Confirmed? Raising minimum wage increases unemployment

Here’s another great new learning opportunity for readers. If you owned a small business that employed 10 teenagers, how important is the payroll line in your budget? A majority of teens make minimum wage while they scoop ice cream, mow lawns and work at fast food joints.

Many of these employees are paid more than minimum wage depending on the going rate in the area, but this morning I was reminded of the minimum wage increase that Congress passed and the president signed a few years ago. The minimum (federal) wage went from $5.15 to $6.55 per hour in two years, and you may be curious if that change could be related to the unemployment rate of teenagers. Of course it is.

If a small business owner paid the federal minimum wage to teens, payroll went up 30 percent – that’s right – 30 percent in two years. If that business had 10 employees that worked 15 hours per week, that’s a difference of $210 per week. This does not include the increases in payroll taxes that must be covered.

How does the owner of the business come up with that extra $210 per week? He can cut services – lay off employees, increase prices or decrease the quality of his goods. He can also cut his or her own income to make up the difference.

More than likely, at least one of those teenagers would be laid off and the owner would make up the hours. How can anyone think this policy is business friendly?

Early this morning, American Thinker writer Randall Hoven wrote about this subject and helped me out a bit with the research. So, what happened to the employment rate?

Recently publicized numbers tell us the unemployment rate is 5.7 percent, 1 percent more than is considered full employment by economists. Unemployment among teens 16 to 19 jumpped from 15 percent to 21 percent between April and July this year. That’s one in five kids not working.

To find this data, visit this U.S. Department of Labor Bureau of Labor Statistics Web site page, scroll to the bottom and run the report for Both Sexes, 16 to 19 years.

Hoven thanks the Democrat Congress – they did after all enact the first increase in the minimum wage in a decade.

Rick K at American Thinker comments:

Those pesky “unintended consequences” strike again. Ah, what’s a few jobs when a politician can make political hay.

These are not unintended consequences Rick. Conservatives – and small business owners – knew exactly what was going to happen.

Check out the comment by WSG:

As a teen, my situation is thankfully set for next summer ($12 an hour), but I lament for those others who have to resort to the “job market,” worse yet for those who choose not to go to college because they want to become a rapper or an artist – but inevitably become a McDonald’s clerk.

SURPRISINGLY, the unemployment rate goes DOWN if corporate taxes are cut across the board – then companies are able to devote more money to either their product (lower prices) or their process (increased wages, or increased workforce).

We need to go back to basics. The person in charge of government economics shouldn’t be a liberal bigwig or a New Deal focus group, but a family man who has a wife and kids and a BUDGET.

If he really is a teenager, he must have somehow taken an economics class without anyone knowing.

Remember, when the minimum wage goes up 30 percent for unskilled, new workers, what do you think happens to the more skilled workers at the same company? Do you think that it would be fair for a supervisor – who used to make 30 percent more than the new guy – not get an automatic increase too?

Well of course, that supervisor needs a raise too!

This morning, AngryBear posted about this subject as well. AngryBear is looking at this more from a macro perspective detailing some history during periods that were – or were close to – recessions. The problem comparing previous data is that we are not in a recession right now. We’re not. If you have any experience running a small business, this all makes sense.

This cash for payroll does not grow on trees people.

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  1. […] early August I wrote a post titled Confirmed? Raising minimum wage increases unemployment, that highlighted some basic economics with analogies to help readers understand why government […]

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