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Should workers under the age of 21 receive reduced rates of pay?




Echo Issue Outline 1999 / 15-16: copyright © Echo Education Services
First published in The Echo news digest and newspaper sources index.
Issue outline by J M McInerney


What they said ...
` ...the unemployment rate for young people in med-2000 could jump to over 30 per cent in the months following the abolition of junior wage rates'
Mr Peter Reith, federal Workplace Relations Minister

`...we have already witnessed [that] increased profit margins do not automatically translate into more jobs'
Dr Judith Bessant, Youth Studies, Australian Catholic University, Oakleigh

In March, 1999, the Senate defeated the Coalition Government's Youth Wages Bill. The bill would have seen the entrenchment of junior wage rates for workers up to the age of 21 beyond June 22nd, 2000. It would also have allowed for youth wages to be extended into areas such as the building industry, where adult wages are paid currently once apprenticeships have been completed.
The bill was opposed by the Labor Opposition, the Democrats and independent senator, Mr Brian Harradine.
The debate on the question is, however, far from over. The Government has indicated that it will re-introduce the bill in June of this year. This would be at the time that the Australian Industrial Relations Commission releases the results of its inquiry into youth wages.
It also appears that the Labor Party is in the process of refining its position on this question.

Background
In 1994, under the Keating Labor Government, an amendment to the Industrial Relations Act removed an employer's right to set wages on the basis of age.
A transition period was allowed for. Youth wages were not to be removed until June 1997.
In March, 1996, a Coalition Government was elected with a different set of industrial relations priorities. The Howard Government produced a draft Workplace Relations Bill in the same year. One of the provisions of the bill would have removed the 1997 deadline and allowed junior wage rates to continue.
The Democrats negotiated a number of modifications to the bill as a condition of their supporting it in the Senate.
One of these conditions was that the transition period was to be extended to June 22nd 2000 and that the Australian Industrial Relations Commission should be charged with investigating and making a series of recommendations on junior wage rates by June 22nd, 1999.
The Democrats have maintained that implicit in this agreement was the understanding that the Government would not legislate to entrench junior wage rates before June, 2000. The Government maintains that this was never the case.

Definition of Junior Wage Rates
`Junior wages' are rates of pay for young people that are determined on the basis of their age.
They are a percentage of the rate that would be earned by an adult employee.
Junior rates have existed since early this century. They apply in around 45% of federal awards.
Junior rates can apply to workers aged between 15 and 21 years.
The retail industry is the largest employer of young people, employing nearly 50 per cent of the teenage workforce. Junior wages typically apply in this industry, with a 17-year-old usually earning $6.85 an hour or 60 per cent of the adult rate. When the age of 21 is reached, the full rate applies in most cases. 56 per cent of all people aged under 21 are employed on junior wage rates.
Junior wage rates do not currently require that the employee receive any formal, accredited training. This is the case only with traineeships or apprenticeships.
(This information is drawn from the Australian Youth Policy and Action Coalition (AYPAC)'s submission to the AIRC's Junior Rates Inquiry. The full submission can be found on the Internet at http://www.aypac.org.au/library/emp_train/jnr_rates_sub.html)

There is a number of Internet sources which supply information on youth employment generally and on the Australian situation in particular. Most of these sites make specific reference to the question of youth wage rates.

The Organisation for Economic Co-operation and Development (OECD) produced an international Jobs Study in May, 1995. This includes a major subsection on removing barriers to job creation. This section includes an overview on attempts worldwide to reduce the cost of youth labor, including the introduction of youth wages. Specific reference is made to the Australian situation. This is interesting both because it allows for international comparisons and because it describes the Australian situation prior to the election of a Coalition government.
The overview can be found at http://www.oecd.org/sge/min/chp3_dis.htm

The Australian Youth Policy and Action Coalition (AYPAC) is an association of some thirty youth organisations including Guides Australia, Scouts Australia, Kids Help Line, Fusion Australia and the YWCA. The organisation develops policy positions on youth issues and acts as an education and lobby group.
The AYPAC home page can be found at http://www.aypac.org.au/

AYPAC produced a very useful submission to the Australian Industrial Relations Commission (AIRC) Junior Rates Inquiry.
The six page submission explains what junior wage rates currently are; outlines what proportion of the workforce receives them and indicates the extent to which they would remain in effect even if it is legislated that junior wages should not discriminate against young people.
The submission outlines the case put by the government in support of junior wage rates and argues against this case on a point by point basis.
It also gives a summary of other major arguments offered against junior wages.
The AYPAC submission concludes with a detailed overview of United States research apparently indicating that increasing wage rates for young people does not threaten their employment.
The AYPAC submission can be found at http://www.aypac.org.au/library/emp_train/jnr_rates_sub.html

The question of youth wages has been treated extensively in the Australian print media. Some of this coverage has been reproduced on the Internet.
The Sydney Morning Herald printed an article on September 11, 1998. It is titled, Fur flies on youth pay rates and reports on the political point scoring between the Coalition Government and the Labor Opposition with regard to their respective policies on youth wages.
The article notes that the Opposition does not simply want young people paid at adult rates, rather it favours pay rates based on experience and competence.
The article can be found at http://www.smh.com.au/news/9809/11/text/pageone4.html

On November 27, 1998, The Sydney Morning Herald published an analysis titled, 200,000 juniors face pay cut.
The article, written by Tom Allard, details the current range of pay rates available to those under 21 and indicates whose wages might be cut in the event of the Coalition Government being able to implement its youth wages policy.
The analysis can be found at http://www.smh.com.au/news/9811/27/text/pageone1.html

On March 3, 1999, the Australian Financial Review published an article titled Discount youth pay rate at risk. It was written by Katherine Murphy.
It treats the probable defeat of the Government's youth wages bill in the Senate and gives some background to the Democrat's opposition to that bill.
The article can be found at http://www.eden-network.org.au/07_news/discount_5mar.htm

On March 9, 1999, The Sydney Morning Herald published an article which largely detailed the Government's Workplace Relations Minister, Mr Peter Reith's response to the defeat of his youth wages bill in the Senate.
The article is titled Discount youth pay rate at risk and can be found at http://www.smh.com.au/news/9903/09/breaking1/news2.html

On March 10, 1999, The Sydney Morning Herald's editorial, Beazley's blinkers, considered the recent defeat in the Senate of the Government's youth wages bill. The editorial argues that the Government's youth wages bill should have passed the Senate and criticises the Opposition for backward-looking policies.
The editorial can be found at http://www.smh.com.au/news/9903/10/text/editorial.html

Also on March 10, 1999, The Daily Telegraph published an editorial titled, A victim of politics. The editorial defends the Government's youth wages bill as a means of promoting youth employment and is critical of the degree of influence exerted by independent senators such as Mr Brian Harradine.
The editorial can be found at http://www.news.com.au/nsw/4297630.htm


Arguments in favour of junior wage rates
There are two main sets of arguments offered in favour of junior wage rates.
The first looks at the situation from the position of a prospective employer and suggests that a young and inexperienced worker is of less value to an employer and so should be paid at a lesser rate.
The second set of arguments consider junior wage rates from the perspective of the young unemployed and suggests that reduced wages are an important part of breaking the unemployment trap faced by many young people.
The central argument offered here is that employers will either be unable or unwilling to pay junior workers higher wages.
It has been suggested that the result of increased wage rates for young people would be either that numbers of young people currently in employment would be laid off or that employers contemplating taking on additional young people would not do so.
The Government has sited figures supplied by the Productivity Commission. The Productivity Commission has conducted a study on the impact of the removal of the junior wage and its replacement by skill or competency based wage rates. The Commission's study apparently indicates that a 1 per cent rise in youth wages could reduce youth employment by 2-3 per cent.
After the defeat of the Government's youth wages bill in the Senate, Workplace Relations Minister, Mr Peter Reith, claimed that youth unemployment could rise from present levels of of 24.1 per cent to 30 per cent.
Mr Reith stated, `... on a conservative estimate, the advice to me from my department is that the unemployment rate for young people in med-2000 could jump to over 30 per cent in the months following the abolition of junior wage rates.'
Mr Reith has further claimed that the wages bill for workers over 18 presently on junior rates would grow to $360 million if they were paid full adult rates.
Age assistant editor Tony Parkinson has argued that `employers will not hire young or unskilled workers as long as they are forced to pay wages that exceed the productive value of the employee.'
Mr Parkinson goes on to claim that the trend away from the unskilled has been developing for several decades and to imply that opposition to youth wages could place some people in a pool of permanently unskilled and thus, unemployed.
Mr Parkinson states, `the experience of the past 20 years ... shows business will look for alternatives in technology. The pool of jobs for unskilled workers has contracted throughout the Western world.'
Mr Parkinson has also noted, `... there are risks that a significant proportion of society - the unskilled, the poorly educated - will find themselves locked out of the equation.'
From this position it is argued that youth wages are not an exploitation of young workers. Instead, supporters of junior wage rates argue, they are a means of allowing young people to find an initial place in the workforce from which they can develop the skills and experience necessary to allow them to proceed to a position in the adult labor force.
Those who argue this case see junior wages as transitional only and a necessary means of breaking the cycle of unemployment and thus inexperience in which many people, adults and juniors, are caught.
Further it has been argued that those aged between 15 and 21 generally do not need an adult rate of remuneration as they do not generally have the family responsibilities that usually come with adulthood.
It has further been noted that there is an increasing trend toward young, unmarried Australians to live with their parents, which also reduces their cost of living.
These points have been made by Herald Sun commentator, Paul Gray.
Mr Gray has argued, `If you are married or a single person parent with children, your income needs are greater than for a person with no dependents.'
Some critics of attempts to limit the application of junior wages argue that those in employment are seeking to secure their own rates of pay, rather than to improve the employment prospects of those currently out of work.
According to this line of argument, those likely to be disadvantaged by the Government's legislation are young people under the age of 21 who work in industries where they already receive adult wages.
If the Government's legislation comes into force it is probable many of these young people will have their wages reduced.
The Australian, in its editorial of March 11, 1999, claimed, `unions fear that apprentices in craft-based industries who are now paid adult rates when they get their trade papers, at say age 18, will be forced into lower wages ... (This) ignores the needs of those who are not in work and who are unlikely to gain one of the limited apprenticeships being offered.'
The Government has defended itself against accusations that it should have waited until after the AIRC released its recommendations on youth wages before attempting to introduce new legislation effecting junior wage rates.
Peter Reith, the Minister for Industrial Relations, has claimed that the agreement the Government reached with the Democrats in 1996 to have the IRC investigate junior wage rates did not preclude it introducing policy in that area before the IRC released its findings.
The Government has also claimed that its success in the 1998 elections, in which it indicated that it would seek to entrench and extend junior wage rates, gives it an electoral mandate to implement its youth wages policy.
This point has also been made by the Minister for Industrial Relations, Mr Peter Reith.
Mr Reith has stated, `It was certainly always clear that our intentions were that at the next election we would campaign on this issue, and on this issue we did campaign in 1998.'

Arguments against junior wage rates
There are a number of arguments offered against the automatic retention and extension into other areas of junior wage rates.
The first of these is that there is no simple connection between wage rates and employment.
According to this line of argument, we have witnessed a period of increasing youth unemployment at a time when a majority of employed young Australians are paid at junior rates.
It has also been noted that the cost of youth labor has been further reduced by increased part-time and casual employment among young people.
Those who argue that relatively low labor costs do not necessarily result in increased employment maintain that despite the current low cost of youth labor we still have high youth unemployment.
This point has been made by Dr Judith Bessant, Youth Studies, Australian Catholic University, Oakleigh.
Dr Bessant has argued, `...we have already witnessed [that] increased profit margins do not automatically translate into more jobs.'
It has further been argued that the reduction in youth employment is the result of changes in the structure of the workplace, especially the use of technology to replace entry-level trainees. It is not, critics argue, because young employees are pricing themselves out of a job.
This point has been made by Age commentator, Kenneth Davidson.
Mr Davidson paraphrases and then quotes a report produced by the House Standing Committee on Employment, Education and Training.
Mr Davidson paraphases, `According to the report, over the past decade teenage employment in skilled trades has fallen 33 per cent. Entry-level teller jobs in banks and clerical jobs in insurance have all but disappeared.'
Mr Davidson goes on the quote the report, `Technology and policies favoring privatisation, corporatisation and outsourcing have also transformed the state and federal public sectors at the cost of large numbers of entry-level jobs.'
Another argument put against extending the junior wage is that it will reduce the wage rates of young people already in employment at adult rates.
It has also been suggested that if junior wages are extended into areas that currently do not have them, then any possible increase in youth employment is not likely to be because of increased positions but because adults on full wages have been replaced by young people on junior wages.
This point has been made by Ms Renata Musolino, training officer with the Liquor, Hospitality and Miscellaneous Workers Union.
Ms Musolino has stated, `If introducing the youth wage into the building sector will provide 60,000 jobs for young people, it will be at the expense of the adult workers who have those jobs.'
In addition it has been argued that the Government's move to entrench youth wage rates in law and to extend them into areas where they do not currently apply is premature.
It is argued that the move is premature because it is being made in advance of the recommendations of the Australian Industrial Relations Commission on the issue. This report is to be released on June 22nd, this year.
This point has been made by a number of critics, including Age commentator Michael Gordon.
Mr Gordon has stated that there is a `strong case' for waiting for the recommendations of the IRC inquiry.
Mr Gordon has claimed, `After all, it was the Federal Government that established the inquiry and all governments have seen fit to make submissions to it. So too have the nation's largest employers of young people, including McDonald's, Coles and Woolworths.'
It has also been claimed that the concept of junior wages should be changed so that they can be removed before employees are 21, include a formal training component and take account of the skills of the employee.
According to this line of argument, if junior wage rates are to apply, it is more appropriate that they cut out after a person reaches 18. Those who support this view argue that in most other areas, such as being able to vote, consume alcohol or drive, 18 is regarded as the age a which a person should be treated as an adult.
This position has been put by the Shop Assistants Union, a large number of whose teenage members are currently employed at junior rates.
It has been suggested that the Labor Party, rather than opposing junior wage rates totally, may also decide that, if they are imposed in a certain employment sector or on a particular employee, they should apply only up to the age of 18.
In addition, it has been argued that it is more appropriate to view junior pay rates as training wages, than it is to pay someone at a lower rate simply because of their age. The concept of training wages was part of the policy of the last Labor Government.
According to this line of argument, if training wages are re-established then reduced wage rates for juniors are only legitimate if they are accompanied by accredited training.
This position is being promoted by the Labor Opposition which has argued that employers with workers on junior rates must accept a responsibility for training these young people.
The Labor Party has referred to this as a `reciprocal obligation' policy.
It has further been argued that reduced wage rates for some young workers are not an automatic consequence of their age, but are simply a reflection of their relative lack of skills and experience.
Mr Beazley, the leader of the Labor Opposition, has stated, `... young people without any work experience or skills would be paid less, in exactly the same way as adults with fewer qualifications and less work experience tend to be paid less than other adults.'
At the moment, part of the difference between the two parties' policies appears to be that the Coalition would have junior wages rates applied, wherever possible, on an automatic basis.
Labor Party appears to be suggesting that employers assess the skill and experience of potential employees and pay them accordingly..

Further implications
The Australian Industrial Relations Commission is expected to release its recommendations on junior age rates on June 22 this year. Neither the Labor Party nor the Democrats have been prepared to spell out the detail their policy positions on this question before the Commission makes its findings known.
The Government has also indicated that it will re-introduce its youth wages bill in the Senate. This will also apparently happen in June. It will be interesting to note if the recommendations of the AIRC differ significantly from the provisions of the current, recently defeated bill, and, should this be the case, if the Government will alter its bill before sending it to the Senate a second time.
If the bill does differ significantly from what is recommended by the AIRC and if the Government does not make amendments to it, then the bill is all but certain to be defeated in the Senate a second time. The Democrats appear to be firmly opposed, on the grounds of equity, to extending a youth wage into further employment areas as is proposed in the current legislation.
When the youth employment bill is presented to the Senate a second time, the Democrats will hold the balance of power in their own right, without having to call on the support of independent senators Coulston and Harradine.
What then seems likely is that the Government will attempt to reach some sort of compromise with the Democrats to ensure that its youth wages bill passes the Senate. This was achieved in the Government's first term with its industrial relations legislation. The Democrats, then under the leadership of Senator Cheryl Kernot, negotiated an industrial relations legislation package with the Government. This package then passed the Senate.
If history repeats itself, it seems likely that the Government will ultimately have to make some modifications to its youth wages bill. From a political point of view it would be sensible to make these changes sooner rather than later, to avoid the impression of having been forced to do so by the Democrats.
What would seem most politically advisable would be to make some appropriate, if small-scale, amendments to the proposed legislation so as to appear to be taking the recommendations of the AIRC into account.
There is even the possibility that the recommendations of the AIRC on youth wages may not differ significantly from the position favoured by the Government.
However, the Government may be reluctant to be seen to have been influenced in any measure by the AIRC. The Government is currently introducing legislation into Parliament which would reduce the influence of the AIRC. The Government is generally regarded as being ideologically opposed to the IRC, believing its rulings tend to favour workers.
The Government appears to wish to reduce the significance of the IRC as part of a movement toward a more deregulated labor market.
It is difficult to predict the impact this current debate will have on youth unemployment.
It appears that the Labor Party proposes to reinstate the training wage that formed part of its policy when in government. Under this proposal young workers could be paid less than skilled adult workers, but the trade-off would be that they would receive some form of accredited training,
This proposal has some merit as it is an attempt to ensure that young people do not simply occupy low-paid unskilled positions until they are of an age where they must be paid more, at which point they are put off. Such a pattern of employment would not significantly increase the likelihood of these young people moving onto more secure, skilled and better paid positions in the adult workforce.
A test of the Government's good faith on this issue will be the position it finally adopts with regard to youth workplace training.
It will be interesting to note if the Victorian premier, Mr Jeff Kennett, campaigns on this issue in the lead-up to the next Victorian election. Mr Kennett objected strongly to the Senate's rejection of the federal Government's Youth Wages Bill. He indicated that he was willing to campaign on the issue and that he would enlist the support of major companies employing youth workers, such as McDonald's and Coles.

Sources
The Age
10/3/99 page 1 news item by Meaghan Shaw, `Kennett enters wages row'
10/3/99 page 6 comment by Michael Gordon, `Challenge to Senate's authority'
10/3/99 page 16 letter from Dr Judith Bessant, Youth Studies, Australian Catholic University, Oakleigh, `PM's youth wage will hurt young people'
11/3/99 page 8 news item by Brendan Nicholson, `Democrats vow greater scrutiny of tax package'
11/3/99 page 8 analysis, `Youth wages: the story so far'
11/3/99 page 19 comment by Kenneth Davidson, `Spare us crocodile tears for youth'
12/3/99 page 16 letter from Richard Armstrong, `Young doesn't mean second rate'
12/3/99 page 6 comment by Michael Gordon, `Jobs drive Howard reform'
15/3/99 page 12 letter from Dr Phillippa Dee, Productivity Commission, `Youth wage will create jobs'
15/3/99 page 12 letter from Renata Musolino, Liquor, Hospitality and Miscellaneous Workers' Union, `Or will adult workers lose out?'
15/3/99 page 13 comment by Kenneth Davidson, `Lies, damned lies and econocrats'
20/3/99 page 8(News Extra) comment by Tony Parkinson, `Beazley's advances hold back on labor reform'

The Australian
8/2/99 page 2 news item by Ian Henderson, `Reith turns up heat on youth wages'
10/3/99 page 2 news item, `Youth jobs warning'
11/3/99 page 5 news item by Sid Marris, `Reith setting youth pay trap, says Labor'
11/3/99 page 14 editorial, `Wage debate puts politics before youth'
13/3/99 page 2 news item by Ian Henderson, `Labor adds bite to youth wages policy'
19/3/99 page 2 news item by Ian Henderson, `Beazley to keep junior pay system'

The Herald Sun
12/3/99 page 19 comment by Paul Gray, `What a silly decision on youth pay'
13/3/99 page 24 letter , `Senate act ridiculous'