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.

Tags: minimum wage, United, youth rates

The Government has just announce that the annual adjustment to the minimum wage will see it go from $13.00 an hour to $13.50 an hour. This is a 3.8% increase, and works out to $1,000 a year for a FT person on the minimum wage.

Since 2009, it has gone up a cumulative 12.5% over three years.

Tags: minimum wage

John Pagani blogs:

When ministers sit around next year asking if they what policy they can tweak here and there to increase wages and reduce poverty, they should look at increasing the minimum wage and increasing union membership so that wages rise as the economy recovers.

There – fixed, and they didn’t need to spend a dollar in the stretched budget. In fact, people who earn more pay more tax, so it helps the budget.

Pagani has made the same mistake the Greens have made. They seem to think that money prints on trees.

If an increase in the minimum wage pushes wages up for those on the minimum wage by say $800 million, then yes at 12.5% tax that will be an extra $100 million of PAYE tax collected.

However those businesses will have their profits reduced by $400 million (as money does not grow on trees as the left always assumes) and at 28% company tax, that is $224 million less tax. Hence the Government has $124m less tax revenue overall. So rather than help the budget, it actually does the opposite.

Also ironic that Pagani thinks increasing union membership will help the budget. The only budget most of them help is the Labour Party’s. And at least one of them don’t even pay PAYE tax on behalf of their employees – preferring to spend it on political campaigns instead.

Tags: John Pagani, minimum wage, unions

I guess economic literacy is not high on Mana’s wishlist.  They say:

Immediately increase the minimum wage to $15 per hour (1 April 2012) and peg it at two-thirds of the average wage (1 April 2013).

I guess someone has to outbid Labour/Greens who think higher wages come from legislation rather than economic growth. But Mana’s policy is even more stupid than the norm. Think about their pegging it to two thirds of the average wage.

In June 2011, it was $24.78, so two thirds is $16.52. So Mana’s policy is it should be illegal for a 16 year old to be hired for less than $34,500 a year.

But their policy will lead to never-ending increases, as if you increase the minimum wage, then you automatically increase the average wage. So even if there was nil wage growth for everyone else, the minimum wage would be going up.

If their policy was to peg it to the median wage, then it would just be moderately stupid rather than idiotically stupid.

I don’t know why parties of the left bother with all this in between crap. Why don’t they just come out and announce a minimum wage of $25/hr?

Tags: Mana, minimum wage

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.

Tags: Industrial relations, minimum wage, National, youth rates

Danya Levy at Stuff reports:

Labour says its plans to overhaul employment laws will bring New Zealand in line with other developed countries and claims it is a return to 1970s-style industrial relations are scaremongering.

No scaremongering at all. But let us look at the claims it will bring NZ in line with other developed countries.

Take the 90 day probation period. We are almost the only country in the OECD that didn’t have one. Australia has 90 days, Canada 6 months, UK 12 months and Ireland 12 months. Germany is 6 months. The only OECD country without a legal probationary period is Denmark. So don’t believe the crap that this brings us in line with other countries.

Now take the plan to price more people out of the workforce by making it illegal for an employee to work for less than $15 an hour, even an unskilled 16 year old. Wikipedia has a list of minimum wages by country and what percentage they are of GDP/capita. This allows a comparison. Under Labour’s policy NZ would go from 62% to 72%. Here’s other OECD countries:

• Australia 52%
• Austria 37%
• Belgium 53%
• Canada 44%
• Denmark 66%
• France 53%
• Ireland 49%
• Netherlands 48%
• Switzerland 38%
• UK 66%
• US 33%

So again not bringing us in line with other OECD countries, but in fact increasing the gap between us and other OECD countries.

Tags: 90 days probation period, Industrial relations, Labour, minimum wage

Kate Chapman at Stuff reports:

Sosefina Masoe spends her nights in one of the most powerful offices in the country; from the top of the Beehive she can see the lights of the Wellington skyline and the moon reflecting on the harbour.

When the 49-year-old solo mum isn’t cleaning Prime Minister John Key’s office, she’s at home in her Porirua state house with her four teenage children and four grandchildren.

Masoe joined Parliament’s other cleaners in Labour’s caucus room today to push for a $15 an hour minimum wage and to remind politicians that poverty does exist in this country.

First of all good on Ms Masoe for being in work, despite having eight kids and grand kids to care for. That’s excellent.

And from my time at Parliament, my memory of the cleaners are they were very hard working and professional. I am sure Ms Masoe is the same. And she is quite entitled to her view that she should be paid $15/hour. Personally I think that it is better to achieve that through negotiation than increasing the minimum wage. You can not create a more prosperous country by simply passing a law demanding everyone gets paid more. If only it was that easy.

She earns the current minimum wage, $13.50, and says that’s about $453.34 in the hand a week.

By the time she pays $250 in rent, $90 for power and $70 for petrol to get to and from work, Masoe has about $43 left to pay for groceries.

That usually consists of budget canned spaghetti and baked beans, cheap bread, oats, noodles and margarine.

“This is what our low wages can afford. It’s budget food, it’s not healthy,” she told MPs and fellow Service and Food Union representatives this afternoon.

Parliament’s cleaners worked hard for the health of those in the complex, they were “the most important people in your life” and deserved more, Masoe said.

“The cost of everything is going up, we can’t afford to feed our families with $13.50 an hour any more.”

Except that the family doesn’t just get $13.50 an hour.

Whale does some maths:

Her take home is $453 per week. Her WFF Credits are worth at least $677 per week if the article claims of eight children (four teens) are correct.  That equates to a salary of about $70,000 per annum.

Whale is correct except I actually make it that she gets $712 of WFF, which makes her gross income equivalent around $77,000. Also on top of that the taxpayer subsidises a state house so that it is only 25% of income maximum.

So when Labour plant a story about how someone has only $43 a week to pay for groceries for their family, it would be nice if the media thought to ask about total household income, because to be frank it is dishonest to ignore the other $700 a week of income.

Tags: minimum wage, welfare

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.

Tags: minimum wage, youth rates

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.

Tags: minimum wage, Roger Kerr, youth rates

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.

Tags: John Key, minimum wage, youth rates

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.

Tags: John Key, minimum wage, youth rates

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%.

Tags: David Farrar on Politics, minimum wage, NZ Herald, youth rates

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.

Tags: Jim Anderton, minimum wage, youth rates

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%.

Tags: CIS, Eric Crampton, minimum wage, youth rates

Stuff reports:

Business NZ chief executive Phil O’Reilly said Labour’s policy was “the worst possible news” for young people on the dole.

“The very last thing you would want to do is make it harder to employ them. I just don’t understand where Phil Goff is coming from with this.

“He already knows the reason why there’s such high youth unemployment right now is we don’t have a youth minimum wage.”

Faced with such a steep rise in costs, businesses would probably lay off staff, Mr O’Reilly said.

Labour fundamentally do not seem to understand the difference between economic cycles.

If unemployment is low, and employers are struggling to find people to fill jobs, then yes one can increase the minimum wage with little impact on employment.

But when unemployment is relatively high, and many firms are still recovering from the recession, you can’t increase the minimum wage without a significant impact on employment.

They key thing is you need to get people into jobs first, and then once people are in jobs, then they are better placed to get wage increases.

A 15% increase in the minimum wage in one year would be the largest ever, and at a time when youth unemployment is at 27% or so. And they don’t see the correlation! How the hell will a 16 year old ever find a job if it is illegal for them to work for $14 an hour.

Tags: minimum wage

Neil Reid at Sunday News reports:

RAISING the minimum wage would boost the economy and Government’s piggy bank, plus keep Kiwis from moving across the Tasman.

That’s the message Green Party co-leader Metiria Turei has for Finance Minister Bill English ahead of Thursday’s 2011-12 Budget.

Turei wants the minimum wage lifted by $2 an hour from the current $13.

“Raising the minimum wage to $15 an hour would not only significantly improve their lives at a time when living costs are soaring, it would also generate up to $173 million per year for the Government at a time when the fiscal deficit is ballooning,” Turei told Sunday News.

The rise would immediately generate an extra $101m a year in increased PAYE taxes, she said. It would give 300,000 workers increased spending power, leading to a gain of about $72m annually from GST.

This argument is so economically illiterate, I don’t know where to start.

First of all if PAYE taxes  go up $101m a year, then the company tax will drop by more than that. Let’s say those 300,000 workers are around 150,000 full time equivalents. If their pay goes up from $13/hr to $15/hr, they will gain $4,160 each before tax, or $624m in total.

At 17.5%, this will lead to an increased PAYE tax take of $109m – close to the $101m quoted.

But the employers will have had their profits drop by $624m, and they pay 30% tax on that. So that is $187m less tax paid in company tax.

So Turei’s argument is just nonsense. She has deliberately ignored the impact on company tax.

Beyond the direct fiscal costs, there are also flow on effects such as job losses. Youth unemployment would continue to skyrocket if you made it illegal to hire a 16 year old for less than $15 an hour.

Tags: Metiria Turei, minimum wage

James Weir reporrts in the Dom Post:

Unions said there was a risk of a “jobless recovery”. Farmers enjoying high commodity prices may simply pay back debt, while consumers held off spending and firms avoided hiring, the National Distribution Union said. “Many jobs lost in the recession will not be replaced,” its general secretary, Robert Reid, said.

He called for a lift in the minimum wage to $15 an hour …

Oh yes putting the minimum wage up to $15 an hour will create jobs.

Why stop there. Let’s solve unemployment and put the minimum wage up to $30 an hour.

Tags: minimum wage, Robert Reid, unemployment

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.

Tags: Jacinda Ardern, minimum wage, youth rates

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.

Tags: minimum wage, National, private members bills, Republicanism, youth rates

Matt McCarten writes in the HoS:

One hundred thousand workers on the legal minimum wage of $12.50 an hour get 25 cents added to their hourly wage this week. Thousands of others between the minimum and $12.75 an hour will get a top-up.

Given that we have a recession, many people may think those workers should be grateful to John Key for giving them anything. As Key said, at least the 25 cents would cover inflation, making them no worse off, and a group of low-paid workers told me this week that “it’s better than nothing”.

But as with many stories about workers and their relationship with the employment system, all is not as it seems. The fact is that, from today, low-paid workers will be worse off than they were this time last year even after the supposed largesse from our Prime Minister, because their Accident Compensation levies go up this week, too.

The Government hopes workers won’t notice, but those on the minimum wage will have an extra 3.75 cents an hour automatically deducted from this week’s pay packet.

It’s a tax increase, although National pretends it’s not. What is galling is that the levy increase is being imposed to ensure ACC can show a big profit and then be flicked off as a cash cow to some multinational after the next election.

Matt is right that ACC premiums are going up, from 1.7% to 2.0%.

However what he overlooks is that National’s pruning of ACC has prevented the premiums from going up even further. The massive unfunded liabilities left by Labour would have pushed the employee ACC levies up to over 3.0% of income.

Matt was one of those protesting the pruning of ACC’s costs, so for him to them protest about the levy increase is rather hypocritical.

This is not Disneyland, where you can have the costs of ACC increase, but not have levies increase.

And frankly the idea that anyone would buy ACC is as nonsensical as the notion that anyone would buy Kiwirail.

Tags: ACC, Matt McCarten, minimum wage

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.

Tags: minimum wage, youth rates

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.

Tags: CTU, Dispatch from St Johnnysburg, minimum wage, National, NBR, Phil Goff, Roger Douglas, youth rates

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.

Tags: David Clendon, industrial disputes, minimum wage, private members bills, Roger Douglas, Tau Henare, unemployment, unions, youth rates

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.

Tags: Eric Crampton, minimum wage, unemployment, youth rates

The ODT editorial:

The cry from unions and the Opposition parties, without the responsibility of Government, has been to raise the minimum to $15 an hour.

But why $15? Why not $20 or more?

Obviously, much, much higher minimum wages are totally unrealistic and would wreck the economy.

The same principles apply to $15 even if the impact is not as severe.

And what is depressing is the economic illiteracy where the left have convinced themselves that one can close the wage gap with Australia by legislating for higher wages. That’s like thinking one can legislate the Easter Bunny.

The way to raise wages, is through increased productivity. And the best way to earn more than $12.75 an our is to gain skills and experience. Very very few people spend their life earning the minimum wage.

Struggling businesses, and many are still on the brink, would have to employ fewer people, more firms would go bankrupt, costs for goods and services would rise (including for beneficiaries and the poor) and, in the long run, the most vulnerable groups and those without jobs would be the worst affected.

With the abolition of the youth minimum wage, they would be most affected, as $15 an hour would price many of them off the market and deny them the opportunity to gain work experience.

About 100,000 people are directly affected by the minimum wage increase, and relativities flow from these.

Margins for responsibility, seniority and skills will be squeezed, hence one reason for the vociferousness of various unions.

They will, naturally, look for increases to preserve margins.

A move to $15 would have significant flow on effects, and would be inflationary. This means interest rates go up, and again fewer people in employment and lower economic growth.

From an economic point of view, the minimum wage has risen more than enough over the past decade, with detrimental impacts so far cushioned by growth and relatively low unemployment.

The Government, in the current climate, has taken a cautious, sensible and pragmatic approach by withstanding pressure to hike the rate, while tweaking it in line with inflation.

And again the minimum wage is a minimum. Workers should not rely on increases in the minimum wage to increases their wages. They should gain experience, upskill etc so they do not remain in a minimum wage job all their lives. Most workers on the minimum wage do not stay there, I understand.

Tags: minimum wage, ODT