The stubbornly high unemployment rate over the past few years has perplexed many. Even while the stock market recovered, unemployment has stayed historically high. We’ve seen the rate finally start to come down a little bit over the past few months, but it still remains at historically elevated levels.
The high unemployment rate might have a lot more to do with recent government attempts to “increase compensation” than people might believe. For decades, many politicians in the US have fancied this idea that the Federal government can increase the standard of living by legislative fiat. It sounds silly when one puts it in those terms, but there’s widespread belief that it occurs.
Minimum wage laws don’t actually increase “real wages.” They merely prevent unskilled laborers from obtaining employment, thereby making them poorer. Of course, in most cases, employers will enact the wage increase, but it normally comes with either (a) a price increase in the goods or services it sells, or (b) a reduction in the amount of labor employed. There is the third possibility that an employer entirely shuts down because of the wage increases, which means that the employer needs a new job, and so do all the employees — a double-whammy if there ever were one!
Overall, the net effect of all this is that there’s no real economic gain. Either the wage increase causes inflation, thereby harming working class individuals’ ability to purchase the things they need; or it causes job losses, thereby enriching some workers (those who get paid the artificially high wages) at the expense of others.
Strangely, I’ve heard very few people even consider that this might be one of the reasons why unemployment is so high. If there are groups that suffer disproportionately from minimum wage laws, it’s teenagers and African-Americans. And indeed, some statistics have shown a black teenage unemployment rate well above 40%!
While Congress and Obama convince themselves that legislative fiat can increase the standard of living, many lower income black teenagers are deprived the opportunity to obtain valuable skills that might allow them to eventually escape poverty. As someone who grew up in a lower-middle income family in Appalachia, I can personally vouch for how being able to work at restaurants in my younger years helped me improve my financial position, independence, and maybe most importantly, it kept me out of trouble. It’s tragic that we may be denying many people the opportunity to do this, in the naive belief that we’re “helping workers.”
A Massive Increase
So how dramatic is the increase? In 2007, the minimum wage was set at $5.15 per hour. If you factor in government mandated benefits, such as Social Security and Medicare, the adjusted minimum wage jumps up to about $5.93 per hour in 2007.
In the past few years, Congress has raised the minimum wage to $7.25 and enacted Obama’s healthcare plan, which mandates a “minimum health care benefit” to every employee. It’s difficult to determine the exact amount of this “minimum benefit”, but the Federal government will impose a $2000 per employee fine on all companies with 50 or more full-time employees that do not offer adequate health care coverage.
If you take that figure, divide it by 52 (# of weeks in year), and then divide again by 40 (average work week), then the benefit is about $0.96 per hour. Factor in Social Security and Medicare / Medicaid and the new adjusted minimum wage jumps up to $9.30 per hour.
In other words, in a period of about 4-5 years, the United States has raised its minimum wage for full-time employees by a whopping 57%! No wonder unemployment is sky-high!
It’s also worth noting that the new healthcare law would seem to disincentivize firms from hiring full-time workers, as well as prevent smaller firms near 50 employees from hiring new people.
Of course, there’s also the other takeaway here. If you’re currently making $7.25 per hour in wages, you would probably make closer to $9.30 per hour, if the Federal government did not mandate how your earnings were spent.
All in all, too many Americans have convinced themselves that minimum wage laws and Obamacare have increased the standard of living, in spite of some compelling evidence suggesting that it might be causing artificially high rates of unemployment. Both of these measures are anti-poor in nature and promote arbitrary distribution of wealth.