effect to our starting out wage election policy commitments. These commitments were to

[ ] Office of the Minister of Labour Cabinet EGI Committee Starting Out Wage Proposal 1 In this paper I seek your agreement to amend the Minimum Wage Act 1983 to give effect to our starting out wage election policy commitments. These commitments were to I) Establish a starting out wage set at no less than 80 percent of the adult minimum wage for: and II) sixteen and 17 year olds in their first six months of work with a new employer, and eighteen and 19 year olds who have been on benefit in their own right for six months or longer Establish a starting out wage set at no less than 80 percent of the adult minimum wage for 16 to 19 year olds in training in a recognised industry training course involving at least 40 credits a year. 2 To implement the policy, the Minimum Wage Act 1983 will need to be amended. This is to enable the minimum wage rate payable to the classes of workers eligible for the starting out wage to be prescribed by Order in Council. To be consistent, I am proposing that the training minimum wage will also be set at a rate of no less than 80 percent of the adult minimum wage. 3 The starting out wage rate and other necessary details will then be prescribed by Order in Council. I am proposing that the starting out wage will be effective from 1 April 2013, in line with the effective date of the annual review of the minimum wage. Executive summary 4 Young people who do not successfully transition into employment are at risk of longterm employment scarring effects. 5 Overall, youth employment has dropped sharply over the past five years. Between March 2007 and March 2012 employment of 16 and 17 year olds fell from 58,900 to 39,000. Employment of 18 to 19 year olds fell from 70,800 to 59,700. 1 6 The starting out wage is part of a range of measures that support more young people entering the workforce (and gaining the education and training they need for work). It will influence the demand for young people by employers, and therefore encourage them to create more jobs. 7 The policy will provide 16 and 17 year olds with a reasonable opportunity of obtaining employment. Previous minimum wage policy changes tipped the balance in favour of 18 to 19 year olds, when both groups were entitled to the adult minimum wage and employers favoured the older cohort. 1 Annual average, Household Labour Force Survey (HLFS), 1

8 Young people on benefits for long periods of time can also find it difficult to get back into work or to enter the workforce. The starting out wage will incentivise employers to take on 18 and 19 year olds who have been on benefit for six months or longer. 9 For 16-19 year old trainees engaged in industry training, reducing the credit requirement to at least 40 credits per year will support more young people to gain skills in their chosen industry. Forty credits is an appropriate balance between training and work commitments. Young people and the labour market 10 International research shows that prolonged unemployment and spells of inactivity may permanently lower young people s employability, particularly for low-skilled and inexperienced youth 2. Like other OECD countries, New Zealand is responding to the need to address the negative effects of the recession on young people and ensure they are ready and equipped to work as the recovery gains momentum. 11 Government policies focusing on the school-to-work transition and benefit-to-work transition are aimed at ensuring that young people s employment prospects are not scarred. The starting out wage proposal s focus on 18 and 19 year olds coming off benefit aligns with the OECD s suggestion 3 of tackling the demand-side barriers to youth employment. 12 A reduced minimum wage is used in other OECD countries to encourage youth employment. Evaluations overseas suggest that although the overall employment effects of minimum wages tend to be small, this effect is significantly larger among vulnerable worker groups, including young people. 4 I) Establishing a starting out wage for 16 and 17 year olds and eligible 18 and 19 year olds This section sets out the detailed policy design and covers: Who is targeted Rate of payment Age of eligibility, exemptions and time period Part-time work Multiple employers Transitional arrangements How the starting out wage can be successful Possible substitution effects 2 OECD, Off to a good start: Jobs for youth, 2011, and Øivind Anti Nilsen and Katrine Holm Reiso, Scarring Effects of Unemployment, Institute for the Study of Labor, December 2011. 3 OECD, Off to a good start: Jobs for youth, 2011, 144. 4 Starting out well or losing their way? The Position of Youth in the Labour Market in OECD countries - OECD report 2006. 2

Who is targeted Sixteen and 17 year olds in their first six months of work with a new employer 13 Young people have been disproportionately negatively affected by the economic downturn in terms of employment outcomes. There are especially high levels of unemployment for 16 and 17 year olds. There are currently around 37,600 16 and 17 year olds in employment 5. Of this number, most (27,200) are combining study with work. 14 The primary focus of young 16 and 17 year olds and 16 to 18 year old teen parents on a benefit is for them to be engaged in education, training or work-based learning. This reflects the Better Public Service target of achievement at NCEA Level 2. 15 However, there is a group of 16 and 17 year olds for whom employment may be the best outcome. 16 The starting out wage is one of the policy levers that Government can use to ensure good outcomes for 16 and 17 year olds. 17 The starting out wage means that employers can offer young people a reduced wage. This will reduce the cost of employing young people and will be an incentive to employers to employ young people, even on a part-time basis while the young person is studying. 18 The starting out wage will cover all of the workers to whom the new entrants minimum wage applies. Therefore I propose that the new entrants minimum wage be repealed. Eighteen and 19 year olds who have been on benefit for six months or longer 19 Young people who are not in employment, education, or training (NEET) are at risk of becoming discouraged from seeking training and employment opportunities. Where this happens they are more likely to become long-term unemployed than other young people. There are negative long-term economic and social effects associated with young people being out of work, especially if they remain unattached to the labour market for significant periods of time. 20 Alongside the problem of high numbers of unemployed young people, is the number of young people moving on to benefit at 18 years. There are currently 13,700 18 and 19 year olds on benefit, with 5,100 (approximately 37 per cent) of these young people having been on benefit for six months or longer. 6 21 In the 2012 March quarter there were 8,500 16 and 17 year olds and 17,600 18 and 19 year olds who were NEET. 7 Some of these NEET young people (mainly 18 and 19 year olds) will be on benefit and so may qualify for the starting out wage. 22 There are some young people under the age of 18 years who are in receipt of a benefit. These young people are also often disadvantaged in the labour market. Given their level of vulnerability, it is important that they too are eligible for the starting out wage as soon as they turn 18 years old, and are not competing for jobs at the adult minimum wage. 23 While there may be concerns that 18 and 19 year old sole parent beneficiaries would not earn sufficient wages to cover the costs of raising families if they received the starting out wage, the availability of the family tax credits for working parents ensures that these families have an adequate standard of living. For those seeking part-time 5 HLFS, March quarter 2012. 6 HLFS, March quarter 2012 7 HLFS, March quarter 2012. 3

employment, it is important that they are able to compete on an equal footing with other job seekers. 24 Again, the starting out wage is one of the policy levers that Government can use to ensure good outcomes for young people. Rate of payment 25 I propose that the starting out wage rate will be set at no less than 80 percent of the minimum wage rate which applies to adult workers in legislation. A lower limit of no less than 80 percent of the adult minimum wage provides some flexibility. The actual rate will be prescribed by Order in Council. This is consistent with the current relativity of the new entrants and training minimum wages to the adult minimum wage. Age of eligibility, exemptions and time period 26 I propose that the time period for the starting out wage be six months continuous employment with an employer. I propose that the starting out wage will not apply to workers (who would otherwise be eligible) but who are training or supervising other workers. This is the case with the current policy setting for new entrants. This recognises that a young person who is training or supervising other workers has attained a level of responsibility in the workplace and is therefore no longer considered to be lacking in experience or work-readiness. How does the starting out wage apply to 16 and 17 year olds? 27 Sixteen and 17 year olds would be eligible for the starting out wage in their first six months of employment with an employer. Once they complete six months continuous employment with that same employer they will become eligible to receive the adult minimum wage for any further work with that employer. They become eligible again for the starting out wage if they move to a new employer. 28 A person s continuous employment with an employer prior to turning 16 years old will count towards the assessment of a person s eligibility for the starting out wage. When a 15 year old in a job turns 16 years old they would become eligible for the adult minimum wage at the point at which they have completed six months continuous work with that employer, providing they remain with that employer. As a 16 or 17 year old they would become eligible for the starting out wage again at any point they change employer before turning 18 years old. 29 When a person turns 18 years old they will be eligible for the adult minimum wage unless they then spend six months or more on benefit. 30 The status quo would remain for people below the age of 16 years. That is, minimum wage rates, including the starting out wage, would not apply to them. 4

How does the starting out wage apply to 18 and 19 year olds? 31 It is proposed that: eighteen and 19 year olds who will be eligible for the starting out wage are those who have been in receipt of a benefit 8 in their own right payable under the Social Security Act 1964 for a period of six months or more. sixteen and 17 year olds who have received a benefit (such as the new Youth Payment or Young Parent Payment) for six months or longer will be eligible for the starting out wage when they turn 18 years old. 32 I propose that the benefits referred to in paragraph 31 above be specified in the Minimum Wage Act 1983. However, I also propose that it be a permissive list with the ability to specify any or all the listed benefits in the Order in Council. This will allow a degree of flexibility as to which benefit types will go towards determining eligibility for the starting out wage. Note pending the passing of the Bill that gives effect to the new benefit categories, the Minimum Wage Amendment Bill will reflect new benefit categories. 33 In certain circumstances 16 and 17 year olds are entitled to receive a benefit. It is proposed to allow for the possibility of time spent on any of these benefits while a person was 16 or 17 years to count towards their eligibility for the starting out wage on turning 18 years as well as time spent on a benefit. 34 An example of how the starting out wage would work in practice for a young person coming off benefit after six months or longer, would be that of an 18 year old, who having been on the unemployment benefit for six months, would be eligible for the starting out wage on gaining employment at a café. They would remain eligible for the starting out wage until they had completed six months of employment at this café. After completing six months work at the café they would be eligible for the adult minimum wage, even if they changed employer. 35 The requirement of six months continuous work with an employer will allow the starting out wage to apply to people who, for whatever reason, cycle back onto benefit before they have worked continuously for six months. 36 Those who complete six months continuous employment and then return to benefit would only become eligible for the starting out wage again should they spend another six months continuous time on benefit. 37 A young person under the age of 18 years who has been in receipt of a benefit in their own right for six months or longer will also be eligible for the starting out wage as soon as they turn 18 years old. This recognises that they may have a similar level of labour market disadvantage to other 18 and 19 year olds who have been on benefit for six months or longer. If not eligible for the starting out wage, these young people would effectively be further disadvantaged by having to compete on the adult minimum wage against other 18 and 19 year olds who could earn a starting out wage. 8 Relevant benefits include unemployment benefit, domestic purposes benefit, sickness benefit, invalid s benefit, independent youth benefit and widow s benefit. 5

Part-time work 38 An intent of the starting out wage policy is to assist young people to engage in work, rather than remain unemployed and/or on benefit and not working. In addition to this, the policy is intended to work with other Government policies that support young people s educational outcomes. 39 Therefore, I propose that the starting out wage should apply to any amount of work, including part-time work, for the six month time period, and not have a stipulation of hours during this six month period. This means that 18 and 19 year olds in receipt of a benefit and undertaking part-time work would remain eligible for the starting out wage while on benefit until they either complete six months or more continuous work with an employer or turn 20 years old. Multiple employers 40 It is possible that young people may have more than one part-time job at the same time. 41 Sixteen and 17 year olds eligible for the starting out wage will be required to work continuously with each employer for six months to become eligible for the adult minimum wage with that employer (providing they remain with that employer), regardless of how many employers/jobs they may have. Therefore, if they start another job (while aged 16 or 17 years) they will be eligible again for the starting out wage with that new employer. 42 Eighteen and 19 year olds too who are eligible for the starting out wage and have more than one job at the same time, will be required to complete six months continuous employment with each employer to then become eligible for the adult minimum wage. The difference will be that once they have completed six months continuous work with an employer, they will not be eligible for the starting out wage with a subsequent new employer. This means that the starting out wage will apply for any job they get before they have done six months continuous work with an employer. Any job they get after completing six months continuous work with any one employer will make them eligible for the adult minimum wage. 43 The exception to this would be if after this period of continuous employment with an employer they received a benefit for six months or longer while aged 18 or 19 years. At this point they would again become eligible for the starting out wage. This period of time on benefit indicates that they remain vulnerable in the labour market and should therefore be eligible for the starting out wage again. Transitional arrangements 44 After the starting out wage comes into force, all eligible workers would be entitled to be paid at not less than the starting out wage rate, from the date when they enter an employment relationship with a new employer. 45 Those people who are already in employment on the date when the starting out wage comes into force will continue on their existing terms and conditions 9 until they renegotiate or move to another job. 46 After implementation of the starting out wage, those 16 and 17 year olds on the new entrants minimum wage will continue on this wage until they have completed three months or 200 hours employment, whichever is less. At this point they will become 9 Under the Employment Relations Act 2000, those employed at the time of implementation would be protected by a requirement under the Act that the terms and conditions of employment (including wages) must be mutually agreed and cannot be unilaterally varied. 6

eligible for the adult minimum wage. They would be eligible for the starting out wage if they change employers while they are 16 or 17 years old. 47 On the date the starting out wage comes into force, those 16 to 19 year olds who were on the training minimum wage and who are supervising or training other workers will be required to be paid at least the adult minimum wage. 48 After the Minimum Wage Act 1983 has been amended to allow for the starting out wage, it will no longer be possible to make Minimum Wage Orders setting a new entrants minimum wage. Making the starting out wage successful 49 There are several factors that need to be considered so that the starting out wage works well. These are: Some employers may pay all 16 and 17 year olds and/or all 18 and 19 year olds the starting out wage regardless of eligibility, or it will not be used effectively 50 It is important for employers to know how the starting out wage works so they can decide whether it would be suitable for their needs and ensure that they use it appropriately. Adequate education of employers about the policy will assist with this. The Ministry is preparing a communication strategy with this in mind. Effect on benefit duration rates with employers wanting cheaper labour 51 An unintended consequence of the policy may be that some employers will opt to wait for a cheaper employee to become available (someone who has completed six months or more on benefit) and, therefore, indirectly encourage young people to remain on benefits for longer. 52 While the extent to which this may occur is not known, the fact that the time on benefit prior to enactment will count towards the requirement period of six months, will mean that there will be a pool of available starting out wage employees for employers when the policy comes into force. Possible Substitution effects 53 Substitution is likely to be between 16 and 17 year olds and 18 and 19 year olds combining work with study. 10 Previous policy changes tipped the balance in favour of 18 to 19 year olds when both groups had to be paid the adult minimum wage, and employers favoured the older cohort. The starting out wage is designed to redress this imbalance between groups of young people. It aims to support young people with limited work experience into jobs, as well as encouraging job growth. 54 The starting out wage policy will have the effect of making 16 and 17 year olds on the starting out wage cheaper to employ than most 18 and 19 year olds on the adult minimum wage. This could mean that some 18 and 19 year olds without much work experience may be less attractive to employers than 16 and 17 year olds on the starting out wage. 10 The former Department of Labour commissioned research by Hyslop and Stillman (2011) found evidence to suggest employment substitution from 16 and 17 year olds towards 18 and 19 year olds following the abolition of the youth minimum wage in 2008, which had the effect of giving 16 and 17 year olds pay parity with 18 and 19 year olds. 7

II) Reducing the credit requirement for 16 to 19 year old trainees from 60 to 40 credits 55 This section covers the detail policy design and details: Who is targeted Rate of payment Transitional arrangements Management of implementation. Who is targeted Sixteen to 19 year old trainees who are undertaking at least 40 credits per year of a recognised industry training programme 56 The focus of this part of the starting out wage is on growing vocational training opportunities for 16 to 19 year olds. 57 Currently, the training minimum wage has no age specification. For the purposes of the training minimum wage, a trainee is a person required by their employment agreement to undertake at least 60 credits a year of an industry training programme for the purpose of becoming qualified for the occupation to which the employment agreement relates. The current training minimum wage rate is 80 percent of the adult minimum wage. 58 Anecdotal evidence suggests that the current setting of at least 60 credits may be too high a requirement to encourage young people to take up training. A 40 credit per year threshold may create a better balance between meaningful training and a manageable workload. 40 credits per year represents 400 hours of study per year. 59 It is expected that reducing the credit requirement to at least 40 credits per year for 16 to 19 year olds engaged in industry training will support more young people to gain skills for their chosen industry. 60 The existing training minimum wage will continue to apply to those people aged 20 years and over, who are required to undertake at least 60 credits in a recognised qualification for the purpose of becoming qualified for the occupation for which they are employed. 61 To ensure consistency and reduce unnecessary complexity, I propose that the exemption for workers who are supervising or training other workers be extended so that it will also apply to these trainees aged 20 years or older. I also propose that the training minimum wage be set at a rate of at least 80 percent of the adult minimum wage. This will ensure that the same minimum relativity applies to all those undertaking recognised industry training regardless of age. 62 There is a risk with this proposed alteration to the training minimum wage that training minimum wage recipients aged 20 years and over will be disadvantaged compared with the younger trainees receiving the starting out wage. This is because training minimum wage recipients are required to engage in no less than 60 credits to receive the training minimum wage. Employers may prefer to hire those aged 19 years and under on the starting out wage, as they would be required to do less credits to receive the reduced wage. 8

Rate of payment 63 The rate of payment for 16 to 19 year olds trainees who are undertaking at least 40 credits per year of a recognised industry training programme will be that of the starting out wage. Transitional arrangements 64 Those 16 to 19 year olds undertaking training at 40 to 59 credits would remain on existing terms and conditions 11 until they either renegotiate their employment agreement or move to another job. As long as they were required by their employment agreement to undertake recognised industry training of at least 40 credits they would then be eligible for the starting out wage if they moved to another job. 65 On the date the starting out wage comes into force, those aged 20 years and older who are on the training minimum wage, and who are supervising or training other workers, will be required to be paid at least the adult minimum wage. Management of implementation 66 There is a risk that the starting out wage for trainees, like the existing training minimum wage, may have a low uptake if it is not well understood by employers. This risk will be mitigated by publicising the starting out wage prior to commencement. Consultation 67 The Treasury, Te Puni Kōkiri, the Ministries of Social Development, Youth Development, Education, Justice, Women s Affairs, Pacific Island Affairs, and the Department of Prime Minister and Cabinet, Inland Revenue, and the Tertiary Education Commission have been consulted in the development of this paper. The Treasury 68 Treasury supports the introduction of a starting out wage, but considers that extending eligibility to a wider group of potential employees who face labour market entry barriers would boost the employment impacts of the policy and also be better aligned with the Government s welfare reform agenda. The annual Minimum Wage Order process affords flexibility to extend eligibility, and Cabinet may wish to regularly review in light of uptake and wider labour market objectives. 69 The efficacy of the Government s welfare reforms is dependent, in part, on there being jobs available for an increasing supply of lower-skilled workers. The proposed eligibility criteria for the starting out wage could incentivise employers to substitute 16 and 17 year olds (many of whom are students facing a shortage of part-time employment whilst studying, rather than risks of a lifetime of economic and social disadvantage) for workers aged 20 and over who are looking to move from benefits into employment. 70 Treasury does not oppose setting the initial level of the starting out and training minimum wages at 80 percent of the adult minimum wage; however, we do not consider it necessary to stipulate that the level must always be 80 percent or above. Enshrining a floor in legislation will restrict the Government s flexibility to respond to changing labour market circumstances and increases the likelihood that the proposed legislation will need to be amended in the near future. New Zealand s adult minimum wage is the highest in the OECD (relative to the average wage), and in 11 Under the Employment Relations Act 2000, those employed at the time of implementation would be protected by a requirement under the Act that the terms and conditions of employment (including wages) must be mutually agreed and cannot be unilaterally varied. 9

countries that have some form of youth minimum wage the wage for 16 and 17 year olds is on average only 71 percent of the adult minimum wage. Wages are sticky downwards and a high relativity will limit the job creation impacts of the policy. 71 Treasury supports the proposal to reduce the minimum number of credits required for 16 to 19 year old trainees, as a means of extending take-up and fairly reflecting the costs incurred by employers in providing industry training. However, if 40 credits per annum is deemed to be an appropriate requirement, it is not clear why this level will not apply for all employees. Having different eligibility criteria for those aged 16 to 19 or 20 and over adds administrative complexity and could disincentivise employers from utilising the lower wage rate or investing in training for employees aged 20 and over. Ministry of Education 72 The Ministry of Education notes that the starting out wage may impact on the incomes of students who are working part-time while studying or working full-time during school or tertiary holiday periods. This may impact on students ability to finance their current or future tertiary study. 73 The Ministry of Education is also concerned that the starting out wage proposal is at odds with the Government s Better Public Services targets of increasing the proportion of people attaining NCEA level 2 at school and also the proportion of the population with at least level 4 qualifications aged between 25 and 34. We d welcome the opportunity for further input to ensure that the objectives of this policy and the Government s stated education goals can be more closely aligned. Evaluation and monitoring 74 Monitoring and evaluating how the policy works will be important for gauging the effects on the employment of the policy s targeted young people. It will also be useful, given that this approach could be extended or modified at a future point. 75 Implementation of the starting out wage will be monitored through the Ministry s contact centre and any labour inspectors activity. In addition, the Ministry intends to: repeat the former Department of Labour s study Decision-making and the minimum wage employers perspectives to determine the role the starting out wage plays in employers behaviour when hiring, and whether it encourages employers to take on young people, include questions in its annual survey of employers to get information on uptake of the starting out wage and barriers, including if employers are using trial periods of up to 90 days to dismiss an employee to avoid raising some employees wages to the adult minimum wage. replicate the 2011 Hyslop and Stillman study on the impact of the 2008 youth minimum wage reform. It is suggested this research be undertaken in 2015/16 to allow for the policy to be evaluated effectively, and provide regular reports on a range of indicators to the Minister of Labour, including relevant information from other agencies where this is available. 10

Legislative implications 76 The starting out wage proposal has legislative implications. The Parliamentary Counsel Office has been informed about the proposal. 77 To implement the proposal, an amendment to the Minimum Wage Act 1983 and a new Minimum Wage Order will be required. [ ]. 78 It is proposed that the Bill will amend the Act to provide for the ability to prescribe a starting out minimum wage rate for the categories of workers who will be eligible for the starting out wage, as well as limit the rate that may be prescribed to not less than 80 percent of the adult minimum wage. A Minimum Wage Order will then need to be made to prescribe the starting out wage rates and other necessary details. 79 The proposed amendment Bill will bind the Crown as it is an amendment to the Minimum Wage Act 1983. 80 Officials will ensure that the Bill aligns with the Welfare Reform programme, which is establishing new benefit categories, extending a focus on work to more beneficiaries. Both Bills are due to proceed through the House at the same time. Financial implications 81 This policy is aimed at supporting more young people to enter the workforce. The resulting job growth will have flow on effects for overall economic growth. Human rights 82 The proposals in the Cabinet Paper raise issues in terms of section 19(1) of the New Zealand Bill of Rights Act 1990 (NZBORA), which affirms the right of everyone to be free from discrimination on the grounds specified in the Human Rights Act 1993, including age (starting at age 16) and employment status. However, legislation does not breach the NZBORA where the impairment on the right is a reasonable limit that can be demonstrably justified in a free and democratic society. 83 Officials from the Ministry are working with the Ministry of Justice to assess consistency of the proposals with the NZBORA. Advice will be provided in paper that will be considered by the Cabinet Legislative Committee. 84 The proposal may also be inconsistent with New Zealand s international obligations. Again this will depend on whether it is considered to be a reasonable and justifiable impairment on the principles protected by those obligations. Implications for people receiving ACC compensation payments 85 The implication for young people s compensation payments if they are paid below the adult minimum wage has been considered. The Minister for ACC has agreed that the present policy, of using the adult minimum wage as the basis for the calculation of minimum weekly earnings to calculate the minimum weekly compensation payment for ACC claimants, should be continued. This is consistent with how the previous change to a reduced minimum wage for young people was treated. 11

Regulatory impact analysis 86 The regulatory impact analysis requirements apply to the proposals in this paper. A regulatory impact statement (RIS) (that is attached to this paper) was initially prepared by the former Department of Labour in March 2012, and has been updated by the Ministry for the current context. 87 The former Department of Labour Regulatory Impact Analysis Panel reviewed the RIS and associated supporting material and considers that the information and analysis summarised in the RIS partially meets the quality assurance criteria. 88 In making this assessment, the Panel noted the lack of consultation with stakeholders. The Ministry will do a comprehensive post implementation review as noted in paragraphs 88 and 88. 89 I have carefully considered the analysis and advice of officials, as summarised in the attached RIS, and am satisfied that the proposals in this paper are required in the public interest and are consistent with the expectations set out in the Government Gender and ethnicity implications 90 The starting out wage has some gender implications, and also greater implications for Māori young people than for other ethnic groups. These arise because: a b c overall women make up 63 percent of 18 to 19 year olds who have been on a benefit for longer than six months. This is due to women representing 97 percent of 18 to 19 year olds on the DPB 12 there are more men (758) than women (556) who have been in receipt of the unemployment benefit for six months or longer Māori make up approximately 41 percent of 18 and 19 year olds who have been on benefit for six months or longer. Disability perspective 91 The majority of young disabled people who are on the Invalid s Benefit are not required to be actively seeking work. However, should they be able to work and choose to do so they will be eligible for the starting out wage. If these young people were not eligible for the starting out wage they would be at a disadvantage in having to compete against other groups of beneficiaries who are eligible for the starting out wage. Publicity 92 It is important for the success of this package that employers understand that they can pay eligible job seekers the starting out wage. Officials are developing a comprehensive communication strategy aimed at employers and interest groups so that employers have a sound understanding of this package. Recommendations 93 I recommend that the Cabinet Economic Growth and Infrastructure Committee: Context for the starting out wage 12 Data sourced MSD and Statistics New Zealand, 30 September 2011. 12

1 note that 16 and 17 year olds seeking full-time or part-time work and 18 and 19 year olds who have been on benefit are finding it difficult to be sustainably employed due to the effects of the economic recession; 2 note that the starting out wage is just one of the policy levers that the Ministry of Social Development can use to ensure good outcomes for young people and the starting out wage does not preclude a focus on education and training outcomes for young people who are in receipt of a benefit in their own right; Starting out minimum wage for eligible young people 3 agree that the Governor-General may prescribe by Order in Council a starting out minimum wage rate, and the class (or classes) or workers to whom the rate would apply, being workers who are between 16 and 20 years of age 4 agree that the classes of workers eligible for the starting out wage may be defined by Order in Council, by reference to one or more of the following characteristics: 4.1 the age, or range of ages of the workers (being ages or ranges of ages between 16 and 20 years); 4.2 the length of time the workers have continuously received one or more of the following benefits payable under the Social Security Act 1964 in their own right: 4.2.1 unemployment benefit; 4.2.2 domestic purposes benefit; 4.2.3 sickness benefit; 4.2.4 invalid s benefit; 4.2.5 independent youth benefit 4.2.6 widow s benefit; and 4.2.7 emergency benefit. 4.3 the length of time the workers have spent in continuous employment with an employer, whether a current or a previous employer; and 4.4 whether or not the workers are employed under contracts of service under which they are required to undergo training, instruction, or examination for the purpose of becoming qualified for the occupation to which their contract of service relates; 5 agree that the starting out wage will not apply to workers who are supervising or training other workers; 6 agree that the starting out minimum wage rate may not be prescribed at less than 80 percent of the minimum wage rate which applies to adult workers; 7 note that it is intended as set out in the stated Government s policy commitments that the classes of workers for whom the starting out minimum wage will be prescribed in a Minimum Wage Order will be: 7.1 sixteen and 17 year olds who have not yet completed six months of continuous employment with their employer; 7.2 eighteen and 19 year olds who have received for a continuous period of six months or more one or more of the benefits described in recommendation 4.2, and who have not yet completed six months of continuous employment with any one employer; 13

7.3 sixteen to 19 year olds who are required by their contract of service to undertake training in a recognised industry training course involving at least 40 credits a year; 8 note that final decisions in respect of the specific classes of workers and the starting out wage rate for those classes will be sought as part of the Minimum Wage Order process following enactment of the empowering provision and the annual review of the minimum wage; 9 note that decisions in respect of the starting out wage rate and the specific classes of workers to whom it will apply will be sought at a later date following the annual review of the minimum wage; 10 agree that at the time when the starting out wage comes into force, those 16 and 17 year olds who are on the new entrants minimum wage will be able to continue on that wage until they have completed three months or 200 hours employment, whichever is less, at which point they will become eligible for the adult minimum wage; 11 agree to repeal the power for the Governor-General to prescribe by Order in Council a minimum wage rate that applies to new entrants; 12 agree that at the time when the starting out wage comes into force, 16 and 17 year olds who are already in work, and 18 and 19 year olds who have previously been on a benefit for 6 months or longer, will remain on their existing terms and conditions until they enter a new employment agreement with another employer; Changes to the eligibility for the training minimum wage 13 agree that eligibility for the existing training minimum wage will only apply to those trainees aged 20 years and over; 14 agree that those trainees supervising or training other workers will be exempt from eligibility for the training minimum wage; 15 agree that the training minimum wage rate may not be prescribed at less than 80 percent of the minimum wage rate which applies to adult workers; 16 note that at the time when the changes to the training minimum wage come into force those workers who were eligible for the training minimum wage but who are supervising or training other workers will be eligible for the adult minimum wage; Amendments to the Minimum Wage Act 1983 and other legislation 17 agree to amend the Minimum Wage Act 1983 as necessary to give effect to the decisions above; 18 agree to a consequential amendment to the Accident Compensation Act 2001 in order to preserve the existing policy position whereby the adult minimum wage is used to determine the minimum weekly earnings for the purposes of calculating the minimum weekly compensation payment for ACC claimants; 19 invite the Minister of Labour to issue drafting instructions to the Parliamentary Counsel Office to give effect to the decisions above; 20 authorise the Minister of Labour to take decisions in consultation with other Ministers as appropriate on any transitional or consequential matters that arise from the above policy changes and any further matters of a minor or technical nature; 14

21 note that the above decisions will be subject to any necessary modifications resulting from proposed changes to the benefit categories if those changes are enacted before the Minimum Wage Amendment Bill is enacted; Post-implementation review 22 direct the Ministry of Business, Innovation and Employment, in consultation with Ministry of Social Development and the Treasury, to undertake a post-implementation review of the starting out wage and report to the Minister of Finance and the Minister of Labour by November 2016; Publicity 23 note that the Minister of Labour intends to make a media statement on the decisions about the starting out wage at the appropriate time. 15