Minimum Wage Amendment Bill - What’s The Rush?

Critics of the Minimum Wage (New Entrants) Amendment Bill say the Government is pushing the bill through without considering the implications for small businesses and the economy.

Auckland University of Technology senior economics lecturer Dr Gail Pacheco (pictured right, image courtesy of AUT) fears that a wage rise for youth will have negative consequences for the economy and future employment rates.

“It seems like they are rushing and they should debate this a bit more and consider the negative effects. At this stage they are not even acknowledging there are negative effects,” says Dr Pacheco.

Sue Bradford’s Minimum Wage (New Entrants) Amendment Bill will see 16 and 17 year old workers paid the minimum adult wage after completing 200 hours of work. The bill received a third reading in Parliament, early this month, with support from Greens, NZ First, United future and the Maori Party.

However, Ross Wilson, Council of Trade Unions president, says the increase in youth rates has not had a significant impact on either employment or educational enrolment.

Referring to the 2004 Treasury working paper, Mr Wilson says the 69% increase in the minimum wage for 18 and 19 year olds in 2001 and 41% increase in the minimum wage for 16 and 17 year-olds was found to have no adverse effect on youth employment or hours of work.

But these findings also claim the hours of work increased for 16-17 year olds relative to other age groups, supporting Dr Pacheco’s research that claims increasing youth wages encourages youth into the work force.

Georgina Bond, a spokesperson for Business New Zealand, says “a requirement to pay 16 and 17 year olds the adult minimum rate also sends a message that it is better to go into a job with few prospects for promotion or advancement than to opt for work under a training agreement since the current youth minimum remains the rate payable to trainees.”

The Auckland Chamber of Commerce June 2007 business confidence survey also found that 42% of firms believe it will be harder to employ people with the right skills, up from 37% last year. “There could be negative long term effects from the reduced enrolments’, with a less qualified and capable workforce,” says Dr Pacheco.

Dr Pacheco says that research shows that raising the minimum wage for youth will not only reduce educational enrolments, but it will reduce employment for 16 – 17 year olds as well.

New Zealand's current unemployment rate is nearing the record low of 3.6% however, the unemployment rate for the 15 –19 year olds is, at 12%. This is considerably higher than the general working population.

These statistics support Dr Pacheco’s research which found that school-leavers with intention to work do not always do so. Her research found that 16-17 yr olds inactivity (defined as neither working or studying) increased significantly with the rise in the real minimum wage.

Dr Pacheco says the negative effects of a less capable workforce will become evident when New Zealand experiences an economic downturn. This is because a less skilled workforce is likely to reduce overall economic productivity.

The current economic forecasts by the Auckland Chamber of Commerce found that business confidence for June 2007 was still low, with less than 20% of businesses expecting the overall economy to improve.

“Theoretically if the minimum wage reduces enrolment in education and consequently productivity of the workforce in the long run, assuming other things are held constant, you would theoretically expect slower economic growth.” Given the recent economic slowdown Dr Pacheco is urging the Government to carefully consider the bill.

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The increase in youth rates is an added cost to businesses, in a tightening economy. According to Statistics New Zealand’s Labour Cost Index (LCI) there was a 3.2% increase in salary and wage rates for June 2007 from the previous quarter and this can be attributed to the minimum wage increases in March 2006 and April 2007. The LCI also recorded an increase of 4.2% in average total hourly earnings and a 2.3% increase in full-time equivalent employees.

“New Zealand has had seven years of increased minimum wages and youth have had the highest increased in real terms (when you account for the effects of inflation) because of these consistent increases it is not necessary to rush this legislation through,” says Dr Pacheco.

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