Bosses would rather pay up than train a school leaver

Economists expect this week’s labour market release to show unemployment holding at 5.6 percent, or edging down. Days out from the election, after the Reserve Bank’s surprise OCR hold, that is a convenient number for the governing coalition. But the same preview carries the line that matters more: youth joblessness remains a concern, with employers preferring to pay more for experienced workers who don’t need training.

That is not a soft-economy symptom that fixes itself when demand returns. It is a hiring choice, made rationally by thousands of firms, and it is building a skills hole that those same firms will eventually have to fill.

Wages are rising while the bottom rung disappears

The June quarter data shows a labour market that is loosening without getting cheaper. Unemployment rose to 5.6 percent from 5.4 percent and underutilisation jumped to 13.8 percent, yet annual wage rates still climbed 2.0 percent and average ordinary hourly earnings reached $44.62. In a genuinely slack market, you would expect employers to take a punt on cheaper, greener workers. They aren’t.

The youth NEET rate, the share of 15-24 year-olds not in work, education or training, sat at 13.8 percent, with women aged 20-24 at a striking 18.5 percent. These are people who have often finished school or study and simply cannot get a first job.

Alan McDonald, head of advocacy at the Employers and Manufacturers Association, is candid about why. Firms are focused on retaining the staff they already have rather than adding new people. “When recruitment slows, young people are often the first to miss out because entry-level jobs become less available,” he says.

The training wage barely discounts anything

The policy settings make the experienced hire the obvious call. From April 2026 the adult minimum wage rose to $23.95 an hour, with the starting-out and training rate at $19.16. On paper that is a $4.79 hourly discount, about $190 a week on a full-time role. In practice, the New Zealand Initiative’s Dr Oliver Hartwich argues, eligibility rules are complex and rarely used, and for a 16-year-old the lower rate lapses after just six months.

His summary is blunt: “Faced with paying a school leaver almost what a proven adult costs, the employer hires the adult.”

Officials saw this coming. In its 2025 Cabinet paper, MBIE noted that 61 percent of minimum wage earners were young people and flagged that further increases were more likely to hurt young workers’ employment than any other group’s. The government raised it anyway.

Employers have said this for fifteen years

None of this logic is new. Back in 2011, the EMA’s then employment services manager David Lowe argued that, at the same cost, an older worker with experience “would get the job every time” because they posed less risk. What has changed is the cost environment, not the calculation.

The trend is also not a one-quarter blip. In the June 2024 quarter, when headline unemployment was a modest 4.6 percent, the 15-19 rate had already hit 20.7 percent. Later that year Newsroom reported that jobs filled by 15-19 year-olds were down 12.8 percent on July 2023, while Budget 2024 trimmed Apprenticeship Boost support just as entry-level openings shrank.

A pipeline problem dressed as a cyclical one

By April 2026, RNZ reported youth unemployment at around 15 percent, roughly triple the wider rate, with junior office and administrative roles structurally shrinking. The catch-22 is obvious: employers want practical experience over qualifications, but the roles that used to provide that experience are vanishing.

Some firms have resisted the pull. In 2025, Mainfreight’s then group manager Martin Devereux said the company kept its graduate programme alive through a hiring freeze. That is the exception worth copying. Every business that skips the first rung today is betting someone else will train the mid-level staff it will need in 2030. If everyone makes that bet, nobody wins it.

What the next government should fix

This is one of the rare labour market problems with a cheap, pro-business fix. A training wage that is simple to apply, lasts long enough to cover genuine skill-building and actually reflects the productivity gap of a novice would let employers price the risk of hiring beginners rather than avoid it. That costs the Crown almost nothing.

Whatever coalition forms after polling day, a steady 5.6 percent will not tell it much. The 13.8 percent of young people locked out of the system will, and so will the employers who find in five years that there is no one ready to step up.

Sources

• Newsroom: Unemployment rate tipped to remain steady despite escalating wage costs (2026-11-01)
• Stats NZ: Labour market statistics, June 2026 quarter (2026-08-05)
• EMA: Businesses holding back on hiring as labour market weakens (2026-08-05)
• The Post: Why New Zealand’s ‘flexible’ labour market fails on youth wages (2026-06-08)
• Stats NZ: Unemployment rate at 4.6 percent (2024-08-07)
• Newsroom: Young workers hit hardest by training cuts and rising unemployment (2024-10-03)
• RNZ: As entry-level jobs dry up in NZ, how can we help young people find their way into work? (2026-04-20)
• Newsroom: Labour market tightens as young job seekers find the going tough (2025-11-03)