Michigan and the Minimum Wage

Michigan is a state that is losing businesses at an alarming rate and as a result is struggling with high unemployment, shrinking tax revenues, a brain drain, and crumbling infrastructure. Michigan has some of the highest taxes on businesses and consumers in the nation, owns one of the most adversarial labor forces that money cannot afford to buy, and has too many irons in the fire of the slow to respond domestic auto industry.

So, what is the state contemplating to do to turn this all around? You guessed it, make it harder to do business here. From the Detroit Free Press.

LANSING -- Michigan would have one of the nation's most generous minimum wage laws under legislation that came out of nowhere Thursday and appears headed straight for Gov. Jennifer Granholm, who said she'll sign it.

The state Senate approved the measure unanimously Thursday morning, authorizing a 44% boost over the next two years from $5.15 an hour to $7.40 in July 2008. Most of the increase would come Oct. 1 this year, when the base wage would jump to $6.95 an hour.

This is simply dumb on so many levels that it astounds me. Businesses that rely on minimum wage workers are not going to simply assume the cost of a 44% increase. This cost will be compensated for in one of two ways. Either the cost of goods and services must go up (lowering demand,) or payroll costs will have to be trimmed (reduced hours, benefits or employees.)

Phillip Hill, assistant manager at a Burger King in Southfield, said better wages would let him hire people who work harder and stay longer. To have enough workers at a given time, Hill said he has to overstaff every day. "And the job is still not getting done," he said.

My apologies to Mr. Hill, but this is a silly argument. It is true that once the layoffs begin there may be more unskilled laborers seeking work from which he can choose to flip burgers. But, it isn't the best of the minimum wage workers that will be cut loose -- it is essentially the more inexperienced or less productive workers that will be forced out. These are the new potential $7.40 per hour workers Mr. Hill will be able to choose from.

In fact, Mr. Hill's argument is the best argument against raising the wage. He is already overstaffed...he admits it. Some jobs will get lost in this one restaurant. Multiply that by the tens of thousands of businesses in the state and what has been gained?

A much better solution would be for the owners of the Burger King to voluntarily pay a higher wage than its competitors to attract workers and keep them. This would give Burger King a hiring advantage, whereas simply setting a higher wage plateau offers BK no additional attractiveness to potential employees.

Always wont to take credit for everything imaginable, politicians are praising their own actions as they ignore or discount introductory economics.

Senate Majority Leader Ken Sikkema, R-Wyoming, said the proposal approved Thursday moves the rate higher and faster than the ballot proposal and quickly puts money in people's pockets and in the economy.

Um, this does not add money to the economy--this is a move that does not create wealth. And, while it does put money into the pockets of a few primarily unskilled laborers, it takes money out of the pockets of those that lose their jobs entirely and those that create jobs in the form of business owners.

So, in the end what do we have? A state that suffers already, will suffer even more.