Tuesday, June 10, 2008

Minimum Wage and Unemployment

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?

In nominal dollars, there will be a 41% increase in the minimum wage, from $5.15 per hour in 2007, to $7.25 per hour in 2009. In real, inflation-adjusted dolars, it will be a 25.5% increase, and will be the largest 2-year increase in the real minimum wage in at least 50 years. And this HAS to have an adverse effect on employment of teenage workers.

According 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.

from Carpe Diem
My Comments: Congress cannot overturn the laws of supply and demand. They cannot wages or prices without the market responding to these external shocks. Sadly, as more and more people become permanently unemployable due to the ever increasing minimum wage, Congress will not recognize the harm it has caused and will call for even more rules, regulations, and laws.

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