Monday, June 23, 2008

Minimum Wage = Maximum Unemployment

Michigan's May unemployment rate of 8.5% is the highest in the country, and it's not even close: The state with the next highest jobless rate is Rhode Island at 7.2%, more than a full percentage point below Michigan. And compared to South Dakota, the state with the lowest rate of 2.9%, Michigan's rate is a whopping 5.6% higher. And it's about to get even higher this summer.

Reason? The minimum wage for adults will increase to $7.40 per hour in a week, "a move that has Michigan businesses shuddering," according to
The Flint Journal.

And those younger than 18 get a double increase when the state raises its minimum wage 21 cents to $6.29 on July 1 and then the federal minimum wage goes up to $6.55 on July 24.

Employers must pay the highest minimim wage for which employees are eligible, so the increase will put more money into many teens' pockets. And, in another year, the federal minimum wage jumps to $7.25 an hour for teens.

Some area businesses have felt the sting of the rising minimum wage and say they've had to make changes to maintain their profits. The rising labor costs mean local Dairy Queen owners Tom and Diane Baker are hiring fewer teens this summer, at a time when more Michigan teens than ever are looking for work.

"I have a stack of over 100 applications," Tom Baker said. "I've never had that in 20 years of being in business. People can't find jobs."

But the rising minimum wage means the Bakers are hiring at least two people fewer than in previous summers. They normally hire 14-16 summer employees, but this year it will be 12.

"It's hurting the business as far as profit and it's hurting the people who want jobs because you're hiring less," he said.

MP: Legislation can artificially increase wages for unskilled workers, but the law cannot force employers to hire workers at those higher wages, and the evidence presented in the Flint Journal article suggests that local employers will now hire fewer workers this summer and in the future. We can hope that employers ignore the laws of economics, but experience tells us that they won’t. The thousands of unemployed, unskilled workers are the unfortunate victims of good intentions – their jobs have been destroyed by the minimum wage hike.

Look for Michigan's unemployment rate to rise above 8.5% this summer.

25 Comments:

At 6/23/2008 8:36 AM, Blogger Ironman said...

Given that over 50% of minimum wage (read: low-to-no experience) jobs in the U.S. are held by high school and college-age kids, it's little surprise that they're disproportionately affected by the increase in the minimum wage.

 
At 6/23/2008 8:43 AM, Anonymous OBloodyhell said...

> so the increase will put more money into many teens' pockets.

...And one hell of a lot less into many more teens' pockets....

 
At 6/23/2008 10:02 AM, Blogger randian said...

Remember, it's not about results it's about intentions.

 
At 6/23/2008 10:07 AM, Anonymous Anonymous said...

ironman--the data does not support your thesis.

since 1980 the real minimum wage has fallen by about 30%.

but over the same period teen employment fell 20%.

your theory says changes in teen employment and the real minimum doesn't wage should have opposite signs.

so why doesn't the data support you theory?

 
At 6/23/2008 10:23 AM, Anonymous Anonymous said...

Since 1950 the correlation between the real minimum wage and teen employment is 0.06. In essence it says that the real minimum wage has no impact on teen employment. that is logical since in 2007 only 6.9% of teens were paid the minimum wage. That right, 93.1% of teenagers were paid more then the minimum wage.

You of course are free to believe that the moon is made of green cheese. But at least have e the intellectual honesty to quit blaming everything on the minimum wage. If you are going to bame the high unemployment rate in Michigan on the minimum wage, also blame the low unemployment rate in Texas on the same minimum wage.

 
At 6/23/2008 10:25 AM, Blogger juandos said...

Thanks Ironman for the link and the name of Boudreaux...

anon @ 10:07 AM says: "since 1980 the real minimum wage has fallen by about 30%.

but over the same period teen employment fell 20%.
"...

Where are you digging up these numbers? What is your data source please?

Personally what I find interesting is that those who think minimum wages should go up for unskilled, no experienced workers (Sen. Kennedy for instance) never seem to want to foot the bill for increasing the minimum wage...

 
At 6/23/2008 10:36 AM, Anonymous Anonymous said...

From the May BLS report, more teens were working in May 2008 than in May 2007. It contradicts the thesis that a higher minimum wage acts to decrease employment in the teen cohort.

You have to control for the participation rate which increased from 41% to 42.6% . The times are lean. More teens are looking for work (are in the labor force) this year.

 
At 6/23/2008 10:39 AM, Blogger bobble said...

i agree that raising the minimum wage reduces demand for min wage workers.

but you're leaving out an important factor in the equation.

according to BEA, only 2.2% of michigan hourly wage workers are paid minimum wage. BEA

the vast majority of workers are not affected by minimum wage legislation. your assertion, tho true, affects a miniscule portion of workers in michigan

 
At 6/23/2008 10:44 AM, Blogger juandos said...

Thanks for the link anon...

Much appreicated...

 
At 6/23/2008 11:03 AM, Anonymous Anonymous said...

It is NOT "good intentions" that drive the minimum wage. It is the political gains gained by pols that cause them to push for higher minimum wages.

Secondly, minimum wages will have little to no effect on those making more than the minimum wage (unless they are just marginally above the new wage). When market forces drive wages higher, the minimum wage has no impact. It is only when the new legislated wage is at or below the market wage, that it will affect employment. That, IMO, is why they correlation is weak.

Clearly, if ALL employees of a firm were earning $5.00/hr, and the new minimum became $7.00, does anyone seriously believe that would not have ANY impact on the employment numbers?

 
At 6/23/2008 12:28 PM, Blogger Ironman said...

anonymous said:

since 1980 the real minimum wage has fallen by about 30%.

but over the same period teen employment fell 20%.

your theory says changes in teen employment and the real minimum doesn't wage should have opposite signs.

so why doesn't the data support you theory?


Err, um. No. My theory doesn't say that. At all. If you'd like to make a straw man argument, please do so more competently in the future. (Hint: Start by actually reading what I've written....) ;-)

 
At 6/23/2008 12:32 PM, Anonymous Anonymous said...

Most of my data comes from
http://www.bls.gov/cps/minwage2007tbls.htm#10

Characteristics of minimum wage workers.

You can not navigate from one page to another here -- usually bls is very good about things like this. So if you want to look at 2006, or earlier years data your have to edit the link yourself and manually change the 2007 to 2006 or even earlier years.

 
At 6/23/2008 1:30 PM, Anonymous Anonymous said...

Given that over 50% of minimum wage (read: low-to-no experience) jobs in the U.S. are held by high school and college-age kids

The premise is potentially faulty. The BLS data only captures those states with minimum wages at below the federal minimum wage rate. Many states have higher minimum wages than the federal wage rate. Many employeees in the 25+ year cohorts in the green states are paid minimum wage not captured by the federal stats.

Take California, for example. It is estimated that 1 million Californians are paid minimum wage which is not captured in the 1.7 million minimum wage workers cited in the BLS Characteristics of Minimum Wage Workers:2007.

 
At 6/23/2008 1:41 PM, Blogger bobble said...

"Look for Michigan's unemployment rate to rise above 8.5% this summer."

LOL. of course the fact that nationwide YoY job creation has been negative for the last 5 months has nothing to do with michigan's unemployment rate.
>PDF. see page 2, chart 2


face it the economy sucks.

 
At 6/23/2008 2:33 PM, Anonymous Anonymous said...

also an increase in the min. wage is useless considering David Ricardo's law of wages.

higher wages=the ability to support more children
=more children
=more workers
=deflates wages (more workers=less demand on them)

therefore it is a continuing cycle.

another reason against min wage is b/c it will hurt small businesses, which generally pay min wage.

 
At 6/23/2008 3:22 PM, Blogger Ontario Emperor said...

Bobble's first point is valid. When you look at unemployment rates in Michigan, what's the industry in Michigan that has been most affected by unemployment? And how many of those jobs were minimum wage?

 
At 6/23/2008 3:43 PM, Blogger Ironman said...

anonymous said:

The premise is potentially faulty. The BLS data only captures those states with minimum wages at below the federal minimum wage rate. Many states have higher minimum wages than the federal wage rate. Many employeees in the 25+ year cohorts in the green states are paid minimum wage not captured by the federal stats.

If we're discussing only the federal minimum wage as a benchmark combined with national unemployment levels, the demographic profile is appropriate.

You are correct though if we want to discuss the demographic age profile of minimum wage employees in specific states. Simply put, because "minimum wage worker" is an arbitrary standard that can and does vary between a number of states, one state's minimum wage may not be the same as another state's minimum wage, and thus, the workers earning each cannot be compared directly to each other. The "California minimum wage worker" makes far more money than either the "Oklahoma minimum wage worker" or the "Federal minimum wage worker," for example.

I wonder if the demographic age profile of the "California minimum wage worker" might be more similar to that of the Federal "8.00 per hour wage worker". Or if the "California minimum wage worker" spends a lot more time at that level before ever getting a raise than the "Federal minimum wage worker" does.

Thanks for posting the link to the 2007 minimum wage worker characteristics!

 
At 6/23/2008 4:22 PM, Blogger OBloodyHell said...

> according to BEA, only 2.2% of michigan hourly wage workers are paid minimum wage.

I am concerned with this language. If you're paid MW+10%, you're still affected by shifts in min. wage, esp. ones of close to or more than 10%...

I think quoted stats on such should recognize that just because you've gotten a raise to MW+5-cents, you're still getting MW for all intents and purposes of these discussions.

And I believe this applies to both sides of the argument -- as long as your job is one which CAN be filled off the street by someone getting paid the minimum wage, the job is affected by minimum wage.
For example -- If the MW is jacked up to above your current salary, is the employer going to just give you min wage? You'd be pissed if they did, but some employers may just decide not to pay you the additional amount, and to hire a new min wage worker if you refuse.

> From the May BLS report, more teens were working in May 2008 than in May 2007

In percent of available teen workforce, or just pure numbers? The difference is particularly relevant in situations like these.

In April, the NYT floated this headline:
As Jobs Vanish and Prices Rise, Food Stamp Use Nears Record
As Dr. Perry noted about it then:
There's one big, fundamental problem for these "food stamp hysteria" stories about record food stamp use of 28 million by 2009 (fiscal year 2008): The U.S. population will be at a record level of 306.272 million in 2009, and food stamp use by 28 million Americans will be about 9.14% of the population, just slightly higher than the 2005-2007 average of 8.78% (see chart above using data from USDA and the Census Bureau). And the 9.14% projected food stamp usage as a percent of population in 2008-2009, will be lower than food stamp usage in 1980, 1981, 1982, 1983; and 1992, 1993, 1994, 1995 and 1996.

STAT101 -- How to Lie with Statistics.

I have no idea whether the teen workforce is rising or falling (presumably the former) which would have a similar effect on the 2007 stats vs. 2008 stats as the above food stamp stats. It needs to be placed in the context of the overall market, not just stated face-up like that.

[There are] two most artistic ways to lie... it's not enough to be able to lie with a straight face; anyone with enough gall to raise on a busted flush can do that. The first way to lie artistically is to tell the truth -- but not all of it. The second way involves telling the truth, too, but is much harder: tell the exact truth and maybe all of it, but tell it so unconvincingly that your listener is sure you are lying.
- Robert A. Heinlein, 'Time Enough for Love' -

 
At 6/23/2008 4:30 PM, Blogger Walt G. said...

We can hope that employers ignore the laws of economics, but experience tells us that they won’t.

Employers might not ignore the law of economics, but many ignore labor laws and pay employees illegally. Another potential problem with minimum wage laws, and one I can't prove because I don't know how to reliably measure something so clandestine, is the increase of employers paying employees "under-the-table." Purely anecdotal evidence suggests it is more prevalent today than ever. Good intentions: Bad results?

 
At 6/23/2008 4:31 PM, Blogger OBloodyHell said...

> considering David Ricardo's law of wages.
(...)
=deflates wages (more workers=less demand on them)

This makes the ridiculous assumption that the job opportunities for workers do not expand commensurately -- that the job pool is a fixed, unalterable commodity.

Ricardo was no slouch, so that's probably valid for the purpose of demonstrating his thesis, but it's hardly more than a trivial, unrealistic case as stated.

In reality, as new workers become available, jobs which formerly had no need to develop (since there were no workers to fill them) often do.

Further, new techs add new needs for workers, as well -- often radically shifting the job market as a part of the process, but still usually needing more workers as a whole.

If you really think that a modern civilization could operate without stress with 10% of the current world population, you're dreaming. It might not collapse with smart management, but you can damned sure bet your ass that it would be a near run thing.

"New workers" can most definitely be A Real Good Thing -- esp. as long as resource availability keeps pace (i.e., food, housing, energy, etc.) as needed to fulfill basic needs.

 
At 6/23/2008 4:40 PM, Blogger OBloodyHell said...

> I can't prove because I don't know how to reliably measure something so clandestine, is the increase of employers paying employees "under-the-table."

I believe the term you're looking for (i.e., if you really want to search for data) would probably be "Black Market Wages" -- the most obvious (and likely largest) applicable group would be construction workers and other rough-duty and menial-duty physical service jobs (lawn maintenance, garment work, janitorial services, etc.), esp. those who are illegals.

And as recent political hot potatoes have shown, they are hardly a small quantity of the work force.

 
At 6/23/2008 8:58 PM, Anonymous Anonymous said...

The Dairy Queen owners are hiring less summer staff because they know that their unit sales volume will be down this year. I mean Flint's unemployment rate has jumped from 7.9% to 9.6% in the last year and now ranks 358 out of 369 metropolitan statistical areas. Less employed people mean less arctic rushes slurped and less blizzards blizzed.

If 15 summer workers worked an (generously) average of 30 hours per week last year at the under 18 wage of $6.05 per hour and 12 workers worked the same hours today at $6.55 per hour, the summer payroll is $364 less per week this season.

This is not a minimum wage issue. It is a volume, margin issue. Maybe the Flint area can only support four profitable stores instead of the existing five stores.

 
At 6/24/2008 7:13 AM, Blogger RightMichigan.com said...

Don't knock it until you try it. We've only got an 8.5% unemployment rate here in Michigan these days. Mark Schauer and Andy Dillon refuse to rest until it hits double-digits.

--Nick
www.RightMichigan.com

 
At 6/24/2008 4:34 PM, Blogger Richard Jennings said...

I live in Michagan too but I see so many high paying jobs on employment sites -

http://www.realmatch.com
http://www.craigslist.com
http://www.simplyhired.com

I dont understand how the stats jive with that? It seems like demand for talent is still strong.

 
At 9/22/2008 9:10 AM, Blogger Richard said...

Adjusted for inflation the minimum wage would have to be close to 10 bucks an hour in relation to 1968 standards. Teens or other young people saving or paying for college are particularly hard hit as tuition costs far outpace the average inflation tax. Keep following the Republican mantra of corporate welfare and bailouts for the rich along with high government spending on military and pork projects, and you will see the unemployment rate in MI at over 20 percent. I presume it's already there in Detroit! Keep voting Republican guys!

 

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