Thursday, 22 April 2010

Worse than I'd thought

Why did I have to go and read the NBR's piece on National voting down Sir Roger's bill:
National MP David Bennett said the government saw a bright future for young people and wanted them to get the best skills possible through education and training rather than take up low-paid jobs.

"This bill says you need to pay people less to get them into their first jobs and into an unskilled future," he said. [emphasis added]
Am I crazy in reading this as saying National sees high youth unemployment not as a cost but as a benefit? That they want unemployed kids so that the opportunity costs of schooling are lower?

Recall that minimum wages were set up in the first place with the deliberate intention of making certain people "unemployable": the Progressives didn't want Chinese labour "underliving" whites and competing wages downwards; they also wanted to keep women out of the workforce where they may have been subject to temptations. Writes Tim Leonard:
American economics came of age during the Progressive Era, a time when biological approaches to economic reform were at their high-water mark. Reform-minded economists argued that the labor force should be rid of unfit workers—whom they labeled “unemployables,” “parasites,” and the “industrial residuum”—so as to uplift superior, deserving workers. Women were also frequently classified as unemployable. Leading progressives, including women at the forefront of labor reform, justified exclusionary labor legislation for women on grounds that it would (1) protect the biologically weaker sex from the hazards of market work; (2) protect working women from the temptation of prostitution; (3) protect male heads of household from the economic competition of women; and (4) ensure that women could better carry out their eugenic duties as “mothers of the race.” What united these heterogeneous rationales was the reformers’ aim of discouraging women’s labor-force participation
The Progressives saw it as a great thing that minimum wages increased unemployment rates for those they would prefer make unemployable.

Recall further that while high minimum wages do push youth out of employment, that doesn't set them on the path to education and high earnings. At least not for the folks hurt most by high minimum wages: low skilled minority groups. As David Neumark and Olena Nizalova wrote in the Journal of Human Resources 2007 (NBER version here):
Exposure to minimum wages at young ages could lead to adverse longer-run effects via decreased labor market experience and tenure, and diminished education and training, while beneficial longer-run effects could arise if minimum wages increase skill acquisition. Evidence suggests that as individuals reach their late 20s, they earn less the longer they were exposed to a higher minimum wage at younger ages, and the adverse longer-run effects are stronger for blacks. If there are such longer-run effects of minimum wages, they are likely more significant than the contemporaneous effects on youths that are the focus of research and policy debate.
Somebody please tell me I'm crazy and that I'm reading too much into David Bennett's statement. Otherwise I think I'm going to be sick.


  1. OK, you're crazy, and you are reading too much into David Bennett's statement.
    Seriously though, of course youth unemployment is a cost. Encouraging youth into education is a good idea, but I don't think that is the motivation for hiking up the minimum wage. And the reality is that for some young people further education isn't the answer. Many would be better served by trade apprenticeships and the like, where lower income is offset by on-the-job training and work experience.
    It is another one of those issues where I applaud the intent of a minimum wage, but not the outcome. Also, I think fears of cheap immigrant labour driving down pay rates are exaggerated. In Marlborough, for example, there are a number of immigrant families working in the vineyards doing seasonal work. This type of work was traditionally performed by "mobile" workers and by students. Some locals complain about the "foreigners" taking jobs from "kiwis", but in my opinion many young kiwis choose not to work in these sorts of jobs, and that comments of this type are founded more on bigotry than on genuine concern for young NZ'ers. I think a reasonable lower cap on income rates ought to be slightly above the unemployment benefit to encourage those that can to get off welfare. Having no minimum wage, or setting it below the dole, provides little incentive for unemployed to change their situation.
    I spent a bit of time working on youth rates(holiday jobs while at uni mostly) and firmly believe that had youth rates not applied I would have found it much harder to find employment. Surely it is worth starting on a slightly lower income in order to get your foot in the door...

  2. @Eric. No, you are not crazy. Your interpretation is the only way of reading Bennett's statement.

  3. @Lats: Of course I view it as a cost. But a lot of chatter on other blogs went along the lines of "Those kids would just take jobs that family men should be getting" or "Good; getting a part time job is too tempting for kids who should be spending their time training anyway."

    Bennett's statement sounds an awful lot like "and so we don't really mind if youth unemployment is high because it encourages kids to go into training rather than take low wage jobs". Of course, the US research says this is a bad move, and the history of the minimum wage is troubling.

  4. What the hell is wrong with some people? Surely young people working productively is a good thing. When did it suddenly become undesirable for youth to get a job?
    *shakes head and sighs*
    Keep up the good work Eric, one day hopefully sanity will prevail.

  5. not to mention it doesn't hurt that they potentially encourage unemployed people to vote democratic because they are the only ones that care.

  6. going back and redifing to put "" around care.