The Deadly Unemployment Numbers

I suppose you saw the numbers on Friday. The USA economy added all of 38,000 jobs in May.  This was far, far short of the well-over-250,000 needed to make a dent in the actual unemployment numbers, and a low fraction of the projected number, of over 150,000.  Someone was really off in those projections.

Here is even CNN giving up on putting lipstick on this pig.

A worthwhile note -- the "unemployment rate" that the Labor Department puts out, which Barack Obama usually waves around as some kind of sign that he is actually doing something good, fell from 5.0% in April to 4.7% in May.  Now, normally he would be coming off the eighteenth hole to make a speech telling us how wonderful it is that the unemployment rate dropped so much.

But not a peep was heard from Obama or his lackeys.  Why?  Because it was quite evident that the reason the published rate, useless though it be, had fallen, was that upwards of 500,000 Americans had stopped looking for work.

Percentages change when either a numerator or a denominator changes, and in this case the addition of such a paltry number of new jobs wasn't what dropped the rate, it was because the number of unemployed, available workers -- the numerator -- nosedived.  Oh, they were still unemployed, for sure -- they just weren't "available", such as the numbers are counted.  They had simply quit the work force and given up looking.

Barack Obama may have gotten to a point where he thinks he can say almost anything and the press will shout "Hooray!".  But even he cannot celebrate a "4.7%" unemployment rate when the reports are based on such incredibly depressing numbers.  And so we are peepless as far as the current administration goes.  Nothing to see here; just move on.

So the real, understandable numbers that came out were really horrible, none so bad as the half-million workers no longer regarded as actively seeking employment.  This drives the workforce utilization number to new depths.

But we should really ask in more depth about the figure of (only) 38,000 new jobs created.  This tells us that the economy is not creating new jobs and, in fact, is likely removing positions from the roster of good, tax-generating spots.

Hmmmm.  Why would they do that?

Ah. let us look at the ways.  And not just the actual laws or regulations that are hamstringing employers, but the upcoming ones and the attitude behind them.

None of these, I expect, is having as big an impact on those execrable new-jobs numbers as the minimum wage proposals.  There are places in the USA where the minimum wage is actually now $15 per hour, and others -- many others -- where the local laws are on a track to get the minimum wage to $15 per hour.  The District of Columbia, which had already scared away Wal-Mart from building there, just passed a $15/hour minimum.

I have written multiple times about this; I am clearly not a fan of a minimum wage of any kind.  But clearly, when you are talking about an effective doubling of the minimum wage with zero offset to the hiring business, your situation becomes rife with unintended consequences.  And none of those is really good for the average employee -- or the average business.

You see, businesses which have any minimum-wage employees in the current, $7-8/hour range, are quite likely to have others who are making more -- but less than $15 an hour.  There's a lot of space between $7 and $15, if you get the idea.

That means that not only does a business have to raise the minimum-wage employees, but raise everyone between $7 and $15 up to $15.  So the guy who was making $15 an hour now has a bunch of minimum wage earners -- most likely doing much less, having less responsibility -- making the same thing he is making.

The business owner, of course, has to deal with all that -- not just figuring out where all the extra cash for once-affordable labor is going to come from, but how to deal with the employees who now all make the same, with quite varied roles and duties.  Because in most cases there's not cash to raise up the $7 guys, let alone boost the already-$15 guys to keep them happy.

And who are we talking about?  Mostly franchisees of places like fast-food restaurants, might own one or two sites, almost everyone at minimum wage.  That is, after all, where the minimum-wage employees actually work.  As the above-linked article notes, it is not heads of households who are earning the $7, it is teens and part-timers, people bringing additional cash into a household.

In the bridal shop we owned until 2013, nobody, including the owners, was making $15 an hour.  And we couldn't make the shop profitable.  How is a fast-food franchisee supposed to deal?

Let's ask that ... what does a franchisee like that do when the government threatens to double his labor cost without any productivity change to offset it?  He does not what the government wants him to do, but what it unconsciously told him to do.

His costs go up, there is no revenue or productivity gain to compensate, so he does the next logical thing.  He can't raise prices, because he'll lose customers.  So he looks to cut costs.  And that cost-cutting has to come from where his costs went up without gain -- labor.

The government tells you that labor has to cost more, tells you that you have to provide things like health insurance, and you respond appropriately -- you cut the expense by hiring fewer workers, selecting for the most productive ones, paying them more, and automating wherever you can.  Instead of five employees at minimum wage and maybe each one costing health insurance, you cut to three really good ones, pay them more, and automate where you can.

There's your unintended consequence right there -- more people out of work, those remaining making more but fewer of them, and more robotics of whatever kind installed wherever feasible.  Certainly in manufacturing that will be an exciting option.

So if you are looking at the May unemployment figures and wondering where all the new jobs went, look no further than the Federal government and those of the poorest-run states (California, Illinois) and cities (Seattle) and the disincentives to hire that they have created.  Where the business owner sees ability to survive threatened by a rampaging government, he stops doing exactly what the government has unknowingly disincentivized -- hiring and continuing the same level of employment.

But in typical fashion, the do-good liberals will have already moved on to their next attempt at a good deed.

And they never look back to see what they have wrought.

Copyright 2016 by Robert Sutton
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