It’s official: Abolishing youth rates did not increase youth unemployment

The Department of Labour has a new report out (PDF) on the impact of the Green Party initiated abolition of youth rates for the minimum wage.

The key findings of economists Dean Hyslop and Steven Stillman, who were commissioned to prepare the report, are:

The study finds some evidence that the proportion of 16 and 17 year olds unemployed increased in 2009 by 1.4–2.6 percentage points because of the minimum wage increase, but the negative impact on unemployment was not evident a year later in 2010.

The NE minimum wage appears to have encouraged more 16 and 17 year olds to stay at school or continue their education (this effect is in addition to an increase in studying due to the economic downturn). This may explain why the impact on unemployment had disappeared by 2010 and why the minimum wage increase was associated with lowering inactivity among 16 and 17 year olds.

Despite the scaremongering from right wingers such as Don Brash and David Farrar, the research shows there was no causal relationship between the disturbing increase in youth unemployment and the abolition of youth rates for the minimum wage.

Even more encouraging is that the report finds the abolition of youth rates for the minimum wage was associated with less inactivity among 16 and 17 year olds.  The small decrease in availability of low wage jobs for young people encouraged them to continue their studies instead.  Surely, that is the best outcome we could have.

The massive increase in youth unemployment over the last two years has other causes, most notably the failure of John Key’s government to do anything to stimulate the economy to create jobs.

The Green Party will be releasing a job creation package on Wednesday – addressing an issue where National has dismally failed.

20 Comments Posted

  1. @Lats No offence taken. At least you didn’t call me Daryl 😉

    I know I’m commenting well after the fact, particularly since the youth rates have just been brought back but…

    “Clearly if an employer has a position available, and has 2 candidates, one a middle-aged applicant with a relevant work history and the other a new entrant into the workforce, he/she will choose the older worker if both attract similar wages.”

    SPC covered this. They will choose the older, more experienced worker anyway for a whole range of reasons. When only young people are available, they will take advantage of the youth rates, but unless you can present me with researched figures that show otherwise, I see no reason to think it will cause them to choose an under 18 worker over an older one.

    “I don’t know the numbers, but I’d be willing to bet that older more experienced workers are less likely to be applying for jobs paying the minimum wage, even in times of higher unemployment.”

    Actually, this is exactly the same they would consider applying for minimum-wage jobs – the time when that’s most of the jobs available, and they have bills to pay.

    “When I first started work youth rates applied to me, and unlike some here I didn’t grumble that slightly older workers were getting paid a bit more to do much the same work, I was just happy to have a job.”

    Bosses must love you 🙂 How far does this go? What if they didn’t pay you at all? Would you still be “just happy to have a job”? Reductio ad absurdum I know, my point is the fact some people feel ok about being exploited doesn’t mean it’s not exploitation.

    @SPC
    ” we don’t want the young leaving school to do unskilled work. They eventually either become regularly unemployed or remain on low wages.”

    Well gosh. We don’t want people remaining on low wages. Wait, that’s most wages, in most jobs in the country. Hmm…

  2. It’s a myth because the young person unable to find unskilled work without the advantage of a youth rate (that is only temporary) is forced to continue education/and or train and thus will have lower unemployment the rest of their life. Any temporary bump in unemployment rate is misleading – the more so if coinciding with a recession.

  3. This is at one level a non issue – we don’t want the young leaving school to do unskilled work. They eventually either become regularly unemployed or remain on low wages.

    This is why we have stopped dole payments to those under 18 and seek to broaden school programmes to provide for time for on the job experience for those who seek vocational training.

    So those seeking a return to youth rates have lost the plot. However, the real issue is of course the minimum wage rate in general, and here citing “consequential” higher unemployment with the end of youth rates as an argument against real increases in the minimum wage. The consequence is a myth – young workers are inherently the ones leaving school or tertiary training and so are the ones looking for work when no one is hiring in each recession.

    In the labour market the employer is seeking either trained staff or staff for whom training is a viable alternative – those able to exist on a training wage (say half the minimum wage – at $15 an hour/$7.50 that would be $300 a week). Young make up much of the latter group and if this system was in place many would prefer it to loan debt, the student allowance and no guarantee of a job. We would save on education cost (reduced demand for tertiary places, reduced tertiary debt cost) and sustain a higher general minimum wage at the same time.

  4. The point not considered by anyone on this blog is that by comparing a minimum wage earning school leaver to somebody in the workplace who is senior in both age and EXPERIENCE belittles the higher earners efforts. Why try when minimum wage will get you there in the end.

  5. @Daniel Strype – isn’t this then an argument for reinstating a youth minimum wage? Clearly if an employer has a position available, and has 2 candidates, one a middle-aged applicant with a relevant work history and the other a new entrant into the workforce, he/she will choose the older worker if both attract similar wages. If we actually care about youth unemployment, then a lower minimum wage provides an incentive for employers to take a punt on a less experienced (read younger) applicant. But all this accomplishes is to create more unemployed older workers instead; the real solution is to have an economic environment that creates jobs. The assumption by Gareth etc. is that youth rates have no effect on the number of positions available, which I don’t think is going to be entirely true. Subsidised apprentice schemes create opportunities for youth who would otherwise be unemployed, and this suggests to me that if employers can pay younger workers lower wages then they will create jobs which would otherwise not have existed.

    I also don’t entirely buy that middle-aged workers are gobbling up positions that would previously have gone to young workers, especially if we are assuming that these are minimum wage positions. I don’t know the numbers, but I’d be willing to bet that older more experienced workers are less likely to be applying for jobs paying the minimum wage, even in times of higher unemployment.

    When I first started work youth rates applied to me, and unlike some here I didn’t grumble that slightly older workers were getting paid a bit more to do much the same work, I was just happy to have a job.

  6. “Wouldn’t you expect this to affect all sectors of the population equally?”

    Not necessarily. Middle-aged workers flowing into the pool of unemployed are are taking up jobs which would otherwise go to younger ones in a situation where overall unemployment was static or dropping.

  7. Given we do not pay the dole to those under 18, the number of unemployed in that age group is less and less relevant when the policy goal is to improve education and provide on the job training.

    Personally I favour a training wage at half the dole rate (at whatever age) to decrease burden on education capacity and training providers and rebuild on the job training. It’s far better to have a job and get $300 a week in pay and get training than be on under $200 on the student allowance and have a debt and no guarantee of a job.

  8. Toad: again, the report shows NOTHING of the sort. They NEVER look at the unemployment rate.

    The unemployment rate – the big headline thing you see reported all the time – is the number of unemployed people divided by the labour force. The labour force is everybody who is in work or who is looking for work – the employed and the unemployed.

    The percentage unemployed is the number of unemployed divided by the cohort population.

    The report’s figures are consistent with a four percentage point increase in the unemployment RATE when 20-21 year olds are used as a comparison cohort. But I worry a bit about that cohort as baseline for comparison as a larger proportion of that age group are on the minimum wage and would have seen worsened employment outcomes with the recession. In the stuff I’ve been playing with, using older folks as comparison cohort yields a bigger unemployment gap – that cohort has a smaller fraction of people who are on the minimum wage and for whom the minimum wage would have proved binding.

    The latter stuff you could dismiss for that Crampton could be wrong. But it is strictly incorrect to conclude from the Hyslop and Stillman study that there was no effect on the unemployment rate as they do not check that figure. You can say that there was no large effect on the number of persons unemployed. But if the number unemployed goes up (a bit) and the number employed goes down (a lot), and the sum of the two is the denominator, and the number unemployed is the numerator (that’s the unemployment rate), it would be more than a bit quick (and more than a little wrong) to conclude no effect on the unemployment rate.

  9. @photonz1 2:27 PM

    But NO increase in unemployment for 16 and 17 year olds.

    You and Gareth are both right about what the report says.

    But the argument being put up by Farrar (and you on other threads here I recall) has been that the blowout in the youth unemployment rates has been caused by the increase in the minimum wage for 16 and 17 year olds. The report shows that is simply not true.

  10. That’s a lot of spinning Gareth – watch out, you’ll get dizzy and fall over.

    The report actually says the abolition of youth rates (quote) “led to a loss of 4,500-9,000 jobs for 16 and 17 year olds”

  11. I think your post is misleading. The minimum wage increase decreased the number of 16-17 year olds working and increased the number studying which resulted in a small increase in youth unemployment in 2009 but no effect in 2010.

    This may be a good thing on balance (I think it is). But what this shows is that the increase in minimum wage decreased the number of jobs available for 16-17 year olds, which you’ve ignored. It’s harder for youth to find employment. It’s good that people are getting more education but we need to be aware that raising the minimum wage affects employment opportunities. We’re lucky that people have managed to move to education, but next time we increase the minimum wage, they may not move to education. We should have a close look at this complex outcome and see what we can do to ensure that youth who can’t find jobs can get into education. We shouldn’t just say “the unemployment rate is the same. The End” and try score some political points.

  12. When I first left school (many moons ago) there was youth rates & I was annoyed that people a couple of years older were doing the same work, but getting more money.
    My concern is that, if N-Act start getting serious about reintroducing youth rates, they may find young people dont think its worthwhile to actually go to work, if they are going to get a pay cut, just because they are considered ‘youth. The dole maybe a more attractive option !!

    More political spin, to keep employers on-side in november ?
    Kia-ora

  13. The massive increase in youth unemployment over the last two years has other causes, most notably the failure of John Key’s government to do anything to stimulate the economy to create jobs.

    Wouldn’t you expect this to affect all sectors of the population equally? If a turgid economy leading to poor job creation is truly the reason why are we seeing the divergence in unemployment rates between youth and the rest of the population?

  14. The study confirms that abolishing the youth minimum wage is successfully encouraging people to further their education – thus is consistent with a policy of not paying the dole to those under 18 and eventually having a policy of having people under 20 in work, training or education.

  15. Do note that Hyslop and Stillman never say that it had no effect on the unemployment rate – rather, they say no effect on the percent unemployed. The two are different measures suitable for different questions. The former takes as denominator the cohort labour force; the latter, the cohort population. The two measures generate somewhat divergent results.

  16. sheesh frog..get a grip..eh..?

    i was referring to toad using the word ‘sloppy’..

    sorry..was that a bit obscure/tangental for you..?

    ..i’ll try to telegraph more in future..

    and on the subject of keith..(seeing as you raised it..)

    ..any idea why he feels he dosen’t have to justify/explain green party policies..?

    ..embarrassment..or arrogance..?

    phil(whoar.co.nz)

  17. @Chris J.T. Auld via Facebook:

    You are confusing two statistics. Youth unemployment rates did not rise consequent on the implementation of the policy, because young people were encouraged by the policy into study rather than seeking low paid work.

    Youth employment rates fell. But the young people potentially affected by that responded postively – by seeking further education, rather than going on the dole.

    All good, from where I am sitting, apart from the government’s failure to create jobs for young or older New Zealanders.

  18. now..i’m not one to shy from strong/challenging language..(hello/yoo-hoo..!…keith..!..)

    ..but isn’t consistancy taking that step too far…?

    phil(whoar.co.nz)

    [frog: What has that got to do with this post? If you want to challenge Keith, at least do it on one of his, not on Gareth’s.]

  19. Farrar is still trying to push a sloppy turd uphill with a pointed stick.

    Despite the evidence that abolishing the youth rate of the minimum wage has caused no increase in youth unemployment, he’s still spinning it at 12,000 RPM.

    The evidence is that increasing the youth minimum wage to the adult rate has caused no increase in youth unemployment, and has incentivised young people to continue their studies rather than take a low paid job.

    Surely, that has to be all good.

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