Why We Can Expect Another Jump in Unemployment

Unemployment is about to experience another significant jump in the next few weeks. This isn't the speculation of an Obama critic, but the simple observation of someone who has been watching economics for years. The contributing factor to the next jump is the increase of minimum wage from $6.55 (an increase we had in July of 2008) to $7.25 in July of this year.

We are all familiar with the high unemployment that we have experienced over the last year. We can discuss the economic collapse of financial institutions all day long, but the first big jump that we had seen in years began in June of 2008. According to the Bureau of Labor Statistics, unemployment had largely been below 5 percent for years until the summer of 2008. What happened then? The Congress had raised the largest increase in the minimum wage in 16 years. In July of 2009, that minimum wage will jump again to over $7 an hour.

These incremental increases were passed in May of 2007. At that time we had near full employment (considering seasonal, new entrepreneurs, and other factors) as unemployment was only 4.5 percent. Today, it is doubtful the economy can sustain such an increase and as a result, the federal government should consider an alternative approach, which is to eliminate the federal minimum wage entirely because it is an obvious drag on job creation. Our current unemployment is more than twice the rate it was when the increase passed (current unemployment is 9.4 percent). Unemployment has changed and so should the policy.

The federal government should immediately mandate the states to have its own minimum wage without a mandated basement...let the state determine the level. Smart states should, in turn, let cities have minimum wages at a lower level if they desire (which would be particularly helpful to cities like Detroit, Camden, and East St. Louis). There is an old saying, "when your neighbor loses his job it is a recession, when you lose your job it is a depression." The number in the latter category has doubled in just two years. This is urgent and unlike many policies from Washington today, this is an action that won't cost the taxpayer a penny.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.