Unexpectedly Intriguing!
January 29, 2009

Could the minimum wage hike of 2007 have pushed the U.S. economy into recession?

Let's begin by saying that we believe that Jim Hamilton is right in that the fallout in the housing and financial sectors alone weren't enough to produce the current recession and that it took the fallout from the oil shock to really sink the economy.

We also think that's true if the negative effects of the distress in the housing and financial sectors are combined with the negative outcomes of the most recent minimum wage hikes. You still wouldn't get to today's recession without the spike in oil prices and the corresponding change in the aggregate demand for oil or the industries it directly impacts.

But we do think that adding those negative effects of the 2007 minimum wage increase into the mix changes the timing of when the recession would have otherwise begun.

Change in Age 16-19 Number of Unemployed and Unemployment Rate, November 2006 through December 2008Here's the logic behind that thinking. Without the minimum wage hike of 2007, the peak of the previous business cycle, or rather, the point from which the NBER would declare a recession to have begun, would much more likely be placed in April 2008, as job losses attributable to the oil spike really took off beginning in May 2008. This impact may be seen in the chart to the left showing the change in the number of individuals counted as being unemployed for the Age 16-19 workforce from November 2006 through December 2008.

That's important because the NBER places a great deal of emphasis upon the level of payroll employment, both in dating the peak of the expansion phase of a business cycle and in dating the trough when economic contraction ends.

It may well be that the minimum wage hike of 2007, with its corresponding job losses and employer cutbacks in hours worked, was sufficient to cause the level of payroll employment to erode enough so that the start date of recession was pushed up to November-December 2007, some four to five months sooner than it might have done otherwise as the outcome of the oil shock.

And should that be the case, the increase of the federal minimum wage in 2007 would join with the bursting of the housing bubble and the fallout from the oil shock as the third leg forming the current recession.

Labels:

About Political Calculations



blog advertising
is good for you

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Applications

This year, we'll be experimenting with a number of apps to bring more of a current events focus to Political Calculations - we're test driving the app(s) below!

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

Visitors since December 6, 2004:

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button

JavaScript

The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links
Charities We Support
Recommended Reading
Recommended Viewing
Recently Shopped

Seeking Alpha Certified

Archives
Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.