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Adults in all but pay: the case for increasing youth wages

The Fair Work Commission is currently considering an application for 20-year-olds working in retail to receive 100% of the adult wage, instead of the 90% they currently receive. The direct impact of the…

In some industries, youth wages are still linked to a worker’s age, rather than one’s skill. AAP

The Fair Work Commission is currently considering an application for 20-year-olds working in retail to receive 100% of the adult wage, instead of the 90% they currently receive.

The direct impact of the application is fairly limited. It only applies to 20-year-olds and only relates to young people covered by the General Retail Industry Modern Award. Employers in fast food, pharmacies and restaurants, bars and cafes are unaffected, however anxious they may be about the precedent a successful application here could set.

Standing behind the narrow application is a general principle: that a young person, having reached the age of 18, carries all the responsibilities of adulthood but is only entitled to a fraction of the national minimum wage. Economics is often invoked to claim that the discrimination against young people is actually for their benefit: that lower wages for young people encourage employers to create jobs that would not otherwise exist, providing them with an entry into the labour market.

Research produced for the Productivity Commission in 1998, back when the Industrial Relations Commission was last asked to look extensively at the question of junior rates, suggested that “a 1% increase in youth wages would lead to a decrease in youth employment of between 2 and 5% in industries employing a relatively high proportion of youth” - but acknowledged that this did not take into account all factors, such as the substitution of youth labour for capital.

Given the uncertainty attached to that estimate, it is worth considering how the youth labour market has fared since then. Back in June 1998, youth unemployment was 15.2%. Today, even after the impact of the global financial crisis, it is 11.8%. In the intervening 15 years, there is plenty of evidence to show that the labour market is strong and sophisticated enough to promote employment opportunities for young people without resorting to discrimination.

Modern awards for other industries, including construction and manufacturing (which are significant employers of young males), have removed junior rates for many categories of workers aged between 18 and 20. Coles and Woolworths, the two largest employers in the retail sector, have removed junior rates for 20-year-olds from their enterprise agreements, and continue to employ many young workers.

But the most important development has been the growth in traineeships, which provide employers with an alternative to paying junior rates of pay. In 1997-1998, 16,700 people commenced a traineeship in sales. In 2011-2012, the figure was 52,400: more than a 200% increase.

Like junior rates of pay, trainee wages are generally set below the national minimum wage. The key difference is that in exchange for accepting a wage that is below the prevailing minimum, workers on a traineeship receive training and a qualification that they can use to advance their standing in the labour market.

Anyone concerned that removing junior rates of pay would harm the disadvantaged in the labour market should remember there are additional subsidies and supports available to employers who engage trainees from the priority groups of priority groups of Indigenous, people with disabilities, mature-aged, and school-based trainees.

These are the groups that have struggled most in the modern Australian labour market. Targeted assistance to provide training and employment opportunities is a better way to address youth unemployment than a blanket endorsement of pay discrimination.

For employers in the labour-intensive retail sector, overall wage costs are a top concern. Any change to junior rates must be factored alongside minimum wage increases, penalty rates and superannuation. However, employers in retail and hospitality have a range of reasons for wanting to employ young people that extend beyond cost.

Erica Smith and Wendy Patton from the University of Ballarat found that managers in retail and fast food valued the “mouldability, energy and enthusiasm” of young workers (especially students), as well as their willingness to work short, irregular shifts outside standard hours.

Image is also a consideration for some employers. Few retailers go to the lengths of Abercrombie and Fitch, but my University of Sydney colleagues Richard Hall and Diane van den Broek found many fashion retailers had policies governing the physical appearance of their employees, including a number that covered age.

To suggest that a cost advantage is the only reason why an employer chooses a younger worker over someone entitled to adult rates is incredibly condescending to the abilities of young people and underrates the strategies of many retail employers. Young people have a lot to offer retail employers, including flexibility, adaptability and enthusiasm. It is time this was reflected in their rate of pay.

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  1. Virginia Wong
    Virginia Wong is a Friend of The Conversation.

    Public servant

    I think this article really needs to specify who it means when they say 'young people' and 'students.' Students range from high school to uni students and under Modern awards, there is a pay difference depending on what type of student you choose.

    It is true that 'youth' can provide a business energy and enthusiasm but depending on which bracket of 'youth' you employ, experience and reliability can differ greatly between individuals. A 20 year old, for example, would normally have a bit more…

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    1. Damian Oliver

      Leading Research Analyst at University of Sydney

      In reply to Virginia Wong

      The article is really only talking about junior rates for workers aged 18 and over - that's the focus of the current application before the Fair Work Commission. Hence the title, "Adults in all but pay".

      There is still a reasonable case to be made for abolishing junior rates for workers under 18 as well, but there are a couple more factors to consider (such as the developmental stages of teenagers, their health and safety) and the impact on businesses would be much larger.