The news that the unemployment rate jumped half a percentage point in May has certainly received plenty of coverage in the news. A closer look at the data reveals some interesting sub-plots.
As several analysts have pointed out, the rise in the unemployment rate is probably picking up a significant increase in the labor force participation rate resulting from high school and college students going into the labor market with the end of school. The civilian labor force grew by 577,000, comprising 2/3rds of the 861,000 increase in the number of unemployed (the remainder were those who lost jobs they had).
But what only one or two people have noted is the two groups where the jump in the unemployment rate was the largest: teenagers, where the rate went up 3.3 percentage points and blacks, where the rate went up 1.1. The unemployment rate for adult men is 4.9% and 4.8% for adult women, but for teenagers it is 18.7% and 9.7% for African-Americans.
It is at least possible that in addition to the more general problems in the US economy, last summer's increase in the federal minimum wage as well as the next jump coming in late July are behind the particulars here. Last July, the federal minimum wage increased to $5.85/hr and it will go up to $6.55 on July 24 of this year. With a sluggish economy, it certainly seems possible that the higher minimum wage is discouraging employers from hiring lower-skill workers whose productivity cannot justify paying them that wage, particularly if they know they will have to give them a raise come late July.
Economic theory predicts that minimum wage laws will disproportionately harm lower-skill workers such as teenagers and non-whites (not, it is worth noting, because the latter are inherently less-skilled, but because they have not had the same educational opportunities or other ways to increase their human capital as have whites). This effect of the minimum wage is why higher-skill workers have long supported it as a way to shut out cheaper competition (e.g., US unions shutting out immigrants and blacks 60 years ago, white South Africans shutting out black natives 100 years ago, etc.). It would seem that this prediction is born out by some of the facts in the latest US unemployment data. It might also temper arguments that the May unemployment rate reflects "market" problems as opposed to the undesirable consequences of bad government policies.
And to link this to another discussion here, if one is tempted to minimize the role of self-interest in the political realm, one might wish to read the debates surrounding the creation of the first federal minimum wage law in the US as well as similar laws as part of apartheid in South Africa. The backers of the US law were not ignorant of its effects; they knew exactly what it would do (shut out immigrant and black labor), which is precisely why they supported it, and also why a number of politicians voted for it.
For example, in the April Freeman, David Henderson reports the following story:
At a 1957 hearing on increasing the minimum wage, a northern U.S. Senator who favored the increase stated: “Of course, having on the market a rather large source of cheap labor depresses wages outside of that group, too—the wages of the white worker who has to compete. And when an employer can substitute a colored worker at a lower wage—and there are, as you pointed out, these hundreds of thousands looking for decent work—it affects the whole wage structure of an area, doesn’t it?”
Who was the senator? Here’s a hint: just four years later he was the President. His name: John F. Kennedy.
JFK was not ignorant of the economics of the minimum wage and neither were the unions he was responding to. The unions were looking after their collective self-interest and JFK knew where the votes came from.
Finally, abolishing the minimum wage is also a good example of using free markets to accomplish Rawlsian ends.
Oops, didn't realize I hadn't opened comments! Go right ahead folks.