Youth wages are unfair
Not surprisingly, Treasury is urging the Government to back away from its pledge to drop the discriminatory provision which allows employers to pay 16 to 19-year-olds at 80 per cent of the adult minimum wage under certain conditions.
A teenager in his or her first six months of continuous employment can be more than $3 an hour cheaper for employers to hire.
Youth rates have been around for decades in various guises and with varying conditions. The justification is they give employers an incentive to hire young workers, particularly if they need to learn on the job. This supposedly gives people starting out in the workforce and those with low skill levels a chance to get on the bottom rung of the employment ladder.
Treasury advises the lower wage rate is currently not used widely by employers, so the consequences of keeping it are low. That may be so, but it is a fair bet many of the teenagers working in supermarkets and fast-food outlets are being paid less than their older workmates. A counter-argument may be that the consequences of abolishing youth rates will be partially borne by large, sometimes multi-national, companies which can readily absorb the costs.
Treasury warns, more pertinently, that in a downturn, the youth rate provides a ‘‘safety valve’’ for employers – a way to cut costs by taking on cheaper workers when trading conditions are tight. Treasury warns young people will miss out at such times if the lower rate is abolished. As jobs become scarcer, they will be squeezed out if employers can hire a more experienced older worker at the same hourly rate.
There is some evidence this is true. Economist Eric Crampton, in a 2012 article, demonstrated that following the global recession of 2008, youth unemployment rates rose as high as 27 per cent, while the adult unemployment rate never exceeded 5.4 per cent. The reason, he wrote, was an earlier Labour government’s decision to do away with youth wage rates.
However, economic conditions are cyclical. Downturns are generally short-lived. Treasury seems to be asking successive cohorts of young people to carry the burden of significantly lower wages permanently to insure against future temporary downturns.
Economists also tell us people will act in their best interests if they have incentives to do so. We could start by encouraging young people into work by paying them a proper wage.