Tag: unemployment

Unhappy (belated) Birthday National Minimum Wage

I wasn’t in the mood Friday to celebrate the 73rd birthday of the federal minimum wage, created under the Fair Labor Standards Act of 1938.  Looking at youth unemployment numbers can be a little depressing.   Those figures should, however, sober up anyone who is still drunk under the spell of thinking the minimum wage has no impact on unemployment.

The chart above shows the increase in unemployment overall (right axis) and the unemployment rate for workers age 16 to 19 (left axis).  The difference between these two numbers usually runs about 10 percent, even in good times.  Notice that when the minimum wage was raised in July 2009, overall unemployment had started to level off, while youth unemployment sky-rocketed.  We also witnessed a big spike in youth unemployment the last time the minimum wage was raised in July 2008.

For those who truly care about reducing unemployment, as I do, the first thing we can do is recognize that a large part of the problem is being driven by the massive spike in youth unemployment, which the data suggests is partly being driven by the minimum wage.

For a great review of the historical evidence, I suggest David Neumark’s book Minimum Wages.  And yes, I’ve read David Card’s studies, which I think have tons of problems, but that is beyond the discussion here.  The bottom line should be that in a free society, whatever two consenting individuals agree to, should be respected, whether its marriage or the contours of a labor contract.

Should the Government Ban ATMs and Create “Spoon-ready” Projects?

At the Britannica Blog today I note President Obama’s concern over ATMs, Hillary Clinton’s support for the candlemakers’ petition, John Maynard Keynes’s simple solution to the problem of unemployment—and how Bastiat refuted all their arguments more than 150 years ago:

And there’s your question for President Obama: Do you really think the United States would be better off if we didn’t have ATMs and check-in kiosks? …  And do you think we’d be better off if we mandated that all these “shovel-ready projects” be performed with spoons?

In his 1988 book The American Job Machine, the economist Richard B. McKenzie pointed out an easy way to create 60 million jobs: “Outlaw farm machinery.” The goal of economic policy should not be job creation per se; it should be a growing economy that continually satisfies more consumer demand. And such an economy will be marked by creative destruction. Some businesses will be created, others will fail. Some jobs will no longer be needed, but in a growing economy more will be created… .

Finding new and more efficient ways to deliver goods and services to consumers is called economic progress. We should not seek to impede that process, whether through protectionism, breaking windows, throwing towels on the floor, or fretting about automation.

More here.

Barack Obama, Luddite?

In the video clip above, President Obama blames America’s current unemployment problem on… automation. ATMs and airport kiosks are singled out.

These words could only be uttered by someone who knows very little about economics or the history of human progress. In fact, they could only be uttered by someone who has never reflected on this question before in his  life. Because if you reflect for one moment, you come up with this glaringly obvious counterfactual: we use a lot more  labor-saving technology today than in previous generations, and yet we also employ far more people. Therefore, increased automation does not lead to decreased national employment.

If you do more than just think for a second – if you read an economic history book, for instance – you discover that increased automation doesn’t even necessarily lead to decreased employment in the industry being automated! The classic example is the 19th century British textile industry. The so-called “Luddites” smashed automated looms fearing that they would lead to rampant unemployment in their industry. But, as the new technology proliferated, textile industry employment rose. Among other reasons, increased efficiency drastically lowered the prices of textile goods, that shot demand through the roof, and to meet the new demand new workers were required to operate and maintain the new machinery.

There are other examples, of course, and the president will save the American people a great deal of hardship, and himself further embarrassment,  if he familiarizes himself with them. Here’s a good brief introduction from the British Secretary of State… under Margaret Thatcher.


For those having trouble viewing the video, here is a transcript of the relevant Q&A:

Q: Why, at a time of record profits, have you been unable to convince businesses to hire more people Mr. President?

A: [….] the other thing that happened, though, and this goes to the point you were just making: there are some structural issues with our economy, where a lot of businesses have learned to be a lot more efficient with a lot fewer workers. You see it when you go to a bank and there’s an ATM, you don’t go to a bank teller. Or you go to the airport, and you’re using a kiosk instead of checking in at the gate.

Heckuva Job on that Stimulus!

Based on this morning’s numbers, I’ve updated my chart showing what the Obama Administration said would happen with the so-called stimulus compared to what actually has happened. As you can see, the unemployment rate is about 2.5 percentage points higher than the White House claimed it would be at this point.

Since I just did an I-told-you-so post about Greece, I may as well pat myself on the back again (albeit for another completely obvious prediction). Here’s the video I narrated a couple of years ago on the Obama faux stimulus.

New Job Numbers

The Labor Department released its latest job numbers today and they remind me of Clint Eastwood’s 1966 classic, The Good, the Bad, and the Ugly.

The good news is that the economy created 244,000 new jobs, the biggest gain in almost a year. And the jobs were in the productive sector of the economy rather than government, so the added employment means more taxpayers rather than more tax-consumers.

The bad news is that the jobless rate increased to 9.0 percent, up from 8.8 percent last month. This means that the number of people looking for work is increasing at a faster rate than the number of jobs being created.

The ugly news, at least from the perspective of the Obama administration, is that the latest data is yet another piece of evidence that the White House was grossly mistaken when it claimed that bigger government would translate into better economic performance.

The blue line in the chart below shows the administration’s prediction of what would happen to unemployment if the so-called stimulus was enacted. The dots represent the actual unemployment rate.

As you can see, the unemployment rate is easily more than two percentage points higher than the White House said it would be at this time.

Administration apologists respond by moving the goal posts, asserting that the original prediction underestimated the economy’s weakness and the unemployment data would have been even worse in the absence of all the spending.

Since economists are lousy at predicting the future, that’s a legitimate argument.

But is it an accurate argument? Since there’s no parallel universe where we can conduct policy experiments, there’s no way of proving which side is wrong. Nonetheless, this chart from the Minneapolis Federal Reserve Bank is rather revealing. It compares employment numbers after the deep recession of the early 1980s with the employment numbers from the recent deep recession.

Perhaps I’m biased and reading this chart incorrectly, but it certainly seems as if Reaganomics generated better results than Obamanomics. Maybe it’s time to realize that government is the problem, not the solution?

Tina Brown and the Economics of Recession

Talking about royal weddings on NPR, Tina Brown says that there’s high unemployment in Britain, as there was in 1981, because of Conservative governments’ budget cuts (transcript edited to match broadcast):

Of course, the wedding of Prince Charles and Diana occurred three decades ago, but Brown points out that there are plenty of similarities between the two eras. “2.5 million are out of work right now with the budget slashes and all the economic austerity that’s happening in England,” Brown says. “There were actually the same amount of people exactly out of work at the time of Charles and Diana, when Mrs. Thatcher came in and began her draconian moves.”

I know that Tina Brown is a journalist, not an economist, but surely she’s heard of the recessions of 1979 and 2009, both of which may have helped to usher in a new government pledged to economic reform. It isn’t budget cuts that have increased British unemployment, it’s the recession. The unemployment rate started rising in early 2008 and kept right on rising during the world financial crisis, which featured not budget cuts but massive spending by governments around the world.

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