Mar 04, 2010
By Matt Bogard
Both the house and senate have now passed a jobs bill, but other than a payroll tax cut included in one version, it seems neither bill provides any proven mechanism to create jobs. Neither make an effort to correct recent wayward policies that may actually destroy jobs. Last October the Wall Street Journal reported that teenage unemployment in September was at 25.9%. (link
). As reported this is very close to what economist David Neumark of the University of California predicted would happen with the increase in minimum wages.
A recent Washington Post story (link
) notes that unemployment for 16-24 year olds was at 19.1% in October while it was at 34.5% for African Americans in the same age group.
Again, this is not surprising and is consistent with the evidence (see references below).
Of course we have to take into consideration that we are in the worst recession since the Carter years, and that would obviously have an impact on unemployment in addition to the effects of raising the minimum wage. However, we have to ask, since we are in the worst recession in 30 years, why has noone discussed repealing the recent increases when they are known to be so harmful to low income earners? As the Washington Post story above noted, the problem is not just the temporary issue of not having a job:
"Jobless teens are more likely to be jobless twenty-somethings. Once forced onto the sidelines, they likely will not catch up financially for many years. That is the case even for young people of all ethnic groups who graduate from college. "
We also have to consider the other polices coming down the pipeline. With the near trillion dollar stimulus package, we still have over 10% unemployment overall. Many of the world's best economists predicted that the stimulus would be ineffective,(Cole & Ohanion, Prescott, Barro, Becker, Rizzo, Mankiw, Sargent) and it seems we are repeating the same mistakes made during the Great Depression that gave us 25% unemployment.
With the expiration of the Bush tax cuts, small businesses and farms are set for huge tax increases. ( see Taxing our Farms and Businesses
via AgWeb). Add to this the uncertainty of increased energy and health care taxes as well as out of control deficits and it doesn't provide much incentive for creating jobs. We saw under both Reagan and Bush that cutting marginal tax rates can help stimulate the economy and reduce deficits ( see Evidence on Tax Cuts
via Agweb). Recent research from Harvard University concludes that ' Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases.' (link
via Greg Mankiw) It also concludes that deficits are better handled through spending cuts than tax increases.
Some in D.C. remain stubborn. Recently when Texas representative Michael Burgess suggested that we offer tax relief to business and have government get out of their way, Treasury Secretary Timothy Geithner responded:
“That broad philosophy helped produce the worst financial crisis and the worst recession we’d seen in generations.”
This shows either ignorance or rejection of the current evidence, or it shows that Geithner's priorities are more concerned with philosophical and theoretical ideals than results.
With climate gate, it might have been possible to keep the evidence about climate change behind closed doors. But with the economy, everything is out in the open and the evidence is freely available. This makes more government spending and regulation a very hard sell, and it is surprising that some policy makers continue to try to make the case for it. What's not surprising is the continued high rates of unemployment.
Geithner’s Crisis Sleepwalk Is Reason He Must Go: Kevin Hassett
Nov. 23 (Bloomberg)
The Young and the Jobless Wall Street Journal Oct 3, 2009
Blacks hit hard by economy's punch. Washington Post Staff Writer
Tuesday, November 24, 2009 (link
Behrman, Jere R.; Sickles, Robin C.; and Taubman, Paul. 1983. The Impact of Minimum Wages on the Distributions of Earnings for Major Race-Sex Groups: A Dynamic Analysis. American Economic Review, vol. 73 (September): 766-778.
Linneman, Peter. 1982. The Economic Impacts of Minimum Wage Laws: A New Look at an Old Question. Journal of Political Economy, vol. 90 (June): 443-469.
Hashimoto, Masanori. 1982. Minimum Wage Effects on Training on the Job. American Economic Review, vol. 72 (December): 1070-1087.