The Dim-Post

May 24, 2011

Chart of the day II, in conclusion more research is needed edition

Filed under: economics — danylmc @ 4:03 pm

That thin blue line in 2008 illustrates the abolition of the Minimum Youth Wage. Stats doesn’t seem to serve up data on Maori unemployment prior to 2003.

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57 Comments »

  1. Interesting. But I think what it shows us is that there was a recession around the same time, and that maori get chucked before young people.

    Comment by Idiot/Savant — May 24, 2011 @ 4:14 pm

  2. You should use real wages instead of nominal wages – just divide the series by the CPI.

    Comment by Nick — May 24, 2011 @ 4:21 pm

  3. maori get chucked before young people
    Yeah that was my take too but I can’t quite believe that’s the actual case.
    At first glance it’s ZOMG NO YOUTH MINIMUM = UNEMPLOYMENT but then you have to consder why Maori unemployment followed exactly the same trend shortly before. Is it possible that both Maori and the young are more heavily represented in unskilled labour (not sure if that’s the case but possible?) and that’s what gets turfed first in a recession?

    Comment by garethw — May 24, 2011 @ 4:42 pm

  4. I pay more than min wage anyway but my gut would tell me that if i have to pay the same rate to a 17 year old school leaver who is used to 5 days a week plus 2 weeks off every 10 with also a 2 month break for summer compared to a 25 year old who has learnt to get out of bed

    Comment by graham lowe — May 24, 2011 @ 4:45 pm

  5. i would hire the 25 year old

    Comment by graham lowe — May 24, 2011 @ 4:46 pm

  6. Surely we can agree that increases in minimum wage = higher unemployment is not borne out by the recent trends?

    Comment by danylmc — May 24, 2011 @ 4:46 pm

  7. Trap Don Brash in an infinite loop: suggest a special Maori-minimum wage of around $10/hr.

    Comment by taranaki — May 24, 2011 @ 4:46 pm

  8. GarethW: the ECA has no requirement for redundancy. One reason behind the very volatile figures for those in unskilled jobs.

    Comment by taranaki — May 24, 2011 @ 4:50 pm

  9. Is it possible that both Maori and the young are more heavily represented in unskilled labour (not sure if that’s the case but possible?) and that’s what gets turfed first in a recession?

    Its probable. We know that Maori and Pacific Peoples get turfed first, and its clear in the long-term stats (that’s from the 2010 Social Report; the 2004 edition extends that chart all the way back to 1986, and you can see the same effect very clearly in the prolonged Rogernomics Recession. Maori unemployment skyrockets from 10% to 25%, while Pakeha goes from 4% to 8%).

    Comment by Idiot/Savant — May 24, 2011 @ 4:51 pm

  10. Surely we can agree that increases in minimum wage = higher unemployment is not borne out by the recent trends?

    Yes. But as the CTU points out, those who are arguing that aren’t relying on recent trends, but on far smaller increases during the 80′s and 90′s.

    Comment by Idiot/Savant — May 24, 2011 @ 4:52 pm

  11. @Danyl#6:

    The literature in the US uses difference-in-difference statistical analysis (ie, comparisons between states after changes have been made in some states, and controlling for observable characeristics) and tends to not strongly support (overall) the idea that minimum wage changes (we are not talking huge shifts here) impact negatively on youth unemployment.

    In New Zealand, this very good paper in an international journal is directly of interest to this point (but you will need to subscribe to get more than the abstract):

    http://www.motu.org.nz/publications/detail/youth_minimum_wage_reform_and_the_labour_market

    Comment by DT — May 24, 2011 @ 4:57 pm

  12. Graham may I suggest that your recruitment policy should be based on something a little broader than someone’s age and baseless generic assumptions behind it. I’ve known a few 17y/os in my time that I’d hire in a second over a few of the 25y/os I’ve known.

    Comment by garethw — May 24, 2011 @ 5:01 pm

  13. Note in the paper I cite above, that there is evidence of increased youth employment (after controlling for other factors) following a rise in the youth minimum wage. Basically, because the labour market is a little inefficient in this area youth are paid less than they are worth (ie, employer demand for labour is priced at less than their marginal product of labour), and raising the minimum wage elicits a greater SUPPLY of labour from young people, who are still willing to be employed be employers (and not so underpaid). The downside (depending on your outlook) is that there is a suggestion that by being paid more, some youth choose not to study (or not to study so much).

    Comment by DT — May 24, 2011 @ 5:02 pm

  14. Eric Crampton has already covered this in great detail (lots of graphs) see http://offsettingbehaviour.blogspot.com/2010/02/youth-rates.html and http://offsettingbehaviour.blogspot.com/2010/02/youth-rates-revisited.html

    Conclusion “The difference between the youth and older groups’ rates reached a maximum of 13 points in the early 90s. It’s now at 19 points.

    Of course, youth unemployment rates would have gone up absent the change in the minimum wage legislation. But it would pretty plausibly now be sitting about 6 points lower absent that change.”

    Eric accounts for changes in pop’n size and distribution, the recession, prior recessions and almost anything else you can think of. The evidence is quiet damning that there has been a shift in youth unemployment rate over and above what is attributable to the recession.

    Comment by WH — May 24, 2011 @ 5:12 pm

  15. I reckon there’s an indicator there that the youth rate change had an impact. But correlation is not causation.

    On Maori unemployment….it is easy to break it out by ethnicity, but I’ll bet unemployment amongst Maori doctors, for example, didn’t go up disproportionately. I’d guess that unemployment for the unskilled, those with criminal records and perhaps those with poor work habits went up (i.e. marginal employees). And further I’d hypothesise that all three of those groups are over represented in teh Maori population (definitely the first two are, the statistics tell us that, and to some extent those two are indicators of the third).

    On impacts of minimum wage on employment, Eric Crampton had a reasonable post on this a while back: http://offsettingbehaviour.blogspot.com/2011/05/minimum-wages-addressing-more-sensible.html

    Comment by PaulL — May 24, 2011 @ 5:14 pm

  16. @WH:

    I think that any reputable peer review would find holes in that analysis large enough to drive a truck through.

    Comment by DT — May 24, 2011 @ 5:16 pm

  17. DT – I think you can make stuff up whenever you like, that your opinion and your entitled to it, but Erik has put his information out for review and so far no one has come up with a credible alternative analysis or problems with methodology, data set etc. So my advice is choose your argument is it ideology or facts, currently Eric is providing facts.

    Comment by WH — May 24, 2011 @ 5:32 pm

  18. I am not an expert, but surely basic market theory would indicate that a minimum wage sets a productivity threshold for all jobs. That is, someone will only be employed if their labour produces at least as much value as they’re being paid. So, a $15/hr min wage means that all jobs will need to produce at least $15/hr in value. Therefore, by setting the min wage, aren’t we simple saying “In NZ, we require that all jobs produce at least x amount of value”. Isn’t increasing x exactly what we want if we are aiming for a higher wage economy? In such a scenario, the limiting factor would presumably be the rate at which it is raised, so that the economy has enough time to adapt to this productivity threshold increase (by increasing investment in plant, worker training etc.).

    Comment by wtl — May 24, 2011 @ 5:34 pm

  19. WH: Surely the appropriate means for Eric to have his analysis reviewed is by submission to a peer-reviewed journal, rather than putting it on his blog?

    Comment by wtl — May 24, 2011 @ 5:36 pm

  20. FWIW, the industries that have shed the most jobs in the last three years are manufacturing (-26K) and construction (-16K). I would think that youth are overrepresented in these sectors, but don’t have numbers to back that up. Nevertheless, I think “youth are unemployed because manufacturing and construction jobs are in the crapper” is more plausible than “manufacturing and construction jobs are in the crapper because of the youth minimum wage” (though that doesn’t imply the latter effect is zero).

    Comment by bradluen — May 24, 2011 @ 5:46 pm

  21. WTL – Call it a working paper then – there is significant time lags between the time to put together analysis for a current problem and the publication process for a Journal. That said it withstood robust criticism and given Eric is a lecturer at Canterbury University with other publications to his name, its reasonable to say he’s not making stuff up.

    In ref to minimum wage setting a productivity threshold – I’m ok with that, if that is what is being done, but don’t ignore the unemployment created with all those people who don’t generate $16 and hour of value. The transition period could be potentially very long – labour mobility in low income can be sticky (see far North, East Cape, South Auckland) where people are slow/reluctant/unable to move from an area of low employment to areas of higher pay/employment e.g. New Plymouth, Canterbury, Southland.

    Comment by WH — May 24, 2011 @ 5:47 pm

  22. @WH:

    Okay, I admit what I said about Eric’s post was a bit crass. You are right, he put his thinking out there and all power to him.

    I guess that if I was going to look for reasons to agree / disagree with what he has written, the first thing that I would be looking to analyse other possible explanations for the residual that Eric says he found: just saying that there is a residual, and that it must be explained by the change in the minimum wage is a bit light (alright, Eric didn’t exactly say that). After all, could there have been another big structural shift in the economy about 1998 which affects youth unemployment relative to adult, and isn’t included in the `levels’ and `ratios’ explanations that Eric already identifies? Seems to me that there are many plausable explanations that would need to be thought through. Just blaming changes to the minimum wage that happened then is simplistic: Perhaps we could blame the election of Barak Obama? It happened about then too!

    It is an interesting wee discussion from Eric, and he does place this rider at its end:

    “This remains very much a first cut: something I may someday assign as an honours project for more thorough sorting out. The econometrics here are very simplistic and do nothing to account for differences in labour force participation rates or the obvious problem of serial correlation in the time series data.”

    Comment by DT — May 24, 2011 @ 5:49 pm

  23. DT – Accepted.

    Comment by WH — May 24, 2011 @ 5:54 pm

  24. Re youth and Maori/PI unemployment..

    Effectively they are the same thing.. the median age for Maori is 23, PI, 22 and Europeans about 38.With that very low median age Maori are always going to struggle because of a preponderance of youth, inexperience, track record, education and other factors against Europeans.

    Also, Maori tend to clump in industries like forestry, farming and manufacturing industries which typically have to shed staff and workers in tight times. That old relationship is starting to break down as Maori improve their educations and lift their sights.. but its a long process.

    The above graph and others similar in the US show the same thing.. there’s a strong relationship between lifting minimum wages, and unemployment in recessionary times.

    JC

    Comment by JC — May 24, 2011 @ 6:16 pm

  25. JC: my point exactly. Which comes in a roundabout way to something Don Brash said (not very articulately, I’ll grant). If the actual problem is youth, inexperience or education, then it makes more sense to directly target those factors. Worrying about Maori unemployment, or targeting programs at Maori, only makes sense if being Maori is the cause, or if being Maori is a really good proxy for the real cause. If the problem is youth and we target Maori then a bunch of white youth get missed, and a bunch of old Maori get services that weren’t really justified.

    Anyway, back on topic, I thought Eric’s analysis of youth unemployment was reasonably compelling, and was enough of a smoking gun that I’d like to see someone’s argument as to why youth unemployment _wasn’t_ impacted by the change in youth rates. I see plenty of people denying the causation, but given there is a correlation, a plausible explanation of causation, and no other good candidate as the culprit, that’s most of the way to what I’d need to say it happened.

    On minimum wages, I’m a fan of the logic that says if we need to accept the “weight of science” on global warming, then perhaps we should accept the weight of science on minimum wages too? Eric’s description of the literature and how to interpret it was reasonably compelling to me. Basically saying that minimum wages don’t have much impact when they’re low relative to the median income, but start to really bite as you get closer to the median income. NZ’s existing minimum wage is far closer to median income than America’s is – which could explain why America finds little impact from increases to minimum wage, and NZ finds larger impacts.

    Comment by PaulL — May 24, 2011 @ 6:36 pm

  26. PaulL: Are you seriously comparing a review of the literature done by one economist to have the same weight as a review conducted by thousands of climate scientists and other such experts?

    Comment by wtl — May 24, 2011 @ 6:55 pm

  27. You don’t have to make stuff up to labour under the illusions of cognitive bias…

    Crampton is pushing facts through the fine mesh filter that he actually believes that minimum wages, and especially youth minimum wages, are really bad for the economy – based on the idea that he believes they are, so he makes the data fit. Not intentionally, but he does ignore myriad other factors in favour of his pet theory. You can structure the data in many different ways to reach different conclusions.

    Naturally, negative correlations would be ignored, as would trends that had already started before the cut-off date. Recessions are a favourite to ignore, too.

    I also suspect that Eric wouldn’t be so against minimum wages if he’d ever had to earn one.

    Comment by Dizzy — May 24, 2011 @ 6:55 pm

  28. Surely we can agree that increases in minimum wage = higher unemployment is not borne out by the recent trends?

    not necessarily, one could argue that the slow down in the increase in the minimum wage resulted, with an understandable time lag, in a slow down in the rate of increae in youth unemployment.

    otherwise put, in the good times one can have an increased minimum wage and a decrease in youth unemployment but in the bad times things might be different.

    Comment by NeilM — May 24, 2011 @ 7:21 pm

  29. My view about teenage school kids as staff is not uncommon
    And takeing into account i have a couple of them in my house its not unreasonabale

    Comment by graham lowe — May 24, 2011 @ 7:24 pm

  30. “maori get chucked before young people.”
    Surely the group “Maori” includes Maori youth? Maori youth are a higher % of Maori, than white youth are of white? So Maori are disproportionally affected by youth unemployment.

    “I am not an expert, but surely basic market theory would indicate that a minimum wage sets a productivity threshold for all jobs.”
    I think I learnt this in social studies: Germany in the later part of the 20th centurary traded higher unemployment for higher wages & more skilled jobs.

    Comment by Clunking Fist — May 24, 2011 @ 7:51 pm

  31. wtl @ 26 “a review conducted by thousands of climate scientists and other such experts?”
    If you are referring to the IPCC, it is headed by a man with expertise in railway engineering and industrial economics.
    You should do a bit of digging on the review process, it makes fascinating reading.
    http://climateaudit.org/2008/04/01/ipcc-review-editors-comments-online/

    Phil Jones, of the Climatic Research Unit at University of East Anglia, now HE’S a climate scientist. He says there has been no statistically significant warming since 1995, and agrees that there have been warm periods before.
    http://www.dailymail.co.uk/news/article-1250872/Climategate-U-turn-Astonishment-scientist-centre-global-warming-email-row-admits-data-organised.html

    Comment by Clunking Fist — May 24, 2011 @ 8:13 pm

  32. A) What is the point?
    B) Your logic is seriously lacking

    The equivalent anti-AGW graph that arbitrarily muddies the water would be, rightly, torn to shreds round here.

    Comment by Swan — May 24, 2011 @ 8:18 pm

  33. The tl;dr version of the below is “it might just be the retail sector”.

    ***

    Some notes for Crampton’s imaginary Honours student:

    As of December 2008, nearly 40% of 15-19 year-old employees were in retail: about 60K out of 150K.

    In 2009, retail tanked. The sector shed 24K jobs (6.7%, all numbers from here from the HLFS). The rest of the job market was only moderately crap by comparison (1.6% decrease in jobs). So retail jobs were lost at 4-5 times the rate in other sectors.

    In 2009, the youth job market collapsed. The number of employed 15-19 year-olds fell by… 24K.

    Now, the 24K lost retail jobs aren’t exactly the same as the 24K lost teen jobs. But there’s a huge overlap. How huge? My guess is at least half and possibly as much as three-quarters, but your guess is as good as mine*.

    So let’s limit our sights to retail to minimise confounding. Retail was tanking, retailers had to lay off a lot of people, and youth were the least valuable/easiest to lay off. We want to estimate the difference between:
    – Actual world: no youth wage, some large number of youth jobs were lost
    – Counterfactual world: there’s a youth wage, some different large number of youth jobs were lost
    We also want to find the difference in overall job losses, but… I don’t even think we have actual world numbers, let alone counterfactual ones. Can’t see any reliable way of doing the estimation without surveying retailers.

    *it isn’t really, i’m just saying that to be polite

    Comment by bradluen — May 24, 2011 @ 8:40 pm

  34. My logic is seriously lacking? So you accept the theory of AGW even though scientists can’t agree on whether evaporation from warming is a positive or negative feedback mechanism in the real world? So you accept AGW even though evidence suggests the world may have been warmer than now (perhaps on several occasions) yet positive feedback mechanisms failed to cause the runaway warming at the heart of the AGW theory?
    PS what graph are you referring to? I didn’t mention one. Cough, hockeystickgraph, cough.

    And what is the point? This country is embarking on a journey that will see industry saddled with costs for a problem that may not exist. It takes focus and resources away from real problems, such as nutrient levels in rivers, child abuse and heavy metal pollution around factories.
    The wife and I are tertiary trained and earn six-figure salaries with a modest mortgage, so we can withstand a fall in living standards. And I don’t want for much materially now that I have my wide-screen tv. But you lefties always claim to be on the side of the working folk and beneficiaries, yet working folk and beneficiaries will feel the brunt of this crusade. Just like they did when National increased GST.

    Comment by Clunking Fist — May 24, 2011 @ 8:44 pm

  35. My point was that most economists agree that minimum wages have an impact on employment. There is, however, disagreement as to whether that effect is large, whether the benefits of extra pay to those who are employed outweighs the costs to those who become unemployed, whether this change leads employers to invest more in capital or automation to improve productivity (i.e. increasing wages leads to increased productivity), or whether it is better to seek to improve productivity, with wages automatically rising in response to competition for workers.

    Similarly, most scientists agree with the physics of CO2 causing warming. There is substantial disagreement as to how large that effect is given various positive and negative feedbacks, what the impacts of that warming might be, whether the costs of avoiding that warming are better than the costs of adapting to that warming, whether we’re better to invest in making low CO2 technology cheaper and people will automatically use it (because it’s cheap), or better to make CO2 emitting expensive thereby driving economies of scale for low CO2 technology.

    They are quite similar sorts of arguments, and simply yelling “the science is settled” doesn’t actually do anything to solve the problem.

    Bottom line, I think most economists agree that increasing the minimum wage increases unemployment. So those who retain their jobs benefit at the expense of those who lose their job. In a utilitarian world, we’d add up the costs to those who lose jobs, and as long as is outweighed by the benefits to those who get a pay rise, we’d do it anyway. In a liberal world (in the pure sense of the world) we wouldn’t be happy at removing the liberty of the few (those who are no longer employable) in order to create benefits for the many – we’d argue that as tyranny of the majority.

    Comment by PaulL — May 24, 2011 @ 8:59 pm

  36. “Similarly, most scientists agree with the physics of CO2 causing warming.”
    You don’t mean: most that aren’t sure keep their mouths shut and their heads down? :^)

    Comment by Clunking Fist — May 24, 2011 @ 9:03 pm

  37. In a liberal world (in the pure sense of the world) we wouldn’t be happy at removing the liberty of the few (those who are no longer employable) in order to create benefits for the many – we’d argue that as tyranny of the majority.

    Why are they unemployable?

    Last time this got thrashed out I seem to recall that min wages could be shown to cause a significant but small decrease in the rate of employment. It looked to be new jobs that didn’t appear rather than people losing their jobs. There were outliers of course, where the effect didn’t show up, which implies that it can be mitigated by other policy settings, and that the effect was found in low skilled people. Can’t see why we couldn’t have a policy of training these people, frinstance.

    Beyond that, and particularly in a recession, I’m not sure why we should have a policy that incentivises employers to employ people under the age of 18, as opposed to say, their parents, who may also be looking for work and all other things being equal might be better at the job.

    It seems to be the case that employers would rather employ older people, if they are available. At least, this is what we are being told. So if we are going to have a min wage, why set it up to incentivise the employment of people whom otherwise the employer would not choose. Is there some reason that people under 18 should be better off in a min wage job than in training?

    Comment by Pascal's bookie — May 24, 2011 @ 9:22 pm

  38. CF: You could have save us all those comments by simply saying “AGW doesn’t exist and no amount of data or science will ever convince me”. However, please remember to apologise to our future generations when you are proven wrong.

    Back on topic, there is no doubt the min wages can have an effect on unemployment, one can easily see this by taking the argument to an extreme (e.g. what will happen if the min wage is $100?). But of course the relevant point is what effect will a 15% increase in the min wage cause? That is not clear.

    Furthermore, I am of the view that if a small increase in unemployment is necessary to change the NZ economy to a high wage one, then so be it.

    And worse come to worse, even if the effects of increasing the min wage really are dire, we can easily reverse the change made in the future. The same cannot be said about climate change – if we continue on our current trajectory and anything other than the best case predictions actually come true, we will find that dealing with the consequences will be no simple matter.

    Comment by wtl — May 24, 2011 @ 9:30 pm

  39. At work today we were considering whether or not to buy some software. I suggested the price might be a bit high and thus not worth it. My colleague looked at me with a knowing smirk: “How naive and ideological you are! We don’t decide whether or not to employ resources on the basis of price!”

    Comment by Swan — May 24, 2011 @ 9:37 pm

  40. Pascal’s Bookie, I suspect you’re falling into the trap of assuming there’s a constant amount of employment. In that circumstance, it might be reasonable that we implement a higher youth wage on the basis that it just leads to older people being employed. I could argue that older unemployed people might be already long term unemployed and therefore out of the habit, and that making sure that young people get an early exposure to employment is a good thing, but I’ll grant your base contention that in this circumstance youth unemployment wouldn’t be so bad.

    But if we instead postulate that, instead of hiring an older worker, some employers simply don’t employ anyone, then the minimum wage is still increasing unemployment. And we’re back arguing about whether the benefits for those in work outweigh the disadvantages for those out of work.

    On the topic of a rising minimum wage creating a high wage economy. If it is true that the most marginal workers are pushed out of the economy by a higher minimum wage, it therefore follows that productivity of workers has, on average, increased. You’ve removed the lowest productivity people from the pool. But the productivity of the economy as a whole has dropped – because some people who previously had low productivity now have zero productivity (well, maybe they do some charity work or something, but lower than they were before). So we haven’t really moved towards a high wage economy at all – we’ve just tossed some people out of work.

    Now the truth is somewhere in between – some employers invest in higher productivity to justify the higher wages they now have to pay (where previously they just didn’t care about increasing worker productivity and therefore making higher profits – or maybe thought their workers would just demand higher pay, so why invest in them). Some other employers employ fewer staff than they used to, replacing them with automation, or just doing less business than they used to and thereby shrinking the economy.

    The key question is what percentage do we get of which effect, and how do we treat the winners and losers?

    And, my second question would be whether there had been another way to handle this problem – could we directly invest in the productivity instead, and then let people get paid what they’re worth? Nobody at the bottom has to go unemployed, but those who increase their productivity get a pay rise. This relies on my belief that productive workers usually capture the value of their work – i.e. they get paid more than less productive workers. If your world outlook instead believes that employers unfairly hold wages down and need regulation before they’d countenance paying more, you might come to a different answer.

    Comment by PaulL — May 24, 2011 @ 9:54 pm

  41. If your world outlook instead believes that employers unfairly hold wages down and need regulation before they’d countenance paying more, you might come to a different answer.

    100,000 workers are earning the legislated minimum. I’d say that your world outlook discounts annoying things like “facts”.

    Comment by taranaki — May 24, 2011 @ 11:44 pm

  42. Which means that all the remainder of the labour force (what, 2 million people?) are paid more than the legislated minimum. Is it possible that those 100,000 people’s productivity only justifies that minimum? Facts?

    Comment by PaulL — May 25, 2011 @ 12:56 am

  43. If 100’000 are earning the legislated minimum then that says that 1)Their efforts are worth no more than that….and 2)they have neither the will nor skill to currently do better.

    Comment by James — May 25, 2011 @ 1:02 am

  44. Hi folks,

    I’m on the road the next few days and so won’t be playing around in comment threads. A few things to note:
    1) I didn’t take the analysis much further as yet for two reasons.
    a) Douglas’s bill was shot down before committee, so it was pointless in trying to get anything into the policy cycle
    b) I didn’t have time to do it up properly for journal submission – I have far too many projects half-completed as is. But this one is moving up in my priority list.

    2) The residual checks were a first cut, and what I consider a smoking gun. Something went really really weird in the relationship between youth and adult minimum wages with a timing that would fit perfectly with the abolition of youth rates, though it could have been something else. The odds of “something else” drop considerably though as time goes on – you’d need some other effect that started at the same time and also has persisted.

    3) We’d expect Maori unemployment rates to rise as the minimum wage becomes more binding; unfortunately, greater proportions of Maori workers are at that bound.

    4) I’ve written a LOT of posts on the youth minimum wage, and minimum wages in general. And my thinking’s moved as I’ve read more of the literature. It’s all easily checked by hitting the minimum wage tab over at Offsetting. But the recent post “Answering more sensible critiques” catches my best current view.

    Comment by Eric Crampton — May 25, 2011 @ 1:43 am

  45. PaulL @42,

    Its about time we considered thatother 2 million workers..

    By moving the (technically) least valuable workers up by $4000pa to around $30,000pa we start to bump into the already very small margin between between the least valuable and the median wage of something like $40,000.. you’ve just narrowed the margin by 40%.

    You’ve thus created a huge incentive for more valuable workers to agitate for more money to restore the margin.. so you end up with that old 1970s “wage price spiral” and “relativity” argument that was so destructive back then.. and you are doing it just as we are (hopefully) coming out of a very severe downturn.

    Once again we would be basing wage increases on notions of “fairness” rather than productivity, with all the connotations that brings back.

    JC

    Comment by JC — May 25, 2011 @ 6:57 am

  46. 42.Which means that all the remainder of the labour force (what, 2 million people?) are paid more than the legislated minimum. Is it possible that those 100,000 people’s productivity only justifies that minimum?

    Say we abolished the minimum wage, or reduced it.

    Do you suspect that over time the jobs that are currently min wage would see the wage drop, or do you think those jobs would stay at the old rate and the only jobs getting the new, reduced, min wage would be jobs that didn’t exist previously?

    Comment by Pascal's bookie — May 25, 2011 @ 8:03 am

  47. wtl @ 38 “CF: You could have save us all those comments by simply saying “AGW doesn’t exist and no amount of data or science will ever convince me”. However, please remember to apologise to our future generations when you are proven wrong.”

    It’s all ABOUT the science and the data, wtl. What’s inconvenient for you is those scientists who will stick their head above the political parapet and voice their doubts. Seriously, look into the role that feedbacks play in the theory. And then look at how the scientists can’t agree that there is a positive feedback from water vapour in the real world.

    Comment by Clunking Fist — May 25, 2011 @ 8:55 am

  48. Well outside my expertise, but I’d prefer to consider some individual cases. As noted above, youth are a major part of retail and unskilled jobs, so the decision to employ/unemploy people is based on the current need and financial situation of the employers. They’ve presumably been doing the sums, and using them to motivate existing staff as recession threatened. How many of the unemployed have never been employed, versus those laid off whilst at the minimum wage?.

    Wages are only one cost of hiring. Once hired, employers upskill employee via training, courses, etc, so the value of that individual become greater than a new recruit.
    Surely employers would hold onto many of those people, who may also be less inclined to jump in a recession. If the employer fails or is rationalised out of a location, unemployment occurs regardless of all other factors.

    In some easily-trained positions ( shot assistants, check-out ) there are many more candidates as the supply exceeds demand, so wages stay low, and the incremental costs of training etc., are minimal in a large retail business with well-structured processes. Those positions also can be useful for people returning to the workforce, increasing competition. Employers may favor reliability rather than wage cost, I would.

    The threat of technology displacing unskilled hasn’t manifested much until recently, but as the cost of unskilled labour goes up, so do does the imperative to invest to reduce labour costs. Recent examples in my world, self service at Pak-n-Save, unmanned service stations, decrease in suburban service stations etc. etc. I use them, so are my purchasing choices displacing unskilled workers?. Probably.

    Solutions, cheaper airfares to OZ, more useful skill training for youth ( simpler apprenticeships in more fields ), incentives to move where work may be, incentives to employers to cover youth training in wanted occupations all the way to graduation, rather than just at the start. etc..

    Comment by Bruce Hamilton — May 25, 2011 @ 9:49 am

  49. It’s worth contrasting the more careful caveats of Crampton’s comments here with the thunder of certainty with which his study was picked up by the Brash/Farrar camp:

    Brash: “I worry that, despite knowing that the Labour Government’s abolition of the youth minimum wage has very substantially increased youth unemployment – by 12,000 according to Canterbury University economics professor Eric Crampton – we have taken no action (indeed, we voted against Roger Douglas’s Bill to reinstate the youth minimum wage), so that thousands and thousands of young people leave school or training and quickly become demoralized, deprived of the opportunity to support themselves, with all the social and personal harm that that does.”

    Farrar: “This is a topic I have blogged on often, and do agree with Don on. The abolition of the youth minimum wage has been devastating to the employment prospects of young people.”

    http://www.kiwiblog.co.nz/2010/11/return_to_orewa.html

    Comment by terence — May 25, 2011 @ 7:24 pm

  50. @Terence:

    Yup. Farrar is mildly economically literate, except where his priors get in the way. Brash is a fruit loop who doesn’t understand empirics, just theory (how did he get a Phd anyway? Standards must have been low back then).

    Mind you, don’t come close to The Standard in terms of finding ways to justify their prior ideological biases :p

    Comment by DT — May 25, 2011 @ 8:18 pm

  51. So are you agreeing or disagreeing with Farrar DT or just posturing and pushing your shiny feathers out (of your ass)?

    Comment by shakes ead — May 26, 2011 @ 2:25 am

  52. So are you agreeing or disagreeing with Farrar DT or just posturing and pushing your shiny feathers out (of your ass)?

    Comment by davids ghost — May 26, 2011 @ 2:26 am

  53. I think Farrar was wrong. There isn’t much evidence that raising the youth minimum wage has an unequivocally bad impact on youth unemployment.

    Comment by DT — May 26, 2011 @ 8:35 am

  54. The main point Danyl’s graph makes, I think, is that, whatever impact the youth min wage has it’s, actually pretty minor compared to the main driver of unemployment — macroeconomic performance. That the Farrar/Brash/Douglas right are focusing on one while averting their gaze from the other speaks volumes, I think.

    Comment by terence — May 26, 2011 @ 10:31 am

  55. Personally I think the Min Youth Wage has compounded the effects of economic downturn.

    Comment by abel the amish — May 26, 2011 @ 10:35 am

  56. Brash is a fruit loop who doesn’t understand empirics, just theory (how did he get a Phd anyway? Standards must have been low back then).

    It’s perfectly reasonable to get a PhD based on theory alone; the mistake (and it’s a common one) is forgetting that anything worth knowing exists outside the scope of your PhD. It’s the old cliché about higher education – you learn more and more about less and less, until you know everything about nothing.

    Comment by James Butler — May 26, 2011 @ 11:52 am

  57. @Terence: Even with the caveats, I’d put at least an 80% chance on that about 5-8 points of current youth unemployment are due to min wage changes. That’s not a scientific error bound, that’s “How much would Crampton pay for a contract paying $1 when Hand of God comes down tomorrow (which it will with certainty) and reveal the true effect of minimum wages on youth unemployment.” Just seeing less and less else that it could have been as the effect persists over time. What we know with reasonable certainty is that youth unemployment rates are way the heck out of whack relative to adult unemployment rates. I’d put decent money on the minimum wage changes being to blame. But can’t rule out that it was something else.

    Comment by Eric Crampton — May 27, 2011 @ 5:00 pm


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