- Page 1
-- It's Time To Dump The Unemployment Rate - 8/5/16
-- The Bitter Lesson From Seattle's Minimum Wage Hike - 8/11/16
It's Time To Dump The Unemployment Rate
The official unemployment rate bares little resemblance to what's actually going on in the job market today. (© zimmytws/stock.adobe.com)
Economy: The July jobs report was a good one, and the unemployment rate held steady at 4.9%, which in the past would have been sure signs of a robust economy. So why is the country in such a bad mood?
An unemployment rate below 5% is a relatively rare thing. Only twice before in the past 40 years has it dropped that low -- once in the late 1990s during that economic boom, and again briefly in 2006-2007.
Yet unlike before, there is little joy in Mudville today. Instead of confidence and optimism, there is only malaise.
Back in 1997, for example, the Consumer Confidence Index was up to 130. By the end of 1998, it topped 140. (The base year used for the index is "Morning in America" 1984, when it stood at 100.)
In 2006, when the unemployment rate again dropped below 5%, the Confidence Index was in the 110 range.
Today, despite the fact that unemployment has been below 5% in five of the past seven months, the index is just 97.3.
In the late 1990s, nearly two-thirds of the public thought the country was headed in the right direction, according to an ongoing Gallup survey. Today, just 17% say the country is headed in the right direction.
Signs of gloom abound. The latest IBD/TIPP poll finds that more than a third of adults (37%) think the country is in a recession. Less than half (48%) say that the economy is improving, while 49% say it's not. More than half (55%) are dissatisfied with federal economic policies.
And in almost a third of households (31%), there is either someone who is out of work or worried about losing a job.
Put simply, what's happened is that the official unemployment number has grown increasingly useless as a reliable economic indicator, for the simple reason that millions of people have simply quit looking for a job. Since the unemployment rate is based only on those who are actively looking for work, the more people who drop out of the labor force, the lower the unemployment rate becomes.
Up until 2010 that didn't matter much, since the "labor force participation rate" was relatively steady. But during the Obama "recovery," that's changed. As the economy has slogged along for the last seven years, millions of non-elderly workers have given up looking for jobs entirely.
The Bureau of Labor Statistics, recognizing the weakness of the official unemployment number, developed a broader "U-6" measure, which includes those who are "marginally attached" to the labor force or who are working part-time jobs for economic reasons.
In July, the U-6 rate was 9.7%, which is far higher than it was the last two times the official rate dipped below 5%.
It's time for the government to come up with a new jobless measure that more accurately depicts what's really going on in the job market today.
The Bitter Lesson
From Seattle's Minimum Wage Hike
Raising the minimum wage is one of those wonderful-sounding ideas that, whenever tried, unfortunately never quite works the way it was promised. To its credit, the Washington Post has noticed.
The Post recently highlighted a new study from a group of economists who were commissioned by the city of Seattle to look at that city's minimum wage hike from $9.96 an hour to $11.14 an hour. What they found was enlightening.
To begin with, the economists said, some of the workers weren't helped at all, since their pay would have likely gone up anyway with experience and tenure on the job.
But the city didn't bargain for what happened to other workers it had sought to help: "Although workers were earning more, fewer of them had a job than would have without an increase," the Post said. "Those who did work had fewer hours than they would have without the wage hike."
Indeed, depending how it's calculated, the economists found that the minimum wage hike that sounded so generous when passed resulted in somewhere between a $5.54 a week raise and a $5.22 a week reduction in pay.
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In comments that sounded as if they came straight out of an Econ 101 text, the Post concluded that "Increasing the minimum wage increases the costs of hiring workers. As a result, employers must accept reduced margins or customers must pay steeper prices. If employers cannot stay in business while paying their staff more, they will either hire fewer people or give their workers fewer hours. As a result, even if wages per hour increase workers' total earning could decline."
Dead on. That's exactly what happened. And as University of Washington economist Jacob Vigdor, one of the authors of the Seattle study, noted, some businesses simply avoid paying the minimum-wage tax altogether by automating and letting low-end, unskilled workers go — as is now happening in some fast-food chains and at supermarkets.
Yet, such foolishness seems to have infected the Democratic Party, with its now near-ubiquitous "Fight For $15" campaign. As a piece in IBD highlighted right after the Democratic Party Convention's call for a massive hike in the minimum wage, forcing sharply higher wages on troubled local economies where the median wage is low can have a devastating effect.
"The most absurd plank to appear in either party's platform this year is the Democrats' call to 'raise the federal minimum wage to $15 an hour over time and index it,' " wrote Oren Cass, a senior fellow at the Manhattan Institute and author of "Is A $15 Federal Minimum Wage Appropriate?" "It is policy written for the nation's very wealthiest enclaves, but incoherent for economically distressed regions."
The tragic irony of this is that those who are worst hurt by a higher minimum wage are those with little education or training, mostly minorities, immigrants and the young. They get priced right out of the labor market by the well-meaning nanny-staters who want to impose a one-size-fits-all minimum wage on the entire country — regardless of the damage it does.
It's really a matter of basic logic. Any time someone raises the price of something — anything — those who consume it use less, all things being equal. That also happens when government requires businesses to pay more for labor than the market demands. In doing so, government helps to create unemployment, idleness and long-term dependence on welfare, especially for the most vulnerable people in the workforce.
The folks at the Legal Insurrection blog site really nailed the rancid politics of it: "Yes, Obama and Democrats are aware of this, and no, they do not develop policies that address the reality of minimum wage hikes and their measurable failure; instead, they focus on 'feel good, sound good' policies that appease the masses, harm businesses, and displace workers."
By the way, Jared Bernstein, formerly Vice President Joe Biden’s chief economist, noted Wednesday at the Washington Post that the Seattle study seems to suggest no harm from hiking the Seattle minimum wage from $9.50 to just over $11 an hour.
Well, it’s true that Seattle’s economy has done pretty well in recent years, due largely to the spillover effects of a regional tech boom. And that means some jobs have been created, despite a higher minimum wage.
But the study’s authors themselves say: “We strongly caution that these results show only the short-run impact of Seattle’s increase to a wage of $11/hour, and that they do not reflect the full range of experiences for tens of thousands of individual workers in the City economy.”
Moreover, other studies on a national level suggest that minimum wage hikes can be major job killers. A University of California at San Diego study showed that when the federal minimum wage was lifted to $7.25 from $5.15 in 2013, it cut employment of those earning less than $7.50 an hour by 8%. That’s 1.7 million fewer jobs nationally, and a decline in average monthly income of $100.
So what will happen when Seattle raises its minimum to $15 an hour in 2017? It could be ugly.
That this destructive policy is a plank in a major political party's platform is nothing short of a national disgrace.