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Minimum Wage (Starting-Out Wage) Amendment Bill - Submission to the Transport and Industrial Relations Select Committee [2012] NZHRCSub 12 (26 November 2012)

Last Updated: 27 June 2015

Submission of the Human Rights Commission on:



Minimum Wage (Starting-out Wage) Amendment Bill



To the Transport and Industrial Relations Select Committee

26 November 2012

Contact person: Sue O’Shea

Principal Advisor EEO

(04) 496 9774

sueo@hrc.co.nz


Introduction

  1. The Human Rights Commission (the Commission) welcomes the opportunity to make a submission on the Minimum Wage (Starting-out Wage) Amendment Bill 2012 (the Bill). The Commission would appreciate the opportunity to appear before the Transport and Industrial Relations Committee to speak to this submission.

  1. The Commission is an independent Crown Entity that derives its mandate from the Human Rights Act 1993 (HRA). The Commission’s primary functions include advocating and promoting respect for, and an understanding of, human rights in New Zealand society and encouraging harmonious relationships between individuals and the diverse groups in New Zealand. The Commission also has responsibility for facilitating the resolution of disputes about unlawful discrimination.

  1. The HRA also sets out the role of the Equal Employment Opportunities (EEO) Commissioner and the Commission’s mandate in relation to employment equity. These include: to lead discussions and provide advice on EEO matters; to evaluate the role of legislation in facilitating and promoting best practice in EEO; and to monitor and analyse progress in improving EEO in New Zealand.

  1. The right to non-discrimination is a fundamental principle of the International Bill of Rights and of other human rights instruments. The right to work includes the right to fair and non-discriminatory remuneration for both equal work and work of equal value. Paying lower minimum wages to one group of workers, based solely on their age, is contrary to the principles of non-discrimination. Furthermore, the discrimination cannot be justified. Youth unemployment is a social issue that should be addressed, but reducing the minimum wage for young workers is a response that is insufficiently supported by empirical evidence. Therefore the Commission does not support enactment of this Bill.


Consistency with New Zealand Human Rights Legislation

  1. Section 19 of the Bill of Rights Act 1990 (BORA) provides that everyone has the right to freedom from discrimination on the grounds prohibited under s21 of the Human Rights Act 1993 (HRA). Under Part 1A of the HRA, complaints can be made about acts by the legislative, executive or judicial branch of the Government of New Zealand which are inconsistent with this right to freedom from discrimination. This part of the submission therefore assesses whether or not the proposed Bill breaches Part 1A of the BORA.

  1. Part 1A provides that an act is inconsistent with s19 if it limits the right to freedom from discrimination affirmed in the BORA and cannot be justified under section 5. The first step involves determining whether there has been prima facie discrimination under s19 of the BORA. This involves identifying:

  1. Work is a strategic entry point to a society free of discrimination. A key objective of the Human Rights Act 1993 is to protect people eligible to work in New Zealand from being discriminated against in their working lives. Under the aegis of this legislation, co-workers in the same workplace doing the same job could be paid a different rate of pay depending on their age and for some depending on their previous beneficiary status. This is clearly discrimination.

  1. A lower minimum wage for 16 to 19 year olds is a distinction based on age, which is one of the grounds contained in the HRA. The setting of a blanket minimum youth rate indicates that age is the distinguishing factor. A 19 year old can be paid a minimum wage of just $10.80 per hour, yet on their 20th birthday will automatically receive an extra $2.70 per hour or 25% increase. That distinction is a clear financial disadvantage to workers over 16 years and under 20.

  1. The starting out wage also discriminates between young people who have been in receipt of a welfare benefit and those who have not. This discrimination falls within the prohibited ground of employment status which prohibits discrimination against those who are unemployed, receiving a welfare benefit or receiving accident compensation. Therefore the Commission considers the legislation is prima facie discriminatory under s19 of the BORA.

  1. The Commission notes that the Ministry of Justice[1] has come to the same conclusion: “New s 4A in cl 4 of the Bill provides for an Order in Council to be made that allows a wage lower than the adult minimum wage to be set for workers aged 16,17,18 or 19 years, on the basis of the worker’s age and either the length of time they have received a specified benefit (being no less than six months) or been in continuous employment with a single employer (being not more than six months). These distinctions have the potential to result in financial disadvantage for young workers and those who have received a social security benefit. We therefore consider the Bill to give rise to prima facie discrimination under section 19 (1) of the Bill of Rights Act on the basis of age and employment status.”


Can this discrimination be justified under s5?

  1. Rules and policy which breach the right to freedom from discrimination may be consistent with the Bill of Rights if they can be justified under s5 which states:

“Subject to section 4 of this Bill of Rights, the rights and freedoms contained in this Bill of Rights may be subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society”

  1. Determination of whether limitation to the right to freedom from discrimination is justified has been established by the Hansen[2] test: A limitation will be justified under section 5 if it serves a purpose that is sufficiently important to justify some limitation of the right, is rationally connected to that purpose, impairs the right no more than is reasonably necessary to achieve what it sets out to do, and is in due proportion to the objective it seeks to achieve.


The significance of the purpose

  1. The objectives of the proposed legislation are stated as: “to provide an incentive for employers to take on young workers at a reduced rate of pay while foundational work skills, experience on the job, or training is gained. The Bill implements Government policy that is aimed at influencing employers’ demand for young workers.”[3]

  1. There is no doubt that the unemployment rate for young people is significantly higher than for other age cohorts. The youth (15-19 year olds) unemployment rate is currently 25.5% according to Statistics New Zealand.[4] Earlier in the year the Commission purchased disaggregated data from Statistics New Zealand which showed that there were considerable differences in youth unemployment rates by ethnicity.[5] Pacific and Māori youth unemployment rates were 34.3% and 42.4% respectively. European youth had an unemployment rate of 19.1% and youth from other ethnicities had a rate of 27.1%. Young Pacific women had particularly high unemployment rates at 46.9%. The gender differences for European and Māori youth were fairly slight, but Pacific women and women from other ethnicities had considerably higher rates of unemployment than their male cohort.

  1. The Commission first highlighted the youth employment issue as part of its National Conversation about Work in 2009, and then again in Tracking Equality at Work in 2011. The Tracking Equality at Work report raised concerns about the growing number of young people who are disengaged from work or study. Employers frequently expressed a preference for experienced workers while young people’s lack of job readiness was often characterised by attitudinal problems towards employment. However none of the employers spoken to during the National Conversation consultation process in which over 3,000 employers and employees participated, suggested the reinstatement of a youth rate minimum wage.

  1. Secondary students the Commission spoke with worked up to 30 hours per week either before or after school. Many students who worked part-time earned between $12 per hour, the (then) minimum wage, up to $30 per hour in the case of one student who worked as a private music tutor. Students who earned the minimum wage rate or slightly higher were satisfied that this was fair pay for the work they did.

  1. Relatively high rates of youth unemployment are a feature of most economies and are a feature of the global financial crisis. It is noted that youth unemployment typically rises in times of economic downturn. The Department of Labour in 2011 observed that youth (those aged 15-24 years) are typically one of the most affected groups during labour market downturns and recession. This group is of particular concern because their long-term labour market outcomes may suffer from not being able to enter the labour market easily given limited job opportunities during a recession.

  1. In the past few years there have been a substantial number of job losses for youth. Some young people who have lost their jobs have continued to look for work, causing the youth unemployment rate to increase. Others have decided to leave the labour force altogether, with many of these youth returning to study.[6]

  1. Youth are more vulnerable during downturns in the labour market as they are more likely to face job losses compared to adult workers (those aged 25 years and older). This is due to their lower level of experience and skills compared to older workers and also because they are often over-represented in industries that are heavily affected during recessions.[7]

  1. The question arises, however, whether or not paying young people less than other workers (thereby discriminating on the grounds of age) is connected to and proportionate to the stated objective.


Rational Connection and Proportionality

  1. The Regulatory Impact Statement is equivocal on whether or not, or to what extent the employment rate for young people would improve if they were paid below the minimum wage. The Ministry of Business, Innovation and Employment (MBIE) states that it considers that, “on balance, in the current economic environment a starting out wage will have positive employment impacts on targeted groups.” This declaration is hedged by a number of qualifying statements.

  1. This level of equivocation is also found in international literature cited by officials to support sub-minimum wages for young people. For example Croucher and White (2011)[8] state “the size of employment effects from the introduction of a minimum wage, or of increases in existing minimum wages for young people in general are extremely small and on the margins of statistical significance in the great majority of studies surveyed.” [9] Croucher and White also note that employers rarely take advantage of suspensions of minimum wages for younger people and that minimum wages for young people have less of a negative impact where there is strong labour market interventions by Government to support young workers.

  1. Modelling undertaken by MBIE “uses as its starting point the observed impacts of the 2008 minimum wage reforms, which abolished the youth minimum wage”... and uses these impacts “to predict by how much this (reversal of the reforms) will increase employment of 16 and 17 year olds”. The analysis sets aside the global economic crisis which saw increased youth unemployment across most economies whether or not minimum wage reform repealing youth rates had been enacted.

  1. The BORA vet[10] provided by the Ministry of Justice considers whether or not the Bill could authorise Orders in Council that are broader than is necessary to achieve the objective and concludes that there are sufficient safeguards to “limit the potential disadvantage and closely target the problem of youth unemployment.”

  1. The Commission is concerned there may be insufficient safeguards. There is lack of reference in the primary legislation to the stated intention[11] as spelt out in the Cabinet paper, that is, sub-minimum wages would only apply to 18 and 19 year olds if they have been recipients of a benefit in their own right for six months or longer, stating at 4A (1) The Governor General may, by Order in Council, prescribe 1 or more minimum starting-out rates of wages payable to 1 or more classes of workers who-

  1. It is unclear from the legislation whether a young worker is deemed to be starting out with each new employer or “starts out” once. In concert with the 90 day legislation young workers could experience a revolving door which kept them on sub-minimum wages until they reached their twentieth birthday.

  1. This Bill at 4B also enables the payment of sub-minimum wages to those workers over 20 who are “required to undergo training for the purpose of becoming qualified for the occupation to which the contract of service relates.”[12] The Treasury comments in the Regulatory Impact Statement 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 agenda.”

  1. Treasury is referenced in the Cabinet paper[13] as advising that “the annual Minimum Wage Order process affords flexibility to extend eligibility...” The Commission is alarmed that the permissive nature of the Bill does not provide sufficient protection for groups of employees who may find themselves being paid less than the minimum wage.


Minimal impairment test

  1. Are there other regulatory or policy settings which do not involve limits to the rights of young people to receive the minimum wage which could address the stated objective?

  1. Quintini and Martin[14] sum up the characteristics of successful programmes

  1. As part of its equal employment opportunities programme the Commission has said it would promote the need for a National youth-to-work strategy that includes the concept of a career plan for every young New Zealander. This notion has been discussed with a number of interested parties and found to be useful and credible. Notably the Mayor’s Taskforce for Jobs has taken up the challenge and developed its own National Youth-to-work strategy for ratification and adoption by its own members.

  1. The Mayor’s Taskforce wrote to the Commission to confirm that it believed a national Youth to Work Strategy would be extremely useful for communities to better respond to the needs of young people as they transition between education, training and employment. Importantly such a strategy would also provide a critical link between key stakeholders and local economic needs. The Mayor’s Taskforce also believe the timing for this strategy is right as 'youth disengagement' in education and the labour market continues to rise and where communities are seeking 'new' ways to replace old methods that are clearly not working for them. Thirty five councils, members of the Mayor’s Taskforce for Jobs, now support the youth-to-work strategy and are delivering at the grassroots.

  1. Careers New Zealand supports the need to join-up the many youth employment initiatives currently available and agrees with the Commission that every young school leaver should have a career plan. Careers New Zealand also believes a youth employment strategy is essential if New Zealand hopes to sustainably solve its economic and growing youth social issues. Such a strategy is essential if New Zealand wishes to retain young talent when there is a global talent crisis looming.

  1. New Zealand is a relatively low wage economy, and considerable concern has been expressed about the working poor. Professor Don Matheson of Massey University’s Centre for Public Health Research has characterised the minimum wage as a “dying wage”.[15] The minimum wage is insufficient to provide an adequate standard of living without supplementation through transfers via the tax or welfare system or other incomes into a household. Sub-minimum wages are, by definition even more inadequate as a living wage, especially as 16 and 17 year olds are generally ineligible for welfare benefits in their own right.

  1. In the explanatory note for the Bill, reference is made of the “scarring effects” of long-term unemployment. The Commission considers that early (or indeed any) experience of inequality and discrimination in employment also has a detrimental effect, as do very low wages.

  1. There is no strong evidence that a youth minimum wage will increase the employment of young people under the age of 20, nor does it advance the government’s primary objectives for the minimum wage (fairness, wage protection for vulnerable workers, relative income protection for those on low incomes and work incentives). In addition, the proposed starting out wage will have a significant impact on the earnings of young workers, perpetuates stereotypes about their capabilities and does little to advance understanding of equal employment opportunities or equal pay for work of equal value. Therefore the Commission concludes that the proposed legislation cannot be justified.


Compliance with international human rights instruments

  1. The International Bill of Human Rights is the name given to the Universal Declaration of Human Rights (UNDHR) and the two International Covenants on Economic, Social and Cultural Rights (ICESCR) and Civil and Political Rights (ICCPR). Together these form the bedrock of contemporary human rights law because of their potential worldwide application and the breadth of human rights contained in each. The right to non-discrimination is a fundamental principle of all three and of other leading human rights instruments including the Convention on the Elimination of All Forms of Racial Discrimination (CERD) and the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW).

  1. The right to work is recognised in Article 23 of the Universal Declaration (UNDHR), Article 7 of ICESCR, Article 11 of CEDAW and Article 5 of CERD. Central to the realisation of the right to work is the provision of just and favourable conditions of work for everyone.[16] Elements of the right to just and favourable conditions of work, set out in article 7 of ICESCR, include the right to fair wages, the right to fair and non-discriminatory remuneration for work of equal value, and the right of workers to a decent living for themselves and their families.

  1. International treaty bodies, for example the Committee on Economic Social and Cultural Rights (CESCR) and the International Labour Organisation (ILO), have explicitly warned State parties of the need to protect rights during the global financial crisis.

  1. In May 2012 the CESCR sent an open letter to New Zealand and all other signatories to the ICESCR about “protection of the Covenant rights in the context of the economic and financial crisis”.[17] It emphasised the need to pay specific attention to reducing inequalities and ensuring that the rights of marginalised groups are not disproportionately affected. Specifically it noted:

that States parties should avoid at all times taking decisions which might lead to the denial or infringement of economic, social and cultural rights . . . .

. . . . this requires States to adopt and implement laws and policies that aim to achieve incremental improvements in universal access to basic goods and services such as health care, education, housing, social security and cultural life.

The Committee realizes that some adjustments in the implementation of some of these Covenant rights are at times inevitable. States Parties, however, should not act in breach of their obligations under the Covenant.

In such cases, the Committee emphasizes that any proposed policy change or adjustment has to meet the following requirements:

  1. The Department of Labour in reviewing the Minimum Wage[18] last year noted that “there are formal International Labour Organisation (ILO) commitments that establish an explicit obligation on the government (as a member state) to ensure an adequate minimum wage.” The review goes on to say that the ILO is “of the opinion that, even during periods of economic difficulty there are strong reasons for governments to protect the consumption levels of lowest paid workers for both economic growth and equity reasons.”

  1. The Universal Declaration, ICESCR and CEDAW all specifically mention the right to equal pay for work of equal value.

  1. The concept of equal pay recognises that two people employed to do the same or broadly similar job should be paid the same. The right to equal pay for work of equal value encompasses the right to equal pay, but extends it to cover situations where the job is different but equivalent or of equal value. Equal pay for work of equal value stresses the importance of identifying the demands and size of a job (e.g. skills, effort and responsibilities as well as the job environment) and then paying people based on those job requirements.

  1. Historically women were typically paid less than men for doing the same job – and this was entrenched in legislation stipulating lower minimum wages for women and through lower ‘female rates’ in employment contracts. After years of campaigning by individual women, women’s organisations and unions, equal pay for women was introduced into the public service under the Government Service Equal Pay Act 1960. Twelve years later, the Equal Pay Act 1972 extended the principle of equal pay to cover the private sector, to be implemented over five years. Women did not receive the same minimum wage as men until six years later, in 1978.

  1. In New Zealand the right to equal pay for work of equal value has not been established in legislation, despite continued advocacy from the Commission and civil society for such legislation and recommendation from the CEDAW committee.

  1. In many cases young people are being paid a lower minimum wage to do the same job as an older co-worker – and effectively are being denied the right to equal pay. It is as inequitable to pay people less because of their age as it was to have lower wage rates based solely on one’s sex.

  1. All young people below the age of 18 are given specific protection under the United Nations Convention on the Rights of the Child (CRC) with article 2 requiring State parties to protect children from any discrimination.

  1. In New Zealand, the age at which children[19] and young people are deemed to be adult is considerably younger than twenty in many critical areas of life. The minimum age of criminal prosecution is 14 for most offences, 12 for serious offences and 10 for murder and manslaughter. Children in New Zealand are legally able to marry at 16 (with parental consent if either party is 16 or 17) and drive at 16. Children can enlist in the military at 17 and be deployed at 18. Yet they are not considered to be sufficiently adult enough to be protected by the minimum wage.

  1. Paying different wages for the same or equal value jobs based on someone’s age rather than their ability to do the job, is contrary to the principle of equal pay for work of equal value. For these reasons, the Human Rights Commission reiterates its position that the minimum wage for people under 20 should be set at the same rate as the adult minimum wage.[20]


Employment protections for children under 16

  1. The employment rights of children below the age of 16 continue to be of concern. Children under 16 are afforded very little protection in employment law and are excluded from the Human Rights Act age discrimination provisions[21].

  1. The New Zealand government has maintained its reservation on the UN Convention on the Rights of the Child in regard to employment and has not accepted ILO Convention 138. The UN Committee on the Rights of the Child, in its concluding observations on New Zealand’s third and fourth periodic report said, “ the Committee reiterates its previous recommendations and urges the State party to: withdraw its general reservation and its reservation to Article 32 paragraph 2...”

  1. The Committee also said that it deeply regretted “that no efforts have been undertaken in order to address the Committees previous recommendations on economic exploitation including child labour.” The Committee also recommended that New Zealand ratify ILO Convention 138 on the minimum age of employment.

  1. The New Zealand Human Rights Commission in it’s submission to the Committee noted that New Zealand had a strong tradition of children undertaking light work for pocket money but registered concern about employment conditions for children and their protection in the labour market. Concerns include: health and safety issues (the incidence of workplace injuries) very low pay, absence of employment contracts, lack of awareness of rights, working unsupervised and working illegally (for example with heavy machinery).


Youth Rates and the Human Rights Act 1993

  1. The Human Rights Act 1993 at s 30 (2) permits youth rates for workers under the age of 20. In 1992, when age discrimination as a prohibited ground was introduced, a number of speakers noted that protection from employment discrimination should begin when a person’s full-time working life starts. However, the Minister of Justice suggested that upper and lower age limits would be re-examined when new human rights legislation was prepared in the following year.

  1. Analysis of Hansard records indicates the focus of discussion was the upper age limit. The Select Committee considering the Human Rights Bill recommended abolishing the upper age limit, but, in the absence of sufficient background information, retained the lower limit. The report of the select Committee stated: The lower age limit is to be retained, as it was not possible during the consideration of this bill to identify all the areas where young persons might be adversely affected by its removal.

  1. The Human Rights Commission in its submission on the Human Rights Commission Amendment Bill in 1991 said, in relation to youth rates, “the Commission does not support the payment of lesser rates based solely on age”. In 2006 the Commission’s submission on the Minimum Wage (Abolition of Age Discrimination) Amendment Bill supported the repeal of s30 (2) of the Human Rights Act 1993.

  1. The Human Rights Commission advises employers and employees that an employer should not ask a job applicant to provide their age or benefit status as part of the job application or interview process.[22] Asking the preferred candidate these details after the application and interview for the purposes of determining salary would be permissible under the Human Rights Act 1993, but rather defeats the stated intention of the Bill, which is inherently discriminatory. The guidance also advises, “all new job applicants, regardless of age, need to become familiar with their role. Good performance at work is not age dependent.[23]



Erosion of employment rights

  1. This Bill also needs to be considered in the context of changes and proposed changes to employment law which in the opinion of the Commission are retrogressions of human rights in employment. A longstanding principle of international human rights is of progressive realisation of economic, social and cultural rights as outlined in Article 2 (1) of the International Covenant on Economic, Social and Cultural Rights. The corollary of progressive realisation is that rights should not be diminished, i.e. no retrogression. In relation to retrogression the UN Committee on Economic, Social and Cultural Rights has said, “...there is a strong presumption that retrogressive measures taken in relation to the right to work are not permissible.”[24]

  1. The Human Rights Commission’s submission on the Employment Relations Amendment Bill (No 2) popularly known as the 90 day Bill, opposed both the 90 day trial period and limitations imposed on union access to workplaces on the grounds that these measures were retrogressive.

  1. As recently as this year the CEDAW committee[25] expressed its concern “about the proposed legislative changes to collective bargaining” and the closure of the Pay and Employment Equity Unit in Department of Labour. The Committee also recommended the enactment of “appropriate legislation that guarantees the operationalization and implementation of the principle of ‘equal pay for work of equal value’ in line with article 11(d) of the Convention” and also recommended that the Government “effectively enforce the principle of equal pay for work of equal value...”

  1. The Committee on Economic, Social and Cultural Rights cited above also commented that: “specific measures to increase the flexibility of labour markets must not render work less stable or reduce the social protection of the worker.”


Conclusion

  1. Enactment of this Bill will reduce the social protection of young vulnerable workers, is discriminatory and does not meet the tests for justification of discriminatory legislation. Responses to the issue of youth unemployment should not involve the diminution of their employment rights.

  1. The Human Rights Commission therefore opposes the Bill.



[1] Ministry of Justice Legal advice Consistency with the New Zealand Bill of Rights 1990: Minimum Wage (Starting-out wage) Amendment Bill
[2] R v Hansen (2007) 3 NZLR 1
[3] Explanatory note Minimum Wage (Starting-out Wage) Amendment Bill
[4] Statistics New Zealand Household Labour Force Survey September 2012 quarter
[5] Statistics New Zealand Household Labour Force Survey March 2012 quarter
[6] http://www.dol.govt.nz/publications/lmr/hlfs-investigation-reports/recession-impact/recession-impact.pdf
[7] http://www.dol.govt.nz/publications/lmr/hlfs-investigation-reports/youth-labour-market-outcomes/index.asp

[8] Croucher, R. & White, G. (2011) The Impact of Minimum Wages on the Youth Labour Market An International Literature Review for the Low Pay Commission
[9] Ibid at p 91
[10] Ministry of Justice Legal advice Consistency with the New Zealand Bill of Rights 1990: Minimum Wage (Starting-out wage) Amendment Bill
[11] Cabinet paper from the Office of the Minster of Labour Starting Out Wage dated 27 /7/2012
[12] Explanatory note Minimum Wage (Starting-out Wage) Amendment Bill
[13] Office of the Minister of Labour for Cabinet EGI Committee Starting Out Wage
[14] Quintini, G. and Martin, S. (2006) Starting Well or Losing their Way? The Position of Youth in the Labour Market in OECD Countries OECD DELSA/ELSA/WD/SEM (2006) 8
[15] Matheson, D. (2012) Living Wage [speech 30 August 2012] accessed from www.livingwagenz.org.nz
[16] ”...To a great extent, the right to work and freedom to work can be effectively realised only by affording everyone just and favourable conditions of work” (para 25, E/C.12/2003/10, United Economic and Social Council, 6 October 2003).

[17] http://www2.ohchr.org/english/bodies/cescr/docs/LetterCESCRtoSP16.05.12.pdf
[18] Minimum Wage Review 2011 Department of Labour
[19] A child is defined as those under the age of 18 under the United Nations Convention on the Rights of the Child
[20] The Human Rights Commission’s (April 2000) Submission on the Youth Minimum Wage
[21] Human Rights Act 1993 s21(1)(i)
[22] Getting a Job An A-Z for employers and employees Pre-employment guidelines (2008) Human Rights Commission http://www.neon.org.nz/adviceandguidance/azindex/
[23] Ibid p36
[24] The Right to Work General Comment No.18 adopted on 24 November 2005 Article 6 of the International Covenant on Economic, Social and Cultural Rights E/C.12/GC/18
[25] CEDAW 2012 Concluding observations of the Committee on the Elimination of Discrimination against Women CEDAW/C/NZL/CO/7

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