Increasing minimum wage could harm young workers

Increasing minimum wage could harm young workers

Increasing the minimum wage may result in increased youth unemployment, says an AUT University economist.

Recognised as one of the country's leading experts of minimum wage research in New Zealand, senior economics lecturer Dr Gail Pacheco says if large increases, besides adjustments to inflation are encouraged, then both the least educated and youth workers may see a reduction in the number of hours worked.

“We have a minimum wage to protect the most vulnerable workers from being exploited and being unable to have a fair and minimum standard of living,” says Dr Pacheco.

“But research shows that those who are affected greatest by increases to this minimum wage are 16-17 year olds. According to figures from the Household Labour Force Survey produced by Statistics NZ, nearly seventy percent of 16-17 year olds were earning the minimum wage in 2008. My research indicates that if this minimum rate (in real terms) increases by just 10 percent, it would result in an eight percent drop in employment probability for 16-17 year olds facing a binding minimum wage, over a one year time period.”

Dr Pacheco says young Maoris would be even worse off for the same increase in the real minimum wage.

“Besides age, ethnicity is also a key factor. Research points to 16 to 17 year old Maori workers being more disadvantaged when there is a rise in the minimum wage.”

Her findings indicate that this sub-group of workers who face a binding minimum wage, would experience a drop in employment propensity of approximately 17 percent over a one year time period, given a 10 percent rise in the real minimum wage.

As part of Dr Pacheco’s analysis, she says it’s essential to always consider what is happening in the economy and cyclical fluctuations. “That is why looking at the raw aggregate numbers of employed over the early part of 2000 is misleading – as substantial economic growth may have masked the impact of the significant minimum wage rises occurring during that time period.”

Compared to other western countries, Dr Pacheco says at last count in 2009, New Zealand’s minimum wage was close to 60 percent of median wages of full time workers. Only two other countries in the OECD database had relatively higher minimum wages, France and Turkey.

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