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%!