from the Wall Street Journal, 4/6/13, Ben Casselman writes Number of the Week: Youth Unemployment at 22.9%?

Excerpt:

Perhaps no group has been hit harder by the recession and grinding recovery than the young. The official unemployment rate for those under age 25 is 16.2%, more than double the rate for the population as a whole. In percentage terms, unemployment has fallen far more slowly for young people than for the wider population.

When the recession began in December, 2007, 59.2% of the under-25 population was in the labor force, meaning they were either working or looking for work. Today, that figure has fallen to 54.5%. That may not sound like a big drop, but it makes a huge difference. If the so-called participation rate had remained unchanged, there would be 1.8 million more young people in the labor force today than there actually are. Counting those people as unemployed, rather than out of the labor force, would push the unemployment rate up to 22.9%. That’s only a hair better than the 23.9% youthunemployment rate in the euro zone, and has shown only very modest improvement during the recovery.

HKO

At the same time that we have pushed the youth into debt to acquire college education we have devalued that education by reducing employment opportunities with wrongheaded policies.  We have also devalued education by increasing its supply- more kids with a college degree- while reducing the demand for educated workers.

It seems at some point that this market will have to adjust and more of the youth will forgo a college degree, at least immediately after high school.

Dan Mitchell writes The Perverse Unintended Consequences of Anti-Discrimination Laws in his blog International Liberty
February 23, 2013

Excerpt:

And if there are two applicants who otherwise seem to have equal qualifications for a certain job, but one has been out of work for more than 12 months, it’s only logical that the employer will think that a lengthy stint of sitting on a couch does not suggest great habits.

Which is why Obama’s policy of never-ending unemployment benefits is so misguided. People get lured into long-term unemployment and there is both anecdotal evidence (check out these stories from Michigan and Ohio) and empirical evidence (here, here, and here) showing this unfortunate impact.

HKO

First the Federal Government creates unstable monetary policies which leads us into a recession. Then the “we can solve every problem” government passes endless laws and regulations that discourages business growth and new hiring, and then extends unemployment so generously that pressure to get a job is reduced and now they want to sue a business for not hiring the long term unemployed. Is it any wonder that new business start-ups are at an all time low?

If a business chooses a worker who has been out of work for a month over a worker that has been out of work for a year that is his choice. And for most businesses it is a logical choice (if all other factors are equal). Someone who has been out of work for a long time has a questionable work ethic.  It may sound harsh but those small businesses on the front line know this.  We have all seen too many of the long term unemployed whose job search is accelerated when the expiration of their benefits approaches.

You can criticize businesses and force them to give priority to ex cons and long term unemployed and you can threaten them with criminal charges if they do not see the world through the same elitist academic spectacles you wear.  But Dan Mitchell is right, it will only make the problem worse.

There is also the perversity that we will give incentives to hire anyone except those try hardest to stay employed and obey the rules.

If a slow growth economy, more regulations and higher taxes don’t slow down business growth, then finding a reason to make the business owners into criminals should certainly help

In the Wall Street Journal Richard Vedder writes The Wages of Unemployment, 1/15/13.

Excerpts:

The sharp rise in food-stamp beneficiaries predated the financial crisis of 2008: From 2000 to 2007, the number of beneficiaries rose from 17.1 million to 26.3 million, according to the Department of Agriculture. That number has leaped to 47.5 million in October 2012. The average benefit per person jumped in 2009 from $102 to $125 per month.

Compare 2010 with October 2012, the last month for which food-stamp data have been reported. The unemployment rate fell to 7.8% from 9.6%, and real GDP was rising steadily if not vigorously. Food-stamp usage should have peaked and probably even begun to decline. Yet the number of recipients rose by 7,223,000. In a period of falling unemployment and rising output, the number of food-stamp recipients grew nearly 10,000 a day. Congress should find out why.

Barely three million Americans received work-related disability checks from Social Security in 1990, a number that had changed only modestly in the preceding decade or two. Since then, the number of people drawing disability checks has soared, passing five million by 2000, 6.5 million by 2005, and rising to nearly 8.6 million today. In a series of papers, David Autor of MIT has shown that the disability program is ineffective, inefficient, and growing at an unsustainable rate. And news media have reported cases of rampant fraud.

In 2000, fewer than 3.9 million young men and women received Pell Grant awards to attend college. The number rose one-third, to 5.2 million by 2005, and increased a million more by 2008. In the next three years, however, the number grew over 50%, to an estimated 9.7 million. That is nearly six million more than a decade earlier. The result is fewer people in the work force. Meanwhile the mismatch grows between the number of college graduates and the jobs that require a college education.

Taxes are part of the story too: Today’s higher marginal tax rates on work-related income could well lead to further reductions in work effort by those taxed, as well as to slower economic growth.

HKO

A mousetrap is baited with free cheese.

The loss of benefits resulting from moving from incentivized dependency to earned income is an effective marginal tax rate as high as 100%.  With such a structure government programs become a trap.  We must remove the ballooning incentives not to hire first and then the incentives not to work.

Richard Vedder writes in the Wall Street Journal The Wages of Unemploymewnt, 1/15/12.

Excerpts:

Compare 2010 with October 2012, the last month for which food-stamp data have been reported. The unemployment rate fell to 7.8% from 9.6%, and real GDP was rising steadily if not vigorously. Food-stamp usage should have peaked and probably even begun to decline. Yet the number of recipients rose by 7,223,000. In a period of falling unemployment and rising output, the number of food-stamp recipients grew nearly 10,000 a day. Congress should find out why.

Barely three million Americans received work-related disability checks from Social Security in 1990, a number that had changed only modestly in the preceding decade or two. Since then, the number of people drawing disability checks has soared, passing five million by 2000, 6.5 million by 2005, and rising to nearly 8.6 million today. In a series of papers, David Autor of MIT has shown that the disability program is ineffective, inefficient, and growing at an unsustainable rate. And news media have reported cases of rampant fraud.

In 2000, fewer than 3.9 million young men and women received Pell Grant awards to attend college. The number rose one-third, to 5.2 million by 2005, and increased a million more by 2008. In the next three years, however, the number grew over 50%, to an estimated 9.7 million. That is nearly six million more than a decade earlier. The result is fewer people in the work force. Meanwhile the mismatch grows between the number of college graduates and the jobs that require a college education.

Taxes are part of the story too: Today’s higher marginal tax rates on work-related income could well lead to further reductions in work effort by those taxed, as well as to slower economic growth.

HKO

We must undo the ballooning incentives not to hire and then the incentives not to work. The effective marginal tax rate for a dependent to work includes the loss of benefits and can be as high as 100%.  The longer we wait to correct this the the harder and more violent it will be.

Mark Wilson writes The Negative Effects of Minimum Wage Laws in the Cato Institute Policy Analysis, 6/21/12

Some summary points from his paper:

• 1.8 million hourly workers were paid the minimum wage in 2010.
• Of those 49% were aged 24 or under.
• 62.2% of those were living in families making two or more times the official poverty level.
• Only 16.8% were below the poverty line.
• 51% are aged 25 and up.
• More of these workers are at or below the poverty line. 29.2% near the poverty level and 46.2 at less than 1.5 times the poverty level. Even within this group, 24.8% voluntarily work part time and only 34.3% work full time for a full year.
• Only 20.8% of those earning the minimum wage are heads of households or full time working spouses.  30.8% are children and 32.2% are students. Many minimum wage earners live in households well above the poverty level.
• Markets with few employers are called monopsony models.  Higher minimum wages in monopsony markets have different effects than in more competitive markets.  Many examples used to minimize the impact of higher minimum wages use monopsony models rather than competitive markets.

Effects of minimum wages:

It is commonly noted that higher minimum wages drives the employment of the least experienced and the poorest out of the labor market. There are other impacts  related to this reality:

• Lower skilled workers are replaced by higher skilled workers.  If you are going to pay more, you may as well try to get more output.  This is one reason why unions support higher minimum wages: because it creates demand for union jobs.  Lower skilled workers are driven out of the labor market.
• In a global economy most industries are unable to pass the higher cost on to the consumers. They thus make other cuts such as benefits for all the workers and training,  They also have greater incentives to install labor saving devices. In industries like fast food where the higher wage costs can be passed on to consumers in the form of higher prices, the higher prices hit the poorest the hardest.
• As the younger teenage group is the most affected there is often an increase in criminal activity. “In June the unemployment rate for teenager is 24.9% .” “The unemployment for minority teenagers is 38.2%.”
• Minimum wage increases do not reduce poverty levels.  The poorest American’s do not work and thus do not benefit from higher wages. Most of the minimum wage earners do not live in poor families.

HKO added points:

While short term relief is made available by increasingly generous unemployment benefits, the unemployed become chronic.  Steady work is a tough habit to develop, an easy habit to break, and is even tougher to regain.

During periods of economic growth the effects of a higher minimum wage can be muted.  The combination of a dramatic increase in the minimum wage in 2006, the higher friction costs of regulations and laws like Obamacare, and the extended unemployment t benefits is the reason unemployment has stayed so stubbornly high.