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Government and Unintended Consequences

July 24, 2009

Shocking but True Story.

  • In 1950, Detroit was the wealthiest city in America on a per capita income basis.
  • Today, the Census Bureau reports that it is the nation’s second poorest major city, just “edging out” Cleveland.

Could it be pure coincidence that the decline occurred over the same period in which union power, the city government bureaucracy, taxes and business regulations all multiplied? While correlation is not causation, it is striking that the decline in per capita income is exactly what classical economists predict would occur when wage controls are imposed and taxes are increased, says Skorup.

Specifically, “price theory” predicts that artificially high business costs caused by excessive regulation and above-market labor compensation rates imposed by so-called “living wages” will lead to an increase in unemployment, explains Skorup:

  • Detroit’s minimum wage is a whopping $7.40 an hour, more than $2 above the federal minimum wage when it was enacted; and pressure groups are pushing for more.
  • Additionally, any company contracting with the city must pay its employees $8.23 an hour if they offer benefits or $10.28 an hour if they do not offer benefits.
  • The city has the highest unemployment rate among all large U.S. cities.

Source: Jarrett Skorup, “Detroit: The Triumph of Progressive Public Policy,” Mackinac Center, July 6, 2009.

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