Thursday, November 4, 2010

Youth Unemployment

The 2025 Task Force recommended allowing the youth minimum wage to diverge from the adult rate:
In the last decade, New Zealand has introduced substantial real increases in the minimum wage. The minimum wage was increased sharply during the boom years of labour shortages, and in 2008 the separate lower youth minimum wage was abolished (putting all young employees on the same minimum wage as adults). In 2008, New Zealand had the second highest minimum wage in the OECD relative to the median wage at 59 percent of the median wage, up from 51percent of the median wage, in 2002. Only France, whose minimum wage at 64 percent, was more generous, and the OECD average is for the minimum wage to be at 46 percent of the median wage (OECD 2010a).
As the latest Household Labour Force Survey stats are out, I reckoned it worth running the new numbers through the little model I'd run previously.


Again, these are the residuals from a very simple regression where the youth unemployment rate is the dependent variable and the adult unemployment rate is the independent variable. The residual says how far the actual youth unemployment rate is from its longer term relationship to the adult unemployment rate. Things spike up sharply after youths were made subject to the adult minimum wage.

The adult unemployment rate this quarter was 5.1%. The youth (15-19 yr old) rate was 23.3%. The residual this quarter was 8.5: if the youth unemployment rate were performing about as it previously did in relation to the adult rate, the youth unemployment rate would be 8.5 percentage points lower. That's about 12,000 kids. If we take the previous highest residual as reflecting the normal effects of recession (2.6 in March of 94), the excess residual currently is 5.9 percentage points, or about 8,500 kids. Note that youth labour force participation has dropped while overall labour force participation is up; the numbers above understate things.

National won't do anything. There's no margin in it for them. None of the kids who get a job as consequence of legislative change would credit National for it; any kid who gets a wage cut will blame National (as will their parents). Doing something always risks that Labour would then have something about which to complain; the unions would also get something they could campaign on rather than just looking like idiots for trying to drive The Hobbit out of the country. As for the rest of the 2025 Commission's recommendations:
Finance Minister Bill English made it clear those recommendations were still politically unacceptable.

"Any changes must meet the tests of fairness and equity, be consistent with our election promises and occur at a sustainable pace," he said.
About as expected. I haven't had a chance to go through the report in any particular depth as yet, but my prior would be that there's not much intersection between the set of things that could make a difference and the set of things that Key would be willing to try. I can take English's point about building support for changes and putting them in place in a way that they won't be undone. But they're going to have to start making some of the harder moves sometime.

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