Minimum wage laws affect unemployment
With Michigan’s unemployment rate running from 14 to 15 percent, and the national unemployment rate running around 9 to 10 percent, people are clamoring for a fix.
I’m not going to talk about whether President Barack Obama’s claim that 600,000-plus jobs were saved or created due to the stimulus is true — I’ll let the Wall Street Journal and CNN slug that one out.
And in response to Hoffman's column, CNN isn’t a “Hard News” channel. Watch five minutes of the tripe that Rick Sanchez spews and you’ll see why Fox News beats it in the ratings.
What I am going to talk about is that there should be two unemployment numbers: voluntary and involuntary.
What do I mean by voluntary and involuntary unemployment? After all, unemployment is unemployment, right?
Well, not quite.
Just like strike prices exist in the realm of commodities trading or even deciding whether that quart of ice cream is cheap enough, such a concept also applies to the labor market.
Both the employer and the potential employee have their strike prices. It also may be called reservation wage for the employee.
If the employer’s strike price is lower than what the potential employee’s strike price is, you will have a condition of voluntary unemployment. An example of this is that John will only work for $10 an hour, but Company X is only willing to pay $8 an hour.
On the other hand, if John is willing to work for $5 an hour and the company is willing to hire him at that price, but is prohibited from doing so, we have involuntary unemployment.
The astute reader will have quickly pieced together this puzzle rated for ages 4 and up – minimum wage laws, in this case, have led to an increase in involuntary unemployment due to an artificial price floor.
This is why I consider it crucial to differentiate between voluntary and involuntary unemployment when the Bureau of Labor Statistics reports unemployment rates.
Even better, there should be reports on how many people and businesses would be willing to transact below this artificial price floor. That way, minimum wage laws can be seen as the true job killer it is in rough economic times.
If you could get a job for $5 and it kept a roof over your head and food in your stomach, wouldn’t you take it? In case you don’t believe this is verifiable empirically, feel free to take a look at it all laid down in a simple Econ 222 assignment (http://tinyurl.com/yj56afs).
But let’s just keep this little secret between you and me — we wouldn’t want President Barack Obama’s stimulus plan to look bad, now would we?
