Is the Minimum Wage Increase Behind the .50% Jobless Rate Jump? 25 comments
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Accoding to BLS data on unemployment rates by age, it looks like almost all of the .50% increase in May unemployment to 5.5% from 5% in April was due to increases in the jobless rates for young workers in the 16-24 year age group, especially the 16-19 year group (see chart above). For workers 25 years and over, the jobless rate has remained pretty stable at around 4%, compared to large increases from April for 16-19 year workers (+3.3% to 18.7%, the highest rate since 1993) and 20-24 year olds (+1.5%).
From the Patterico's Pontifications blog: Who does this age group represent? How about high school and college students coming into the job market for the summer.
And what do many such job seekers get paid? Minimum wage –which Congress increased last year from $5.15 to $5.85, and which will increase again next month to $6.55, and then again next year to $7.25 (see chart below).
Although it apparently hasn't received much media attention, perhaps there is a link between the rising unemployment rate for teenagers and the pending 12% increase in the minimum wage next month. Since we have evidence that consumers respond to higher gas prices by driving less, wouldn't it also be the case that employers of unskilled workers would respond to 12% increases in wages for unskilled workers by hiring fewer unskilled workers?
I'll verify this later, but from an initial inspection of BLS data on the history of the minimum wage, it looks like the +41% increase in the minimum wage from $5.15 per hour in 2007 to $7.25 in 2009 will be the largest 2-year increase in the minimum wage in U.S. history! And this HAS to have an adverse effect on employment of teenage workers.
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This article has 25 comments:
Of course the democrats and some republicans are handmaidens of the unions.
Unemployment is rising because of two factors - the increasing cost of inputs - both labor and non-labor as well as the continual upward climb of productivity. The latter will often accelerate in the short term during economic down cycles as the business sector becomes more adept at finding ways of achieving the same goals with fewer people, inventory, or other inputs.
All you have to do is look at how the average wages of workers by decile across time and you will see that those at most of those groups are earning less than they did 10 years ago (or more) while their cost of living has increased. This has forced many in our society to borrow to maintain their standard of living, creating large national and personal debts. With the increase in oil prices and the rapid devaluation of both the dollar and property assets, foreign governments are less willing to loan the US government, banks, or other institutions the capital necessary to maintain growth. In fact, in many cases, they are calling in the debts. This has caused an increased cost of borrowing for everyone as well as a reduction in the flow of capital. The end results - many businesses that were barely able to stay afloat with their revenue models during good times are being pushed out of business. This often means that the lower paying jobs go first.
No one is downsizing their staff because they can't afford 6.55 an hour - they're just making less profit off these workers than before. The demand for minimum wage workers isn't very elastic, because the people that run Dunkin Donuts know that the main appeal of the place is speed and convenience - if they cut from 7 clueless teenagers down to 4 clueless teenagers, they're going to lose business as people don't want to wait in the line (the 7 current clueless teenagers can barely handle the order volume, and the place would blow up with fewer). Similarly, if your chicken plant has to process 1,000,000 chickens, and each worker can process 1,000 chickens, there's not really a way to effectively staff with fewer than 1,000 workers.
The reason unemployment went up is that employers with some flexibility and likely business downturns aren't hiring as many kids as usual - painters and builders have less work with the housing downturn, vacation towns may be less busy than usual this summer, etc.
but minimum wage is the source of our problems. what claptrap.
Employers cannot absorb the increase in oil prices, the "half-solvent" consumers, etc., so employers do what they can --- and one thing they can do immediately is not hire more folks. Basic Econ 101.
LOL. One quibble though. The only good central bank is a non-existent one if you mean one with government privileges. A possibility is that anyone willing to be a central banker is either too honest or too smart for the job.
Unemployment is rising because we do not have a healthy economy. everything else is b.s., The government # are b.s., paulson and bernanke are b.s. - everyone else who is saving the markets (from what?) as though it is the flag itself - they are b.s. too! Actually, if Seeking Alpha is letting this kind of garbage get thru to the public
it is going off my list
[ED: Comment edited to remove abuse.]
"employers do what they can --- and one thing they can do immediately is not hire more folks. Basic Econ 101."
i'm afraid you miss the issue lakeside. employers always cut back when times are tough and they cut jobs they can do without. the question is whether an increase in minimum wage increases unemployment.
let me give you a few facts:
in 1965 the minimum was was $1.25 an hour. in july of this year it rises to $6.55. that's a compounded rate of growth of about 3.9 percent over the 43 year period. there are a couple of extended periods where the minimum wage didn't rise at all. one such period was from 1997 to 2007. when it was increased from $5.15 in 1997 to $5.85 in september 2007, it represented an average annual increase of 1.3% annually during that 10 year period.
let me point out one other salient point without getting bogged down in statistics:
the right wing is proud to proclaim how it is small business growth that is the backbone of the country...and that most jobs are created by small business...not large corporations.
well, which is it? small business creating the lions share of jobs in this country or small business going out of business because they can't afford minimum wage?
so let's try this again.....
given the facts, is it reasonable to assume the increase in minimum wage contributes in any significant way to unemployment?
wait...let me answer:
any employer who cannot afford minimum wage has no business being in business. its economics 101.
That's my business philosophy...
Its true, minimum wage isn't enough to support a family, but it is enough to get you by with roommates and a tight belt until you build up the skills to move up the ladder.
And in fact, move up the ladder is what people do...only 2.5% of workers over 16 years old actually make minimum wage or less: www.bls.gov/cps/minwag... Probably because of this.
I've actually read that the average worker stays on minimum wage only for about 3 months or so, before getting a raise or better job (can't find the statistic).
Finally, if you have no skills, would you rather work for minimum wage or work for free while you learn skills? Minimum wage laws REALLY effect the poor part of society the most. Rich kids can "intern" and live with their folks while they acquire skills -- poor kids can't.
"Why hire 3 idiots at $7.25 an hour when you can hire 1 good worker for $14 an hour?"
Because the smart guy is already working and I need someone to do the job right now.
Bull.
You reach a point where you have almost enough work to justify getting one more person...but you're not quite there yet. Until you have just enough work everyone else struggles to keep up with the load.
If you can bring in someone cheaply, who may not be as qualified as your other workers, but can do the scutt work, everyone benefits.
Your other employees because they're not as stressed. Your "scutt" worker because they are getting skills that will enable them to move up the ladder and do something better.
...your hourly rate for such person has to be low though, because they usually are four times as slow as everyone else.
Wow! great comments.
en.wikipedia.org/wiki/...
That said, I doubt that the MW is the entire explanation for the rise in unemployment. It didn't help, clearly. It is worth noting that it is employees at the margin are those most hurt by a MW increase, exactly as predicted, though its proponents keep reasoning via anecdote rather than actual cost/benefit.
Place that same add at $14 and you get a much better selection of potential employees.
I know, I've done it and still do.
Minim wage compounded with increased costs of energy, and thus all supplies needed ups the products cost. As the law of supply and demand dictates, increased cost results in lower demand. Low demand and high cost leads companies to lose money. Lose money and the company fires people, which we ares seeing today. It starts with the unskilled people first then progress up the ladder, as the company sheds weight to stay afloat.
As some people have pointed some companies need x amount of workers to produce, these companies will outsource to the cheapest source to compensate for the loss of workers.
Thus the people who lose in a minim wage hike are the people it was intended to help in the first place. Always remember a company looks to produce at the cheapest and sell at the most. Otherwise it doesn't make money and it goes out of business.