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Nothing to stop young workers being paid above minimum

Alexander Philipatos | The Australian | 04 April 2014

The Fair Work Commission’s decision to lift the youth wage by 25 per cent for 20-year-old retail workers to the full adult rate of $17.98 an hour will make our award system more rigid and will cost jobs in the retail sector.

Youth wage rates reduce the cost for businesses of employing young workers, raising demand for young labour and increasing job opportunities of our young, low-skilled workers. The changes will harm young workers, as minimum wages cause unemployment, particularly among the less-experienced and low-skilled.

Currently, the minimum wage for 20 year olds is 90 per cent of the full adult rate, with younger workers having a progressively lower proportion of the adult minimum wage. Lifting the minimum wage will see the hourly rate for 19-year-old retail workers jump from $14.38 to $17.98 when they turn 20.

Before these changes, the transition from youth to adult wages was in manageable 10 per cent ­increments. While the changes will initially affect only 20-year-old workers in the retail sector, this decision becomes the basis of further campaigns by the Shop, Distributive and Allied Employees Association to remove youth wages in the retail award for all workers aged 18 years or over.

The unions argue an 18 year old who can drink, vote, drive and fight for their country should be paid the full adult rate. Superficially, this argument makes sense. Two workers identical in all other respects but age should be paid the same wages if they are doing the same work. But there are other factors that cannot be overlooked.

First, there is nothing that prohibits young workers from being paid more than the minimum wage. Market forces will ensure young workers with good skills and experience receive more than the relevant youth wage, anyway.

Second, the economic reality is that high minimum wages cause increased unemployment, espec­ially among those with little ­experience or underdeveloped skills. This is because workers whose skills and experience attract a wage lower than the minimum are not profitable for employers to hire. These are the workers who are made unemployed by a minimum wage.

These facts are widely recognised in the academic community, and a recent study of mini­mum wage effects in 18 EU countries confirms the strong ­disemployment effects minimum wages have.

The point of youth wages is not that all young workers are worth less than adult workers or even that they are unable to be as productive. Rather, youth wages acknowledge age can be a relatively good proxy for gaining workforce skills and experience, discipline, maturity and attitude.

Far from punishing young workers, youth wages are designed to enable them to compete with those who have been in the workforce for longer. Without youth wages, employers are more likely to hire older, more experienced workers in the place of young workers.

Which leads to the third point. Youth unemployment is at 12.4 per cent and has been rising for the past two years. Youth workforce participation has contracted 10 per cent since 2009. Employment growth in the economy as a whole decreased 0.3 per cent this year.

Increases in the unemployment rate are likely to be borne disproportionately by those with less experience and fewer skills. Given the economic climate, abolishing youth wages (effectively increasing the minimum wage) will be damaging.

The SDA holds two conflicting convictions: it claims to represent the interests of young workers, yet also wants wage equality for youths and adults.

It fails to recognise the simple reality that you cannot have low unemployment, a high minimum wage and no youth wages. Without youth wages, young workers who could find a job at a lower wage rate than the full adult wage will be left out in the cold, and some of those will be members of the SDA.

It is a shame the Fair Work Commission, in concert with the unions, has chosen to erode the opportunities for these young workers. Those arguing for more fairness to young workers must acknowledge that, for young workers losing their jobs, abolishing youth wages isn’t necessarily a fairer outcome.

Alexander Philipatos is a policy analyst at The Centre for Independent Studies.