Detroit News on the Minimum Wage

I’d like to share this important editorial from today’s Detroit News on the impact of an increase in the minimum wage:

Plan would make state unemployment problem worse

Michigan has one of the highest rates of unemployment in the nation. So what do organized labor and some Michigan Democrats plan to do? Put a higher minimum wage on the state ballot next year, which could throw more people out of work. There is a word for this kind of economic thinking: dumb.

Polls so far show that most voters would approve the higher state minimum wage. The current federal minimum wage is $5.15. The ballot proposal would raise the state’s minimum by $2 to $7.15, the third highest in the nation.

A chapter heading in a book by Nobel Prize-winning economist Gary Becker of the University of Chicago makes the effect of such an increase brutally clear: “It’s Simple. Hike the Minimum Wage, and You Put People Out of Work.” Yes, there are some studies that purport to show that minimum wage increases don’t affect jobs, but they are not the majority opinion in the economics profession.

In the real world, owners of businesses in a position to hire minimum wage employees worry about the effect of such an increase on their ability to operate in Michigan. A hike in the minimum wage, says Mark Mitra, owner of several Arby’s restaurants, could affect his pay costs for both managers and hourly workers.

That’s because, as Mitra told The Detroit News, a higher minimum wage would have a “ratchet” effect on all of his wage and salary costs, pushing all of his pay levels higher. The higher minimum “is an unaffordable proposition for me.”

Mitra, reported The News, is now scouting for more locations for restaurants. But if he refrains from opening them because of higher wage costs, jobs that would have existed will never materialize.

The “ratchet” effect on wages is one of the reasons organized labor supports higher minimum wages. Unions, whose members are already earning incomes well above the minimum, can use them as the basis for seeking higher pay. In the process, the young and the unskilled will lose a chance to begin climbing the economic ladder.

Gov. Jennifer Granholm has called a higher minimum wage a matter of “fairness.” But putting entry-level jobs beyond the reach of the youngest, least-skilled and most economically vulnerable workers is hardly compassionate or fair.

How much more difficult and expensive do the governor, state Democrats and organized labor want to make job creation in Michigan?