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.

The Bad Ride in the Markets and Main Street

Since September the federal government has been busy. Very busy. But it has very little to show for all its efforts when it comes to Wall Street's and Main Street's reaction. Back in September, when Congress got together to roll up its sleeves and to heal the economy's woes, Wall Street was worried by the volatility of the market. Back then, the market strongly worried investors as it stood at the brink of going below 10,ooo points. Slightly 4 months later and we are threatened by a market that could (and likely, should) go below 7,000 points. The irony is that the plummeting market was a direct response to the government's "best efforts" to placate Wall Street's concerns. Instead of getting better, it has gotten markedly worse and has now reached 11 year lows.

Main Street has responded in a similar fashion. 2008 began with unemployment at a remarkably low 4.9 percent, which many economists describe as "full employment," when you consider seasonal and other factors that make "zero unemployment" an impossibility. Unemployment hovered around 5 percent through much of the year until about a month before the huge minimum wage increase (yes, there is a connection), in which it solidly went into the 5 to 6 percent area around that time. By September it had broken 6 percent and showed no interest in going back. This rise in unemployment joined the drop in the Market in leading to Washington coming "to the rescue." Main Street has responded to the massive bailouts of September and the "stimulus" of January by laying off even more people -- over 500,000 in the last couple of months alone. Main Street has responded to the Obama agenda by casting a new ballot -- pink slips -- and now unemployment is squarely in the 7 percent area and is moving its way towards double digits.

So why have both Main Street and Wall Street reacted so negatively? It is because both of these sectors are in the arena of enterprise. They fundamentally know that the more government controls things, the less efficient and productive those things become. The Bank of America is now on the brink of having 40 percent of its ownership be in the hands of government. Banks running like typically inefficient government institutions have done little or nothing to bolster consumer, financial, or business confidence. Fundamentally, I believe that at some level Americans know better. Free enterprise, limited government, and private property -- the founding principles of this Republic -- are better values than government control and ownership. There is a very good possibility that the businesses today are suffering from rather serious buyers remorse. I hope the government gets that message.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

U.S. Enemployment Drops to 4.4 Percent

I remember my first economics class in college and the professor discussed the concept of "full employment." Most would think that would be be the same as zero unemployment, but it is not. Instead, full employment is simply when all the people who want to work, have a job. In other words, there are people who only work seasonal jobs, there are others who are involved in illegal activities and want to stay below the economic radar as much as possible, and other still who chose to create a new business rather than get a job after they became unemployed. With that explanation, full employment is typically defined as around four percent.

At our new lower rate of 4.4 percent, the US is hovering slightly above that remarkably low number. This incredible number leads to me making a few observations:

* The tax cuts work. In the early 1980s Ronald Reagan (see photo) described his tax cuts bill as an "unemployment act." He knew that the cuts would revive the economy, stimulate economic growth and reverse the long term unemployment problems pervasive at the time. His plan worked and they recently did it again for President Bush.

* We are losing the point when it comes to illegal immigration. Many free market economists argue that illegal immigrants contribute more to the economy than they take. This is probably true. These immigrants do the jobs that keep food affordable, homes obtainable, and allow middle income people to live like the rich by being able to afford their services. Our low unemployment validates the claim that we need these workers to improve our lives. We just need such people here legally. That doesn't mean amnesty per se, but developing a logical approach to immigration that protects our security, but still provides opportunity for those less fortunate, and improves our economy. Let's not fool ourselves into thinking they are "stealing our jobs." Rather, they are largely improving our economy.

* Let's not exaggerate the "negative effects" of globalization. Another concept I learned in economics 101 is the "law of comparative advantage," which means it makes sense for some countries to produce some things and other countries to produce other things still. Because of that law we drive cars with parts from all over the world (including the US) and cost less than $20,000, where as the exact same car made bumper to bumper in this country would likely cost multiples of that amount. With 4.4 percent unemployment, these countries aren't stealing our jobs, but allowing Americans to live much wealthier than we otherwise would if the earth wasn't "flat." We are getting great products, at lower prices, that our almost fully employed economy enjoys.

Our economy is much healthier than the media wants to admit and it should put the "big stories" in the news into perspective. We don't need to become fortress America, but instead fully enjoy the advantages of a world economy.

Is the Economy in Danger or Was Yesterday a Mere Speed Bump?

The Headlines are fairly ominous today at CNN Money. We read about a "Wound Licking Wednesday" because the stock market dropped by over 400 points. Just below that article we see that "Economic Growth Not So Strong," with the actual increase being only 2.2 percent instead of the initial estimates of 3.5 for the fourth quarter of last year. The problems are not merely domestic, with the headline "Asia Stocks Tumble -- Except China" (this news is considered a major factor in our stock market decline yesterday). In fact, the news is so bad today, I suggest you avoid any sharp objects while reviewing it.

Seriously though, there is probably some legitimate cause of concern, but I believe that the economy is still on track towards a positive trajectory for this year. I say this for a few reasons:

* The power of divided government. There is an old saying, when the legislature is in session, no one's wallet is safe. Thanks to the fact that the President is of one party and the majority of the Congress is in the other, the chance of much being done legislatively is very slim in deed. This is a good thing in the eyes of business.

* Unemployment remains at historic lows. Zero unemployment is considered by most economists to be around 4 percent (because of people who are seasonally employed, are in illegal activities, are actually creating a business, etc.). Our unemployment is a mere 4.5 percent, thus near zero. This means the housing bust is probably going to actually be a mere burp (since high unemployment is a typical prerequisite to a housing bust) and should find itself having a strong year over all.

* The long term and consistent growth for so many quarters. This too is historic (even with the small increase from the last quarter) and there is nothing in the fundamentals of the economy to make one think it should change any time soon.

However, if the economy does go south, there are several potential contributing factors. If Congress passes its massive increase in the minimum wage and the President signs off on it, the economy will certainly suffer. Also, if the President signs on to a Democrat tax increase, we could find ourselves in serious trouble. In fact, the Congress failing to keep the current tax cuts in effect (a requirement in the bill that was passed with the tax cuts) will equal a tax increase in the eyes of many.

In the end, though, I expect 2007 to be extremely strong on the economic front, even if it is a little soft compared to last year. I have such optimism, not so much because of the ability of government to prevent a slump, but because of the entrepreneurs that has kept this economy growing. Let's face it, the economy typically thrives in spite of government, not because of it.