Wednesday, 10 October 2012

Starter Wages

The hyperbole around National's "Starter Wage" legislation has been pretty amazing, given how limited the Bill's provisions really are.

Recall that, when Labour abolished the Youth Minimum Wage, which allowed employers to pay 16-17 year olds 80% of the adult minimum wage, they kept a "New Entrant" Wage. A young worker could be paid a lower minimum wage in the first 200 hours or first three months of employment. Employers found it intractable: you needed to figure out an applicant's entire work history on the New Entrant Wage to see for how long the employee would be eligible for the New Entrant Wage if you hired him. So employer uptake was very limited.

The new bill lengthens the period of applicability from three months to six and extend it to 18 and 19 year old workers coming off of benefits and into work. As advertised a year ago. National is hardly enacting Sir Roger's proposed reinstatement of the full lower youth minimum wage.

The Mana Party apparently thinks that the lower youth minimum wage is slave labour. Maybe some employment arrangements with lower paid workers fail the conditions for euvoluntary exchange, but they're still at least voluntary.

I fielded a few calls yesterday from radio stations looking for comment on the legislation. I noted that the legislation seems pretty much in line with what was promised a year ago, that's it's far more a rejigging of the prior New Entrant Wage than a reinstatement of full youth minimum wages, that the potential harms are rather exaggerated, but that the gains from the policy aren't likely to be spectacularly large either. More employers will take it up as it is an improvement over the prior New Entrant provisions. In response to the worry that employers might use the provision to churn through cheap workers every six months, I noted this to be fairly unlikely where employees go through any kind of on-the-job learning: the wage savings would quickly be eroded by the new worker's lower productivity as compared to the worker who's already figured out how to do the job.

Whether you love minimum wages or hate them, it's pretty hard to get too excited about the new starter wage. I think it's a small step in the right direction.


  1. Seems a reasonable assessment... I 'love' how the media always go for the 'dark satanic mills' line about ruthless employers chucking young employees out the moment their six months are up... Good workers will stay and deliver high productivity and the slackers will be bounced - sounds sensible to me...

    Mind you the media were all over Russel Norman felating him like nobody's business a couple of days ago... there's no accounting for taste...

  2. I'm not convinced this change is really that useful or necessary, as minor as it is. If a worker hasn't reached minimum wage deserving productivity in the first three months then they should probably be got rid of under the 90-day trial period rules anyway. Another three months isn't going to change much.

  3. Surely there are some workers who are worth at least 80% of the minimum wage after 3 months but not yet 100%....

  4. Yes but minimum wage jobs are not characterised by steep learning curves or high degrees of specialisation. They're typically menial and repetitive. If it takes you months to develop the skill set to do your job then you're probably going to be paid more than $13.50/hr. Although I suppose how quickly a worker picks up skills varies from person to person.