Low Unemployment?

Sound the trumpets! Beat the drums! Oregon has a 6.0% unemployment rate!

On November 14^th, Governor Kulongoski made a personal appearance at the Oregon Employment Department to announce the news that Oregon unemployment rate was down to 4-year low of 6.0%.

Kulongoski crowed to all those gathered, “You have to ask yourself, “˜Is Oregon doing

something right?’ And I think it is!”

A better question would be, “What is Oregon doing wrong that our four-year low in unemployment is still a full percentage point above the national average of 5.0%? ” Or, “Why has Oregon had one the highest rates of unemployment for the last five years?”

Even the recent good news of October has Oregon leading all other states in the nation in unemployment except for five, two of which are the hurricane ravaged economies of Louisiana and Mississippi. It has the highest unemployment rate west of the Mississippi River with the exception of Alaska. Granted it is an improvement from having the highest unemployment rate in the nation in 2001, 2002 and 2003 and the second highest in 2004.

It has not always been this way. Oregon had an unemployment rate at or below the national average from 1990 to 1996. So the question could also be what changed in 1990 and what changed in 1996.

1990 was marked be a tax revolt in Oregon known as Measure 5. Measure 5 limited the uncontrolled growth of property taxes and provided some predictability to businesses in the state of future property tax burdens. Following this monumental change Oregon performed in the top half of all states for employment rates.

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During that period of high employment, it was difficult to find employees willing to work at the minimum wage. McDonalds was offering far above the minimum to new employees. Summer jobs for teens were plentiful.

In 1996 Oregon raised the state minimum wage from below the federal rate to above the rate and continued to increase the minimum wage far above the federal rate. With the passage of Measure 25 in 2002, Oregon moved up to the top three in minimum wage the automatic increases are making Oregon number one as of January 1, 2006.

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It is simplistic to say that these two changes in Oregon’s employment situation are due from these two factors alone, but they are clearly the most dominant factors. Tax cuts have been proven to stimulate economies and increases in the minimum wage have been proven to lower employment.

Even the proponents of a high minimum wage recognize the unemployment penalty involved in increasing the wage. Otherwise there would be no reason not to raise the minimum wage to $25, or $100, or why not $1000 per hour?

The supporters of increasing the minimum wage often argue that the benefit of higher purchasing power to the poor making the minimum will offset the losses in employment. The problem with that argument is that very few that make minimum wages are in poverty. Less than one fifth of minimum wage earners are in families at or below the poverty line.

The vast majority of minimum wage earners are members of households with other incomes. Over half of minimum wage earners are members of families with more that twice the poverty level. The overwhelming majority of minimum wage earners are teenagers holding their first job.

The real concern for Oregon is the impact that minimum wage has on teenagers and young adults. Studies have estimated that for every 10% the minimum wage is increased, teen unemployment increases by 2-3%.

As Oregon has increased the minimum wage unemployment for 17 to 24 year olds has also been increasing. Oregon not only has been in the top three in unemployment rate for all ages over the last three years, we are leading in teen unemployment. In 2004, more than one in every five teenagers that were seeking employment failed in their search.

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The cost of high teenage unemployment shows up in our high property crime rates and drug addiction problems. Young adults that become discouraged by unemployment often make poor decisions. Lack of low wage jobs for teens where employable skills can be learned and perfected makes future employment prospects bleak.

How much of Oregon’s youth is being lost to drugs and crime that could have been avoided by a being employed? The Governor should be asking, “What is the cost to state and local governments for the crime and drug use driven by discouraged youth?”

A minimum wage establishes a value of labor that if a person’s lack of experience, skills or work habits causes them to fall below, mandates that they are unemployable. The group most likely to be caught out by raising that bar is teenagers and young adults.

Most of these minimum wage jobs are first jobs, taken while the person is still living with the parents. They build skills for higher paying work so that they can be independent from their families in the future. Taking away these first rungs on the ladder leaves many youth with the dangerous combination of despair and idle time.

There are over 240,000 16-24 year olds in the workforce in Oregon. Every percentage point improvement in employment means that 2,400 more of Oregon’s youth gaining skills and earning income as opposed to sitting idle consuming government resources.

What could Oregon do right in the future? Other than repealing all minimum wage laws, Oregon should remove the automatic increases in minimum wage that were included as a part of Measure 25 and create a sub-minimum training wage for teenagers and new hires. This change will provide to the youth of Oregon the hope and skills that can be the start of life as a productive citizen of our great state.