Unexpectedly Intriguing!
December 17, 2014

It has often been remarked that falling oil prices are unambiguously good for Americans. But as we'll show you today, who they might be good for depends greatly upon where you live and the kind of government policies that are enforced there.

Let's start by reviewing how the price of crude oil has changed since the beginning of 2014. Our first chart below tracks the price per barrel of Brent crude oil since its price has the greatest impact upon gasoline prices at U.S. fuel pumps.

We see that the price per barrel of Brent crude hovered around $110 per barrel up until 4 July 2014, after which, its price has fallen at a steady pace to reach an average price nearly $44 per barrel lower as of this writing.

As you might imagine, the falling price of Brent crude oil has paced falling fuel prices across the entire U.S., which benefits Americans because it frees up the money they had been spending just on fuel, where that same amount of money can now be used to buy both the same amount of fuel they had been buying and additional things too.

One of the first industries to benefit from the savings that Americans were realizing from falling oil and gasoline prices was the restaurant industry, where business really began to improve just as fuel prices began to fall.

Cheaper gas, a rosier jobs picture and charbroiled burgers: this is the recipe for strong sales at CKE Restaurants, the privately held parent company of fast food chains Carl's Jr. and Hardee's.

"I won't give you exact numbers, but our sales have been very good since about the middle of June," CEO Andy Puzder told CNBC in a phone interview.

By October 2014, an increasing number of Americans seeking to dine out led to an unexpected improvement in the U.S. job market. Here, after having seen absolutely no sustained improvement in their employment numbers since October 2009, the number of employed teens between the ages of 16 and 19 in the U.S. suddenly increased by 266,000. Employers, predominantly in food and drinking service-related businesses, had finally responded to the increased demand they were seeing by adding U.S. teens in large numbers to their payrolls for the first time in years.

That improvement was not a one-time statistical outlier. The job gains of teens were sustained in November 2014.

Change in Number of Employed by Age Group Since Total Employment Peak in November 2007, through November 2014

So it would appear that falling oil prices have indeed been unambiguously good for around 266,000 U.S. teens who began collecting their first real paychecks in October 2014.

But as we noted at the very beginning of this post, where people live and the government policies that are enforced there matters quite a lot in determining who gets to benefit from something as apparently ambiguously good for Americans as falling oil prices.

That brings us to California.

According to the U.S. Census Bureau's population estimates, in 2013 there were 17,011,519 Americans between Age 16 and Age 19 in the entire United States. Of these, 2,143,455 live in California. Californians between the ages of 16 and 19 then represent 12.6% of the entire population of working age teens in the United States, or just over 1 out of every 8.

What percentage of the 266,000 American teens who benefited from becoming employed do you suppose are working in California?

If we go by simple statistics, we would expect that number would be equal to one-eighth of the entire increase in the number of working teenagers in the U.S., or 33,250.

According to the California's Employment Development Department, the actual number rounds to 3,000.

It's like the proverbial dog that didn't bark.

California Lottery - Source: http://www.calottery.ca.gov/play/second-chance/slp-second-chance

What are the odds of that?

Because the numbers exceed the capability of our own tool for doing the math, to answer that question, we turned to VassarStats' binomial probabilities calculator and entered the following values for n (266,000, the number of newly employed teens), k (3,000, the number of newly employed teens in California) and p (.126, the decimal equivalent of the percentage of the U.S. teen population represented by California's working age teens.)

The probability of counting 3,000 newly employed teens (or less) in California with respect to the actual population distribution of U.S. working age teenagers is less than 0.0001% (or <0.000001 as reported by the calculator). Or if you prefer, the odds of that outcome happening by chance are less than one in a million.

That result tells us that something has gone specifically and unambiguously wrong in California's job market for teens.

It occurs to us that we have an interesting natural experiment to consider in determining what exactly has gone specifically and unambiguously wrong for California's job-seeking teens.

Here, we know exactly when the environment that led to the large improvement in teen employment across the rest of the United States changed, and that the thing that caused the improvement has continued to act to the unambiguous benefit of all Americans across the country.

But not for teens in California. Something had to change just in California during the same period of time that teens in every other state in the nation were benefitting that would put teens in California at a relative disadvantage compared to their fellow American peers in their own state's job market.

And as it happens, we know exactly what changed to lead employers in California, and nowhere else, to bypass teens for consideration for the kind of low-wage jobs that the direct peers of these least educated, least skilled and least experienced members of the U.S. labor force were suddenly finding at the largest numbers seen in years elsewhere in the nation.

Labor Market for Teenage Californians, January 2005 through October 2014

Unlike every other state in the United States, California increased its minimum wage on 1 July 2014, just as the employment situation was about to improve across the entire country thanks to falling oil and fuel prices. No other state has likewise implemented an increase in their minimum wages during this period.

By arbitrarily increasing their minimum wage from $8.00 to $9.00 per hour in July 2014, California's politicians effectively jerked away the prospect of finding employment from its job-seeking teen population at a time when it would have its best chance at doing so in years, while also damaging their prospects for increased future earnings. All by making it too costly for the state's employers to employ them profitably.

How many of California's teens missed out on the opportunity of getting their first job during this time? After dividing 263,000 (October 2014's increase in teen employment minus the number attributed to California's teens) by .874 (87.4% is the percentage of U.S. teens who live outside of California), we find that if California had punched its own age demographic weight as did the rest of the country, teen employment in the U.S. would have increased by 300,915, as California would have added approximately 37,915 teen jobs to its employment totals.

Instead, the state came up some 34,915 jobs short. Just for its own teens.

It's not an accident that the New York Times is proclaiming that the economic recovery has finally spread to the middle class after having been historically terrible for so long. In finally providing enough "oomph" to create jobs for the least educated, least skilled and least experienced members of the U.S. civilian labor force, falling oil prices has indeed been unambiguously good for nearly all Americans, but especially the middle class families to which the vast majority of these newly working teens belong.

But not for middle class families in California, where the kind of government policies that are enforced there are keeping the very real economic recovery now occurring in every other part of the U.S. beyond their reach.

Just like jobs for California's teens. Just by keeping jobs away from California's teens.

Sad Teen Boy Is Seated with a Backpack - Source: http://www.stopbullying.gov/blog/2013/12/30/bullying-and-suicide-whats-the-connection


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