Economic Development and Law

Michigan raises minimum wage to $9.25

Local economist believes hike will have minimal impact on economy.

January 5, 2018
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Michigan employees being paid minimum wage will see an increase in their paychecks in 2018.

On Jan. 1, minimum wage increased to $9.25, a 35-cent increase from $8.90. 

The increase is the result of Michigan’s Workforce Opportunity Wage Act (Public Act 138) that took effect in 2014 when minimum wage was $8.15. Since then, there has been a gradual annual increase. 

In January 2016, there was a 35-cent increase that raised hourly wages to $8.50. In January 2017, wages increased, again, to $8.90. Jan. 1, 2018, marks the final scheduled increase provided through Public Act 138.

Paul Isely, associate dean for undergraduate programs in the Seidman College of Business at Grand Valley State University, said the government had to use a gradual increase formula. “By changing the minimum wage and having a controlled increase over time, it allows the minimum wage to increase in a well-known path so that businesses can adjust without a fast shock,” he said.

The National Bureau of Economic Research published a study in June as a working paper that revealed the wage increase in 2016 from $11 to $13 in Seattle resulted in reduced hours for low-wage jobs, such as cashiers, restaurant servers and farm workers, by 9 percent, while hourly wages in such jobs increased by around 3 percent.

Consequently, total payroll fell for such jobs, implying the minimum wage ordinance lowered low-wage employees’ earning by an average of $125 per month in 2016, according to NBER. 

The gradual increase, Isely said, is the type of controlled increase exactly designed to avoid this problem of reduced hours or the lost jobs that hurt low-wage workers. Isely acknowledged the full effect of the study is not done, however, he emphasizes the increase in hourly wage is not designed as a living wage.

“In fact, the minimum wage was never designed as a living wage,” Isely said. “The minimum wage, combined with other safety net programs, should bring people toward a living wage.

“If the full living wage was paid by wages and not the combination, then low-wage workers would lose more jobs to robots and foreign countries, making them worse off.”

Some of the safety net programs include public assistance like food stamps, Medicaid, supplemental security income and earned income tax credit.

Through Public Act 138, employers in Michigan can pay 85 percent of the minimum hourly wage rate to employees ages 16-17. So, instead of teenage employees being paid $9.25, they will be paid $7.86.

“In short, the impact on the full economy will be small,” Isely said. “For an individual worker doing 30 hours per week every month at minimum wage would add $42 to their paycheck. For people trying to live at this wage level, that can be a large effect. However, it will not slow down or speed up the economy.”

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