The youth wage: does it work in practice?
There has been a lot of discussion about the youth wage in Australia recently. The youth wage is a wage that is paid to young people who are under the age of 25. There are a number of advantages and disadvantages of the youth wage, and in this essay I will discuss both sides of the argument.
2. The economic theory underpinning the youth wage
The economic theory behind the youth wage is that it will incentivise employers to take on more young people, as they will be cheaper to employ. This should help to reduce youth unemployment, as there will be more jobs available for young people. To some extent, this has been borne out in practice, with youth unemployment falling from 12.8% in 2014 to 11.5% in 2015 (ABS, 2016).
However, there are a number of criticisms of this economic theory. One is that the youth wage simply shifts the cost of training from the employer to the taxpayer, as young people will still need to be trained in order to do their jobs properly. Another criticism is that the youth wage will lead to a situation where young people are employed instead of older workers, simply because they are cheaper to employ. This could lead to older workers finding it harder to get work, as they will be seen as being too expensive.
3. The evidence on whether the youth wage works in practice
There is a lot of evidence that the youth wage does not work in practice. One study found that employers who took on employees on the youth wage were no more likely to provide training than those who did not (UNSW, 2012). This suggests that the economic theory behind the youth wage is flawed, as employers are not using the savings from employing young people to invest in their training.
Another study found that young workers on the youth wage were no more likely to stay in their jobs than those on adult wages (ABS, 2014). This suggest that employers are not using the youth wage to retain young workers, as they had hoped. Instead, it seems that employers are simply using the lower wages to save money, rather than reinvesting it in their workforce.
The evidence suggests that the youth wage is not working in practice. Employers are not using the savings from employing young people to invest in their training or retention, and instead are simply using them to save money. This suggests that the economic theory underpinning the youth wage is flawed, and that it is not an effective way to reduce youth unemployment or improve job prospects for young people.
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