Question 4: What about the argument that a rise in the minimum wage affects the chances of young and inexperienced workers getting into employment?

30 May

Again the actual experience of the last few decades offers no evidence to support the view that the increase in the youth minimum wage (which was a significantly greater increase than the adult minimum rise) had an adverse effect on youth employment

During the Labour Government’s term the adult minimum wage went from $7 an hour to $12 – an increase of 71%. The youth minimum wage went from $4.20 an hour for everyone from 16-19 years old in 1998 to $9.50 in March 2005 for 18 & 19 year olds and $7.60 for 16 and 17 year olds – an increase of 126% and 81% respectively. The youth rate for 16 and 17 year olds was largely abolished in 2008.

Youth unemployment during that time kept falling until it reached a low of 11.8% in December 2005 – a level not seen since 1987. When Labour lost the election the youth unemployment rate of 17.9% was still below the level when they were elected 9 years before.

A Treasury working paper in 2004 found that a 69 per cent increase in the minimum wage for 18 and 19-year-olds in 2001 and a 41 per cent increase in the minimum wage for 16 and 17-year-olds over a two year period had no adverse effects on youth employment or hours worked. In fact, hours of work increased for 16 and 17-year-olds relative to other age groups. “We find no robust evidence of adverse effects on youth employment or hours worked. In fact, we find stronger evidence of positive employment responses to the changes for both groups of teenagers, and that 16-17 year-olds increased their hours worked by 10-15 percent following the minimum wage changes.”

The Labour Department report to the government on the minimum wage also conceded that “Research from overseas suggests that increases in the minimum wage may have a small negative impact on profitability, but find no evidence of it increasing the probability of firm closure.”

Youth unemployment has increased significantly over the past year along with the general levels of unemployment. This is a consequence of an international recession that is a product of corporate greed not excessive workers needs. The current youth unemployment rate of around 25% is a terrible blight on our community – but the same level was reached in the recession of the early 1990s when youth rates existed and the minimum wage for adults was much lower in real terms.

The recession from 1987-93 was not as deep as the current one in terms of immediate GDP decline – but it dragged on for years. In this recession employers have frozen new hiring and cut hours for existing staff but hung on to older and more experienced labour in the hope there will be a quick recovery

A blog by Marty G on “The Standard” explained that there has been a longer term trend for youth unemployment to increase as a percentage of the total because of changes to the age structure of the workforce. He writes:

“15-19 unemployment is always higher than that of other age groups. Yes it has risen more than the unemployment of other age groups but it has risen in proportion with the unemployment of other age groups. If the increase was due to the abolishment of the youth minimum wage then we would expect the increase in 15-19 unemployment to be disproportionate. It hasn’t been disproportionate, in has been in proportion. Just like Maori unemployment has risen higher but in proportion with unemployment in other ethnic groups. If the Right genuinely think that abolishing youth rates increased15-19 unemployment to be consistent they have to claim it also increased Maori unemployment, or find another explanation specific to Maori, or propose a lower minimum wage for Maori, and I don’t see them doing any of that.

“Look, I go swimming with a mate sometimes. He’s a bit faster than me. He’s done 10 laps by the time I’ve done 8. If we were to do more and he reaches 20 when I’m still at 16 would we say ‘Jesus, what happened? How did you beat me by 4 laps when usually you beat me by 2? Did you have some extra weetbix for brekkie?’ No. The gap is proportionally the same, it’s just we’ve gone further. Likewise, the unemployment rate for the 15-19 year age group(only 2 years of which was covered by the youth minimum wage, remember) hasn’t risen out of proportion to the unemployment rate of other age groups, the gap is bigger because total unemployment is higher [See Graph 4]:

Graph 4

“There was long-term trend through the 2000s of the ratio of 15-19 unemployment to general unemployment rising (because unemployment between older people was falling more sharply) but there is no change associated with the abolishment of the youth minimum wage on April 1 2008. If the youth minimum wage was causing youth unemployment, the ratios should have jumped. The relationships between 15-19 unemployment and unemployment in other age groups have remained basically the same. They have all risen due to the recession, and they have risen in proportion to each other. No other explanation needs to be made up…. unless of course your real agenda is to undermine the wages of working New Zealanders.”

(Part of a series of extracts from “Exposing Right Wing Lies” by Mike Treen, Unite National Director)


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