Tuesday 27 March 2012

...they pull me back in

I've been off the youth unemployment file for a few quarters. National's looking like it's done all it's going to do, so it's been on the backburner as other projects demand more attention. ACT's pulling me back in though; their latest press release calling for the reintroduction of a lower youth minimum wage cites one of the numbers from the last post I'd written with those numbers. The NBR picked up the story and asked me for comment; I'll be writing up something a bit more thorough for their weekend edition.

The NBR casts it as ACT having "appropriated" my research; really, I'm exceedingly happy when anybody appropriates anything in my posts so long as there's attribution. It's usually a good idea to drop me a note first to make sure that nothing's been updated or superseded, but I do always hope posts will be "appropriated" somehow or other.*

I'm happy for now to stand by that, subsequent to the changes in youth minimum wages, unemployment outcomes among 16-17 year olds were about 7-8 percentage points higher than we would have expected given prior trends in the youth unemployment rate relative to the adult unemployment rate. In the post from which ACT would have sourced the number, I'd said the table provided:
the expected rate if youth unemployment performance were no worse than in the worst prior quarter relative to the adult unemployment rate.
The 13,100 figure cited is excess youth (15-19 year old) unemployment relative to the trend that prevailed prior to the changes in the youth unemployment rate. I subsequently received more finely grained data from StatsNZ on the age-by-age breakdown; that gave me the 7-8 percentage point figure that's more strictly applicable to the 16-17 year old cohort affected by the most recent legislative change. But we also have the complication that the prior changes affecting 18-19 year olds look to have become binding during the more recent recession.

I'm always reluctant to say "causal". Or at least I try to be. My method is difference-in-difference, so it leers suggestively at causality, but I can't rule out that something else might have happened with the exact same timing that really hit youth unemployment rates relative to adult unemployment rates. I cannot fathom what that "something else" might be, and I think I've ruled out a couple of the potential ones (changes in apprenticeship budgets seem insufficient to explain things), and I'd put money on its being the changes in youth minimum wages. But I can't rule out that it's just my lack of imagination. I do my best to avoid saying "causal" because I can't prove causal.

I'd also caution about getting our hopes up about the speed of any effects coming from a restoration of a lower youth minimum wage. I fully support having a lower minimum wage for youths. But it'll take a while for it to start having real effects. It's faster to kill jobs by hiking the minimum wage than it is to reverse things by lowering it: wages are downwards sticky; employers might be reluctant to hire new kids earning less than very similar kids who'd be sitting next to them the day after a law change. But they might do it a year later.

Anyway, I've asked StatsNZ for the age-by-age breakdowns they'd previously given me, but for the more recent quarters. I'll aim for an updated reckoning for this weekend's NBR.

Had ACT asked me for a usable quote, I'd have said something a bit more nuanced and I'd have cited the 7-8 percentage point figure as likely being due to the prior legislative change.

But ACT is right that letting the youth minimum wage be well below the adult minimum wage is pretty sound policy. The UK gets it: they just last week froze youth minimum wages while mildly increasing adult rates. The adult minimum wage there is £6.19; £4.98 for 18 to 20-year-olds and £3.68 for 16 to 17-year-olds. Double all those numbers to roughly get the New Zealand equivalents: about $12 for adults, $9.67 for 18-20 year olds, and $7.14 for youths. And wonder just a little bit why New Zealand's National Party generally reckons it a good idea to force employers to pay $13 per hour - more than the UK adult minimum wage - for a 16 year old except under exceptional circumstances. And that's going up to $13.50 as of 1 April: £6.96 at current exchange rates. And the NZ New Entrant's rate will be $10.80: £5.56. Less than the UK adult minimum wage rate, but more than their minimum wage for 20 year olds.

* Occasionally I only find out about such appropriations when the University's media monitoring service highlights them. Apparently my suggestion that international students in New Zealand be given permanent residence in New Zealand on graduation made Mike Williams' show on Newstalk ZB earlier this month. Alas, it hasn't seemed to have gotten much traction otherwise.

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