Jury out over youth rates

Pressure is mounting on the government to scrap youth rates and introduce a single minimum wage for everyone aged 16 and over.

The provision for youth rates allows employers to pay 16 and 17-year-olds 80 per cent of the full adult minimum wage. The rationale behind the scheme is that younger workers have little or no work experience and are less effective employees when compared with older and more experienced people.

Business groups say being able to pay youngsters less helps them to get their first job. However, Auckland University economist Susan St John says youth rates keep adult wages down as employers can fill vacancies cheaper by paying lower rates.

Today Green MP Sue Bradford tables her minimum wage amendment bill in Parliament. She says it should pass its first hurdle and make it to a select committee.

Bradford is basing her bill on the premise that 16 and 17-year-olds are discriminated against because of their age. She says this is prohibited by New Zealand's Human Rights Act and the Bill of Rights.

Bradford said: "If all goes well the select committee will complete its work within six months and the public and businesses will have a chance to make submissions to the committee during that time.

"Employers have commented that there will be fewer jobs if they are forced to raise wages. But it's amazing the number of 16 and 17-year-olds that are in supervisory jobs. Typically, they start working for a firm part-time and then go full time with a lot of work experience. Often these youngsters on the youth rate are supervising older workers earning much more."

Employers are able to pay the youth rate because of Section 4 of the Minimum Wage Act. In essence New Zealand has conflicting laws and Bradford says while a judicial review is one way to explore the situation, she is pushing for a change in the law.

Employers and business groups say scrapping youth rates for 16 and 17-year-olds will cost jobs among unskilled school leavers and those working part time while studying.

But is this a case of history repeating itself? The same concerns were raised in 2000 when the maximum age for the youth rate was lowered from 20 to 18 and a two-year plan was agreed to raise the youth rate from 60 per cent of the minimum wage to 80 per cent. Both changes led to warnings from employers that young, unskilled people would be badly affected and higher wages would cost jobs.

Then it got worse for employers. In January 2002, the youth rate went up $1 to $6.40 an hour. Surely now the fabric of society would collapse, commerce would be brought to its knees and thousands of teenagers would find themselves walking the streets unable to get work.

Anne Knowles, the then executive director of Business NZ, said at the time: "The smaller the margin between the minimum wage and the next wage level up from that, the harder it becomes for unskilled people to get jobs.

"While the minimum wage policy is undoubtedly based on good intentions, in practice it is unkind to the least skilled."

It's also worth remembering that in 1999 Steve Marshall, chief executive of the now-defunct Employers Federation, predicted we would have 11 per cent unemployment within 18 months of the Employment Contacts Act coming in. Today, the unemployment rate is 3.4 per cent.

We know now that despite the vocal concerns of influential people in industry we have had strong growth in employment since 2000 and achieved the highest employment rate in the OECD.

In many trades there is not enough people to fill vacancies. Some of the reasons for this is that we have an ageing population and there is a trend for employers to hold on to staff rather than let them go and risk not getting them back when they need them.

The present chief executive of Business NZ is Phil O'Reilly. He believes the tight labour market has masked the changes to the youth rates over recent years and says youth rates should be retained.

"Youth rates only affect a limited number of people and those people have no 'go to work' skills and have no work experience," he says. "Removing youth rates will make it harder for these people to get their first job."

Just like his predecessor Knowles, O'Reilly says when faced with a choice, an employer will choose the experienced candidate over a 16 or 17-year-old if they have to pay the same amount of money.

"There is a labour shortage but as the market softens the young and unskilled will be affected," he says.

But any professional recruiter or HR manager will say that work experience is just one aspect of employing someone. Companies also look for cultural fit, attitude and flexibility - money is only a part of the mix.

Susan St John, a specialist in public policy at Auckland University and a senior lecturer in economics, says it's time for business to grasp the nettle and help the lowest paid.

"It's time that shareholders took a little less profit as many people do not earn enough to live on and money earned by young people is often used to support the family.

"Students are also working up to 22 hours a week to help make ends meet. It's too long when there's studying to be done - if they were paid more they could work less."

St John also says removing youth rates will be good for older workers, too.

"Their wages are being held back because employers have a cheaper alternative.

"If we are going in to a recession then jobs will be lost anyway. There's never a good time to do this. On a wider view, by increasing wages we help the economy. People will have more disposable income and be able to afford to get the bus to work and eat better food for example. They'll spend more money at the shops and that helps the economy."

But Barry Hellberg, the Retailers Association's government relations consultant, doesn't agree that now is a good time for change.

He says removing the youth rate will cause "major problems" for retailers such as supermarkets.

"Just think of the number of students they employ and the extra costs that will be thrust upon employers," he said.

Richard Umbers, managing director of Progressive Foods - owner of Foodtown, Woolworths and Countdown - employs 18,000 people. He says the youth rate applies to a small number of people within the company but was unable to give a specific figure.

He said: "What I care about is paying a fair wage for a fair day's work. In a way the minimum wage is unnecessary, you pay people what they can command in the market place. I do think the youth rate offers real opportunity to youngsters to get their first job. The rate is an inbuilt cost advantage to employers. Removing it would be a backward step."

David Lowe, employment services manager for the Employers and Manufacturers Association (Northern), says that in an EMA survey it carried out last year, 14 per cent of employers reported they were paying youth rates.

If only a minority of companies are paying the youth rate, then one must wonder how big an impact it will cause by abolishing it.

* The minimum hourly rate for 16 and 17 year olds is $7.60, while the minimum rate for those aged 18 and over is $9.50. From March 27 those figures will rise to $8.20 and $10.25 an hour respectively. The government says it would like to see the minimum wage rise to $12 an hour by 2008.