Both the current President and his predecessor claim credit for low unemployment. To what extent are recent lows in unemployment rates due to the policies of these two Presidents’ policies?
There are several causes of low unemployment. First, reducing minimum wage rates lowers unemployment, mostly for teens. Higher minimum wage rates correlate with higher unemployment rates (see the next graph). The real purchasing power of the current $7.25 minimum wage is nearly at an all-time low (see the second graph below). Inflation has devalued the real minimum wage, especially in the past few years. Also, Congress hasn’t raised the money rate of the Federal minimum wage in many years. Unemployment rates have risen since April 2023, but so have some state minimum wage rates. We should also note that Biden and his supporters want to impose a “living wage” of $15 or more. The second graph below indicates that this living wage would be job-killer.1
The low point for unemployment in April 2023 (teen- 9.3%, overall- 3.4%) is well below the long run line of best fit. What else could have pushed unemployment rates so low? There have been other times when unemployment rates have fallen to such low levels- World War One, World War Two, the Korean War, and the War in Vietnam. Why do unemployment rates fall to under 4% during wars? Wartime mobilizations deprive domestic industry of labor. Wartime labor shortages tighten labor markets and this lowers unemployment rates.
Why did unemployment rate fall below 4% during Trump’s presidency? There was no wartime mobilization during Trump’s presidency, but labor supply tightened for other reasons. Baby Boomer retirement and strict immigration policies limited labor supply during the Trump Administration, prior to COVID. Pandemic unemployment benefits caused many workers to delay returning to work. COVID also caused deaths among working age Americans.2
President Biden’s Open border policies did allow millions of foreigners to join the US domestic labor force. However, labor force participation fell during the COVID crisis, and recovered slowly during the Biden years.
There are other policies that may affect unemployment.3 However, tight labor supply appears to be a major cause of low unemployment rates for both the Trump and Biden Presidencies. Some factors that determine labor supply are beyond the control of any president. However, there are some things that they may do to open opportunities for workers. Repealing Federal and State minimum wages could lower unemployment in the future.
- 1
The blue dots represent actual data points. The red dots represent statistically modeled effects of minimum wage rates on unemployment, accounting for other other factors.
- 2
Increases in suicide rates and in fatal overdoses also contributed tight labor supply.
- 3
Trump’s deregulation may have encouraged employers to hire more employees. However, the idea that Trump’s deregulation may have lowered unemployment rates raises the issue as to how Biden’s regulatory increases may have affected unemployment rates.
