Minimum Wage Means Maximum Unemployment

by: Mark J. Perry

Michigan's May unemployment rate of 8.5% is the highest in the country, and it's not even close: The state with the next highest jobless rate is Rhode Island at 7.2%, more than a full percentage point below Michigan. Compared to South Dakota, the state with the lowest rate of 2.9%, Michigan's rate is a whopping 5.6% higher. And it's about to get even higher this summer.

The reason? The minimum wage for adults will increase to $7.40 per hour in a week, "a move that has Michigan businesses shuddering," according to The Flint Journal.

And those younger than 18 get a double increase when the state raises its minimum wage 21 cents to $6.29 on July 1 and then the federal minimum wage goes up to $6.55 on July 24.

Employers must pay the highest minimim [sic] wage for which employees are eligible, so the increase will put more money into many teens' pockets. And, in another year, the federal minimum wage jumps to $7.25 an hour for teens.

Some area businesses have felt the sting of the rising minimum wage and say they've had to make changes to maintain their profits. The rising labor costs mean local Dairy Queen owners Tom and Diane Baker are hiring fewer teens this summer, at a time when more Michigan teens than ever are looking for work.

"I have a stack of over 100 applications," Tom Baker said. "I've never had that in 20 years of being in business. People can't find jobs."

But the rising minimum wage means the Bakers are hiring at least two people fewer than in previous summers. They normally hire 14-16 summer employees, but this year it will be 12.

"It's hurting the business as far as profit and it's hurting the people who want jobs because you're hiring less," he said.

Legislation can artificially increase wages for unskilled workers, but the law cannot force employers to hire workers at those higher wages, and the evidence presented in the Flint Journal article suggests that local employers will now hire fewer workers this summer and in the future. We can hope that employers ignore the laws of economics, but experience tells us that they won’t. The thousands of unemployed, unskilled workers are the unfortunate victims of good intentions – their jobs have been destroyed by the minimum wage hike.

Look for Michigan's unemployment rate to rise above 8.5% this summer.