Wednesday, 11 May 2011

Roy on Youth Rates

Heather Roy asks Hon. Paula Bennett a few questions about youth unemployment and the youth minimum wage.

First, Roy asks why National opposed Sir Roger's bill to reintroduce a youth minimum wage (rather than have youths be subject to the adult rate). Bennett's answer? "We weren't persuaded it alone would reduce youth unemployment."

Sir Roger's bill alone would not have reduced youth unemployment. It allowed the committee setting the minimum wage to set a lower rate for youth but did not require that it do so. And, even if the bill had prescribed a youth minimum wage set at some fraction of the adult rate, it would have taken time for that to result in job creation. But that something "alone" isn't enough for the job is hardly a reason to oppose it; do we forgo bread because man cannot live by bread alone?

In supplementary questions, Roy asks if National accepts any responsibility for the twelve thousand youths who've not been able to find jobs because the youth minimum wage is set to the adult rate. I'd quibble with Heather here, but only slightly. As noted above, had Parliament passed Sir Roger's bill, and had the youth minimum wage then been reduced, it would have taken time for new jobs to be created employing youths at the lower rate. I'm reasonably confident in the estimates I've blogged as a measure of the consequence of removing the lower youth minimum wage; I'd be more hesitant to use it as an estimate of the short run benefits of reintroducing a lower youth minimum wage.

But Bennett's answer that it's generally hard for youths to find jobs anyway is disingenuous: the estimate is relative to what youth unemployment would have been relative to adult unemployment in the counterfactual. The general disadvantage of youths in finding jobs is already factored in.

Roy concludes by asking if Bennett agrees with a statement by John Key in 2007 that youth rates give employers a reason to hire younger people and give them experience; Bennett answered that she does agree and listed alternative measures they've been using instead. In other words, youth rates are good for employment but not worth the political cost.

As always, hit the minimum wage tag below to find the prior posts with the estimates and method.


  1. I love that word "counterfactual" you apply to Paula Bennet's argument dude.
    I want to use that word ' counterfactual" I like it, and I will attribute it to you.

  2. "Counterfactual" = that which would have obtained had policy not changed.