Youth Minimum Wage Reform and the Labour Market in New Zealand

Posted: 6 Jan 2010

See all articles by Steven Stillman

Steven Stillman

Free University of Bozen-Bolzano; IZA Institute of Labor Economics

Dean Hyslop

Motu Economic and Public Policy Research

Date Written: 2007

Abstract

This paper analyses the effects of a large reform in the minimum wages affecting youth workers in New Zealand since 2001. Prior to this reform, a youth minimum wage, applying to 16-19 year-olds, was set at 60% of the adult minimum. The reform had two components. First, it lowered the eligible age for the adult minimum wage from 20 to 18 years, and resulted in a 69% increase in the minimum wage for 18 and 19 year-olds. Second, the reform raised the youth minimum wage in two annual steps from 60% to 80% of the adult minimum, and resulted in a 41% increase in the minimum wage for 16 and 17 year-olds over a two-year period. We estimate the impact of this reform by comparing average outcomes for these two groups of teenagers, before and after the change, to those for 20-25 year-olds, who were unaffected by the reform. We find no evidence of adverse effects on youth employment immediately following the reform, but some weak evidence of employment loss by 2003. We also find evidence of a 10-20% increase in hours worked following the reform for employed 16-17 year-olds, and up to a 10% increase for employed 18-19 year-olds, depending on the specification adopted. Combined, wage, hours, and employment changes lead to significant increases in labour earnings and total income of teenagers relative to young adults. However, we also find evidence of a decline in educational enrollment, and an increase in unemployment, inactivity, and benefit receipt rates, suggesting that while the minimum wage reform increased the labour supply of teenagers, this increase was not matched by as large an increase in employment.

Keywords: Minimum wage, Youth, Adult minimum wage, Labour Market, New Zealand

JEL Classification: J22, J23, J24, J28

Suggested Citation

Stillman, Steven and Hyslop, Dean R., Youth Minimum Wage Reform and the Labour Market in New Zealand (2007). Labour Economics, Vol. 14, No. 2, 2007, Available at SSRN: https://ssrn.com/abstract=1531920

Steven Stillman

Free University of Bozen-Bolzano ( email )

Via Sernesi 1
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Dean R. Hyslop (Contact Author)

Motu Economic and Public Policy Research ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand

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