Youth Rates Don't Cause Unemployment

By Mike Treen, National Director, Unite Union

Roger Douglas has had his bill to reintroduce youth rates drawn for discussion in Parliament. National voted against the effective abolition of youth rates when in opposition. Both claim the abolition of youth rates has lead to higher unemployment for young people. The assertions are not based on fact.

For decades the right wing economists have argued that any increase in the minimum wage will lead to an increase in unemployment. The ACT party is actually opposed to any minimum wage. They use economic models that don’t exist in the real world to justify their claims.

Instead of using a model for an economy that does not exist, we can use the actual changes that have occurred in New Zealand over the last decade.

What is the evidence. When Labour was elected in 1999 the minimum wage for someone under 20 years of age was $4.20 an hour. The adult rate was $7.00. The previous National government had also believed higher minimum wages were bad for business (or at least their business mates) so had only increased it by 87 cents an hour during their 9 years in power.

During the Labour Government’s term the adult minimum wage went from $7 an hour to $12 – an increase of 71%. The youth minimum wage went from $4.20 an hour for everyone from 16-19 years old in 1998 to $9.50 in March 2005 for 18 & 19 year olds and $7.60 for 16 and 17 year olds - an increase of 126% and 81% respectively. The youth rate for 16 and 17 year olds was largely abolished in 2008.

Youth unemployment during that time kept falling to 11.8% by December 2005 - a level not seen since 1987. When Labour lost the election the youth unemployment rate of 17.9% was still below the level when they were elected 9 years before.

A Treasury working paper in 2004 found that a 69 per cent increase in the minimum wage for 18 and 19-year-olds in 2001 and a 41 per cent increase in the minimum wage for 16 and 17-year-olds over a two year period had no adverse effects on youth employment or hours worked. In fact, hours of work increased for 16 and 17-year-olds relative to other age groups.

The Labour Department report to the government on the minimum wage conceded that “Research from overseas suggests that increases in the minimum wage may have a small negative impact on profitability, but find no evidence of in increasing the probability of firm closure.”

Youth unemployment has increased since then along with the general levels of unemployment which are a consequence of an international recession that is a product of corporate greed not workers needs. The current youth unemployment rate of around 25% is a terrible blight on our community – but the same level was reached in the recession of the early 1990s when youth rates existed and the minimum wage for adults was much lower in real terms.

The improvements in the minimum wage under Labour only brought the adult rate back to where it had been in real terms before the major decline under the 1990-99 National Government – about 50% of the average wage.

But the union movement is aiming to raise the minimum to two-thirds of the average wage and Unite Union is supporting an increase to $15 an hour immediately as a step to that goal. This was the level that existed in the 1950s and 60s and as late as 1973 under the Kirk Labour government. This was also the time period when New Zealand had virtually zero unemployment.

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