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New Unemployment Numbers

September 5, 2008, 1:53 pm

US unemployment in August "jumped unexpectedly" to 6.1%, by the oddest of coincidences in the first full month just after new, 12% higher US minimum wages took effect. 

The unemployment rate is higher than it has been in the United States in the last 5 years, but substantially lower than the rate most Western European countries like France and Germany experience even during peak economic times. 

In response, the Obama campaign is urging further increases to the minimum wage and emulation of labor policy and legislation in France and Germany.

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Category: Economics
  • Larry Sheldon

    Aw, the old ways.....

    Years ago, craftsman working on a distributing frame, standing there with the end of a length of wire in his hand......

    "I don't understand it. I keep trimming it off, but it is still too short!"

  • Michael Miller

    ... and so the low wage workers then get laid off, wind up collecting unemployment insurance, and next the Congress has to raise taxes to cover the new outflow. Nothing useful is accomplished, the taxpayer gets screwed and the low wage worker winds up without a job. The miracles of socialism! And Obama calls this"Change you can believe in."

    What a flim-flam.

  • Larry Sheldon

    I remember as a kid, a man paid me 50 cents an hour to sweep out his warehouse. I think I suspected then that his warehouse didn't really need all that much sweeping out....

    Minimum wage went up to 75 cents an hour (don't grab onto the numbers, this would be in the 1950's, what ever the right numbers are for that time, I am old and my memory is not exact anymore).

    The man couldn't afford to pay me to sweep the floor any more.

  • ccoffer

    I wonder about the union connection to the minimal wage increase. Every increase in the Federal Minimal equals a proportionate increase in union pay.

  • Charlie B

    "I wonder about the union connection to the minimal wage increase. Every increase in the Federal Minimal equals a proportionate increase in union pay."

    BINGO!!

  • CandyMan

    As an off-topic aside to Larry or anyone interested, unemployment insurance automatically "adjusts" for larger outflows and any lag in adjustment or benefit spike is covered with loans from the federal system that gets paid back by additional payroll taxes. So business pays into a state and a federal fund. The state fund runs dry and borrows from the federal fund and then surcharges business to repay the federal fund the dollars that business put there in the first place. I've seen this cycle several times now in my business tenure.

    Specifically in the case of my seasonal business in NY, unemployment taxes have exceeded 12%. Turning lemons into lemonade, I use it as a pseudo benefit to hang on to my experienced employees. They're often moms with school age children and summer cottage people that enjoy 4 months off in the spring and summer with an unemployment benefit that's approximately half pay. Average longevity is pushing 10 years and I believe it to be the major reason.

    Which brings up the point as to who is really paying for these benefits as my unemployment fund balance is eternally negative - way more flows out each year than I put in. But I didn't write the rules or decide who's eligible for benefits. Too bad for the year around, stable employers with the "good" experience rating from a positive fund balance. They might pay only 2 or 3 percent payroll tax and think they're getting off cheap when they look at the rate I pay but in reality they are the ones paying for a(n) (in)decent chunk of my employees' benefits during their annual 4 month lay-off.

  • Max

    Well, it is easy as it gets. You, as a nation/government, have two choices. Either you limit unemployment but opening up the labor market, which means that probably some of those former unemployed have now bad jobs or two jobs (single mothers etc.).
    Or you have the choice to extend the welfare system so that those "bad jobs" vanish, in this case unemployment goes up, because those people don't go to work anymore due to easier access to goverment funds.

    Which is better? Well, that depends if it is better for the person to remain in the work force with even taxing or harsh environments, or if it is better for the person to leave those bad jobs and hope that more "good" jobs appear that are no so crappy and demanding.

    Given the results in Germany and France, I think that one should really rank "jobs" higher than "good jobs", because once you quit the work force, a re-entry is hard.

  • Mesa Econoguy

    Sorry, not that simple.

    1) Minimum wage is effectively a policy implementation, which typically takes 9-18 months to work thru the system (this was anticipated, so probably shortened schedule)

    2) seasonal effects.

    Obama, of course, has no clue about any of this, despite his U of Chicago economic advisors Austan Goolsby, et al….

  • Doug

    This is a question for some of you policy wonks out there. Do illegals count in this numbering system?

    The reason I ask is that this morning's local rag has an article about how tough the job market is. And to prove their point, they interviewed a number of our local (San Jose) illegals who like to hang out in front of Home Depot. One Guatemalan, a house painter, said that things were so bad that he was going back home. I know that he flies under the radar. But what about all of these guys in the meat-packing industry, for instance. Those are legit jobs. Are they counted if they get canned?

    If so, then am I entitled to view this report as "good news" instead?

  • Kelly

    It never occurred to me that Pelosi et al were capable of playing the long game. Raise the minimum wage in 2007, with a waiting period built in, to trigger higher unemployment in the last stages of the 2008 election season.

    If true, simply brilliant. I'm skeptical, but you never know ...

  • http://distributedrepublic.net Brandon Berg

    Mesa Econoguy:
    Unemployment has actually been rising sharply throughout the year, which is consistent with what I would expect if employers tried to cut payroll through attrition rather than layoffs. And also consistent with what I would expect during an economic downturn. The real test, I guess, is whether unemployment increased more in states which were affected by the increase than in states which were not (due to already having higher state minimum wages).

  • Methinks

    Well, of course Obama wants to implement European policies. Our unemployment rate is still only about half of France and Germany's. We have a lot of catching up to do!

  • william

    I thought everyone learned long ago that correlation is not the same as causation. The fact that unemployment went up when minimum wage laws in some places went into effect is not evidence of causation. It is a correlation!!!

    It's easy to confirm your beliefs if you only look at correlation. Did you know that sick people in hospitals are more likely to die than sick people who don't go to hospitals. Hospitals cause death... it's obvious!

    I expected better! Shockingly dumb!

  • http://www.iasfinancial.com IAS Financial

    Extenuating circumstances do affect the rise and fall of unemployment rates. For example, both employment and unemployment typically rise in the summer, when students enter the labor force in search of summer jobs. Severe weather may cause a decline in winter months. In the coming months, we may see the unemployment rate rise to a higher level as a direct consequence from the recent extension of unemployment benefits.

    Further, consumer confidence can make or break the economy - when those with the ability and the need to hire or buy fail to do so because they are afraid of the economy, that causes a decline which results in alarmist headlines which in turn fuel the fear and push the decline further.

    The unemployment rate for August was 6.1% - while this is an increase from some of the low rates we have experienced over the past three years it is in the mid to low range of rates we have seen in the past. Here are the highs from past years for comparison:

    Year / High
    1954 -6.1
    1955 -4.9
    1956 -4.4
    1957 -4.5
    1958 -7.5
    1959 -6.0
    1960 -6.6
    1961 -7.1
    1962 -5.8
    1963 -5.9
    1964 -5.6
    1965 -5.1
    1966 -4.0
    1967 -4.0
    1968 -3.8
    1969 -3.7
    1970 -6.1
    1971 -6.1
    1972 -5.8
    1973 -5.0
    1974 -7.2
    1975 -9.0
    1976 -7.9
    1977 -7.5
    1978 -6.4
    1979 -6.0
    1980 -6.9
    1981 -8.5
    1983 -10.4
    1984 -8.0
    1985 -7.4
    1986 -7.2
    1989 -5.4
    1990 -6.3
    1991 -7.3
    1992 -7.8
    1993 -7.3
    1994 -6.6
    1995 -5.8
    1996 -5.6
    1997 -5.3
    1998 -4.7
    1999 -4.4
    2000 -4.1
    2001 -4.2
    2002 -5.9
    2003 -6.3
    2004 -5.7
    2005 -5.4
    2006 -4.7
    2007 -5.0