Colorado Employment Situation to Marginally Improve

Will economists be able to detect anything from this unique experiment?

Colorado's minimum wage will drop slightly in the new year - the first decrease in any state's minimum wage since the federal minimum was adopted in 1938.

Colorado's wage is falling 3 cents an hour, from $7.28 to the federal level of $7.25. That's because Colorado is one of 10 states that tie the state minimum wage to inflation. The goal is to protect low-wage workers from having unchanged paychecks as the cost of living goes up.

April Job Numbers

Employment numbers for April beat government expectations. Instead of 600,000 new unemployment claims, there were only half a million (539,000, to be precise). However, the bureaucrats responsible for tallying these numbers have been consistently wrong about them for the past eight months. On average, the estimates since last August have been low by 104k, so it's still possible that more than 600,000 jobs were actually lost in April.

I've been expecting an improvement in the labor numbers because the "minimum wage" will increase by 11% in late July. Businesses that buy a lot of labor will try to accelerate their purchases before the increase and cut staff after it. Barring new economic catastrophes, I think May's unemployment numbers will be better than April's, June's better than May's, and July's better than June's. August will either see more unemployment or little change from July.

Note: The minimum wage has always been, is now, and forever will be $0, that is why I put "minimum wage" in scare quotes.

Unemployment Later this Year

The Bureau of Labor Statistics reported today that unemployment had reached 8.5%. The Department of Labor has a helpful chart on their website that indicates that the "minimum wage" will go up to $7.25 on July 24th. That will be the third annual increase since the Democrats retook Congress in the 2006 midterm election. It represents an 11% increase from last year and a 40% increase over the $5.15 rate of early 2006.

Here's my prediction. Companies and businesses that purchase minimum wage labor will accelerate those purchases as much as possible prior to July 24th. This implies that they will avoid labor purchases after July 24th. In other words, I expect unemployment to remain steady or even drop slightly before August and to increase after August. Sadly, I think we'll see double digit unemployment late this year.

Note: The minimum wage has always been, is now, and forever will be $0, that is why I put "minimum wage" in scare quotes.

Will Obama Reduce the Minimum Wage

"We now risk falling into a deflationary spiral that could increase our massive debt even further," [Obama] said.

The MSNBC headline: Obama: 'Millions of jobs' in danger next year, but there's not a word about the almost 10% rise in the so-called minimum wage slated for the summer of 2009.

He noted turmoil on Wall Street, a decrease in new home purchases, growing jobless claims and the menacing problem of deflation.

That implies that the president-elect seems to be aware of one negative side-effect of the so-called minimum wage: it tends to increase unemployment. The reality is that there has always been, is now, and forever will be a minimum wage of $0. This minimum wage will be paid to more an more American workers as they queue up for unemployment benefits. Meanwhile, companies will invest in capital that improves productivity and reduces labor costs (ie: results in layoffs).

"I will need and seek support from Republicans and Democrats, and I'll be welcome to ideas and suggestions from both sides of the aisle," he said. "But what is not negotiable is the need for immediate action."

Of course he'll reach across the aisle. He doesn't want accountability when he can blame the Republicans. As for "the need for immediate action"... I'm glad to see that the president-elect has learned that expanding government power a la the $700 billion bailout need not benefit the country to benefit our betters in Washington!

"We have acted boldly, bravely, and above all, together," Obama said. "That is the chance our new beginning now offers us, and that is the challenge we must rise to in the days to come. It is time to act. As the next president of the United States, I will."

That's it? That's the end? Not a word about government regulation, slated to go into effect Jul24, 2009, that will increase unemployment? There's talk of a "deflationary spiral", but never any explanation of what that is. No indication that the real value of the so-called minimum wage has been rising the past couple of months; no acknowledgment that the real value of $7.25/hour will drive up unemployment.