More minimum wage insanity

From Free Exchange:

MICHIGAN has the highest unemployment rate of any American state, at 15.2%. State leaders are looking for a solution. Here's what they've come up with:


A $10 minimum wage in Michigan is the centerpiece of a number of populist proposals unveiled Wednesday by the Democratic Party, which hopes to get some of the initiatives on next year's ballot...

Increasing the state's minimum wage from $7.40 an hour to $10 an hour would give Michigan the highest standard in the nation. Washington state has the highest rate at $8.55 an hour.

The initiative also would remove exceptions that allow employers to pay less than the minimum wage to some workers, such as restaurant wait staff.

Labor unions and Democrats were pushing a ballot plan to raise the minimum wage in 2006, but the Legislature approved an increase before it could go to voters. That measure gradually raised the minimum wage from $5.15 an hour to $7.40 an hour, which went into effect July 1, 2008.

Union officials see the minimum wage as a quality of life issue for hourly workers, but business groups say many employers, especially small businesses, can't afford another increase.

Unbelievable. The state is bleeding union jobs, so it's not clear that an increase in the minimum wage is going to do union workers much good anyway, but it will be an enormous blow to the non-union unemployed looking for any service industry job they can get. Pity the state's immobile poor.

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Don't be so sure

I'd argue that a minimum wage increase would benefit union workers. Indeed, they're pushing for it specifically because the state is "bleeding" union jobs.

Union workers face competition on price from unskilled workers. If a union worker makes 16$ an hour doing skilled work that could be done equally well by two unskilled laborers at 7.40$ an hour, then the unskilled workers will have a comparative advantage. On the other hand, at 10$ an hour, the two unskilled workers will become unemployed and the job will go to the skilled unionized worker at 16$ an hour. It's not a coincidence that unions respond to unemployment among union members by calling for an increased minimum wage. It's much more likely to lead to minimum-wage workers being unemployed than it is to lead to an increase in their "quality of life." But then, that's exactly what the union leaders are going for.

Total Insanity

I was actually going to post this article, but you beat me to it.

The Michigan minimum wage is already higher than the national level, but only by a few cents. Raising it like this, so a minimum wage worker here would get 35% more than anywhere else in the country will definitely discourage any companies from moving to or expanding in Michigan. The people suggesting this have not thought this through if they think it will help the economy.

I saw it suggested in one article that this is just a stunt by the Democrat party to get all their poor, downtrodden constituents to get out and vote.

This move clearly overlooks

This move clearly overlooks basic microeconomic principles- how they think this will solve their problems is beyond me...

Union Contracts

Don't overlook another benefit to union workers - many union contracts provide that compensation is based on some multiple of the minimum wage at the time the services are performed. Unions have always been behind minimum wage hikes for this reason. There is no other constituency powerful enough to make a difference in the debate. Typical workers making minimum wage strive to move on to better jobs, not petition the state to force their employers to pay them more by.

Could push jobs to neighbouring states

I'd have thought this would just push a great many jobs out into the neighbouring states where labour is cheaper.

$10 isn't really huge though, but I do think that it is better to let the market decide what people need to be paid. Even if minimum wage was universal across the states jobs can still be moved overseas.

"...$10 isn't really huge

"...$10 isn't really huge though, but I do think that it is better to let the market decide what people need to be paid. Even if minimum wage was universal across the states jobs can still be moved overseas...."

It's huge if a specific worker cannot produce more than $5 worth of value to a prospective employer.

If the minimum wage is too high, the primary result is not the export of jobs, but rather the non-existence of a business and only employment on the black market and in crime for low skilled workers.

Regards, Don