Youth wages and poverty
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Youth wages have traditionally been set at a lower rate than adult wages. In this article, Peter McDonald discusses the rationales that underpin this practice. He asks the question 'should the issue of poverty be relevant in the setting of youth wages?', and argues that greater weight be given to work value when setting wages for young people.
Youth wages have traditionally been set at a lower rate than adult wages. In this article Peter McDonald, AIFS Deputy Director (Research), discusses the rationales that underpin this practice. He asks the question 'should the issue of poverty be relevant in the setting of youth wages?', and argues that greater weight be given to work value when setting wages for young people.
In ABS data collections, the young are either dependants or separate income units. In reality, the situation is not as clear cut as this since many young people, both students and workers, receive income of their own but are part of the economy of their parents. The clearly dependent group according to ABS definitions, that is, full-time students not in the labour force and living with parents, constitutes about 35 per cent of 15-19 year olds. On the other hand, those clearly independent in ABS terms, that is, employed persons who are not at home and not full-time students, make up only about 7 per cent of 15-19 year olds.
Therefore, for a majority of 15-19 year-olds, poverty calculations involve some decision as to whether or not they and their incomes should be included in their parents' economy.
Principles Relating to the Setting of Youth Wages
Youth wages have been set at lower levels than adult wages and are now set as fixed percentages of the basic adult rate. Following Short (1987), there are four main rationales for setting youth wages at a lower rate.
1. Family support circumstances
During the period of the basic wage system in which a man was paid sufficient for the support of a wife and three children, it is not surprising to find that lower youth wages were based on the assumption that a young person did not have to support a wife and three children. Pitman (1983) has referred to the judgement of Chief Justice Dethridge of the Commonwealth Arbitration and Conciliation Court in 1934: '(youth) rates must have some relation to the cost of living, and therefore to the amount of the basic wage ... the most advanced junior has not as a rule any family responsibilities, and his rate should be materially less than the basic wage'.
Although Short (1987) presumes that young people also received lower rates because they were likely to be supported by parents, Dethridge stated otherwise in his judgement: 'rates for juniors should be high enough to maintain them'.
It could be assumed, therefore, that Justice Dethridge would not have countenanced a full-time wage rate for youth which was set below the poverty line because such a rate would not have been high enough to support them.
Before the demise of the basic wage, the argument that a young person need not be paid the same as an adult male supporting a family would have been so powerful that little consideration needed to be given to other rationales, including whether or not the youth was being supported by parents. Thus, it is not surprising that an argument for lower youth wages on the basis of the possibility of additional parental support is largely a post-basic wage phenomenon in an era of much lower rates of youth employment than when the Dethridge judgement was made. Even then, the argument has been more implicit than explicit. As Short (1987) has pointed out, youth wages tend to be agreed by consent between unions and employers, rather than by arbitration, so the arguments, or rationale, are not published.
These views are supported by Short's statistical analysis of awards. She found that youth award wages between 1930 and 1970 tended to track rates for adult women, implying that both were being determined on the principles of social need (youth and women both needed much less than adult men because they were not supporting families). From 1975 onwards, however, women's wages have risen relative to men's while the wages of youth have levelled off relative to men's wages. Short suggests that this is due to the implicit use of social needs principles to justify low youth wages, but that social needs are no longer being applied to justify women's wages.
The fact that parental support is implicitly assumed in the setting of youth wages is strongly suggested by a comparison of youth award rates with the single-person poverty line.
2. Development of human capital
The argument attached to this rationale for lower youth wages says that young people are easily tempted by short- term gratification and, if youth wages were set at higher levels, young people would drop out of training or educational programs which are in their own longer-term interest and the interest of the nation as a whole; alternatively, dropping out of education may be driven by parents who are unable or do not wish to support the young person. This rationale was in the forefront of the equalising of study allowances and unemployment benefits for young people.
Short (1987) states that, historically, this argument has been used frequently to ensure that unskilled work did not provide a counter attraction to apprenticeships - an argument somewhat contradicted by the increasing numbers of students who continue in education when they could be earning full adult wages. Furthermore, it cannot be argued that the preference, so evident in the 1980s, to remain in education longer has been due to a relative decline in youth wages. For the most part, youth awards have remained at the same percentages of adult rates from 1975 onwards. This suggests that young people and employers are both concentrating upon longer-term goals.
If a simple-minded, allocative principle does not apply in one direction should it be assumed to apply in the counter direction - that is, would the upward trend in participation in education be reversed if youth wages were higher? It could be argued that, aside from the apprenticeship stream which is regarded as a legitimate part of the training scheme, the remainder of the full-time youth labour market is seen by youth as consisting of low- skill, dead-end jobs. As such, a rise in wages for these jobs may not see them rushed.
3. Promotion of youth employment
A third rationale for lower youth wages is that the average young person will never be able to compete equally with the average adult with the same basic skills. It is argued in support of this that employers are influenced by the alleged immaturity and unreliability of the young compared to adults, and would therefore always choose the adult before the young person unless there is a financial incentive involved. Short (1987) alleges that this is the main reason that the ACTU, since the mid-1970s, has not pursued the cause of improving youth wages.
Work at the Bureau of Labour Market Research (BLMR 1983) in the early 1980s also supported this argument. The Bureau concluded that 'youth employment falls as their wages rise relative to adults, and conversely increases as the wages of adults rise relative to those of youth'.
This may seem like a rather conventional economic result, almost indisputable in a totally free labour market. However, the marginalisation of the full-time youth labour market in recent years means that the jobs done by youth would, in the main, be jobs which carry minimum adult rates. To the extent that this is true, youth would therefore be competing primarily with adults who currently are not employed. This may have been a problem when Kalisch and Stretton (1984) concluded that youth had lost out in public sector employment to women entering the labour force, but now, two-thirds of all women between the ages of 20 and 55 years are in the labour force. Those not in the labour force are mainly over 50 years of age, have recently given birth, or have large families. Thus young people are likely to face less competition from women during the 1990s for the 'new entrant' jobs. Sweet (1988) has argued also that there is little evidence of a consistent relationship between youth wages and youth unemployment rates over the past 20 years.
Furthermore, future cohorts of youth looking for full- time employment are going to be considerably smaller in number than they have been in recent times. Pawsey and Whittingham (1990) have shown that the number of employed 15-19 year-olds not in full-time education and not in entry-level training (apprenticeships) can be expected to drop from 291,000 in 1989 to 152,000 in 1996. Unemployment among youth is also relatively low. In April 1990, only 5.6 per cent of all 15-19 year-olds were unemployed and not in full-time education (Table 3). Indeed, the relative unavailability of young people seeking full-time work in recent years may have contributed in part to the casualisation of the youth labour market and the consequent explosion of the employment of full-time students on a casual basis.
While adults taking second jobs may compete for the casual, part-time jobs currently held by youth if youth wages were increased, there must be some debate about whether many adults would compete for the full-time jobs currently carried out by youth.
4. Work value
Adult wages are presently assessed primarily on the basis of work value - that is, skills, effort, responsibility and working conditions. Comparative wage justice and equal pay for equal work stem from this principle. While work value can be drawn upon as a rationale for lower pay for apprentices than for fully-qualified tradesmen, in the area of unskilled work, the junior may well be more capable of doing the job than an older person. Equally, as pointed out by Short (1987), in the clerical field, 19 and 20 year-old graduates may be paid less than older persons doing the same work but not being as well qualified.
It is evident, therefore, that work value cannot always be used to justify lower rates of pay for persons of younger age. Pitman (1983) has said that only in New South Wales has a wage tribunal ever attempted to assess the relative value of the work of youth.
Award Wages for Youth and the Poverty Line
In March 1990, the single-person poverty line was $183.60 per week. Henderson preferred to refer to people as being 'poor' if the income was below 120 per cent of the poverty line, that is, $220.30 for a single person in March 1990. In comparison, the following award rates applied in Victoria in industries employing large numbers of young people; the incomes shown are weekly incomes after tax, which approximate disposable incomes for these young persons.
* Federal award
This comparison shows that award rates for 15-17 year- olds are below the poverty line except for 17 year-old clerks. The rates for 18 year-olds are above the poverty line, except for the metal industries. Eighteen year- old clerks are above 120 per cent of the poverty line; but the rates for other 18 year-olds are consistent with being 'poor' by Henderson's 120 per cent criterion. It is very obvious, therefore, that age- based youth wage awards are not set at a level consistent with self-support. Or to put it more bluntly, in 1990, young people aged less than 18 years and working full-time on award rates based on their age will be below the poverty line if they have no other form of support.
In the trades, awards are set by years of apprenticeship rather than by age. Apprenticeship awards are usually below the single-person poverty line only for first-year apprentices (usually between $150 and $165 per week after tax). Award rates for second-year apprentices in the building trades are around 120 per cent of the poverty line at $220 per week after tax. In other trades (cooking, carpenters not on construction work, butchers), award rates for second-years are below 120 per cent of the poverty line at around $190 to $200 per week after tax.
These awards would be more easily assessed if information was readily available on how many young workers are actually receiving particular award wages. However, using the information above and the data in Table 4, it is evident that about 57,000 employed 15 and 16 year- olds who are not in full- time education are very likely to have wages below the single-person poverty line. A further 93,000 employed young people aged 17 years are also likely to have wages below the poverty line. On the other hand, the majority of employed youth, those aged 18 and 19 years, would have wages above the poverty line.
Relevance of Single-Person Poverty Line
Should the issue of poverty be relevant in the setting of youth wages? The DEET (1990) paper makes no reference to poverty or adequate levels of income, so the conclusion must be drawn that poverty is indeed irrelevant from the DEET perspective. Should not the implicit assumption of parental support be made explicit as it has been for social security benefits for young people?
Furthermore, the demographic paper by Pawsey and Whittingham (1990) makes no attempt to describe the young according to their family circumstances. What proportions do not live with parents, and what proportions of parents are themselves in poor circumstances? Are not these relevant issues in the year in which no Australian child need live in poverty - including children who are in the full- time labour force?
Studies of unsupported youth (Maas and Hartley 1988; Hartley 1989) show the disillusionment of many with legitimate employment which does not provide them with sufficient income to survive. The cost to society of their alternative approaches to income gathering needs to be considered against the cost of providing them with a living wage. These young people are not overflowing in their gratitude that employment is available to them merely because no adult could compete with their wage rates.
If the young are to be continued to be given a 'competitive edge' in a labour market in which they are seen as not being able to compete, they are likely to still have that edge with wages that are at least above the poverty line. Does the competitive edge need to be as great as 65 per cent below the basic adult rates as it is for juniors in the metal industries?
It is ironic that there is much less of a problem in respect of poverty in the apprenticeship system where youth are receiving substantial training. Those in the age-related, residual awards receive the double dose of below poverty wages and inadequate training, unless of course they are on traineeships in which case their already below-poverty-line wages are reduced by a further 25 per cent.
Employed, Full-Time Students
Among 15 and 16 year-olds in employment, there are twice as many full-time students as there are persons who are not full-time students (Table 4). This creates a problem as most employed, full-time students are receiving penalty rates for casual work out of normal hours. This system appears to be working well for both employers and students without any needed changes to award rates. If higher award rates for youth working full-time were to be extended to students working casual hours, this system may be at risk either through the viability of employers or through competition with adults seeking second jobs. On the other hand, if casual rates were kept on a lower scale than full-time rates, there would be an incentive for employers to move even further towards casual employment.
The solution to this dilemma may lie in a lowering of the differential for penalty rates, that is, award rates could be increased for youth working in normal hours, but the multiplying factor for penalty rates could be reduced so that payments were kept roughly at present levels. This, however, may be seen as the thin edge of the wedge by unions wanting to protect penalty rates.
Poverty Among Employed 15-19 Year-Olds
Estimates have been obtained from the 1981-82 ABS Income Surveys of percentages below the Henderson poverty line among young people aged 15-19 years who were employed full-time. Two measures were applied: an income unit basis and a household basis. The income unit basis provided poverty estimates for all income units containing a 15-19 year-old person who was employed full-time and was not a full-time student. The household unit basis provided poverty estimates for all households containing a 15-19 year-old person employed full-time and not a full-time student. The household basis adds the incomes of all persons in the household and applies equivalence scales relevant to all persons in the household. The following results were obtained.
|Income relative to
the poverty line
Like all poverty, it can be concluded that the proportions in poverty are not high, but that is no consolation for those who are. The difference between the income unit basis and the household basis indicates that, if support from other members of the household can be presumed (the household basis), the level of poverty is only 35 per cent of that which would apply if no support from the household can be assumed (the income unit basis).
A recent paper prepared by the Department of Employment, Education and Training (DEET 1990) argues for a comprehensive work and training program for all young people under the age of 20 years. Such a program would provide that every young person of this age would either be in full-time training or in a job which provided training in skill formation. This is a highly desirable approach and is supported by union and employer organisations.
The DEET proposals are premised on the assumption, however, that the program need not consider whether or not the young person will be receiving sufficient income to live. The Institute suggests that somewhere between about 20,000 and 50,000 young persons working full-time live in households which have incomes that are below the Henderson poverty line. This number excludes those homeless young people who may have tried to work full- time but found that the wages available were insufficient to sustain them.
Thus in adopting a new and highly desirable approach to youth training, it is important that these young people are not forgotten. The present welfare system does not overcome the income shortage of these young persons and there is a great deal of complexity in designing a welfare scheme which would overcome their difficulties.
The solution would appear to lie therefore in the provision of a minimum, full-time wage to all workers, irrespective of age or training, which was set at least above the single-person poverty line. The cost of this proposal to any one employer would be minimal as very few full-time workers would have wages below the poverty line. Such a solution would entail greater weight being given to work value than to any other rationale in the setting of wages for young people.
This is an edited version of a discussion paper presented by Peter McDonald to the Joint Workshop on Youth and Training Wages, Centre for Economic Policy Research, Australian National University and Department of Employment, Education and Training, Canberra, held on 8- 9 August 1990.
- BLMR (1983), Youth Wages, Employment and the Labour Force, Bureau of Labour Market Research Report No.3, AGPS, Canberra.
- DEET (1990), 'Training wages for young Australians', Paper presented to the Joint Workshop on Youth and Training Wages, Centre for Economic Policy Research, Australian National University and Department of Employment, Education and Training, Canberra.
- Hartley, R. (1989), What Price Independence? A Report of a Study on Young People's Incomes and Living Costs, Youth Affairs Council of Victoria and Australian Institute of Family Studies, Melbourne.
- Kalisch, D. and Stretton, A. (1984), Teenage Employment in the Public Sector: Where Have All the Jobs Gone?, Working Paper No.44, Bureau of Labour Market Research, Canberra.
- Maas, F. and Hartley, R. (1988), On the Outside: the Needs of Unsupported Homeless Youth, Policy Background Paper No.7, Australian Institute of Family Studies, Melbourne.
- Pawsey, A. and Whittingham, B. (1990), 'The teenage sector: trends to the year 2001', Draft paper, Department of Employment, Education and Training, Canberra.
- Pitman, D. (1983), The Determination of Junior Wages in Australia: Needs, Work Value and Employment, Bureau of Labour Management Research Conference Paper No.26, AGPS, Canberra.
- Short, C. (1987), 'Youth wages: controversial relativities', Paper commissioned by the Youth Affairs Council of Victoria, Melbourne.
- Sweet, R. (1988), 'The youth labour market: a twenty-year perspective', Youth Studies, Vol.7, No.3, August.