ACT calls for youth minimum wage

The abolition of youth rates (lower minimum pay for younger workers) was an example of the law of unintended consequences, says Banks. A Canterbury economist roped into ACT's initiative is ambivalent on the youth question, but says a minimum wage always has "bad outcomes."

ACT Leader John Banks has called for the introduction of a youth minimum wage.

“Labour’s abolition of youth rates [a lower miniumum wage for younger workers] has seen youth unemployment skyrocket - an inevitable result of competition between young people and older, more experienced workers for the same rate of pay. Experience wins every time," Mr Banks says.

 “The abolition of youth rates has been a disaster - first pushing youth out of work, and now affecting their sense of self-worth It is time we dropped this senseless Labour policy and reintroduced a youth minimum wage."  

Unintended consequences
The law of unintended consequences has been at work, the ACT leaders says, with the abolition of youth rates making youth unemployment worse.

He claims research by University of Canterbury economist Eric Crampton backs his finding.

Last night, Mr Crampton (who was unaware Mr Banks had appropriated his research) was more ambivalent on the question of youth employment, but said data indicated a minimum wage always had "bad outcomes" for the people it was supposed to support.

 "The recession that began in 2008 hit youths much harder than did prior recessions that had had far worse effects on adults," the economist told NBR.

"For example, in 1992, when adult unemployment rates were just over 10%, the unemployment rate for 16 and 17 year olds reached 25% - the highest it reached until the second quarter of 2009; from that quarter until the second quarter of 2011, the last for which I have detailed age breakdowns, the unemployment rate for youths did not fall below 26.75%."

Mr Crampton added, " For every one of those quarters has had youth unemployment outcomes worse than the worst experienced from 1986 to 2008.

"Meanwhile, adult unemployment rates didn't exceed 6.5%. This more finely detailed data, which I received subsequent to the estimates John Banks is citing, suggests about 7 to 8 percentage points of youth unemployment seems highly anomalous relative to prior recessions," Mr Crampton said.

"Whether that's due to Labour's changes to the youth minimum wage or to something else that had the same timing as that legislative change and that disproportionately affected youth unemployment outcomes, we can't really conclude from the data."

However, Mr Crampton was sure of one thing:

"If it had such effect, it would be consistent with the data and consistent with our standing theory - that high minimum wages have bad outcomes for the least skilled."

11 comments
Login in or Register to view & post comments