True North

Up to now, employment had held steady through a rocky economy barely staying out of recession. In May, that changed for the worse, as unemployment rose to its highest level since October 2004. However, only 49,000 workers lost their jobs, which doesn’t nearly account for the four-tenths rise:

The government reported the U.S. lost 49,000 jobs in May as the unemployment rate rose by the largest amount since February 1986.

The Labor Department reported the fifth consecutive month of declines in nonfarm payrolls. The decline was better-than-expected however, as economists had been expecting a 60,000 job decline for last month.

The unemployment rate, which is calculated separately by a survey of households, soared to 5.5% in May. Wall Street had only been expecting a slight rise to 5.1%. It’s the highest the rate has been since October 2004.

The government reported that the number of people classified as unemployed jumped by 861,000 last month to 8.5 million. According to the Bureau for Labor Statistics, the increase in unemployed people is a reflection of job cuts as well as new and returning job seekers. It also said the unemployment uptick was “disproportionately large” among 16 to 24-year olds.

The real story here is unemployment among entry-level workers to the employment system. In summer, teenagers and college students enter the marketplace looking for seasonal and part-time work. This accounts for the significant rise in job-seekers and the 0.4% increase in unemployment. Otherwise, an overall job loss of 49,000 jobs would account for a 0.0004% increase in a market of 138 million workers.

Why have these new job seekers found it difficult to get jobs? One reason is that Congress made jobs costlier just in time for this economic slowdown. Congress raised the minimum wage last year by seventy cents an hour, from $5.15 to $5.85. It will rise again in July to $6.55 an hour, and next year will hit $7.25 per hour. That makes entry-level labor as much as 27% more expensive this summer, when consumers have already slowed down their spending. The natural loss of work from the slowdown amplifies the effect of the minimum-wage increase, because businesses now cannot afford to raise prices to maintain their entry-level positions.

When the minimum wage increase was under debate last year, many of us warned that it would have precisely this effect. Now we see it unfolding before our eyes. Will the Democrats acknowledge the error and take the blame for hundreds of thousands of jobs lost to their economic meddling — or will they try to shift the blame to the Bush administration for no good reason at all? (via Power Line)

Cross-posted at Hot Air. Comments welcome.