Wage Differentials and Youth Unemployment

Abstract

AbstractThere has been an increase in the rate of youth unemployment since the 1960s. Initially this increase was masked by the increased number staying on in the education system and the resultant drop in the participation rate for the under 20 age group. It is contended that the compression of youth/adult wage relativities since the 1970s has affected both the demand and supply for young workers. Demand has dropped since the experience premium attached to adult wages has been reduced. In the context of unemployed adult workers, the latter will be preferred to younger workers and new entrants to the labour market. On the supply side increased relative wages have induced more young workers into the labour force, increased the participation rate for this age group, and thus further increased the rate of unemployment. The persistence of this problem over time has given rise to relatively high levels of long-term youth unemployment Policy options to remedy this social and economic problem are necessarily constrained. On the industrial relations front a constraint is trade union antipathy to youth wage reduction policies which could give rise to generalised wage reductions. This paper proposes the extension of the special provisions of awards which permit for reduced payments as a means of assuaging union concerns.