Treasury warnings about minimum wage, youth rates

It isn’t surprising to see a warning from Treasury about possible adverse effects of pushing up the minimum wage too much, and of abolishing youth rates.

Stuff: Labour warned if economy turns, minimum wage plans will hit the young and unskilled

Treasury is urging the Government to ditch its plan to abolish the youth rate, warning that minimum wage pledges will hit the prospects of younger, unskilled workers if the economy cools.

Advice from Treasury officials released under the Official Information Act shows Treasury expressing concerns that a commitment to a substantial increase in the minimum could harming the prospects of the very people the rate was meant to protect.

While Treasury explicitly said it supported hiking the minimum wage by 75 cents an hour to $16.50 in April, as the economy and labour market would see little impact, officials warned the three-year plan to get the minimum wage to $20 could have a series of unintended consequences.

These ranged from hurting the local economy in already slow growth regions, the risk that once New Zealand’s minimum wage was on a par with Australia’s, fewer young, low-skilled worker would cross the Tasman for work and that higher minimum wages “has been shown” to attract young people to leave education to enter the workforce.

But the advice provided a key policy challenge for the Labour-led Government, warning that should the economy turn, a world-leading minimum wage would harm young people, so the youth rate, also known as the starting-out rate, should be maintained.

I would replace “should the economy turn” with an inevitable “when the economy turns”.

Treasury said that in economic downturns, employers tended to keep existing workers on without cutting wages, but cut costs by not hiring and employing new staff on lower pay rates.

“This concentrates the minimum wage impact on the groups entering the labour force, like young workers, and those with low skills. The higher proportion of young people on the minimum wage in New Zealand will exacerbate this effect and magnify its impact on youth unemployment.”

“Young workers with low skills are particularly hard hit, and this could impact on those ethnic groups with many young people with low qualifications like Maori and Pacific,” Treasury warned, noting that even during the current buoyant job market, unemployment for young people generally, and especially young Maori and Pacific people, was far higher than for the general population.

There is a problem when unskilled workers remain on low wages.

But many people get onto the employment ladder at minimum wages and youth rates and work their way up.

If those low wage starting opportunities are scrapped it can make it harder for young people and unskilled people to get a start.

Set at 80 per cent of the minimum wage, the youth rate can be paid to workers aged 16-19 in certain conditions including when they first enter the workforce, are coming off a benefit or are in industry training.

Treasury urged the Government to consider maintaining the system, saying it provided “a safety valve in weak economic conditions”.

“We are aware that the starting-out rate is currently not widely used by employers (so currently the consequences on young people of keeping it are low) but it provides a safety-valve of enabling increasing use in an economic downturn.”

Has the Government listened to these warnings?

While Labour has consistently promised that within 12 months of being elected that it would abolish the youth rate, on Saturday Workplace Relations Minister Iain Lees-Galloway was non-committal.

“It’s something that we will include in our policy development and we will work with our Government partners on.”

Or is this another case of walking a different walk to their campaign talk?

 

Moving to Australian minimum wages

National have announced a ‘Starting Out” minimum wage…

…for eligible 16- to 19-year-olds to be paid no less than 80 per cent of the minimum wage.

The current minimum wage is $13.50 so this makes the Starting out minimum $10.80 per hour.

David Shearer says this will fuel an exodus to Australia

… “it’s not going to create jobs by driving down wages”.

“We need an economy that provides decent, secure jobs and good incomes and where young people have hope and opportunity, not the low-wage vision promoted by National.”

“These people are going to leave and go to Australia.”

What will they get if the get a minimum wage job in Australia?

National Minimum Wage (Australia)

For junior employees, the minimum rates are:

  • Under 16 years of age  $5.87
  • At 16 years of age   $7.55
  • At 17 years of age   $9.22
  • At 18 years of age   $10.90
  • At 19 years of age   $13.17
  • At 20 years of age   $15.59

For apprentices, the rates are:

  • Year 1 of apprenticeship $10.22
  • Year 2 of apprenticeship $12.08
  • Year 3 of apprenticeship $14.87
  • Year 4 of apprenticeship $17.65

These will be effective for 12 months – until they step up to the next age bracket.

Australia’s minimum wage is $15.96 per hour or $606.40 per week.