[Guest post by WLS]
Bad news out today on the unemployment front — a big jump from 5.1 to 5.5%.
However, within the numbers are some interesting details.
First, the number didn’t spike due to a big loss of payroll jobs — those declined only by 49,000 in April. That would be only .0004% in an economy of about 138 million workers.
Instead, the number jumped because of a surge of new people who came into the job market looking for, but not finding work. The overall unemployment number is about 8.5 million, and the increase last month represented about 860,000 new job seekers — only 49,000 of whom had lost a job elsewhere.
Further, the unemployment rate for the 16-24 age group was up dramatically compared to other groups. Unemployment in that group rose 2.4%, compared to increasing by only .4% in the group of workers 25 and older.
Who does this age group represent? How about high school and college students coming into the job market for the summer.
And what do many such job seekers get paid? Minimum wage –which Congress increased last year from $5.15 to $5.85, and which will increase again next month to $6.55, and then again next year to $7.25.
Here’s a personal case study in how that works to squeeze workers out of the minimum wage job market:
My parents own an ice cream shop, and rely heavily in its operation on eight 16-20 year olds working part-time schedules of 16-24 hours a week, along with one full-time manager who is assisted by my parents in their free time. Over the course of a 7 day work week, they typically employ the part-time workers for a total of about 340 hours a week.
Raising the minimum wage by .70 increased their straight wage expense by $240 a week, or about $1000 a month. But it had collateral consequences as well, as their worker’s comp. and unemployment insurance costs rose in relation to their payroll, as did their payroll tax contributions. The combination of wage increase and the various increases that spin off that wage increase was about $1500 a month. This is against a total wage expense for the part-timers of about $8000 a month.
Now, the ice cream parlor business is somewhat inelastic from a price stand point — people won’t continue to pay higher and higher prices for an ice cream cone when the alternative is simply to do without. So, that increase in operating expense could not, in total, be passed on to the customers. Instead, my parents worked a few more hours themselves and trimmed back on the hours they had the part-timers working. When one of the part-timers quit, they didn’t hire a replacement for her.
Now, the same thing is going to happen next month — another increase of .70 per hour, totaling about $1500 a month in additional operating expenses is going to kick in. This will come on top of significant increases over the past year in product costs — multiply the increased cost of milk you are paying at the supermarket several times over and you get a feel for the increased cost of buying ice cream on a large scale for a business establishment.
They will raise the prices a little, but not enough to cover the total increase. They will cutback on the hours the part-timers work, and work a few more hours themselves. And if they lose another worker, they probably won’t hire a replacement.
My parents are both in their late 60s, and they don’t want to work 60 hour weeks at an ice cream parlor they bought on a lark after they retired.
But they aren’t going to operate it as a money loser either.
When Congress increased the minimum wage, for many many small business operators such as my parents, Congress took the profit from the business right out of their pocket. I’d be surprised if my parents’ shop made more than $3,000 or $4,000 month in profit — with them taking nothing in terms of a wage for themselves. If they had not cut-back their part-time work force payroll, the minimum wage hike would have taken every bit of that profit away.
Now they are working more than they want, and for a very modest annual return on their labor and investment.
And two fewer teenagers will be employed by them this summer than was the case last year.
The other six should have their resumes up to date.
— Guest Poster WLS