HOSPITALITY ASSOCIATION OF NEW ZEALAND

Submission by

Hospitality Association of New Zealand

to the

Transport and Industrial Relations
Select Committee

on the

Minimum Wage (Abolition of Age Discrimination) Amendment Bill

21 April 2006

Hospitality Association of New Zealand
Level 2, Radio Network House, Corner Abel Smith and Taranaki Streets
PO Box 503, Wellington
Phone: 04 385 1369
Fax: 04 384 8044
www.hanz.org.nz

Minimum Wage (Abolition of Age Discrimination) Amendment Bill

Members of the Select Committee

The Hospitality Association of New Zealand represents a diverse variety of New Zealand hospitality businesses including restaurants, caf￩ bars, hotels, off-licenses, casinos and a wide array of short and long term accommodation providers.

The Association is voluntary and is funded by membership subscriptions. Our membership of 2250 plus members employ 11,610 full-time and 19,674 part time employees for a total of around 30,000 people. Approximately 83% of the Association’s members employer fewer than 15 employees. The Association asserts that this figure mirrors the wider hospitality industry.

There is also a perception that the Association speaks for and represents the interests of the hospitality industry as a whole.

The Association supports the submission on the Bill by Business New Zealand.

The Association would appreciate an opportunity to be heard before the Committee on its submission.

Bruce H Robertson
Chief Executive
Hospitality Association of New Zealand

Executive Summary

It is the Association’s view that:

· Youth minimum wage rates make it easier for young and unskilled individuals, who may not be employment ready, to get a job and that arbitrarily increasing rates could therefore diminish the attractiveness of young workers at a time when New Zealand’s 15 – 19 unemployment rate is, at 12%, already high at a time when economic growth has been strong.

· Whether or not minimum wage rate increases also increase the unemployment rate depends on economic circumstances. However, if the price of least skilled individuals rises, employers are likely to employ fewer of them opting for potentially higher skilled workers at the same rate.

· New Zealand’s demands for skilled employees are high, however removing youth minimum wage rates sends young people the wrong signal that to avoid jobs tied to formal training since employees on training agreements can still be paid the lower youth rates under the Bill. This effect is inconsistent with government initiatives to increase access to training, productivity and up skill New Zealand’s labour force.

1. Introduction

1.2 The Association believes that rather than legislating for universal wage parity, government should instead be focusing on increased access to training and employment to achieve higher productivity and hence increased real earnings over time.

2. Discussion

2.1 The Association considers that the abolition of youth minimum wage rates would place additional and unnecessary obstacles on particular workers, many of whom are engaged in or look to employment in hospitality as their initial foray into employment and to support training. Indeed, increases in the youth wage rates may also encourage some young individuals to seek low-wage employment rather than continuing with training to achieve potentially, and likely, higher earnings as a result of training.

2.2 Although there is research to show neutral, or even positive, effects on employment of increasing youth minimum wage rates, as in 2001, it is important to note that this research is at the macro economic level and that there is further evidence to suggest that once minimum wage rates reach market wage levels further increases in minimum wage rates have a negative outcome on employment, especially for young and/or unskilled workers employed in competitive industries that are significantly influenced by minimum wage rates at the micro economic level. Hospitality is such an industry.

2.3 The fact that an employer may be able to sustain increased labour costs for a certain period of time when the economy is strong, does not mean they can continue to do so in times of downturn in the economic cycle. Indeed, it is contended that much of the ‘cushioning’ of the recent and substantial increases in minimum wage rates has been due to the strong performance of the New Zealand economy over recent years.

2.4 Indeed, strong economic growth notwithstanding, the unemployment rate for the 15 –19 year old age group is, at 12%, considerably higher than it is for the working population in general.

2.5 Of course, some young people work as effectively as their older counterparts. Many, however, do not. Experience shows that many young people, often those most in need of job opportunities, lack proper work habits, can be unreliable and require a great deal of supervision. If an employer must pay the same wage to young persons as to older employees, it is more probable than not that many young persons will remain unemployed or more likely, not be employed in the first place.

2.6 Further, it should be bourne in mind that a starting rate is not the ultimate rate that a worker may receive. Workers, including young workers, have an opportunity to demonstrate their real value to employers with the effect that employers reward correspondingly to retain valuable workers at a time when industries are experiencing recruitment difficulties. This is particularly the message that the Association hears from its members.

2.7 A requirement to pay 16 and 17 year olds adult minimum wage rates also sends a message that it is better to go into a job with few prospects for promotion or advancement than to opt for work under a training agreement since the current youth minimum rates will remain under the Bill for employees receiving formal training. This is scarcely an appropriate message to send, particularly at a time when there is great need for skilled employees and increasing emphasis is being placed on the importance of training to meet workforce needs.

3. Conclusion

3.1 Studies can be cited that purport to show that increases in the minimum rate do not result in an increase in unemployment. However, the better question to ask is do minimum wage laws keep younger and least skilled people out of jobs?

3.2 The Association believes that minimum wage rates place obstacles in the way of young and unskilled workers, keeping them out of work they might not otherwise be offered because to an employer their skills are of lesser value and paying them the same as higher skilled employees returns fewer benefits. This applies to the prospects of young and particularly first time workers with fewer attributes to offer employers.

3.3 Faced with an arbitrary increase of the kind the Bill contemplates and with no compensating increase in productivity, an employer is likely to hire more productive employees, substitute toward capital or cut back production. Therefore, those that may seem to gain from the Bill are not those that the Bill is intended to help. Rather, such people are priced out of jobs and have fewer chances of getting on to, and progressing up, the employment and earnings ladder.