Labour campaigning for higher youth unemployment

May 31st, 2016 at 11:00 am by David Farrar

Stuff reports:

Labour employment spokesman Grant Robertson said the catering staff in question were doing the same job older workers were.

“If people are doing the same job, they should be paid the same wage.”

Robertson did not believe the concept of youth wages had a future in New Zealand.

Delaware North has been approached for comment.

The food and beverage concession company is headquartered in Buffalo, New York. Its website says Wellington Airport is its only New Zealand operation.

National, United Future and ACT voted in favour of legislation to reintroduce youth rates in 2013.

By law, employees aged 16 or older must be paid at least the adult minimum wage rate, unless they’re “starting-out workers” or trainees, for which there are several definitions.

Employees must be paid at least the minimum hourly wage rate for any extra time worked over eight hours a day or 40 hours a week.


* Workers aged 16 or 17 yet to complete 6 months’ continuous employment with their current employer.

* Workers aged 18 or 19 who have been paid a specified social security benefit for 6 months or more, and who haven’t completed 6 months’ continuous employment with any employer since getting a benefit.

So Grant wants to make it illegal to pay a 16 year old anything less than $18 an hour for their first job. He also wants to make it harder for a teenager who has been on a benefit to get a job.

Youth Rates only an option

April 9th, 2013 at 4:00 pm by David Farrar

No Right Turn blogs that businesses don’t want youth rates as McDonalds, Restaurant Brands, The Warehouse, Farmers, Kmart, Bunnings and Countdown have all said they won’t offer them.

This is the thing – the starting out wage is an option only. It is a minimum, not a maximum.

I employ a large number of young people at Curia. I would never dream of offering youth rates to my staff, because I deliberately pay for quality (in fact a recent industry survey showed our rates were the highest of all research companies that took part).

But what is right for some employers is not right for others. Flexibility is a good thing. For some employers being able to hire a 17 year old (or an 18 year old who has been on a benefit for six months) for a bit less, will mean they’ll offer them that job, rather than someone more experienced.  And getting people into their first job is critically important.

Youth Rates

March 20th, 2013 at 7:03 am by David Farrar

Audrey Young in the NZ Herald wrote:

The temperature in Parliament is sure to rocket when the law “reinstating” youth rates is debated this week.

It happens every time the emotive issue is debated, as it did last week when the bill to bring them back passed its second reading. …

The new youth rates will be called the Starting Out Wage.

Labour says youth rates will be reinstated, suggesting that they were previously abolished.

But Labour did not support the bill of former Green MP Sue Bradford to abolish youth rates. It opted instead for a dilution of her bill but which limited the amount of time that a new young worker could remain on youth rates to 200 hours or three months.

National went to the last election campaigning for a change to that regime, saying the move had contributed to a significant rise in youth unemployment.

The change is in fact quite modest. It is not full youth rates. The starting out rate will only apply:

  • To a 16 or 17 year old with a new employer, for the first six months
  • To an 18 or 19 year old who has been on a benefit for more than six months

The $13.50 minimum wage will be raised to $13.75 on April 1. From May 1 the Starting Out Wage would be 80 per cent of that, or $11.

Act leader John Banks said his party believed 80 per cent was too high as a minimum. In Britain the rate was 60 per cent for 16-year-olds and in Australia it was 48 per cent for 16-year-olds.

He compared the Starting Out Wage to the dole, paid to 40,000 young people every fortnight between 15 and 19 – equivalent to $4.50 an hour. He said they desperately needed the “dignity of work and a job opportunity”.

I believe getting a young person their first job is incredibly important and making it illegal for a 16 year old to work for less than $13.75 an hour is incredibly stupid.

We see the impact of this stupidity by the fact that the unemployment rate is currently 30.9% for under 20s.

Labour MP Darien Fenton compared the move to discrimination against women and Maori who at one time were paid less because some people said they were worth less. No one would tolerate that type of discrimination today.

You are remain female or Maori for ever. You do not remain 16 for ever. Also minimum wages are not maximum wages.

It would then also be acceptable, she said, to discriminate against older workers.

We don’t allow a 16 year old to vote, yet allow 70 year olds to vote so the comparison is invalid.

“It perpetuates its stereotype of young workers being unreliable and incapable, and it ignores the fact that many young workers have already had considerable work experience at the age of 16.”

if they have had work experience at 16, it can only be because they were employed under the age of 16 – when there is no minimum wage.

One of the strongest submissions against the bill came from the Human Rights Commission. It said unequivocally that the discrimination could not be justified.

“In New Zealand, the age at which children and young people are deemed to be adult is considerably younger than 20 in many critical areas of life.

“The minimum age of criminal prosecution is 14 for most offences, 12 for serious offences and 10 for murder and manslaughter.

“Children in New Zealand are legally able to marry at 16 (with parental consent if either party is 16 or 17) and drive at 16.

“Children can enlist in the military at 17 and be deployed at 18.

“Yet they are not considered to be sufficiently adult enough to be protected by the minimum wage.”

I agree you gain you rights of adulthood at before 20. I actually support 18 and 19 year olds getting the adult minimum wage.

But I think there is no justification for having the minimum wage start at 16 instead of 15 or 17 or 14. 16 is arbitrary and capacious.

18 is when you are generally deemed an adult who can vote, marry without permission etc. It is also when most people finish school and leave home.

So what I would do is simple.

  • No minimum wage at all for 16 and 17 year olds (like it is for 14 and 15 year olds). Getting a job is far more important than what it pays, especially when almost everyone at that age is still living at home. 
  • Full minimum wage at age 18

Australian youth rates

October 18th, 2012 at 12:00 pm by David Farrar

David Shearer said on the starting out youth rate:

Labour Party leader David Shearer criticised the move, saying “it’s not going to create jobs by driving down wages”.

“These people are going to leave and go to Australia,” said Shearer.

Peter George has blogged the rates in Australia:

  • Under 16 years of age  $5.87
  • At 16 years of age   $7.55
  • At 17 years of age   $9.22
  • At 18 years of age   $10.90
  • At 19 years of age   $13.17
  • At 20 years of age   $15.59

The NZ rate is $10.80 and only for 16 to 19 year olds in some circumstances for a limited six months. Can’t really see those 16 year olds going to Aussie for the higher minimum wage.

Of course what matters is not the minimum wage, but the actual wage paid. So many people seem to think a minimum wage is a maximum wage.

Herald on youth rates

October 11th, 2012 at 3:00 pm by David Farrar

The Herald editorial:

 Young people are particularly vulnerable to unemployment in times like the present. When the world economy is beset by problems and business everywhere is wary of taking on more commitments, older people cling to the jobs they have and vacancies are taken by applicants with a solid work record. …

The youth rate will be available for all 16- and 17-year-olds for their first six months with a new employer, but for 18- and 19-year-olds it will apply only to those who are coming off a benefit after more than six months, or are taking a recognised industry training course.

The legal minimum hourly rate for trainees of any age is already 80 per cent of the adult minimum. The youth rate, to be introduced in April, could reduce the present incentive for school leavers to take a job at the minimum adult rate rather than start a training course.

But mainly the rate is aimed at youth who are least likely to gain employment on the open market and less likely to seek some formal training. The youth rate will give them something to offer that might offset the record, maturity and reliability of their older competitors for the job.

If a temporary saving for employers can get the unskilled young taken on, they will get a chance to show their aptitude and know that after six months they have a right to a rise. It is a sensible step, approved at last year’s election. Let’s hope it works.

It is a sensible step. There is well documented evidence that the abolition of youth rates in 2007 led to a significant increase in youth unemployment. This is no surprise.

The starting out wage

October 9th, 2012 at 4:00 pm by David Farrar

Kate Wilkinson has announced:

The Minimum Wage (Starting-out Wage) Amendment Bill provides for eligible 16- to 19-year-olds to be paid no less than 80 per cent of the minimum wage.

“The new starting-out wage will help some of our youngest and most inexperienced workers get a much-needed foot in the door, in what is currently a tight labour market.

“The starting-out wage was one of National’s 2011 campaign promises, and designed to provide 16- to 19-year-olds with the opportunity to earn money, gain skills and get the work experience they need.”

Three groups will be eligible unless they are training or supervising others:

  • 16- and 17-year-olds in their first six months of work with a new employer
  • 18- and 19-year-olds entering the workforce after more than six months on benefit
  • 16- to 19-year-old workers in a recognised industry training course involving at least 40 credits a year.

This is not a return to youth rates. While Labour will wail about this, the reality is that it is a modest extension of what they had in place.

Labour had a “new entrants” wage which also was at 80% of the minimum wage. It was for the first three months or 200 hours. Almost no employers (2%) utilised it due to the uncertainity over hours.

All National has done is doubled the period from three to six months, and extended its availability to those coming off a benefit.

So if you get a job at age 16, then at age 16.5 you will have to be paid the adult minimum wage if with the same employer. And please don’t tell me employers will sack staff after six months as a way to save money. Only a moron with no actual experience as an employer would think that. Staff recruitment and training is expensive.

Personally I would go far beyond what the Government has done. I would have no minimum wage at all, until people are legal adults at 18. The most important thing for a 16 or 17 year old s to start to gain some work experience. They almost invariably are living at home, and are not paying their own way in life yet. The value of an initial job in terms of skills, maturity but also references for future jobs is immense.

Why have the minimum wage start at 16, not 15 or 17 or 14? 18 is the logical age.

I do like the lower starting off wage for people coming off an extended spell on a benefit. But I’d not make that age restricted. I’d have that for anyone who has been on a benefit long-term.  So long as the work is paying significantly more than the benefit, then getting them that opportunity is all important.

This change is in fact quite minor. I can guarantee you that the media will treat the minimum wage change, as a maximum wage, and interview teenagers complaining about it, and portraying it as cutting their wages when it does no such thing. No one in a current job can have their wages cut. All it means is that they can be offered a job at a 20% lower rate than the adult minimum wage, for their first six months. The trade off is that it will mean more of them get jobs, but some of them will get paid less (for six months) than what it would have been. I have no faith that the media will get this distinction at all right.

NZ minimum wage higher than UK

March 20th, 2012 at 11:00 am by David Farrar

The Telegraph reports:

The adult rate of the minimum wage is to rise by 11p to £6.19 an hour from October, Business Secretary Vince Cable announced today.

That is $11.90 in NZ dollars, which is 88% of the NZ minimum wage of $13.50 an hour. So the next time Labour or the unions insist our minimum wage is set at third world standards and keeps people in poverty, remember it is 13% higher than the UK one.

But the rates for younger workers will be frozen at £4.98 for 18 to 20-year-olds and £3.68 for 16 to 17-year-olds. 

Sensible when the focus is getting them into jobs.

The starting out minimum wage in NZ is $10.80 an hour, and doesn’t even apply to all under 21s like the UK one. It only applies to 16 and 17 year olds for their first six months with an employer or 18 and 19 year olds who have been on a benefit for at least six months.

The UK youth minimum wage is NZ$9.58 for 18 to 20 year olds, and NZ$7.08 for 16 and 17 year olds. That means those on the starting out minimum wage in NZ are getting 13% more and  53% more respectively.

National’s Employment Relations Policy

October 28th, 2011 at 9:20 am by David Farrar

I suspect we will hear from a lot of unions today. Amazingly not a single union commented on Labour’s superannuation policy yesterday, despite their decades of opposition to compulsory superannuation and raising the age of eligibility.

But National has just released their employment relations policy, and I think the unions will rediscover their voices. The policy takes a number of good steps in the right direction, and is in total contrast to Labour’s desire to return to the 1970s.

First of all there is a partial victory on the issue of the minimum wage for teenagers, which has resulted in such massively high youth unemployment.

There will be a “Starting-Out Wage” set at 80% of the adult minimum wage. At present the current law has this also, but it only applies for the first 200 hours of employment, which can be as little as five weeks. National is extending this to:

  1. 16 and 17 year olds for their first six months with an employer
  2. 18 and 19 year olds if they have been on a benefit for more than six months prior, for their first six months of employment
  3. 16 to 19 year olds doing at least 40 credits of industry training a year (was 60)

This doesn’t go as far as I would go, which would be to simply not have the minimum wage law apply to those aged under 18 (rather than under 16), but it should give young job seekers a better opportunity to get their first job, and gain that all important experience.

National is also making it easier for employees to request flexible working arrangements:

Many workplaces already have flexible working arrangements, either formally or informally. But at the moment, the formal request mechanism applies only to those with caring responsibilities.

National will extend the right to request flexible working hours to all workers, and raise the profile of flexible working arrangements. We want to see more workers and employers benefiting from flexible working arrangements.

And also they wind back some compulsory lite unionism:

Remove the requirement that non-union members are employed under a collective agreement for their first 30-days.

The current law effectively forces you to join the union, and means you can only withdraw and go on an individual contract after 30 days. National allows an employee to decide for themselves from day one whether or not they wish to join a union.

Apply partial pay reductions for partial strikes or situations of low-level industrial action.

Currently, employees can engage in partial strike action, such as refusing to answer email or do any paper work, while continuing to receive full pay.

Partial pay for partial work.

I am really pleased to see some movement on the issue of pay rates for teenagers with no work experience who need a first job. Our youth unemployment rate is far too high.

The cost of no youth minimum wage

September 19th, 2011 at 2:00 pm by David Farrar

The Department of Labour has published a report they commissioned on the impact of the decision by Parliament in 2008 to replace the youth minimum wage (set at 80% of adult minimum wage) for 16 and 17 year olds with a new entrants minimum wage that lasts for 200 hours only (5 weeks full-time).

They found:

This research found that this minimum wage increase accounted for approximately 20–40 percent of the fall in the proportion of 16 and 17 year olds in employment by 2010. Overall, this implies that the introduction of the NE minimum led to a loss of 4,500- 9,000 jobs for 16 and 17 year olds (employment of 16 and 17 year olds fell from 61,400 to 39,500 between 2007 and 2010).

I want readers to quote that figure to both Labour and National MPs and candidates if they ever talk about wanting more young people in jobs. Tell them you don’t want platitudes but will they reverse a decision that put up to 9.000 young people out of jobs.

The change did not just affect 16 and 17 year olds though. It also led to some people working fewer hours and earning less money than before the change.

The research also found that, relative to 20 and 21 year-olds, average hours worked by 16 and 17, and 18 and 19 year olds fell after 2008, as did their earnings and total incomes.

This study is based on the 100,000+ pieces of data collected in the Household Labour Force Survey over the last few years, so it is not just a “view point”, but a rigorous study based on extensive research.

I hope National has the guts to do the right thing, even if not the popular thing, and announce they will at a minimum reintroduce a youth minimum wage. They could even grandfather current rates in, so leave the current youth rate at $13/hr until it hits the floor of 80% of the adult rate which would take several years to occur, being $16.25 an hour.

Or they could be really ballsy and just announce that the minimum wage in future only applies to those aged 18 and older rather than 16 and older.

Guest Post on Roger’s blog

September 9th, 2011 at 3:18 pm by David Farrar

I’ve done a brief guest post on Roger Kerr’s blog on the youth minimum wage.

It is inexplicable that National has continued with what can only be called the failed experiment of applying the adult minimum wage to unskilled inexperienced 16 year olds who want to gain some work experience.

Key on youth minimum wage

August 30th, 2011 at 12:00 pm by David Farrar

NZPA report:

Scrapping the minimum wage for young workers could result in people being paid as little as $2 an hour, Prime Minister John Key says.

His comment came after Act leader Don Brash last week proposed abolishing the minimum wage for people under 20, which he said would result in more people working for less rather than fewer people earning higher wages.

Key has said the Government would consider reinstating youth rates, but today raised issues with Dr Brash’s more radical proposal.

The proposal would result in “very low wage rates” and some companies would hire people for as little as $2 an hour, he said.

Actually for many young people there already is no minimum wage. It doesn’t apply to those aged under 16. So I disagree with the PM that moving the minimum wage coverage from 16 to 18 would lead to lots of people working for $2 an hour. Are there many 15 year olds working for $2/hour?

Incidentally when I was at 14, I did get a job for $2/hour. Now today that is worth $7/hr, but regardless is still around half of the minimum wage. It was working at Woolworths cleaning rubbish bins out etc during the week and doing checkouts on Friday night. Having an after school job was great in terms of learning the value of work.

Today no one would be on $2/hour because the welfare system sets a de facto minimum wage of around $4.50 an hour.

Incidentially if it is so wrong to have different minimum wages, based on age – then why it is okay to have different dole payments based on age?

An 18 and 19 year old gets paid less than a 20 – 24 year old by around $37 a week, if both live at home.

And a 25 year old gets paid $38 a week more dole than a 24 year old on the dole.

PM on Youth Wages

August 17th, 2011 at 12:00 pm by David Farrar

Dana Leavy at Stuff reports:

Prime Minister John Key says the Government will decide whether it will reintroduce the youth minimum wage before the election, but says it is unlikely.

This is disappointing. I have no doubt that a $13/hr minimum wage has priced unskilled 16 and 17 year olds out of the market. The three solutions are:

  1. Lower the minimum wage for everyone
  2. Have a separate lower minimum wage for 16 and 17 year olds, say at 80% of the adult minimum wage as it used to be
  3. Have the minimum wage law apply only at age 18, instead of age 16

Option 3 would be my preference. This would be the greatest boost to youth employment, and ensure that 16 and 17 year olds are able to get jobs.

However, Key said today the Government needed to look at all the factors that might work.

“We will consider it,” he told TV3’s Firstline programme. “I wouldn’t say we would necessarily carry it out.”

There was already a training wage which covered the first 200 hours, Key said. While a youth minimum was a factor, the Government didn’t want the public to believe it was the only factor.

“Because I think if it’s the only factor someone’s getting employed on, we’re probably getting off on the wrong track here.”

It is not the only factor, but it is a factor.

Riots and the youth minimum wage

August 12th, 2011 at 6:17 pm by David Farrar

In my NZ Herald column I look at the causes of the English riots and make the case for lowering the youth minimum wage to reduce teenage unemployment in NZ from 27%.

Jim should back bringing back the youth minimum wage

July 23rd, 2011 at 10:00 am by David Farrar

Georgina Stylianou at Stuff reports:

Youth suicide rates will peak over the next two to four years because of “shockingly high youth unemployment rates”, a Christchurch MP says.

Progressive MP Jim Anderton said high suicide rates followed high unemployment “as sure as night follows day”.

In which case it is abhorrent that Jim Anderton won’t back restoring the youth minimum wage at a lower rate than the adult minimum wage.

If Jim really thinks the high youth unemployment will lead to more deaths, then he should have no compunction in voting for a measure which will stop young inexperienced job seekers from being priced out of the labour market.

BNZ on Youth Employment

July 11th, 2011 at 9:39 am by David Farrar

Dene Mackenzie in the ODT reports:

BNZ economist Stephen Toplis wants the Government’s policy-makers to get a better understanding of the way the nation’s labour market is working.

“There’s a lot of wild and woolly stuff going on that is raising significant question marks over whether the necessary labour supply is available to meet New Zealand’s ongoing growth needs.” Policy-makers at both Treasury and the Reserve Bank would need a deep understanding of the labour market to set the ground rules, he said.

There had been a disproportionate rise in the nation’s youth unemployment rate for workers aged 15 to 19 years, which was now a “staggering” 27.5%, and the next age group – 20 to 24 years – had a rate of 13.5%.

Workers over 25 – who could be seen as a proxy for “skilled workers” – had a rate of just 4.6%, lower than the 6.3% peak level for that age group in 1998 and 8.5% in 1992.

On average, the youth unemployment rate had been 11.8 percentage points higher than the non-youth rate since 1986, but by March this year that difference had climbed to 21.9 percentage points.

So what happened? Labour and Greens got rid of youth rates, and National has not put them back.

Between the peak in youth employment at the end of 2007 and now there were 50,500 fewer workers in the 15-19 year age group, a fall of 31.6%, even though there had been an increase of 2400 in the total number of people employed.

“The oldies are on the march … it’s an oldies takeover.”

Youth rates were abolished in 2008, and there are now 50,000 less teenagers in work. This might be the worst case of putting ideology over pragmatism we have seen in terms of adverse consequences.

Stop pricing young workers out of the labour force

June 13th, 2011 at 7:00 am by David Farrar

Eric Crampton’s op ed in the Dominion Post, and online at CIS is very good.

IF THE Government said that the minimum price for a new car were $50, nobody would expect it to affect sales. Neither would an increase to $65. But it would certainly start mattering if the Government applied a minimum price of $5000 to all cars, new and used.

Exactly. Only the stupidest person could argue that a mimimum price would not affect sales at certain levels. Hence the focus should be about at what level it starts to matter.

The latest youth unemployment figures are very bad. The unemployment rate for kids aged 15 to 19 is 27.5 per cent …

This isn’t just the recession. Unemployment rates for adults are higher than they were in the boom of the mid 2000s, but the recent downturn has not hit adult workers the same way that it’s hit the kids. The current adult unemployment rate of 6.6 per cent is only three points higher than its low mark in the mid 2000s. Meanwhile, youth unemployment rates are a staggering 15 points higher.

So what changed?

Both rates usually track each other, reflecting the overall strength of the labour market. Changes in the adult unemployment rate explain a high proportion of changes in the youth rate.

But in late 2008, this relationship began to break down. Compared with a previous trend, the current youth unemployment rate is eight points higher than we could have expected given the adult unemployment rate. That’s about 12,000 kids who, given the current adult unemployment rate, we would have expected to have jobs. …

Neither can they simply be due to the current downturn: when adult unemployment hit 10.2 per cent in 1992, the youth unemployment rate was 23.4 per cent – three points lower than today – and youth labour force participation rates were higher. Bear in mind that adult unemployment today is nowhere near 10.2 per cent.

The answer seems obvious. While done with good intentions, the abolition of a lower minimim wage rate for teenagers has priced them out of the labour market.

No, the sharp increase in youth unemployment from late 2008 appears to have been caused by the abolition of the youth minimum wage in early 2008. Such a result isn’t surprising. Economist Stephen Gordon summarised Pierre Fortin’s work on this effect in relation to minimum wages: when minimum wages are below about 45 per cent of the average wage, they have little effect on employment; above that, they present a danger to employment.

By contrast, New Zealand’s minimum wage of $13 an hour is about 50 per cent of the average hourly wage – well into the range in which we expect negative employment effects, particularly for young workers.

And if the minimum wage increased to $15/hr, it would impact youth even harder.

Reinstating a youth minimum wage well below the adult rate wouldn’t eliminate youth unemployment. But it would let employers start creating new jobs that young workers could productively fill while gaining experience. It’s time to stop pricing young workers out of the labour force.

I agree. What the Government should do is freeze the youth minimum wage at $13/hr and keep it there until it has hit the floor of 80% of the adult minimum wage (which happens when it hits $16.25), and then have it remain at 80%.

Youth Unemployment

May 5th, 2011 at 3:33 pm by David Farrar

The latest HLFS has some moderately good news in it.

  • 30,000 more jobs in the last quarter
  • 3,000 fewer unemployed
  • Unemployment rate drops to 6.6%
  • NZ unemployment rate now 11th lowest of 34 in the OECD

However unemployment amongst under 20 year olds remains high – up from 25.5% to 27.5%. 6,000 fewer teenagers were in employment.

jacinda Ardern has said:

“Youth unemployment has now hit 27 percent for those aged 15-19; more than four times the average unemployment rate. We’ve reached crisis point, with more young people looking for work now than we have ever seen on record before,” Jacinda Ardern said.

It is a crisis, but one created by Labour (and not changed by National). Labour made it illegal for a teenager to accept a job for less than the adult minimum wage. They abolished the lower minimum wage for youth.

A 16 year old generally has no skills, no experience and lives at home. They would love to be able to earn a bit of money for say $10/hour. But Labour has priced them off the market. If an employer has a choice of an experienced 25 year old or a novice 16 year old, of course they will not choose the 16 year old.

The fact that teenage unemployment levels are increasing, while the overall unemployment level is falling, shows that getting rid of the youth minimum wage was a disaster for our teenagers. They deserve the chance to gain employment, and National should pledge to reintroduce a lower minimum wage for youth.

No link

January 11th, 2011 at 7:00 am by David Farrar

The Press reports:

Labour youth affairs spokeswoman Jacinda Ardern said yesterday there was no link between youth rates and joblessness.

No link? I’m sorry Jacinda, but that is a grossly illiterate comment to make, economically. Are you really saying the cost of labour has absolutely no impact on whether said labour is hired?

This is like saying there is no link between the cost of cars and the numbers of cars people buy.

“The current youth unemployment rate is at similar levels to those reached in the recession of the early 1990s when youth rates [existed].”

But they key difference is that overall unemployment is far less than in the early 90s. For most age groups, it is only half what the peak was in 1991. It is only the under 20s which have reached the same peak.

This graph show the total level of employment (in 000s) for the two youngest age groups. Now do you really want to say there is no link, considering when it was youth rates were abolished?

Labour and Jacinda could argue that they would rather have say 110,000 young people earning $12.75 an hour than say 130,000 young people in work where some only earn say $9 an hour. That sort of trade off is what setting minimum wages tends to be all about.

But to claim there is no link at all between the cost of hiring a young worker, and the number who are in work, is just not possible.

A good poster

October 21st, 2010 at 1:07 pm by David Farrar

Youth Rates

Sir Roger makes an excellent point. Young inexperienced first time job seekers are being priced out of the market. Sure no one wants to stay on $10/hour for long, but hell if it will get you your first job, it is worth so much more than that as you then get actual work experience.

I started work at 12 as a paper boy and occassional dairy assistant. At 14 I was working every day after school. There is no way I would have got those jobs if they had to pay me full adult wages.

The massive increase in youth unemployment is partly because of young people being priced out of the market. And sadly, Labour wants to make it even worse – they want to make it impossible for any young job seeker to take a job for under $15 an hour.

A great letter

June 2nd, 2010 at 3:30 pm by David Farrar

Eye2thelong run blogged this letter as a great example of the woeful state of reporting and repeaters:

Here’s a letter to the New York Times:

Dear Editor:

Suppose Uncle Sam orders you to raise by 41 percent the price you charge for subscriptions to your newspaper.  Would you be surprised to find a subsequent fall in the number of subscribers?  If you assigned a reporter to investigate the reasons for this decline in subscriptions, would you be impressed if that reporter files a story offering several possible explanations for the fall in subscriptions without, however, once mentioning the mandated 41 percent price hike?

Unless you answered “yes” to this last question, I wonder why you published Mickey Meece’s report on today’s record high teenage unemployment rate (“Job Outlook for Teenagers Worsens,” June 1).  Between 2007 and 2009, Uncle Sam ordered teenage workers (who are mostly unskilled) to raise the price they charge for their labor services by 41 percent.  (That is, the federal minimum-wage rose from $5.15 per hour in 2007 to its current level of $7.25 in 2009 – a 41 percent increase.)

Does it not strike you as more than passing strange for your reporter – assigned to help explain why teenagers today have an increasingly difficult time finding jobs – to ignore the fact that these teenagers are ordered by government to raise significantly the wages that they charge their employers?

Donald J. Boudreaux

How many stories that mention youth unemployment mention that it is now illegal for a teenager to offer to work for less than $12.75 an hour? Teenager workers have been priced off the market, hence the 25% youth unemployment rates.

Two bad votes from National

April 22nd, 2010 at 6:00 am by David Farrar

Very disappointed in two first reading votes case last night by the National Party.

The first was against the bill to allow a separate youth minimum wage (went down 5-117). Not only is this a u-turn from the previous position (National voted against Labour abolishing them in 2008), but it is bad public policy. The record high youth unemployment is partly due to young unskilled workers having been priced out of the market.

I wouldn’t be so annoyed if National was voting against it after it had been to select committee. But by voting it down, they are saying we don’t even want to hear the pros and cons of whether having a separate youth minimum wage could help get more young people into work.

The second bad vote is the party vote against the bill to allow New Zealanders to vote on whether or not they wish to be be a republic.

I’m really pissed off that they made it a party vote. National has had an authoritarian streak to it recently, where they are whittling down the number of issues MPs traditionally are not whipped on. They even want to remove conscience voting on alcohol. There are MPs in National (and many party members) who support NZ becoming a Republic, and they should have been allowed to say so.

And what is even more galling, is that National voted this down at first reading. I’m not advocating that the bill (in its current form) should have been voted into law automatically. But if National had allowed it to go to select committee, it would have allowed the public of New Zealand to submit on how they think the decision on republic vs monarchy should be made. That would have been an invaluable exercise.

National has denied us all the right to have our say – both on youth minimum wage rates and on our head of state.

I don’t have a problem with a party voting down a bill at first reading when they are ideologically against it (ie do not expect National to support a bill that made unions compulsory) or it seeks to reverse Government policy. But with most other issues, they are worthy of sending through to a select committee, so the public can have their say on them.

My thanks to the Labour (excluding Jim Anderton), United Future  and Green parties that supported the Republic Referendum bill, and supported allowing the public a say.

Mimimum Wage

March 21st, 2010 at 3:24 pm by David Farrar

The Herald puts the minimum wage into context:

New Zealand’s minimum wage is still close to the highest it has been, as a proportion of the average wage, since the late 1970s.

It is also the second-highest of any developed country in relation to the median wage, although well below richer countries such as Australia in dollar terms.

So we have one of the highest minimum wages in the world, and people want to make it even higher.

You can’t make a country richer by just passing a law demanding people get paid more. The key to lifting wages is increased productivity – that is how we will close the gap with Australia.

Internationally, OECD minimum wages are quoted as a ratio of the median weekly income of fulltime employees – a lower figure than the average wage because the average is pulled up by high earners above the median, or mid-point.

On this basis, at last count in 2007, New Zealand’s minimum wage was 57 per cent of our median income – a higher ratio than in Australia (54 per cent) and ahead of all other OECD countries except France (63 per cent).

And an increase to $15 would put us even ahead of France, with a minimum wage at 67% of median fulltime income. Can one of the poorest countries in the OECD afford the highest relative minimum wage? Of course not.

And in another story:

The Warehouse human resources manager Paul Walsh says under-18-year-olds fluctuated between 30 and 33 per cent of his company’s 7500 staff in the four years up to June 2008, then plunged to 25.2 per cent in the year to last June and 24.1 per cent from July to this week.

“It’s dangerous to draw a conclusion that it’s purely the minimum wage rate that has affected that, but you would have to say it must have had some impact,” he says.

I predict youth unemployment will remain relatively high, even after adult unemployment starts dropping.

In any case, Pacheco argues that the minimum wage is an inefficient way of tackling poverty because many minimum-wage earners are actually teenagers or second earners in wealthy households.

She says 16.6 per cent of all those earning within 50c an hour of the minimum wage between 2006 and 2008 lived in the richest three-tenths of all households.

A point I have made. The focus should be on family or household income, not individual income.

Minimum Wage for Youth

March 19th, 2010 at 10:00 am by David Farrar

The Herald reports:

The Council of Trade Unions (CTU) has welcomed the Government’s decision not to support the reintroduction of youth rates.

So the CTU is happy.

Opposition leader Phil Goff welcomed the decision.

“It’s crazy to suggest that any young person doing the same job exactly as older people should be paid automatically at a lower rate. It didn’t add up,” he told reporters.

As is Phil Goff. This means it must be wrong!

Goff’s own statement shows a total misrepresentation of the situation. Having a lower minimum wage for teenagers is exactly that – a lower floor. How the hell you translate that into “should be paid automatically at a lower rate” I do not know. Once again, for the really stupid people, – this is about a floor – not a ceiling, not an automatic rate that you must apply to teenagers.

In today’s NBR 24/7 column I rip into the Govt’s decision:

It really brings into doubt the seriousness of the Government in terms of job creation, when it persists with a law that has clearly priced many teenagers off the job market. …

Most teenagers are not seeking full-time employment. What they desperately want is to gain some work experience, and to gain some extra money on top of whatever parental or student support they have.

By agreeing to vote down Sir Roger’s bill, the Government is saying we want young people to be unable to gain work, unless an employer thinks they are worth almost $13 an hour. …

Later this year, overall unemployment should start tracking down. If youth unemployment remains persistently high, the Government will have no one to blame but themselves.

There are 45,000 teenagers unemployed. This decision is a very bad one.

And the winners are

February 23rd, 2010 at 12:27 pm by David Farrar
  1. Employment Relations (Workers’ Secret Ballot for Strikes) Amendment Bill – Tau Henare
  2. Smart Meters (Consumer Choice) Bill – David Clendon
  3. Minimum Wage (Mitigation of Youth Unemployment) Amendment Bill – Sir Roger Douglas

Tau’s bill requires all votes on strike action to be secret ballots. In theory almost all unions do this anyway, but there has been some dispute on the West Coast recently about whether this does always happen, so it will be good to have it a legal, not a voluntary, requirement to prevent intimidation.

David Clendon’s bill is inherited from Jeanette and regulates the use of smart meters. Not sure of all the details, but it looks to be worth supporting at first reading anyway so a select committee can look into pros and cons.

Sir Roger’s bill will allow the Government to set a different level of minimum wage for younger workers. I welcome it as there is pretty clear evidence that the huge increase in youth unemployment is bext explained by the scrapping of the youth rate for the minimum wage. National will be nervous about being seen to be “cutting wages” but I hope they will support it to select committee, so arguments can be heard about the linkage.

Rather than cut the minimum wage for any current workers, what I would do if I was the Government is just use it to increase the youth minimum wage more slowly than the adult minimum wage.

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 unemployment is due to Labour’s decision in 2008 to abolish youth rates for the minimum wage.

Eric Crampton 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.