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Unemployment – Causes and Consequences

This data is not making its way into the mainstream

Somewhere on the internet last week, mention was made that unemployment for high income people was (essentially) non-existent, while extremely high for low income earners. I was able to track down that data for the fourth quarter of 2009. Here it is by income:

As you can clearly see the lower income levels are experiencing the greatest difficulty finding jobs. Interestingly enough, this data is not making its way into the mainstream. But even more interesting is the set of “circumstances” that has caused this, or at least occurred in the same approximate time frame.

Minimum Wage Increase
Two years ago the minimum wage was increased on the basis “that is was good for low income workers”. We were one, among others, who said that an artificial (non-market) increase in the minimum wage would actually hurt low wages workers resulting from lower employment counts and fewer opportunities (jobs). The unemployment data above suggests that this is precisely what has happened.

Immigration
A failure to protect the borders of the U.S. has not curtailed the flow of illegal immigrants into the country. This, despite the fact that employers must verify legal, documented status of anyone that they hire. Illegals are able to enter but cannot be hired; the current administration resists deportation, and so we have excessive unemployment at the very segment of the workforce that illegal’s might logically be expected to enter. Therefore, legal citizens are hurt from an employment and pay perspective because there is an abundance of unemployed “candidates” to fill what few jobs are available.

Poor Service
Because of an extremely hectic week and weekend, I had two occasions to go through a fast food restaurant drive through in the last five days. At the first location, for two people to order took almost six minutes just to get the correct order at the order window alone. At the second, the food was not ready and we waited four more minutes in the driveway for our food, only to discover that it was incorrectly prepared in contradiction of the correct receipt. I’ll go hungry next time or take the extra time to go home and have a sandwich. The substance of the issue here: none of the employees or managers at either location spoke any English.

Required Health Insurance
While this has not yet occurred, it’s coming. This is a cost (and essentially a tax) that prevents people from being hired now, because if they are laid off when the tax hits, the employer is then subject to increased unemployment taxes.

Improved Productivity
Look at any restaurant of any segment except the highest cost segment. It takes far fewer employees to generate an even greater sales volume than it ever did. I can also attest that the same types of productivity and employee replacement efforts are taking place at manufacturing and other service businesses as well. Efforts will continue to improve productivity at lower wage rates because of the increased expenses (mentioned above) for these folks.

In short, the government programs that have been placed in service or passed by this administration, are the very things that are destroying the workplace for the people they allegedly care so much about. For all the bluster pitting the “haves” against the “have nots”, it’s the government that is destroying the lives of “have nots” and reducing the costs of goods and services (or at least increasing the profits of service providers) for the haves.

From an investment perspective, this information is important, because is you have rental property for example that is marketed to people making less than $40,000 per year, your risk is increasing. If you own stocks that cater to exclusively demographics of lower wage earners, higher unemployment is going to affect those companies negatively. If you own a business that makes its money off this same segment, challenges are coming. It also means, given this administration’s problem “solving” methods, that taxes are likely to increase. And finally, it suggests that for basic goods and services, there won’t be any inflation for the foreseeable future.

More Stories By Dana Barfield

Dana is the president of The Barfield Group, which has provided industry leading Financial Advice, Investment Services, and helped people Plan for Retirement for more than 20 years. He is a frequent speaker and writer for a variety of industry, regional, and national publications on business ownership and wealth building related topics.

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