Friday 12 February 2010

Unemployment roundup

Roger Kerr's piece in today's Otago Daily Times is nice.
Now, thanks to former Green MP Sue Bradford, everyone 15 and over is subject to the same minimum wage.

University of Canterbury economist Eric Crampton recently posted on his blog site Offsetting Behaviour an analysis of the impact of these changes.

Using a very simple model predicting youth unemployment rates as a function of adult unemployment rates, he found a large rise in the youth unemployment rate relative to the adult rate when the youth minimum wage was raised to the adult level.

A conservative estimate based on this analysis suggests that the current youth unemployment rate of 26.5% would be seven percentage points lower if the youth minimum wage had not been abolished.

So Sue Bradford's gift to the nation is to deny a job to some 12,000 young people, a population roughly equivalent to the labour force of Horowhenua or Thames-Coromandel, and 80% of those employed in the Queenstown-Lakes district.

Following a trade union wage push in Australia, former prime minister Paul Keating said that unionists carried the albatross of 100,000 unemployed Australians around their necks.

Why isn't Sue Bradford being equally pilloried for the totally predictable consequences of her actions? All this is in line with elementary economics.

As Prof Judith Sloan, a labour economist and member of the 2025 Taskforce, once wrote, the causes of unemployment are well understood, with labour market inflexibilities and perverse welfare incentives being the main culprits. (A growing economy helps, but is a less important factor.) Sloan noted that labour and welfare policies can be changed: unemployment is essentially a political choice.

New Zealand's labour market was made freer in the early 1990s, with stunning benefits in the form of fast employment growth, rapidly falling unemployment and higher productivity.

Since then, it has atrophied.

The Global Competitiveness Report now ranks New Zealand in 103rd place for hiring and firing practices.

The Fraser Institute puts us in 96th place for the restrictiveness of minimum wages.

Our ranking in a recent Ernst and Young globalisation survey was dragged down by restrictive labour market policies.

The 2025 Taskforce recommended that the youth minimum wage should be reinstated as a matter of urgency and that other steps be taken to free up the labour market.

Further fun in Parliament yesterday:
Hon Sir Roger Douglas: Is she aware of the academic research in New Zealand that shows that Labour’s removal of youth rates is responsible for the huge increase in youth unemployment; and will she review that decision, or is she comfortable with youth unemployment of 17 percent, including Māori youth unemployment of 38 percent?

Hon KATE WILKINSON: The member may be aware that when Labour wanted to abolish the youth rate we did in fact vote against that legislation, for that very reason. We were concerned that it would price young people off the job market, and that it might also be a perverse incentive for them to leave education. I say to the member who asked the question that we are always willing to listen to good ideas.
I wish the youth unemployment rate were only 17 percent; it's 26.5% currently. It might have been about 19-20% had we not increased the youth minimum wage to the adult level.

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