Rap This: The Job Killer

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Posted: May 19, 2011 12:01 AM

The latest weekly new jobless claims was lower than expected, but still about 150,000 higher than economists say is necessary to indicate we're on the road to a recovery.  The unemployment rate increased to 9.0 percent last month.  More than 14 million people are still out of work; another 6 million have given up even trying to find a job and have left the workforce. 

Transfer payments from various social welfare programs now account for a record high 35 percent of total salary and wage income in America.  Food stamps are used by 1-in-7 people nationally. 

The only thing that is working well in America seems to be Obama's plan to "spread the wealth," but he's borrowing 40 cents of every dollar to do it. 

While the numbers are staggering, Washington seems paralyzed to do much to help.  In fact, evidence mounts that many of the woes facing Americans trace to failed public policy put in place by misguided politicians.  The latest wreck on the growing list is the government mandated minimum wage.

In 2006, Democrats campaigned on an increase in the minimum wage, and early in 2007 the new Democrat majority delivered, unfortunately with significant Republican congressional support.  And, George W. Bush signed it into law as part of a bigger appropriations package. 

At that time, the minimum wage was $5.15 per hour and the unemployment rate was less than half (4.4%) of what it is today.  Congress hiked the minimum wage more than 40% to $7.25 on a three step schedule with the last hike taking effect in July, 2009. 

In March, 2010 A Line of Sight contributing editor, Chris Jaarda, examined the history of the minimum wage and found that unemployment spiked following four of the last five increases in the federal minimum wage.  Jaarda also discovered that 79% of economists agree with the following: “a minimum wage increases unemployment among young and unskilled workers.” 

Somebody should have told Congress. 

A newly released study by two labor economists, William Even (Miami University) and David Macpherson (Trinity University) confirmed, yet again, what Jaarda and many others already knew; increasing the minimum wage punishes most the young, unskilled workers, and worse, has a significant racial component. 

Even and Macpherson's study, "Unequal Harm: Racial Disparities in the Employment Consequences of Minimum Wage Increases" analyzed the employment status of 16-24 year-old male high school dropouts, by definition the most unskilled, inexperienced group in the labor pool. 

Among the white males, the authors determined that "each 10% increase in a state or federal minimum wage has decreased employment by 2.5%; for Hispanic males, the figure is 1.2%."

"But among black males in this group, each 10% increase in the minimum wage decreased employment by 6.5%."

Just a reminder, that 2007 increase was 40%.  Guess what happened?

During the peak of what has been dubbed the Great Recession, the unemployment rate for young adults (16 to 24 years of age) as a whole rose to above 27%, according to syndicated columnist, Walter Williams.  However, the unemployment rate for black young adults was almost 50%, but for young black males, it was 55%.

Many factors including the financial crisis contributed more to the recession than the minimum wage increase.  In trying to parcel out the right numbers, Even and Macpherson compared the job loss caused by higher minimum wages with that caused by the recession and found between 2007 and 2010, employment for 16-to-24-year-old black males fell by approximately 34,300 as a result of the recession; over the same time period, approximately 26,400 lost their jobs as a result of increases in the minimum wage across the 50 states and at the federal level.

Even and Macpherson explain that young black men are more likely to be employed in low-skilled jobs in bars and restaurants, exactly the kind of businesses with narrow profit margins that are more adversely affected by increases in minimum wage.  Indeed, the National Restaurant Association lobbied against the 2007 legislation, pointing out that the last increase led to 146,000 lost jobs. 

Walter Williams – himself a black male – unloaded blistering satire at the political establishment; "The best way to sabotage chances for upward mobility of a youngster from a single-parent household, who resides in a violent slum and has attended poor-quality schools is to make it unprofitable for any employer to hire him."

When the 2007 minimum wage increase was passed, the New York Times hailed it as a "major victory for low income workers."  That's the standard liberal – oops, progressive – line.  But, I doubt the 50% of black young adults that are out of work feel all that victorious. 




Cantor: An Air of Willingness- Larry Kudlow
O-pocalypse Now- John Ransom
Investing for Idiots: Bear Markets are Good!- Morales & Karcher
A "Rich Guy" Speaks Out Against Higher Taxes (Part 2 of 2)- Cliff Ennico
Number 4? Invest More Agressively- Carrie Schwab Pomerantz
The Ostrich ECB- Mike Shedlock
Rap This: The Job Killer- Bob Beauprez

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You can email John Ransom at thfinance@mail.com 

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