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Dunkelberg: Let's Talk About Job Destruction

Council of Economic Advisors Chair Christina Romer reported that the “stimulus” had “created or saved 3 million jobs since its inception (and only half the money has been spent to date! Guess it is a delayed stimulus).

Since June, 2009 (many economist according to National Bureau of Economic Research expect the recession bottom to be set in the third quarter), private sector jobs have declined 827,000 even though the economy has grown every quarter since then.

Government jobs have increased by 205,000 and health and education jobs, arguably part of the “government sector”, are up 354,000.

Excluding these leaves private employment up -1,181,000 since June, 2009 and 428,000 since January 1.

Unemployment
Unemployment

Not a great performance, an increase in private jobs of just 0.5 percent since January (and negative for the first 6 months of growth).

In the first 6 months of the recovery from the 1982 recession, private jobs less health and education grew 1.4 percent and government job growth was negative, much better than the first six months of this recovery.

The record might have been better had the government not “destroyed” hundreds of thousands of jobs by letting the minimum wage rise over 10% in the middle of 2009.

In the first half of 2009, GDP declined 4% at an annual rate and teen employment dropped 280,000, an outcome expected in a falling economy. But in the second half of the year, GDP grew at a 4% annual rate. More growth usually requires more workers to produce the output. But, teen jobs declined 580,000, this after the minimum wage increased to $7.25 in July.

Few others in the economy were getting any raise, but many saw pay cuts. Congress could have at least delayed the increase (the last of 3 mandated increases) and the associated job loss, but unions probably opposed such a move. Even worse, teens now have a higher hurdle to get past now that they must generate more value to the employer to get a job in order to cover their 10% raise.

Raising the minimum wageraises costs (pay more for the same work) and reduces employment, but most importantly it permanently lowers the number of job opportunities that will be available to teens who want to enter the labor force. The “on the job” training available to our youth will be denied to even more, hardly contributing to the improvement in the quality of our labor force that a more competitive global economy demands.

Other such regulatory incursions into markets undoubtedly cost jobs as well (like requiring the use of union labor on Stimulus projects). If Congress wants to take credit for “jobs created or saved” it should also accept responsibility for “jobs destroyed or prevented”.

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William Dunkelberg is an Economic Strategist, Boenning & Scattergood and Chief Economist, National Federation of Independent Business.