Written by Paul Krugman and Robin Wells, Macroeconomics states, “In general, the unemployment rate is a good indicator of how easy or difficult it is to find a job given the current state of the economy” (Krugman and Wells 219). A New York Times article, Strong Unemployment News Bolsters Case for Fed to Raise Rates written by Reuters, talks about how unemployment rate benefits are holding steady with a steady labor market and how job openings are rising, which is encouraging the Federal Reserve to higher interest rates. As explained in Macroeconomics, by Krugman and Wells interest rates refer to, “The price, calculated as a percentage of the amount borrowed , that lenders charge borrowers the use of their savings for one year” (Krugman …show more content…
In a Wall Street Journal article, Grand Central: The Fed Could Misfire Again on its Unemployment Projections by Jon Hilsenrath states, “officials expect worker productivity growth to pick up in the months ahead. If that were to happen, firms would face less pressure to hire workers into jobs. Moreover, more individuals could re-enter the labor force, boosting the supply of labor and keeping jobless rate elevated” (Hilsenrath 2). The article goes on to explain that the Federal Reserve continues to underestimate the rate of unemployment and they would have to raise interest rates even higher and faster than expected. What isn’t clear about this article is the fact that the author, Jon Hilsenrath, did not include why the Federal Reserve does not think unemployment rates will continue to stay low or decrease even more. One reason could be that they are afraid that a high minimum wage could cause structural unemployment which could lead to disinflation and a higher unemployment …show more content…
As explained in Macroeconomics, by Krugman and Wells, “In structural unemployment, more people are seeking jobs in a particular labor market than there are jobs available at the current wage rate, even when the economy is at the peak of the business cycle” (Krugman and Wells 227). If the government believes that this is the case in which the unemployment rate will not continue to decrease but instead rise, then the economy could face the costs of disinflation. The Christian Science Monitor journalist Mike Tokars wrote, Sanders and O’Malley: Raise Minimum Wage to $15. Is it feasible which talks about how in the democratic debates on Saturday, November 14, Bernie Sanders and Martin O’Malley agreed that raising the Federal minimum wage to $15 would be a stimulant to the economy and give the people of the United States more disposable income. This article also shows that former Secretary of State Hillary Clinton disagrees and suggests that would create more job loss and a higher unemployment rate. If you look at the Republican side and Democratic Hillary Clinton who is more conservative regarding economic policies this article supports the notion that the Federal Reserve believes higher minimum wage will create structural unemployment and will result in a higher unemployment rate over
In any economy, no matter whether it is controlled by the government or by free markets, people need to work in order to support it. The government does not generate tax revenue by magic. There have to be people in that economy earning an income to ensure that the government continues to collect taxes. In a free market economy, the same applies because there are some services which only an organized government can supply (such as protection from extra-national threats), but there also those which the people get for themselves because of the working of the markets. In any scenario, unemployment is, at the very least, a drag on the economy, and it can be much worse. This paper examines how the unemployment rate in the United States is underreported, and how that fact effects the sluggishness of the present economy.
It can also be argued that raising the minimum wage would inadvertently have a negative effect on the economy and actually increase poverty. If the minimum wage were to increase from $7.25 to $10.10, the result would be the loss of 500,000 jobs, as predicted by the Congressional Budget Office (Should the Federal). 54% of employers stated that they would lower hiring levels and 38% stated that they
One of the biggest arguments against raising the minimum wage is that it ends up raising employer costs (ex. having to pay more for employees) and leaves less and less opportunities for teenaged workers and disadvantaged workers to find jobs. However, David Card and Alan Krueger, both of whom are heads of the
In ¨Raising Minimum Wage Increases Unemployment,” Christopher Jaarda, a writer for Gale and also an attorney with the John Hancock committee, claims that there is a correlation between minimum wage hikes and unemployment. Christopher states many different times where the government has raised the minimum wage and then, as a result, the unemployment has gone up substantially. In the chart, there is a clear correlation all these years that they have raised it. Out of 5 different times that they changed the minimum wage every time the unemployment way up with it except for 1996. It did go up, but not that much like the others. The most recent increase was in 2007. The unemployment before the raise was 4.6% and then after its unemployment peaked
The federal minimum wage needs to be increased to keep up with inflation. Most wages are increased to keep up with inflation, but those at minimum wage tend not to see one so the employer can cut costs. Fortunately, some states have already fought this by raising their minimum wages to keep up with the cost of living in that area. If the minimum wage was changed with inflation, it would have been $11.16 in January of 2016 (“Should the Federal”). The lack of wage raises, along with the reduction in purchasing power, greatly affects the poor. Obviously, they have much less money to begin with; taking anything away from the poor hurts them greatly. According to Senator Bernie Sanders, “Since 1968, the minimum wage has lost more than 25 percent of its purchasing power (“Should We Raise”).” This loss in purchasing power will only continue. Inflation always
One source from the Opposing Viewpoints Database called, “Raising Minimum Wage Increases Unemployment” argues against the minimum wage by suggesting it will decrease financial security and cause higher unemployment rates. The author provides unemployment statistics from the 1990s onward as evidence to argue against the minimum wage. The article says, “In 1990, Congress enacted another minimum wage increase.” “The month before the increase took effect, unemployment was 5.2%.” “With the increase, unemployment began to steadily increase and unemployment eventually peaked at 7.8%” (Jaarda). The article emphasizes to readers that increases in minimum wages and following increases in unemployment are not just coincidences by continuingly pointing at similar statistics throughout history.
Next, another problem the rise of minimum wage poses is the rise of inflation. If employers are required to pay their employees more, then they need to do something to compensate for the extra money they are losing. With this in mind, employers would have to increase the prices of goods. But sometimes raising prices is not an option for employers. “If a business cannot simply pass along its new labor costs, it must somehow absorb them—by eliminating workers rendered unproductive by the new minimum wage, by replacing labor with more-productive machines, or by cutting production” (Intorduction 2). This brings back the issue of minimum wage causing a dramatic increase in unemployment. Sherk believes it is the wrong time to increase minimum wage, due to the fact that America is currently in a recession. The right time to think about raising minimum wage would be when the unemployment rate drops drastically. Sherk states “In 2007, Congress voted to increase the minimum wage, raising it in three $0.70 increments from $5.15 to $7.25 an hour. The final installment represents a 10 percent increase in the cost of hiring minimum wage employees” (Sherk 1). Seemly inflation and minimum wage increases influence each other.
Figure 7.6 shows how the minimum wage creates a price floor. The difference between the wage rate and the amount of workers needed is unemployment. Figure 7.7 shows the potential loss of labor demanded by businesses. This could become a positive statement to say that raising the minimum wage will increase unemployment. "Recent research reveals that, despite skeptics’ claims, raising the minimum wage does not cause job loss." (Cooper and Hall). An
However, not everyone is on the bandwagon. Conservative economists point out the negative effects the wage increase could have on the economy. They see it having an effect on the demand of jobs. Businesses facing higher labor costs would raise prices, passing those higher costs on to their customers. That would lead their customers to cut back on their purchases, meaning that businesses would need fewer workers (Lowrey). Raising the minimum wage would also make hiring low-wage workers more expensive relative to other investments, like new machinery. Businesses might then reduce their use of low-wage workers and shift their spending toward other things, such as automated systems.
The discussion of whether the Federal Reserve should raise the federal funds rate is a highly contentious one. Members of the Federal Reserve (“Fed”) and academic economists disagree about what constitutes appropriate future macroeconomic policy for the Unites States. In the past, the Fed had been able to raise rates when the unemployment rate was under 5% and inflation was at a target of 2%. Enigmatically, since the Great Recession and despite a strengthening economy, year-over-year total inflation since 2008 has averaged only 1.4%—as measured by the Personal Consumption Expenditures Price Index (“PCE”). Today, PCE inflation is at 1-1.5% and has continuously undershot the Fed’s inflation target of 2% three years in a row. (Evan 2015) In the six years since the bottom of the Great Recession the U.S. economy has made great strides in lowering the published unemployment rate from about 10% back down to about 5.5%. In light of this data, certain individuals believe that the Federal Reserve should move to increase the federal funds rate in 2015 because unemployment is near 5% and inflation should bounce back on its own (Derby 2015). However, this recommendation is misguided.
Intro: People of the middle class all know that the minimum wage of $7.25 is not sufficient to maintain a comfortable lifestyle. There is considerable evidence to show that the current generations comfortable lifestyles require a more luxurious price for standard living. The cost of living over the years has dramatically increased due to high consumer demands of products. As that being said, $7.25 is just not enough for a happy lifestyle, food, and the bills. There are many jobs that dislike or just can't afford paying high wages. Therefore, many employers hire less to save money. This causes a non-sufficient pay rate for comfortable living and high unemployment
The most prevalent and steadfast myth surrounding the raising of the federal minimum wage is that it will doom the economy. This might seem logical at first, but just think about it for a second. Why do minimum wage employees need more cash? The answer is simple: To spend it, to buy the things that they and their families need to survive. “Most minimum wage workers need this income to make ends meet and spend it quickly, boosting the economy. Research indicates that for every $1 added to the minimum wage, low-wage worker households spent an additional $2,800 the following year” (Fair). Furthermore, EPI estimates that if the federal minimum wage were raised to $10.10 an hour, it would result in over
The unemployment rate in the United States has improved dramatically over the last two years, from a high of 8.3% in July 2012, to a low of 6.6% in January 2014. In October of 2012, the civilian labor force increased from 578,000 to 155.6 million, labor force participation increased up to 63.8%, and total employment overall rose by 410,000! Since then, the unemployment rate has been falling at a stable rate due to a political push from Washington DC and new employment initiatives. The inflation rate over the last 2 years has been relatively stably, with a few major increases and decreases in 2012 and 2013. It reached a high of 2.3% in June of 2012, and reached a low of 1.0% at the end of 2013. The federal interest rate has remained at a constant .25% over the past few years.
Inflation is an increase in price levels within an economy. Basically it means that you will have to pay more for the same goods. Unemployment is even more straightforward. It means that a person is available for employment but is unable to find employment. Lastly, the unemployment rate, which is the percentage of potential workers that are unemployed, is used to measure unemployment (Mankiw 1992).
The overall economic data of unemployment is very beneficial to a company because it will be able to know how many people are willing to spend, slowing consumer demand and slow growth. Being able to understand these economic factors can help a company analyze and develop certain strategies to continue to be successful during challenging times in the market. Target Corp. has been able to stay very competitive throw just about any market and I don’t think a few low demand times will affect them much, but never-the-less, we still want to be able to look at certain numbers and make a plan for such times. The U-3 and the U-6 unemployment rates are what Target Corp. should be looking at. The U-3 is the total unemployed, as a percent of the