ACT calls for youth minimum wage

John Banks

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."


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11 Comments & Questions

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Ever thought of having no minimum wage. Give all those youth a start at whatever level. Build work habits and experience. Build personal capital. Meet new contacts because you are in the system.
Sure it will be exploited but the gains would far outweigh current reasoning.

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here we go again. An idiot voted in through manipulation, now steals some research to claim that youth rates are required - he shows his idiocy by not apparently reading any of the research. It is a real shame that ACT has degenerated into a gimmicky political side show. Shame about all those 'consumers' and taxpayers" that ACT was supposed to represent.

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The shame is on the legislation that condemns thousands of youth to sit at home watching Mum and Dads TV.

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Agreed - this is a bigger issue than simply saying "no minimum wage".
Cant help thinking on my frequent trips to China and dealing with multi millionaires who have made their wealth using economic slaves and tax fraud that there are many, not some, who will abuse others any opportunity.

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the shame is on the schooling process and lack of educational integrity (a al NCEA for example) - but, the solution is not half-baked ill thought out 'market incentives or performance pay for teachers' but proper administration and standards of teaching and behaviours enforced. Given the political rhetoric (i.e. ACT's previous forays such as vouchers, charter schools) it is certain that the current situation will prevail. As a previous paid up ACT member I had hoped that its MPs would have had the intellect and statemanship to promote logical and nuanced policy rather than the simplistic, greed-fuelled proposals that have been the ACT standard for many years now.

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John Banks didn't steal my research; he quoted from a blog post where I'd run some numbers. I'm always happy for folks to quote from my blog posts. And, if I had to bet, I'd be putting a lot of money at odds that the youth minimum wage changes actually did cause the change in youth unemployment outcomes. The data just isn't up to the task of saying conclusively that it's causal.

I also favour the return of the youth minimum wage. But I'm less optimistic that it will have big or quick effects. It's easier to kill jobs by forcing wages up than it is to allow their creation via lower minimum wages - any kind of sticky wage story gets you that kind of asymmetric outcome.

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Well posted Mr Crampton.

How many of us, when youths, gained valuable experience and skill by working for no money pay, but paid instead in experience and knowledge gained.
It is a shame that today such initiative is illegal.

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Thanks Eric. I suggest a look at Singapore's experience to fully appreciate if the level of wages makes a difference to empoyment levels. It is whether the rise in wages is "forced" or value based. It is interesting that in NZ, we favour using the market to set the wages for CEs (and MPs) but suddenly want state control of lower end staff.

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"....that in NZ, we favour using the market to set the wages for CEs (and MPs) ......"

You are joking, aren't you?

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Like Banksey his data is out of date and irrelevant in relation to the economy has changed. the 90 Day Hire & Fire law change has proved that hasn't helped increase youth employment at all. Re-introducing the youth rate too has being proven that it does not increase the up take of youth employment.(Treasury provided the evidence). The current job market too doesn't support the dinosaurs thinking. Anyway Banksey should be focusing on what happens next with the courts & his involvement with the Hujlich Fund!

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Jasper, Treasury never said any such thing. Treasury did say that the change in youth rates seemed to have had no effect on youth unemployment through the mid 2000s - recall that 18 & 19 year olds came under the adult rate more than a decade ago now. And so they said we shouldn't be too quick to assume that the more recent change in youth rates caused the more recent change in youth unemployment outcomes. That's it.

Patrick Gower very badly misrepresented Treasury on this; an awful lot of people were really badly mislead by his reporting. It's particularly unfortunate that he has never chosen to issue a correction.

<url>http://offsettingbehaviour.blogspot.co.nz/2011/11/treasury-on-minimum-wa...

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