Unemployment: Who is really to blame?


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As soon as newly elected Democratic majority took over Congress in 2007, they aimed their scope at setting a new minimum wage. Unfortunately, while the Senators and Representatives were patting each other on the backs for passing the first bill that raised the minimum wage in nearly a decade, they forgot to consult any economics textbook.

Now with the United States deep in a lengthy recession and high unemployment continuing to rise, the latest installment of $7.25 an hour (from the original $5.15) that is on the horizon will undoubtedly put an enormous pressure upon already struggling businesses everywhere. And the result could be the most devastating round of “stagflation” since the presidency of Jimmy Carter.

On July 24th the government will force the business community to pay their employees for more than the market rate. But those businesses, already struggling just to keep their doors open, will not magically receive new revenue to pay those employees.

Instead, they will keep only their best employees and lay the others off. So while, the American people were told that the minimum wage bill was passed to help the low-skilled workers, it is in actually those very workers who would be hurt.

Now instead of more workers receiving higher wages, there will be more workers receiving no wages at all.  So much for government planning.

As unemployment rises, of course, more pressures are put upon the government to extend unemployment benefits. And more unemployment benefits add more government debt to an already bankrupt country.

And it is not just the federal minimum wage that Americans have to worry about, but also the state minimum wage laws. Many states raised their own minimum wage laws with the passing of this federal bill, exacerbating an already dire situation.

For example, states with more than a two-dollar increase in their minimum wage from 2006 to today had higher unemployment than those who had less than a one-dollar increase.

Over that time, states like California, Colorado, Michigan and Ohio, which have had a more than two-dollar an hour increase from their minimum wages, had their unemployment rates increase 6.1, 3, 6, and 4.8 per cent respectively.

On the other hand during this time, states like Alaska, Arkansas, Connecticut, and Maine, which had a less than one-dollar increase in their minimum wage, saw their unemployment rates increase only 1.5, 1.3, 3.5, and 3.3 percent.

Admittedly since the United States fell into a recession over that time, it is understandable to see higher than normal levels of unemployment. But it is clear that new restrictive minimum wage laws additionally fueled higher unemployment.

Simply put, minimum wage law causes a shortage of jobs and a surplus of labor. Both of which spell disaster for individual workers, as well as the economy as a whole.

So once the latest installment of minimum wage is fully in place, Americans will see more unemployment, a deepening recession, and a massive increase in unemployment benefits in coming months. This policy will make the economic recovery more difficult and the opportunity for the average Joe much smaller.

Luckily, for the Congressional Democrats and many state legislators who passed this law in 2007, the recession has taken the rap for the current rates of unemployment. This smoke and mirror has allowed the Democrats on the hill to shirk responsibility for the current crisis.

But once the American people see another spike in unemployment after the July minimum wage increase, these politicians who hurt the business community will have nowhere to hide, which seems only fair since so many of their victims will have nowhere to work.

Justin Williams is a Contributing Editor of ALG News Bureau

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Published in: on June 17, 2009 at 12:03 pm  Leave a Comment  
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