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Job Creation-Class #16-Gerald Lizzo
March 24, 2015 | Leave a Comment
The New York Times article raises an issue I mentioned in one of my prior blog posts about minimum wage increases. This is the notion of the labor force participation rate. I argued that while raising minimum wage was important, it is just one step towards finding a solution to income inequality. Simply, we can raise the minimum wage, but if there are no jobs for people to have where they enjoy higher wages, then this defeats the purpose of an increase in minimum wage in the first place. The labor force participation rate is currently at about 60%, the lowest is has been in over 4 decades, which shows just how confident America is in their economy. Many do not find it worthwhile to go out and look for a job because they aren’t confident in their ability to find one.
The New York Times article is slightly dated when it puts the unemployment rate at 6.1%. I believe the number currently sits at 5.5% now, which is much lower. If you also consider the current streak of months put together that our economy has created over 200,000 jobs, then our economy looks like it is really gaining steam. But it simply does not paint the whole picture. Because the labor force participation rate is so low, and there is a high number of discouraged workers that aren’t accounted for in those statistics, I would argue that it would be more confidence inspiring if the jobs reports continued their steak but we instead actually saw the unemployment rate creep up, signaling new workers are entering the work force with renewed confidence in their ability to find a job and maybe even find one that is worth it.
But the question then becomes how do we create these jobs? How do we convince people to re-enter the workforce. One possible answer could be to raise wages to make individuals feel that having a job is more beneficial and actually worth their while. The Ben Wolcott article seems to point to this theory by arguing that states that raised their minimum wage in 2014 actually saw an increase in their rate of job creations over states that did not increase their minimum wage. He cites how 12 out of the 13 states that raised their minimum wage saw employment gains and of those 12, 9 of them were above the median gain in employment. However, a closer look at the data doesn’t leave me as convinced the minimum wage as much of an effect as he made it out to be. The two states that saw the biggest gains, Nevada and California did not raise minimum wage.
Furthermore, the 9 that raised minimum wage in accordance with inflation technically did raise minimum wage and it is certainly better than those states that didn’t raise it at all, but that is not a significant raise in the wage at all. The 4 that did see an actual real increase in minimum wage did not fare so well. New Jersey was actually the worse of any state and only Rhode Island was in the top half of an increase in employment and that was only just. So, I do not think that that data provides clear evidence that raising the minimum wage not only affected job creation, but did so significantly. In fact for New Jersey it certainly did not help. Ultimately, correlation does not necessarily mean causation.
Finally, The United States Conference of Mayors article also supports my point but from the opposite perspective. As I said above, raising wages does not help if there are no jobs but the opposite is no better. And this is exactly what is demonstrated to be happening in the opening paragraph of the article. It bluntly states that jobs gained are paying 23% less than jobs lost after the Great Recession. That is very significant. The cost of living is certainly not lowering as we have discussed in class before so wages can not be falling. And this is why the Federal Reserve has delayed as much as they possibly can an increase in interest rates. They have been waiting for a stronger indication of wage growth which they have not been getting. The problem is eventually they are going to have to raise rates. The question is when that day comes and when all of the money pumped into the system starts to rear its ugly head in the form of a large amount of inflation, what will be the impact? That impact could very well depend on if anything has changed in the labor market between now and then.
