The New Direction: Unemployment jumps to 5.5%

posted at 12:50 pm on June 6, 2008 by Ed Morrissey

Up to now, employment had held steady through a rocky economy barely staying out of recession. In May, that changed for the worse, as unemployment rose to its highest level since October 2004. However, only 49,000 workers lost their jobs, which doesn’t nearly account for the four-tenths rise:

The government reported the U.S. lost 49,000 jobs in May as the unemployment rate rose by the largest amount since February 1986.

The Labor Department reported the fifth consecutive month of declines in nonfarm payrolls. The decline was better-than-expected however, as economists had been expecting a 60,000 job decline for last month.

The unemployment rate, which is calculated separately by a survey of households, soared to 5.5% in May. Wall Street had only been expecting a slight rise to 5.1%. It’s the highest the rate has been since October 2004.

The government reported that the number of people classified as unemployed jumped by 861,000 last month to 8.5 million. According to the Bureau for Labor Statistics, the increase in unemployed people is a reflection of job cuts as well as new and returning job seekers. It also said the unemployment uptick was “disproportionately large” among 16 to 24-year olds.

The real story here is unemployment among entry-level workers to the employment system. In summer, teenagers and college students enter the marketplace looking for seasonal and part-time work. This accounts for the significant rise in job-seekers and the 0.4% increase in unemployment. Otherwise, an overall job loss of 49,000 jobs would account for a 0.04% increase in a market of 138 million workers.

Why have these new job seekers found it difficult to get jobs? One reason is that Congress made jobs costlier just in time for this economic slowdown. Congress raised the minimum wage last year by seventy cents an hour, from $5.15 to $5.85. It will rise again in July to $6.55 an hour, and next year will hit $7.25 per hour. That makes entry-level labor as much as 27% more expensive this summer, when consumers have already slowed down their spending. The natural loss of work from the slowdown amplifies the effect of the minimum-wage increase, because businesses now cannot afford to raise prices to maintain their entry-level positions.

When the minimum wage increase was under debate last year, many of us warned that it would have precisely this effect. Now we see it unfolding before our eyes. Will the Democrats acknowledge the error and take the blame for hundreds of thousands of jobs lost to their economic meddling — or will they try to shift the blame to the Bush administration for no good reason at all? (via Power Line)

Update: As with all economics issues, I turn my attention to King Banaian, the chair of economics at St. Cloud State University, the blogger at SCSU Scholars, and my good friend:

 Aside what I think is a math error in that first paragraph (I think he means 0.04%, not 0.0004%), what he is proposing is that the higher minimum wage is inducing a large increase in the supply of labor. Setting aside the timing issue (did really all the teenagers wait until May to decide “hey, let’s get a job”?), we still have a 12% increase this summer, which is to have led to a 3.7% increase in labor supplied by teens two months prior to the change in wages. And most of these teens will give those jobs up by Labor Day. I don’t have a very good feel for teen labor supply elasticities, but Ed’s suggesting that the short run elasticity here is above 0.3, which feels high to me. In the long run, it would certainly be higher than that.

In terms of teen unemployment rates, though — which involves both supply and demand — the jump is quite large but not necessarily unbelievable if you think demand shifted down due to recession and then moved along the new, lower demand to reflect the minimum wage increase.

I fixed that error, and be sure to read King’s entire analysis of this report; it’s excellent.


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When the minimum wage increase was under debate last year, many of us warned that it would have precisely this effect. Now we see it unfolding before our eyes. Will the Democrats acknowledge the error and take the blame for hundreds of thousands of jobs lost to their economic meddling — or will they try to shift the blame to the Bush administration for no good reason at all?

Are you kidding? This is an entirely insignificant event compared to rising energy costs. Note: oil was up $10 a barrel today, that’s the real news. What in the world are you smoking?

bayam on June 6, 2008 at 6:45 PM

The more important question to ask: why is Washington sitting on its hands while the country is exposed to the significant twin perils of stagflation and recessions while energy prices go through the roof? What will it take to make politicians take notice between now and $200 oil?

It’s not as if the US lacks the present technology in nuclear, solar, and wind to move away from Middle East energy- and some options could be built out very quickly if someone made it happen (such as http://www.ausra.com).

bayam on June 6, 2008 at 6:52 PM

Why are we not blowing the phone boards and e-mail servers in Congress up. We got the immigration scam bill defeated. Could we not get those asses to let us drill if we demanded it? The reason unemployment is up is the costs associated with a lack of oil.

DRLIMO on June 6, 2008 at 6:56 PM

What will it take to make politicians take notice between now and $200 oil?

bayam on June 6, 2008 at 6:52 PM

Gas lines? Trucker’s strikes? Riots? Tar and feathers?

MB4 on June 6, 2008 at 7:13 PM

“Will the Democrats acknowledge the error and take the blame” Ed

When hell freezes over.

maverick muse on June 6, 2008 at 7:19 PM

bayam:

And what are the Democrats doing about those high prices? Are they letting us build more refineries? Drill? Build nuclear power plants? I agree that the high price of energy is part of this, but it is not all of it. And so far, other than using the issue to beat Bush over the head with I have not seen much in alternatives coming from his opponents. Maybe if they had put as much time and energy into worrying about this as they have trying to lose the war and harass the Bush administration we might have some alternatives.

Terrye on June 6, 2008 at 7:26 PM

I think that both parties have failed to do enough about this, but I have to say the thing that scares me the most is that there might not be an answer. Not in the short run anyway. I was looking at Bloombergs today and even the Brazilian stock market tanked on higher oil prices. Morgan Stanley came out and said that they believed oil would hit $150 a barrel and the market was off to the races. The scary thing is that no one does control it. Not really. There is so much pressure on that market right now that I am afraid it will take a recession just to tamp it down.

Terrye on June 6, 2008 at 7:30 PM

I saw this at powerline:

For several decades, the Democratic Party has pursued policies designed to drive up the cost of petroleum, and therefore gas at the pump. Remarkably, the Democrats don’t seem to have taken much of a political hit from the current spike in gas prices. Probably that’s because most people don’t realize how different the two parties’ energy policies have been.

Congressman Roy Blunt put together these data to highlight the differences between House Republicans and House Democrats on energy policy:

ANWR Exploration House Republicans: 91% Supported House Democrats: 86% Opposed

Coal-to-Liquid
House Republicans: 97% Supported
House Democrats: 78% Opposed

Oil Shale Exploration
House Republicans: 90% Supported
House Democrats: 86% Opposed

Outer Continental Shelf (OCS) Exploration
House Republicans: 81% Supported
House Democrats: 83% Opposed

Refinery Increased Capacity
House Republicans: 97% Supported
House Democrats: 96% Opposed

SUMMARY

91% of House Republicans have historically voted to increase the production of American-made oil and gas.

86% of House Democrats have historically voted against increasing the production of American-made oil and gas.

Terrye on June 6, 2008 at 7:33 PM

No “Amen” for you….Increased energy costs can be laid right at the feet of the leftard envirowhackies…(No drilling, no refineries, no nuclear)

b4lucy on June 6, 2008 at 2:25 PM

Well that may well be, although Republicans controlled the Presidency and Senate and House for 6 years, but energy prices and “mortgage meltdown” and jobs being taken by illegals are still all bigger factors than a minimum wage increase of dimes per hour on the unemployment rise, so I still say amen.

MB4 on June 6, 2008 at 7:33 PM

MB4:

Not the illegal thing again. Good God, man. Mexicans were picking lettuce when the unemployment rate was lower than this. And a lot of them have been sent packing or have left anyway. No doubt millions are still here, but nonetheless when the economy slows down many go home.

I used to have a real estate license. I hated it, but I do remember in the late 90s when those zero down loans really started to come along. And then the speculators got in the market. People were worried the whole thing might blow up in their faces but they did not want government getting in the middle of it.

I think that is part of the problem. We want government to take care of things like this, but we also want them to stay out of the way.

A

Terrye on June 6, 2008 at 7:50 PM

And besides, running some people off from a job in Iowa somewhere is not going to help an unemployed auto worker in Detroit. Unless he relocates to Iowa to work in a meat packing plant or something.

Terrye on June 6, 2008 at 7:53 PM

MB4:

Not the illegal thing again. Good God, man. Mexicans were picking lettuce when the unemployment rate was lower than this. And a lot of them have been sent packing or have left anyway. No doubt millions are still here, but nonetheless when the economy slows down many go home.

Terrye on June 6, 2008 at 7:50 PM

Yes, the “illegal thing” again because nothing is more important. They are taking a lot of jobs, particularly from young people, and depressing a lot of wages and hurting the economy in so many other ways like crime, schools, hospitals. Into the tens of millions are still here.

MB4 on June 6, 2008 at 7:56 PM

And besides, running some people off from a job in Iowa somewhere is not going to help an unemployed auto worker in Detroit. Unless he relocates to Iowa to work in a meat packing plant or something.

Terrye on June 6, 2008 at 7:53 PM

Your focus is much too narrow.

MB4 on June 6, 2008 at 7:57 PM

Until someone steps and becomes a leader, settles the oil situation, the jobs will continue to drop like Bill Clinton’s pants.

Wade on June 6, 2008 at 7:59 PM

Democrat Control COngress. Look at what it gets you.
This is all Democrat policies. BUt watch the MSM and Democrats blame Republicans and the PResident. They waffle so much. Say one thing and vote the opposite.

danfinrud on June 6, 2008 at 8:07 PM

MB4:

I do not agree that nothing is more important.I think some people look at as if all our problems from crime to disease to terrorism could be solved if only we got rid of the illegals. Now that is a narrow focus.

However, I do think it is important, I just do not think that they are responsible for a one month of half a percent increase in the unemployment rate. And how many young people do you know that want to pick lettuce in Arizona? Or work in a Hotel as a maid? It is not as if they refuse to hire Americans.

My focus is not too narrow. These numbers supposedly represent a drop in jobs primarily for people between 16 and 24. If the problem is illegal immigration, why weren’t we seeing these kinds of numbers before? The numbers of people leaving the country are going up. More and more people are being returned and or stopped at the border. I agree we need to stay after it, but we let this problem go for decades and yet we did not see these kinds of numbers unless there was a general down turn or slow down in the economy.

Terrye on June 6, 2008 at 8:17 PM

5% unemployment is zero unemployment for practical purposes because one out of twenty workers at any time in a healthy economy is transiting between jobs. 5.5% is within the margin of error for zero unemployment.

This is not news of economic catastrophe but rather an indicator of full employment. If you get below 5% unemployment, then you need to import workers to fill jobs.

Tantor on June 6, 2008 at 8:44 PM

And what are the Democrats doing about those high prices? Are they letting us build more refineries? Drill? Build nuclear power plants? I agree that the high price of energy is part of this, but it is not all of it.

The high price of energy is all of it. The effects of increasing the minimum wage are truly irrelevant in comparison to energy. If you don’t believe me, listen to Wall Street. As the president of Dow recently said, the United States is experiencing an energy crisis.

I wasn’t blaming only Bush- I was pointing the finger at everyone- Bush, Congress, Democrats. All have been worthless at dealing with the incredibly painful effects of run-away energy prices. Look at how past leaders responded to less important challenges, such as putting a man on the moon. This is a bigger challenge to our future prosperity and threat to the nation’s standing. Response? Nothing.

Drilling in ANWAR and every conceivable location off the coast will not even begin to meet the surging demand for oil coming from the developing world. You’re thinking too small- the oil problem won’t be resolved by more oil. It also won’t remove our dependency on the Middle East and an economic system that transfers wealth from the Western world to the sheiks of the world.

Nuclear is great, but even with less regulation nuclear power plants take too long to build. But thermal solar (www.ausra.com/) and other disruptive technologies can change the playing field and cut the knees out from the Middle East.

bayam on June 6, 2008 at 8:55 PM

But thermal solar (www.ausra.com/) and other disruptive technologies can change the playing field and cut the knees out from the Middle East.

bayam on June 6, 2008 at 8:55 PM

I think that solars eyes have always been bigger than it’s stomach.

MB4 on June 6, 2008 at 9:21 PM

I do not agree that nothing is more important.I think some people look at as if all our problems from crime to disease to terrorism could be solved if only we got rid of the illegals. Now that is a narrow focus.

It would be a “narrow focus” or some such thing, but no one is saying that it is all.

However, I do think it is important, I just do not think that they are responsible for a one month of half a percent increase in the unemployment rate. And how many young people do you know that want to pick lettuce in Arizona? Or work in a Hotel as a maid? It is not as if they refuse to hire Americans.

As I said before energy, “mortgage meltdown” and illegal “immigration”. And now you sound like McCain with his, “Americans won’t pick lettuce for even $50 an hour. You can’t do it my friends”. People would take those jobs if they paid a competitive, legal wage and didn’t have to compete with serf labor.

My focus is not too narrow. These numbers supposedly represent a drop in jobs primarily for people between 16 and 24. If the problem is illegal immigration, why weren’t we seeing these kinds of numbers before?

Because, as I said, energy and “mortgage meltdown” also play a roll, right now probably mostly energy.

The numbers of people leaving the country are going up. More and more people are being returned and or stopped at the border. I agree we need to stay after it, but we let this problem go for decades and yet we did not see these kinds of numbers unless there was a general down turn or slow down in the economy.

Terrye on June 6, 2008 at 8:17 PM

Not nearly enough of the illegal invaders are leaving and there are way more than there were decades ago.

MB4 on June 6, 2008 at 9:32 PM

Terrye on June 6, 2008 at 8:17 PM

See my earlier comment -

Well that may well be, although Republicans controlled the Presidency and Senate and House for 6 years, but energy prices and “mortgage meltdown” and jobs being taken by illegals are still all bigger factors than a minimum wage increase of dimes per hour on the unemployment rise, so I still say amen.

MB4 on June 6, 2008 at 7:33 PM

MB4 on June 6, 2008 at 9:35 PM

bayam on June 6, 2008 at 6:52 PM

No they just lacdk the balls to tell the environwackos to sit down and STFU.

unseen on June 6, 2008 at 10:12 PM

you all can spin this whatever way you want. But the fact is that the USA economy can not withstand $4.00/gal gasoline and grow. The rise as been too much too soon and it is hitting people hard. Until gasoline comes down the market will suck and the economy will try to keep its head above water.

unseen on June 6, 2008 at 10:20 PM

I think that is part of the problem. We want government to take care of things like this, but we also want them to stay out of the way.

A

Terrye on June 6, 2008 at 7:50 PM

The government getting in the way, is the problem. No drilling in Anwar, no drilling offshore, no new refineries…

Johan Klaus on June 7, 2008 at 12:39 AM

I ASK AGAIN:Why are we not blowing the phone boards and e-mail servers in Congress up. We got the immigration scam bill defeated. Could we not get those asses to let us drill if we demanded it? The reason unemployment is up is the costs associated with a lack of oil.

DRLIMO on June 7, 2008 at 12:39 AM

The government getting in the way, is the problem. No drilling in Anwar, no drilling offshore, no new refineries… Johan Klaus on June 7, 2008 at 12:39 AM

A government of the elite, by the elite, and against the people. You get it.

Mojave Mark on June 7, 2008 at 12:56 AM

The Obama-servicing media has to try to talk the economy down (or at least give the appearance of it in the press and on tv) -before November- in order to provide the scare needed to promote their unqualified, ignorant, pathetic candidate as the one who can “solve” it.

It will all then be shown to have been “miscalculated and perhaps exaggerated” should Barry ever win.

Statistics are being twisted like silly putty to make Obama seem like the savior of this (illusory) “disaster”.

The real economic troubles are being caused by those who keep us from drilling for oil, developing new sources of energy, and who now want to tack on a gigantic bureacratic nightmare – based on dubious hysterical “science” about “Global Warming” “Climate Change”- with their “Cap and Trade” (Tax and Spend / Bait and Switch) follies.

profitsbeard on June 7, 2008 at 1:04 AM

Thank you Elizabeth.

Red Pill on June 7, 2008 at 1:30 AM

You can blame govt for no offshore drilling, but in that case the govt is following the will of the people. A big majority of people in coastal states do not want more drilling off their coastal waters, doesn’t matter which party either (Jeb got Dubya to protect some of his coast, and Arnold doesn’t want drilling in Cali).

okonkolo on June 7, 2008 at 5:09 PM

MB4 on June 6, 2008 at 9:35 PM

You sir are RIGHT…!

[ahh, ere... CORRECT...!] :)

J_Gocht on June 7, 2008 at 6:33 PM

This is from an article from April in the NYT:

In March, private payrolls dropped for a fourth month, as factories, home builders and retail outlets all slashed positions. The only increases came in education and government jobs (my emphasis), as well as the leisure and hospitality industries.

Now don’t you think there is something seriously wrong with that picture

mrsmwp on June 7, 2008 at 10:21 PM

I’m sure that this is big oil’s fault, not the democrats.

jukin on June 9, 2008 at 10:25 AM

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