Wednesday, October 10, 2012

Starter Wages: Directionally Euvoluntary?

Friend of EE and Kiwi economist Eric Crampton directs our attention to a New Zealand initiative aimed at making a dent in youth unemployment: a so-called "starter wage", where new entrants into the workforce can be paid some fraction (<1) of the state-mandated minimum wage for a period.

The labor force features several partitions over which employment contracts cannot be euvoluntary: recently released prisoners, young people, the handicapped, et al. Part of the problem for hiring marginal workers is uncertainty: will this new hire be productive? Will she steal from me? Burn the place down? By reducing the upfront costs to hiring these workers, perhaps more of these marginal folks will be able to land a first job. 

Even if this arrangement isn't completely euvoluntary upfront, is it possible that it'll be more euvoluntary over the long run? Give people a foot in the door so to speak (or if you prefer, restore a few of the lower rungs on the economic ladder) and over the longer run, you'll improve their BATNA. What do you think? Is this directionally euvoluntary?

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Do you have suggestions on where we could find more examples of this phenomenon?