Fixing Unemployment in the Short-Run

As we all know, unemployment rates are reaching record levels. It is a dire circumstance because consumption naturally drops with employment levels. So, how do we remedy this problem? Decrease, or even eliminate, the minimum wage.

I know that this sounds crazy, but hear me out. The graph above illustrates the impact of a minimum wage on the labor market. If minimum wage is decreased, but the wage rate remains above the equilibrium, points A and B will move closer to the equilibrium rate. Point B will have little effect on the unemployment rate because many workers do not want to work below the current minimum wage. The number of unemployed workers eligible for unemployment benefits will fall, however, because these people will be forced to reject job offers below the current minimum wage or take the job anyway and thereby disqualify themselves. Point A is the primary focus. As you can see, as point A approaches market equilibrium the quantity of labor demanded increases. This very simply translates to more employed workers in the labor market. If minimum wage is eliminated, the market will reach equilibrium.

Do not fear, I haven't gone completely mad. If such a plan was implemented there are some key features that I would advocate:

• All employees currently hired under minimum wage laws have their wages protected and are protected from adverse employment effects (read: getting fired) because of their wage.
• The reduction or elimination of minimum wage is to be for a defined period of time. At the end of this time, minimum wage will be restored to current levels.
• Because of the resultant decrease in unemployment benefits paid, employers are given a nominal tax benefit for hiring new workers. This will induce hiring despite the time-limited nature of such a plan.

Are there some flaws in this plan? Yes. Do the benefits outweigh the flaws? In my opinion, you're damned right. At this point, in this economy, displaced workers are getting desperate. I, for example, am a senior student of Economics at Oakland University. Supposedly, we have one of the best economics programs in the state, better than Michigan State University. I have my Series 7 and 66 certifications and I am just finishing up my Life, Accident and Health licensing. I also do not have a job and I'm not making a dime. My savings have run out. I will most certainly take a job for $5.00 an hour even though a few months ago I was offered a job for $24,000 a year plus commissions and a full benefits package (the job never materialized). I need cash and I will work 60 hours a weeks for below minimum wage if it means being able to pay my bills. I'm not the only one either.

If the corporations are getting a greater marginal benefit from a drop in wages, you can be sure that they will be happy to eat it up. Go talk to the Big Three, they would love to drop the labor unions like a bad habit and pick up workers for six bucks an hour. No one would lose their job. Minimum wage is pricing the American worker out of their job the same way labor unions are pricing themselves out of a job.

So there you go. Unfortunately, being an economist and a businessperson does not lend very well to being a humanitarian. That said, it's much easier to protect my case when I am one of the masses at the bottom. For those of you looking for a job, I wish you good luck. If anyone knows of ANY employment opportunities in northern metro Detroit that would welcome a loon like me, feel free to drop me a line.