A Stitch in Haste

The problem with real-world economics is that reality is simply too complex and too dynamic to fit into nice little freshman-classroom, single-chalkboard equations. Everything impacts everything else, everything generates unintended consequences, cause and effect become lost in the haze of secondary and tertiary factors.

Or not:

According to BLS data on unemployment rates by age, it looks like almost all of the .50% increase in May unemployment to 5.5% from 5% in April was due to increases in the jobless rates for young workers in the 16-24 year age group, especially the 16-19 year group. For workers 25 years and over, the jobless rate has remained pretty stable at around 4%[.]
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Although it apparently hasn't received much media attention, perhaps there is a link between the rising unemployment rate for teenagers and the pending 12% increase in the minimum wage next month. Since we have evidence that consumers respond to higher gas prices by driving less, wouldn't it also be the case that employers of unskilled workers would respond to 12% increases in wages for unskilled workers by hiring fewer unskilled workers?

The laws of economics are not subject to repeal by any legislature, any more than are the laws of physics. In the aggregate and over a sufficiently long time horizon, an employer is simply not going to pay a worker more than she is worth to him. If the government makes it impossible for that employer to pay what that employee is worth (e.g., because of minimum wage laws or mandatory benefits), then the employer will simply not hire the employee. Government-imposed price floors create surpluses. All else is willful obliviousness.


(Larger version here.)
It's quite simple really: Anyone who loves the minimum wage hates young unskilled workers, and has no claim whatsoever — whether in the name of "progressivism" or "enlightened public policy" or "maximizing social welfare" or any other insolent bromide — to the moral high ground.

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The disingenuous liberal response to this development, nicely illustrated here, is that the rise is teenage unemployment is explained more, if not entirely, by "general economic conditions" (i.e., recession) and not by the recent increase in the minimum wage (or the chilling effect of the next increase on July 24 or the next one in 2009). But, since we are not in recession, that simply cannot be right. Go figure. (How also does one explain via "the business cycle" the fact that all the increase in unemployment is with young — i.e., unskilled — workers?)

And even if we were in recession — so what? That only makes matters worse. The fact remains that creating an artificial hurdle of productivity increases the likelihood of losing your job because you can no longer meet that hurdle. Even more so in a weak economy!

To be paid the minimum wage, you must first earn the minimum wage. If you don't, then your employer must either let you go or go bankrupt himself. A weak economy makes earning that minimum wage, let alone a drastically higher one, all the more difficult.

For example: A restaurant that, due to recession (or rising gas prices or whatever) sees business decline is far more likely to let a server or busboy go the higher the minimum wage is, all else equal. Not all the servers and busboys, to be sure — but maybe one or two. Now aggregate that "maybe one or two" over the entire young-and-unskilled service economy. And don't forget multiplier effects.

The road to hell is paved with economic illiteracy (and partisan politics) masquerading as "good intentions."

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Via Market Power. More thoughts at Hit & Run.