This article first appeared at The McAlvany Intelligence Advisor on Friday, May 30, 2014:
Michigan Governor Rick Snyder is no fool, but he’s also a realist: It’s an election year, pressure from the left to do something (even if it’s the wrong thing) is mounting, there’s a petition drive that could make things even worse, and so he caves and calls it good. In announcing that he signed into law a bill passed overwhelmingly by the legislature to raise the state’s minimum wage law by 25 percent over the next four years, he said:
This is something that is good for Michigan. It’s good for the hard-working people of Michigan and I believe it is economically sound….
I commend my [Republican] partners in the legislature for finding common ground on a bill that will help Michigan workers and protect our state’s growing economy.
Of course the new law will do no such thing. The good news is that it could scarcely do any worse: Michigan ranks 46th among all states with an unemployment rate near 9 percent and the state is 49th in projected job growth. When one is at the bottom, there’s no farther to fall.
By preventing business owners from employing those who would be willing to work for less than the state’s mandated minimum wage (currently $7.40 an hour and increasing to $9.25 an hour), the law guarantees more unemployment. It’s an iron law of economics: When the price of something goes up, less of it will be demanded. No legislative body can repeal it. All it can do is dress it up to make it look like something that it isn’t.
At least one Republican recognized the bill for what it is: guaranteed unemployment. Nevertheless he voted for it. Here’s Rep. Peter Pettalia from Presque Isle, Michigan:
I’m going to [vote for] this with a heavy heart because I don’t believe government has a place adjusting wages in our society.
I step up and support this bill [however] because the alternative is terrible.
The alternative is a petition being promoted by a far-left gaggle of unions, community activists, and “civil rights” groups to raise Michigan’s minimum wage to $10.10 an hour. So far, more than 300,000 low-information citizens have signed it. Pettalia simply voted for the lesser of two evils.
But it’s still evil. Business owners faced with the new interventions will adjust in a number of ways, including not hiring or expecting more work from those they do hire. They will cut fringe benefits such as time off and on-the-job training. They will reduce maintenance chores such as spraying down the driveways and car ramps at fast food stores. And they will be more highly motivated than ever to invest in labor-saving (or even labor eliminating) devices through automation.
In fact, that’s already happening. In 2006, fast food establishments in the country were employing more than 17 people on average. That number is now at 15 and declining.
And they will be forced to raise prices. The owner of two pretzel stores in San Jose, California, has had to raise her pretzel prices by a nickel just to maintain their profitability. She gives her employees 20 percent of the stores’ profits each year as an annual bonus, but this year that bonus will be much smaller.
Woody DeMayo, the owner of 16 Carl’s Jr. restaurants in northern California, charges $6.19 for a burger, fries and a drink, but in order to maintain profitability he would have to charge $6.75 – but “that would chase off a large percentage of my customers,” he said. Instead, he has reduced the hours worked by some of his employees, has cut back on some daily maintenance, and is closing two of his stores altogether. That will put about 30 employees who did have jobs into the unemployment line.
The same thing with White Castle. They have two stores near each other but in separate states, one with a lower minimum wage than the other. In Illinois it is $8.25 an hour while in Indiana it is $7.25 an hour. The chain has just eliminated two positions in its Illinois store.
When political expediency faces economic reality, expediency wins and freedom loses. As economist Mark Perry with the American Enterprise Institute put it, every minimum wage law is
a coercive government-mandated price control which prevents private citizens from engaging in mutually beneficial exchanges [of their labor for money], enforced by the threat of fines or jail.
Because of this, he added, “we’re all a little bit less free.”
Yahoo.com : Michigan’s Snyder signs bill raising minimum wage
CNN : Michigan raises minimum wage to $9.25
Time : Michigan Set to Raise Minimum Wage to $9.25 Hour
Huffington Post : Michigan Raises Its Minimum Wage
Reuters : Michigan, in bipartisan move, raises minimum wage
Mark Perry: Minimum wage hikes are largely neutralized by reducing non-monetary fringe benefits and increased work demands
Unemployment rate, state by state
Average employees per fast food establishment
Michigan’s Future: 49th for another decade?