Friday, September 4, 2009

A quick economics lesson

New unemployment numbers came out today, and the news was not good. Unemployment hit a 26-year high of 9.7%. It's worth noting that the Obama administration - back in January - said that if we didn't pass its "stimulus" bill, unemployment might go as high as 9.0%.

But to me, that wasn't the most interesting number in the report. Further down, you read that unemployment among teenagers is even higher, at more than 25%, even when you make a seasonal adjustment to allow for those returning to school.

Why is that? It would seem to make sense that in tough economic times, some employers could use younger, lower-skilled workers to cut labor costs. So why are teenagers finding it tougher than ever to find jobs?

It turns out that the August labor report is the first one compiled since the recent increase in the minimum wage, which increased to $7.25 at the end of July. That means that businesses made decisions that some jobs available to teenagers at $5.50 or $6.00 an hour would no longer be cost-effective at $7.25. So they stop hiring, or even eliminate those jobs.

Effectively, Congress voted to eliminate thousands of jobs for teenagers and others who are lower on the skill and education ladder. As economist James Sherk reminds us, the real minimum wage is always $0. If the cost of labor exceeds the benefit of having the work done, the employer simply doesn't hire.

For example, a golf course might decide it's worthwhile to hire a couple of kids at $5.50 an hour to clean and park golf carts throughout the day. When government mandates these kids be paid $7.25, management decides that one kid can just be asked to work harder, or someone else on the staff - the groundskeeper, the pro shop guy - can just have those duties added to their job description. Either way, some kid is out of work.

If we'd require every high school student to read Milton Friedman's Free to Choose, or at least have some basic understanding of economics, we wouldn't have - or tolerate - so many economic illiterates in Congress.

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