As We’ve Been Saying, California’s Minimum Wage Rises Increase Unemployment

mcdonalds-employee
by Tim Worstall –
I have opinions about economics, finance and public policy.

Opinions expressed by Forbes Contributors are their own.
This is an interesting little tale which illustrates the other side of the minimum wage story. Around here at least the standard side is that when you raise the price of something people buy less of it. Increase the minimum wage and employers will economise on minimum wage labour. This is a terribly simple point and yet people will twist themselves into ever more improbable positions to try to deny it. However, today’s part is about the other side of the story. Raise the price of something through legislation and more people will be willing to supply it. If we pass a law that apples are $2 each and no kidding then apple trees will spring up in every suburban garden and we’ll be buried under a glut of fruit that no one wants to buy at that price but people are absolutely delighted to sell if only they could find a buyer. The same really does happen with labour too as California is showing us:

Defying critics of new state regulations, California continued to pad its hefty payrolls in June. Employers added a net 40,300 jobs over the month, the state reported Friday.

But unemployment in California increased to 5.4%, from 5.2% in May. The national unemployment rate also ticked up, to 4.9% in June from 4.7% in May.

More Californians entered the job market in June, which probably explains why the jobless rate increased even though the state added a healthy number of new positions.

“The improvement in the labor market is pulling more people in,” said Mark Vitner, a senior economist at Wells Fargo WFC +0.04%. June is generally a volatile month, said Vitner, because schools let out and some younger workers begin looking for summer jobs.

Well, no, not really, the school let out is not the cause here. Because these are the numbers adjusted for seasonal factors. And yes, school letting out is a seasonal factor, it has been happening at about the same time each and every year for some time now. As is laid out here:

In California, the estimated number of people with jobs in June was 18,078,000, down 4,000 from May but up 308,000 from June of last year. The number of unemployed Californians was 1,022,000 in June, up 27,000 from May, but down 160,000 from June of last year. Last June, the state unemployment rate was 6.2 percent.

All these numbers are seasonally adjusted to smooth out hiring binges and busts such as a decline in construction employment during the winter and an increase in holiday hiring.

On a non-adjusted basis, the state unemployment rate jumped a full percentage point — to 5.7 percent in June from 4.7 percent in May.

So, let us add one more thing:

On July 1, 14 U.S. cities, states and counties, plus the District of Columbia, will raise their minimum wage in a mid-year burst that reflects the legislative momentum to boost pay floors across the country while federal legislation stalls.

In total, the minimum wage will rise in 15 places: two states – Maryland and Oregon, plus Washington, D.C., Los Angeles County , Calif., and 11 cities. That includes Chicago, eight cities in California and two in Kentucky, according to a new analysis by the right-leaning Employment Policies Institute.

Both the earlier pieces are stating that the higher wages have called more labour supply into the market. Which is fine, no problems with that at all. Yet unemployment is defined those looking for a job but cannot find one. Thus an increased labour supply at this higher labour rate leads to more unemployment.

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