socialist Dictator).
I guess time will tell.

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98. Ryan Sproull (7,975 comments) says:

Kris,

I do see what you’re saying.

Let’s say in an extreme world, China produces everything so cheaply that no one outside of China can work.

Who buys China’s goods?

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99. malcolm (2,000 comments) says:

And ultimately, what if EVERYTHING WE DO IN NEW ZEALAND is able to be done elsewhere at 50% of our labour rates?

As this has been an on-going process for hundreds of years, both because of new technology and new labour entering the world market, I think things will be OK (in the long-term and on average across the world). Those software jobs in Wellington will indeed disappear one day, and be replaced by something else which we probably can’t imagine (provided we stay competitive and learn new things, develop new products/services etc). 40 years ago my father probably couldn’t imagine what everyone would be doing in the future as he then lived in a country where loads of people worked in farming and freezing works, assembling CKD cars and working for the railways.

I don’t think globalisation guarantees that everyone will be better off, or that whole communities and countries won’t be blighted by decline for generations, but I do think that on average people will be better off. The way to ensure that we’re in the winning group is all the usual stuff; education, new skills, new ideas and new businesses.

Anyway, we don’t have any choice, Kris. The only way to deny the market is protectionism, and that’s a sure route to relative economic decline.

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100. Kris K (3,570 comments) says:

Ryan Sproull 3:43 pm,

Kris, I do see what you’re saying.

Let’s say in an extreme world, China produces everything so cheaply that no one outside of China can work.

Who buys China’s goods?

Exactly, Ryan.
And while this, too, would lead to China’s eventual demise (ie no customers), the rest of the globe has long since been sucked dry by China gobbling up all the global wealth and resources.

Malcolm 3:45 pm,

Anyway, we don’t have any choice, Kris. They only way to deny the market is protectionism, and that’s a sure route to relative economic decline.

Perhaps so, but is not Ryan’s summation of my comments at 3:43 pm also a recipe for “relative economic decline”?

I guess I see problems with both absolute National Protectionism, and also with an absolutely Free Global Market.
There has to be another ‘System’, or at least some common sense middle ground, surely?

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101. Ryan Sproull (7,975 comments) says:

It doesn’t happen instantaneously, though, Kris. There are counter-trends that arise naturally.

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102. Kris K (3,570 comments) says:

Ryan Sproull 7:34 pm,

Let’s hope these ‘trends’ kick in before the First World nations go broke.
Based on what I see currently, though, the only trend seems to be ‘down’.

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103. Ryan Sproull (7,975 comments) says:

Kris, we’re still absurdly rich by global standards. When they put off the release of Playstation 4 in New Zealand because no one’s going to be able to afford it, then you can start to worry we’ll still be absurdly rich by global standards.

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104. Pete George (24,828 comments) says:

I am merely floating the possibility that First World nations may never recover from the current ‘Wealth Shift’, and that ‘Shift’ of wealth will effectively usher in Global Governence (under a Socialist Dictator).

I follow the first point and agree that something like that is a possibility. But how on earth does that follow to global governance under a socialist dictator – China ruling the world? What about India? What about the Muslims?

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105. Kimble (4,636 comments) says:

Wont somebody PLEASE, THINK ABOUT THE MUSLIMS!!

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106. pareto (23 comments) says:

Good to see my Economic lecturers getting some airtime on kiwiblog! go UC!

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107. RossK (181 comments) says:

The natural desire of a business is to push wages to the minimum. The whole “leave it to the market to set wages” routine is pretty weak. The market operates within the context of a social and legal framework. All sorts of rules are imposed to make the market operate in a socially desirable way. The imposition of a minimum wage is just another rule imposed. The argument that it hurts employees is an interesting one – obviously it is good for those who get (keep) jobs but bad for those (if any) who don’t get (lose) jobs. Unskilled and easily substitutable / replaceable labour and labour for discretionary jobs gets cuts first by business trying to control spending. I don’t thinka spike in youth unemployment is necesarrily that much of a surprise.

On a whole dfferent argument, is it necessarily try that people who get paid minimum wage (youth or otherwise) and who are working jobs that would pay even less if there was no minimum wage law are actually getting on an escalator (which goes up) or are they just getting on one of those moving walkways (never rising from the floor on which they start)?

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108. Thrash Cardiom (253 comments) says:

Youth rates are a ridiculous idea and remain so unless you can explain how a person 19 years, 364 days old is suddenly magically worth X dollars more per hour when they become 19 years, 365 days old.

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109. Kris K (3,570 comments) says:

Pete George 9:08 pm,

I am merely floating the possibility that First World nations may never recover from the current ‘Wealth Shift’, and that ‘Shift’ of wealth will effectively usher in Global Governence (under a Socialist Dictator).

I follow the first point and agree that something like that is a possibility. But how on earth does that follow to global governance under a socialist dictator – China ruling the world? What about India? What about the Muslims?

Pete, many of those pushing for Global Governance believe that you have to depose First World nations from their current position of global dominance, and additionally remove all National Sovereignty as well. By bankrupting the West via a Global Free Marketplace; one where there is no minimum wage, it would be possible to bring about the above two objectives of the One Worlders. And therefore the way is paved to usher in Global Governance; with a global economy and currency (similar to the Euro in Europe), and a Global Ecumenical Religion (from my Source material) which will embrace Islam, Catholocism, Liberal ‘Christianity’, Hinduism, etc. Basically an all encompassing umbrella.

I believe (and this is where I go to my main Resource again) that it is unlikely China (and perhaps part of the old USSR) will sign up to this One World Government. But I do see those that come under such an authority consisting of the existing First World nations (the US, Europe, etc., and including Israel), most of the Muslim world, and perhaps India (not sure here).

Many of the indicators are in place, along with the required technologies, that imply this ‘shift’ may not be too far off in the future. The first indicator; the first domino, is the fall of the US (which we are observing currently) – the rest (Europe, etc.) will likely follow quick on its heels.

Watch this space.

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