Last year the United States Congress overwhelmingly passed the Fair Minimum Wage Act of (you guessed it) 2007, which would phase in a change in our national price floor from $5.15 per hour to $7.25 per hour.
Free market economics predicts that wage floors cause unemployment especially among young people and minorities who are more likely to fall at the bottom end of the wage scale. That’s because the demand curve slopes downward: if something costs more, you buy less of it. That goes for widgets, Wii’s, and labor hours.
On Friday, we again received confirmation that the laws of supply and demand really are, well, laws. The unemployment rate spiked from 5% to 5 ½% in one month, and the increases in teen and minority joblessness was overwhelmingly larger than for other categories. It’s happening now because now is the time they’ve started looking for work. It doesn’t matter when the law passes, or even principally when it kicks in. It’s when a lot of people start looking for work at the same time, say, when school starts letting out, that we see that a lot of kids have been priced out of a summer job. They might be a good deal for employers at five an hour, but a money-losing proposition at seven.
First, the good news. Politicians can’t unmake universal laws of science by decree, great news for anybody who depends on gravity or e=mc2. Also, this is not the stuff of recession. When we have a huge spike in lay-offs of software engineers or business managers or physicians, we’ll now we’re in trouble. Folks like that are big potatoes, GDP-wise. Lifeguards are not.
Which brings us to the bad news: Minimum wage workers often really need the money. This is a human cost to them. The economy can roll along with a few hundred thousand fewer guys mowing lawns and delivering pizzas. We’ve still got around 150 million people out there producing every day. We’re big. But minimum wage workers often don’t have much margin. Yeah, with the college kids, it’s pizza and beer money, but the jobs report shows a lot more than the usual number of early summer job entrants. This means people are going back to work because they need the jobs. Maybe it’s gas in the car, or groceries. Most of us can absorb gas and bread prices, we grumble, but we still drive and eat. But there are some people who don’t have a margin. They just got shafted by the most wealthy and powerful legislative body in the world. Perhaps the saddest thing of all is that they don’t know why, because no one will tell them that the people who purport to help them (and require nothing but unconditional political allegiance in return) are the ones who are holding them down.
Jerry Bowyer is chief economist at Benchmark Financial Network, makes regular appearances on CNBC, and is part of the Kudlow Caucus. He also writes extensively on finance and history for the National Review, The Pittsburgh Post Gazette, Crosswalk.com, and The New York Sun. He can be emailed at firstname.lastname@example.org.