There are many who blame the woes of Detroit on the decline in the auto industry, but the auto industry did not decline- it just moved. Paul Krugman passes the decline off to the normal creative destruction of capitalist progress. Bullshit, again. A small businessman who used to be in Detroit explains the decline very clearly.
Don Wilkie writes in American Thinker, How Detroit Almost Killed My Business.
As mentioned earlier, when I left Detroit I had 20 employees. But, 10 years earlier I had 5 employees. As the business grew I had to hire more people. As it turned out, to get one good employee, I had to hire about 8. So to get an additional 15 people, I had to hire over ten years approximately 120 people. This is when doing business in Detroit really started to get expensive.
When an employee left my employ, whether by quitting or being fired, they immediately went to the Unemployment Office where they were given unemployment payments. Employers such as me went to great lengths to make sure that if someone was fired it was for a good documentable reason, in an effort to avoid having to pay for unemployment. In practice, that didn’t matter too much. The likelihood that the State would grant benefits was extremely high, maybe 80%. If you protested you had to appear before a state “referee,” who was, unsurprisingly, very biased in favor of the claimant.
But as bad as unemployment costs got, they were nothing compared to Workman’s Compensation. Here is the way the game was played: If you were on unemployment it was understood that you were “ready, willing and able” to work. If you were on Workman’s Compensation it meant you were injured and could not work. So, an employee always went for Unemployment benefits first and when they ran out, suddenly discovered that he was injured, usually with a bad back. In Detroit, an employer almost never won a Comp case.
After a period of time, my insurance company put me in what was called the “Assigned Risk” pool. What that meant in practice was that my Workman’s Compensation insurance costs doubled overnight. Every new employee hired became a huge financial burden not in terms of wages but in terms of Unemployment and Workman’s Comp costs.
But perhaps the scariest thing that could happen to an employer was being summoned in front of the Civil Rights Commission, to face charges of “Wrongful Discharge.” Here you had to prove a negative, that you did not violate someone’s rights. This happened to me three times. If the Commission determined you were guilty, which were two out of three for me, the remedy was to pay all of an employee’s wages from the time he was separated from your employ to the time of the Commission’s finding. Since the system moved very slowly, an employer could be faced with paying as much as two years’ salary.
One does not have to travel far to find these similar problems in many other locations. It is having a chilling effect on business start ups and employment nationwide. Detroit just took it to a slightly more ludicrous extreme and it has been going on longer than other locations. It is a test tube of disastrous progressive policies, economic naivete, political corruption, and the subjugation of any accountability to fears of being called racist.