Friday, September 5, 2008

Minimum Wages and Unemployment

Well, that didn't take long.
The minimum wage was increased, and unemployment jumped.


NEW YORK ( -- The unemployment rate soared to a nearly five-year high in August as employers trimmed jobs for the eighth straight month, the government reported Friday.
The unemployment rate rose to 6.1%, the highest level since September 2003. That's up from 5.7% in July and 4.7% a year ago.

Here's, from about a month ago:

The phrase "minimum wage law" contains an inherent contradiction. You can't raise the minimum wage. The minimum wage has always been zero, and it always will be zero. Wrap your head around the implications of that, and, as Jesus said, you're getting very close to the kingdom of God.

Here's some more CNN, quoting the current leaders of The Mommy Party (D) and The Daddy Party (R):

But the campaign of Democratic presidential candidate Barack Obama said the report points out the failure of Republican policies.
"John McCain showed last night that he is intent on continuing the economic policies that just this year have caused the American economy to lose 605,000 jobs," Obama said in a statement. "John McCain's answer is more of the same: $200 billion in tax cuts to big corporations and oil companies, and not one dime of tax relief to more than 100 million middle-class families."
The McCain campaign argued that Obama's economic policies would cause more job losses in the future.

Here's some more, predicting that the mainstream media just won't get it:

A few months from now, start looking for bewildered print and online editorials about increased unemployment among teenagers and low-skilled minorities. The funniest ones will have no sense of irony, and will end with calls for our government to do something about the problem.

I hope you broke out in giggles while reading the CNN piece. Here's a group that sorta gets it,

Some argue that a higher minimum wage leads to more unemployment. But with wages failing to keep up with inflation, some think more increases are needed.
Congress passed legislation last year that would raise the minimum wage in stages from $5.15 an hour to $7.25 in July 2009. (Several states already have minimum wages higher than that.)
“If labor becomes more expensive, employers will hire fewer workers,” notes a study from the National Center for Policy Analysis, a research firm based in Dallas.
And this appears to be playing out with teenage workers. The unemployment rate for teens this August was 18.9%, up from 16.2% a year ago. Admittedly, teens make up a small percentage of the overall work force - a little more than 4%. But some think higher wages limit any job rebound, especially in a struggling economy.

They're confusing the issue a bit by throwing in the inflation factor. Inflation is an increase in the money supply. If the Fed chose to let us in on how much new money they're throwing into the system? We could predict inflation with near Godlike accuracy. Then we would make them stop throwing new money into the system.

Here's a link to some folks that get it. Mean Ol' Meany says that:

Just this morning, I heard the talking heads screeching about the "unexpected" increase in unemployment at the end of July.
That increase was only unexpected to morons.
Lemme 'splain.
History or past performance is a good indicator of future results or future performance.
What does that mean?
Well, if you undertook an action fifty times in the past, and every single time you did that the same result occurred afterwards, that would tell you that those two indicators were probably tied together.
"You know, every single time that I go bobbing for french fries, I burn my face. What gives?"
"Uh, Homer, you keep dunking your head in a fry vat full of 350 degree grease. Understand?"

I think these people, like me, have spent some time doing price quotes in a manufacturing environment.

Lord have mercy, what a mess. Look at it this way. If someone says that Coca Cola is going to cost $50.00 per bottle, you're going to purchase less Coca Cola. Lower the price to ten cents per bottle, and you'll probably purchase more.

But we can't improve the unemployment rate by eliminating the wage laws.

We're too compassionate.


Paul Mitchell said...

Holy crap! There is another human being that is not a moron!

Oddly enough, I do not have experience quoting anything in a manufacturing environment, but my business is the same as all others. Profit is governed by what the market will bear and my overhead coupled with costs of production.

I do eat fast food quite a bit, so I know a couple of things about minimum wage, too.

Just finding that there is another human being pondering the stupidity of government mandated minimum wage gives me the hope to continue just one more day.

And I live in Mississippi, it must be something in the water.

Thanks for the comment at my blog.

The Whited Sepulchre said...

Dos Perras,

Yeah, it's amazing. I try not to rant on it more than once a month, since people have a problem evaluating policies based on results instead of good intentions, and anyone who points out the downside is painted as a Mean Ol' Meany.

Can you imagine the media firestorm that would rain down if one of the candidates pointed out that the minimum wage should be eliminated?

The Whited Sepulchre said...

r.e. - Mississippi,

I grew up in the Delta, between Drew and Merigold. My parents later retired to Clinton. I don't get back to The Magnolia State very often - the entire family has followed me to Texas.

Anonymous said...

In Britain there were more jobs in the economy after the minimum age was introduced.

The Whited Sepulchre said...


Thanks for dropping in. The UK introduced a minimum in 1999, when things were booming along nicely.

The minimum was set somewhere near the going rate.

The latest increase (2006 ?) got it to a point where it has the predicted effect.

Anonymous said...

The supporters of these laws would rather see 10 people unemployed than one person working for what they considered too low of a wage. It is disgusting.

Anonymous said...

Just when it seems there is a good idea which I thought increasing the min. wage was a great idea, but never thought of it the way you describe. Please re-iterate the solution from a Libertarians point of view. Are you saying that no wage regulation at all is the answer?

Anonymous said...

Increased Minimum Wage + Unskilled Workforce = Less Unskilled Jobs

Very complicated formula for many.

I am glad us angsty teenagers are jobless, with all this free time on our hands we can now volunteer for school clubs and spend time on intellectual pursuits...

Probably not, but hey I'll try to lead by example.

The Whited Sepulchre said...

Hit the "minimum wage" label on this post, and you'll get most of it - as outlined in previous rants.

But, simply stated, if the price of something goes up, all other things being equal, demand for that thing will decrease.

Manufacturers, retailers, fast food chains, etc can't simply raise prices to cover the difference in the new and old wages. Demand for what they provide drops off at the higher price.

It eventually levels off when the government prints more money, devaluing the currency, and making unskilled labor worth the "new" minimum wage. But not until then.

Setting these arbitrary minimums is usually presented as a humane action, and opponents are portrayed as indifferent and callous. No one thinks that they will be the one who doesn't make the cut at the new wage level.

If you're running a low-end retail establishment, and are given a payroll budget of 15% of sales, and the minimum is raised? You either hire fewer people, or deny raises to your better people.

If the "legal" minimum wage reflected reality - i.e., do away with all govt regulation of wages, then business owners still wouldn't be able to pay as little as they pleased. Think of all the thousands of types of jobs that already pay more than the nminimum. But there would then be some way for totally unskilled workers to get on the career ladder.

If you're still a doubter, spend a few minutes trying to think of some way you could profitably pay a totally unskilled worker the new minimum wage.

Give up? Did you leave a huge number of unskilled workers unemployed, despite your intentions of helping them?

Welcome to The Light Side Of The Force.

p.s. - Everyone else, don't even think about bringing the work of economists Krueger and Card in here. They only interviewed survivors.

Anonymous said...

Got it. Many thanks.