27 November 2012 Submission to the Transport and Industrial Relations Select Committee on the Minimum Wage (Starting-Out Wage) Amendment Bill Remuneration is the most important means for achieving justice in work relationships. Compendium of the Social Doctrine of the Church (paragraph 302) The Catholic Church has a responsibility to look after the vulnerable. The [Starting-out wage] doesn t look after the most vulnerable. Emma, 19-year-old worker interviewed by Caritas Summary of key points Caritas is opposed to the introduction of the starting-out wage for young people in the workforce. Making young workers cheaper alone will not address the major challenges facing us as a community unable to find work for everyone. Wages cannot be treated simply as a commodity, because people deserve to live in dignity on their earnings. Caritas has undertaken a small-scale qualitative study in considering this legislation, which points out the complexity of the youth workforce and the potentially wide-sweeping impact of this policy. Caritas does not accept that the age discrimination in this Bill is justified. Young people will be made more vulnerable to exploitation, given the combined impacts of this policy together with the 90-day probationary provision allowing for dismissal without explanation and the benefit sanctions regime which penalises beneficiaries if work is refused. The Bill will displace older teenagers with younger teenagers, and older workers with younger workers. It does not create a system of employment which offers life-long job opportunities and development. While public debate has focused on the impact of this Bill on young workers under the age of 20, there are also serious concerns for the open-ended provision to pay training wages to workers over 20. Caritas Aotearoa New Zealand 1. Caritas Aotearoa New Zealand is the Catholic agency for justice, peace and development. We are an agency of the New Zealand Catholic Bishops Conference, and undertake international aid and development work in the Pacific, Asia, Africa and the Middle East, and advocacy and education for social justice at home in New Zealand. 2. Caritas is opposed to this Bill. We wish to speak to the Select Committee to outline our concerns. 1
3. In this submission we will first outline our current and previous work on young people s employment, the Catholic social teaching on the dignity of work which inspires our response, and our perspective on youth employment and unemployment. This is followed by more detailed comments on the policy and the Bill. We conclude with some concerns about the process of policy development. Background 4. Caritas consideration of this Bill is based on: Catholic social teaching on the dignity of work, including the importance of remuneration which provides people with sufficient income to live in dignity; The wide ranging experience of young people in the workforce, both within our Catholic community and in the wider community. Caritas research on the work experiences of children under the age of 18. Catholic social teaching 5. The dignity of work, and the importance of just wages and fair working conditions has been a central theme of Catholic social teaching for the past 120 years. Catholic social teaching recognises that just wages should be sufficient for a person to support themselves and any dependants they have. Pope John Paul II said that remuneration is the test of the justice of the economic system: It should also be noted that the justice of a socioeconomic system and, in each case, its just functioning, deserve in the final analysis to be evaluated by the way in which work is properly remunerated in the system...in every case, a just wage is the concrete means of verifying the justice of the whole socioeconomic system and, in any case, of checking that it is functioning justly. (Pope John Paul II, Laborem Exercens #19, 1981) 6. However, Catholic social teaching also recognises that poor working conditions and low-pay undermine human dignity. The dignity of work requires recognition of the contribution of unpaid work carried out in the community, such as the raising of children. We expect work to move people out of poverty. In many cases poverty results from a violation of the dignity of human work, either because work opportunities are limited (through unemployment or underemployment) or because a low value is placed on work and the rights that flow from it, especially the right to a just wage... (Pope Benedict XVI: Caritas in Veritate #63, 2009) 7. Decent work which recognises and supports the human dignity of workers includes work which: is freely chosen; enables workers to associate with the development of their communities; ensures workers are free from discrimination; permits workers to organise themselves and to make their voices heard; and guarantees workers a reasonable standard of living. 8. Our Catholic tradition recognises the damage caused by unemployment, particularly for young people. All people have both the right and the duty to participate in work, and the State has a responsibility to pursue policies which create work. 2
Employment problems challenge the responsibility of the State, whose duty it is to promote active employment policies, that is policies that will encourage the creation of employment opportunities. (Compendium of the Social Doctrine of the Church #291) 9. This includes a responsibility for full employment policies, including access to education and training which enable young people to achieve their fulfilment. This does not just refer to formal education outside the workplace. Policies are needed that ensure workers have secure work which provides professional and technological formation and enables them to develop their professional capabilities. This does not happen in a casualised workforce. Full employment... remains a mandatory objective for every economic system oriented towards justice and the common good. (Compendium of the Social Doctrine of the Church #288) Caritas research on children s work and youth employment 10. Caritas has undertaken two significant surveys of young people s work experience. Our 2004 report Protecting Children at Work reported results of 5000 questionnaires returned from Catholic secondary and intermediate schools, which included 16-17 year olds. It revealed significant concerns, including children working in situations outside child labour restrictions, significant health and safety concerns and lack of protection such as union coverage. Our 2007 survey Delivering the Goods was focused on a younger age group, and made a number of recommendations about improving working conditions for children under the age of 16. 11. As a result of these studies, we had a number of meetings with the then-department of Labour and other relevant organisations. We learned there was almost no active monitoring of children s work experiences, such as an overview of calls made to the Department by children and their parents. 12. Caritas has again looked to inform ourselves about young people s work experiences and to contribute to the debate around this Bill by undertaking a small-scale qualitative study involving in-depth interviews with four young people whose employment experiences are indicative of those likely to be affected by this legislation. 13. This study has been undertaken by Caritas research and advocacy intern Lynne O Brien. Through the stories of four young workers: Lo Lani, Anne, Emma and Zoey she examines what employment under the new legislation might mean for particular young people in particular work, study and living circumstances. 14. Each of the young people in the study is currently in work; two live independently without parental financial support or government assistance in the form of benefits or student allowances. Two live at home, but while one contributes to a low-income household in which both parents are employed on low-wages, the second lives in a more affluent suburb and is not required to contribute to household expenses. 15. All consider that young people in their circumstances would be greatly affected if receiving the Starting-out wage proposed in this legislation. They are all concerned about young workers that are 3
more vulnerable than themselves, and also for the clients who are often served by a young low-paid workforce, including children, elderly people, and people with disabilities. 16. The study shows that a one-size fits all approach ignores the multiplicity of circumstances and socioeconomic challenges faced by young people in the workforce. A copy of this paper is provided with this submission. Youth unemployment 17. We recognise that youth unemployment is a critical issue at the present time in Aotearoa New Zealand, and we have this in common with many other countries throughout the OECD. We recognise this is affecting a wide range of young people, some of whom have particular disadvantages and would have faced difficulties in obtaining work even during periods of low unemployment. There are also many others who would not normally have had difficulty finding jobs and entering the workforce, but have begun to seek employment, or have recently qualified, during an economic downturn. 18. The core reason for high youth unemployment rests on the demand side of the equation. Since the global financial crisis there are simply far fewer jobs available, and this particularly affects those first entering the workforce. In response to this drop in demand for workers, Caritas looks for active employment policies that will create jobs. 19. However, this legislation treats youth unemployment primarily as a question of supply. The assumption is that young people are overpriced in the labour market, and that reducing their pay will increase the numbers that are employed. 20. Even if a case had been satisfactorily made that the lowering the price of work will solve our youth unemployment problem which it has not wages are not just a commodity to be treated like any other commodity. The price of labour cannot be left to the market to determine, because people depend on their wages for their essential survival. Consideration of wage rates must take into account what enables them to cover essential costs for a decent life. That is why we have minimum wage legislation, and so it needs to be more deeply considered what would be the impact of reducing wage levels for young people, especially those who depend primarily on their wages for their survival. Position on the Bill Drafting of the Bill 21. Before discussing our specific concerns with the policy behind this Bill and its outcomes for young people, we must comment on an issue of drafting within the Bill. The Cabinet paper and Regulatory Impact Statement, as well as public announcements about the Bill and the Parliamentary debate at the First Reading of the Bill, clearly refer to the intention of the legislation to create a Starting-out rate of pay for: a) 16-17 year olds in the first six months of their employment for any employer; b) 18-19 year-olds who have received a benefit for six months or more; and c) Workers aged 20 and older who are undertaking training as part of their work. 4
22. However, the Bill as drafted does not distinguish between groups a) and b) as outlined above. Clause 4A of the Bill provides for Orders in Council to provide minimum starting-out rates of pay for 16-19 year olds in both of these categories. 23. It may be intended that the Orders in Council will refer only to 16-17 year-olds in employment and 18-19 year-olds receiving benefits. However, the law change appears to us to be more substantial than earlier indicated. If it is not intended that 18-19 year-olds in employment are covered by the Bill, this clause should clearly reflect that intention. 24. Similarly, the Cabinet paper (paragraph 58) and Regulatory Impact Statement (paragraph 15b) refer to reducing the requirement for the training minimum wage from 60 credits per year in an industry recognised qualification to 40 credits per year. However, neither the explanatory note to the Bill not the text of clause 4B(1)(c) refer to this as a requirement to qualify for a training wage. The actual text is much more open-ended:...workers employed under contracts of service that require the workers to undergo training, instruction or examination (as specified in the order) for the purposes of becoming qualified for the occupation to which their contracts of service relate. 25. Again, it may be intended to clarify this in Orders in Council, but the actual text of the legislation appears to potentially cover a much broader section of the workforce. Discrimination 26. Caritas is opposed to the introduction of the Starting-Out Wage for 16-19 year-olds in the workforce, as well as for workers over 20 who have a formal training component in their work. In the broad way in which it will touch the lives of such a wide range of young people, based on their age, this legislation is highly discriminatory. We do not accept the justification for this in the Ministry of Justice s Bill of Rights assessment. 27. The Cabinet paper (prepared before the Ministry of Justice assessment) refers only to the Bill of Rights in its section headed Human rights. In particular we are concerned that there is no indication of an assessment of the policy under New Zealand s obligations under the United Nations Convention on the Rights of the Child (UNCROC). 28. UNCROC covers children under the age of 18, and so there are two groups of children potentially affected by this legislation: 16-17 workers, and the children of young workers and beneficiaries. Reducing wages available to these households has the potential to affect the wellbeing of children, particularly if beneficiary households are coping with the complex additional demands of paying work related costs for childcare and transport, and managing benefit abatements. 29. The Regulatory Impact Analysis notes consultation with a number of government agencies, including Youth Development, but does not include analysis or consultation by the Commissioner for Children. The Select Committee needs to urgently seek a child-impact analysis in considering the impact of this legislation on child poverty, protection and participation rights. 5
Vulnerability to exploitation 30. Combined with the 90-day provision which allows for dismissal without explanation, and the sanctions regime which can reduce benefits by 50 percent if work is declined, this legislation will substantially increase the vulnerability of young workers. The Regulatory Impact Statement recognises this: It should be noted that under section 67A of the Employment Relations Act 2000 some employers may use trial periods of up to 90 days to avoid raising some employees wages to the adult minimum wage. As the extent to which this may occur is not known, incidences will be monitored by the Ministry [of Business, Innovation and Employment] (paragraph 52). 31. This recognises that the legislation provides a perverse incentive for unscrupulous employers to exploit young workers as a cheap and dispensable workforce. There are insufficient checks and balances within the legislation itself to ensure that this does not happen. Monitoring alone by the Ministry will not be sufficient to prevent this, or to provide solutions for young people who find themselves in this situation. The legislation must specifically provide for penalties for employers who mis-use these provisions to turnover their workforce to avoid paying the adult minimum wage. 32. The Explanatory note to the Bill specifically refers to the damage caused to young people who cycle in and out of work and benefits. The Bill has the potential to worsen, rather than improve, this situation for the most vulnerable workers. Range of young people affected by the Bill 33. We recognise that there are a particular group of young people who require specialised and specific attention; those currently not in employment, education or training. This is a particularly vulnerable group; but they are not the only people affected by this legislation. Young people under 20 seeking employment or currently working are not a homogenous group. They include: o Young people dependent on their wages for their living costs living independently of parents o Young people primarily still dependent on parents, with wages covering non-essentials o Young people contributing to household income, where parents are or are not working o Students supplementing student allowance and/or student loans o Beneficiaries seeking supplementary income, either by choice or by requirement of Work and Income maybe on benefits because unemployed, sick, disabled, caring for others o Young people current not engaging with employment, education or training 34. As noted above, even the four case studies in Caritas report show something of the wide range of circumstances in which young people are working: The most important insight of this study is that the circumstances of young people and their reasons for working are diverse. Many young people depend on their wages to meet general living costs and in some cases other people may also depend on their earnings. Significant numbers of young people also live independently and may not receive financial and other support from extended family members...reducing the starting out wage to $10.80 could have very serious secondary social implications for the plight of young people unable to meet their daily living costs of rent, food, and power etc. (Lynne O Brien, Caritas study) 6
35. This legislation potentially affects young workers in all these groups, because a worker moving to new employment will be covered by the starting-out wage for the first six months of employment in a new position. 36. The Regulatory Impact Statement notes the concerns of the Ministry of Education concerning the impact of lower-wage rates on students ability to finance their current or future tertiary study through part-time work during study or full-time work during school or tertiary holiday periods. Caritas shares these concerns, and notes also that for those with student loans, the potential impact of a lower waged income may be greater for those paying the higher Student Loan tax rate. Alternatively, if student earnings do not reach the threshold for repayment due to a drop in earned income while studying, it can be anticipated that students will take even longer to repay debt than at present. 37. Although the policy is linked to the Welfare changes, there is no assessment of the combined impact of the new sanctions regime, which imposes penalties for beneficiaries who refuse work, with the Starting-out wage policy. The assurance given by Minister Tony Ryall in the opening speech of the first reading of the House that the starting-out wage is voluntary, and it must be agreed to by both the employer and the employee is meaningless in the context that young beneficiaries will have no power to negotiate if they are under compulsion to accept work. 38. In addition, there is no assessment of the combined impacts of the lower-rate of pay with other factors that will affect the income of beneficiaries moving into the paid workforce. Beneficiaries are taxed at the secondary tax-rate, which means the net pay is already lower than that of a non-beneficiary worker. Additionally, there are a complex series of abatements, some starting from the first dollar of earned income (such as abatements for accommodation supplement and temporary additional support) and others kicking in at a higher rate of earnings. As beneficiaries also have work-related expenses, which may include childcare and transport costs, it seems very likely that some beneficiaries will have no net benefit from workforce participation once tax rates, abatements and work-related costs are taken into account. 39. Another group for whom there is no specific consideration of the impact of the Starting-out wage are teenagers, including some at most risk, who are independent of parents, and living off their wages. This group receives little government support in the form of family support, benefit support, housing support. Reducing the income of this group of people is likely to reduce them from independent living to having to seek government assistance to eke out their unliveable wages. Displacement rather than job creation 40. The Cabinet papers and Regulatory Impact Statement show various scenarios in which under the new legislation, different groups of 16-17 and 18-19 year-olds will compete with each other for Starting-out wage positions. For example, paragraph 26 of the Regulatory Impact Statement predicts the net equivalent of between 200 and 1300 new jobs over 2 years, if 40-50 percent of the target group are paid below the adult minimum wage. This is a very small outcome given the size of the youth unemployment question, and the impact of the Bill on young workers who have managed to find work despite the current context. 7
41. However, the increased employment for the younger aged group is clearly envisaged as a displacement of slightly older workers for example, the 40 percent scenario envisages the creation of 1000 new positions for 16-17 year-olds while 800 jobs are lost for 18-19 year-olds. The impact of this loss of employment on the older age group is not discussed or assessed. Other people affected by the Bill 42. It will not only be older teenagers who may be displaced by cheaper young workers. One of the young workers in our Caritas study described seeing older workers dismissed when employees had to reapply for jobs during a receivership....the older ones cost more to keep, even though they had been there for years and had all this training...they [the owners] just kept the lower waged staff. ( Anne, Caritas study 2012 page 6). 43. This policy is based in a narrow, short-term perspective of employment in which displacement of older workers by younger workers is just one symptom. The narrow short-term view of employment promoted by this Bill, which envisages displacement of older teenagers by younger teenagers, does not provide incentives for employers to invest in their workforce training and skills development. This is a system of employment which does not offer life-long job opportunities and development. It is an impoverished view of employment. Process of policy development Regulatory impact statements 44. As Caritas has noted in our submissions to the Social Services Select Committee this year on Regulatlory Impact Statements relating to welfare changes, the Regulatory Impact Statement (RIS) on this Bill prepared by the Ministry of Business, Innovation and Employment appears to fall short of the requirements issued by Treasury in its Regulatory Impact Analysis Handbook (November 2009). They do not include an assessment of the full range of feasible options as recommended by the Treasury handbook (page 10). Instead the RIS specifically says: The starting out wage proposal is a pre-election policy commitment. The Ministry s analysis has therefore not considered other options for achieving the objectives of the proposed starting out wage...the Ministry has been instructed by the Minister of Labour on key features of the policy design. The analysis has not looked in detail at other design options for key dimensions of the starting out wage such as varying the age of eligibility, applicable time periods and payment rates. (page1) 45. Caritas is deeply concerned at the ongoing failure by Government to adequately consider the range of policy objectives, including the status quo, in the government s decision making processes. As regular contributors to Select Committee processes, we are again commenting on a policy in which alternatives have not been considered. Timing of Select Committee consideration 46. Given the Government s stated priority to have young people in employment, study or training, and given the impact of changing wage rates on young people in study, it is unacceptable that the period between the First Reading of the Bill and the close of submissions is a time of year when most young people in senior secondary and tertiary study are undertaking examinations. 8
Conclusion 47. Caritas strongly supports the goal of enabling young people to find work which enables them to live dignified and fulfilled lives. However, we fear that this legislation will instead increase the vulnerability of the entire youth workforce, while not necessarily providing permanent and stable work at liveable wages for the most disadvantaged that it is intended to assist. We must continue to seek better solutions for young workers, so that all can fulfil their potential. 9