(Editor's note: The following commentary is an edited version of an Op-Ed that appeared in the Detroit Free Press on Aug. 14, 2009.)
Michigan has firmly established itself as the worst-performing economy in the country. Its unemployment rate, at 15.2 percent, is nearly six full percentage points above the national average, and nearly three percentage points higher than the next highest state. You currently have a better chance of finding a job in Puerto Rico than in Michigan.
In response to this situation, the Michigan Democratic Party is promoting a series of ballot proposals that will only make the situation worse. Three of the proposals will make it more expensive to hire labor, especially low-skill labor that is feeling the economic crisis the most. The other two will create uncertainty in our utility services and make it harder to buy and sell houses.
First, imagine running a small business in Flint and having your labor costs suddenly increase by a one-third. You will either go out of business or lay off much of your work force. That is will be the effect of the first proposal, to increase the minimum wage by 35 percent.
Look at it from an individual liberty perspective. The proposal makes it against the law to sell your labor services for less than $10 per hour, which will preclude many of those in places like Detroit, a city with a 28 percent unemployment rate, from getting a job.
The second proposal, mandating that all employers provide affordable health care for employees, will add significantly to the cost of hiring workers for small businesses. Again, imagine a small dry cleaning store in Pontiac now having to provide whatever the state government decides is affordable health care to all of your employees. Is it not obvious that this will result in hiring fewer workers?
The third proposal will increase unemployment benefits by $100 per week, make all workers eligible and add six months to the time one can receive benefits. This increase in benefits does not magically appear from the sky. Unemployment benefits are paid fully by employers, and any increase will raise the cost of hiring people in Michigan.
Just the threat of these proposals becoming law will send a signal that companies thinking of locating or expanding in Michigan might find labor costs rising by double digits. The announcement by the party that is currently in power in state government that it stands behind the proposals gives credence to this threat and will immediately dampen economic activity in Michigan.
The fourth proposal, mandating a 20 percent reduction in utility rates, threatens to disrupt the utility industry in our state, creating uncertainty about the reliability of electric power for business and industry. A government-mandated cut in electricity costs of 20 percent cannot be achieved without damaging the financial stability of our utilities.
If it is possible for the government to simply reduce utility costs by fiat, then why not impose an 80 percent reduction in utility costs? Once one adopts the principle that voters can reduce the cost of services by ballot, why not mandate a 20 percent reduction in health care costs, or phone bills? The absurdity of this may seem obvious, but it must be taken seriously.
Our utility companies will have to prepare for the possibility of this scenario, which will affect their decisions about infrastructure expansion and their ability to raise cash by increasing their cost of borrowing and driving down their share prices.
The final proposal, imposing a one-year moratorium on home foreclosures, will tighten credit markets and make it harder to get a home loan. Knowing that you cannot foreclose on a property for a year increases the risk of loaning money to someone and thus will reduce the amount of available credit and increase interest rates for those who are seeking a home loan.
The proposal is likely to make things worse for those who are in danger of foreclosure and are trying to sell their home, since potential homebuyers will find it hard to get a loan in an atmosphere where ballot proposals decide foreclosure policy.
The five ballot proposals being promoted by the state's currently dominant political party cast a shadow over Michigan's struggling economy. Even if they fail, the threat of their passage is already doing damage by adding to the uncertainty of Michigan's economic and political environment.
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Gary Wolfram is the William Simon Professor of Economics and Public Policy at Hillsdale College and an adjunct scholar with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.
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