Banking & Finance, Economic Development, and Government

Experts say wage hike won’t have big effect

Michigan’s minimum wage rate scheduled to hit $12.05 by 2030.

April 12, 2019
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Over the next decade, the minimum hourly wage in Michigan will see a nearly $3 increase.

The minimum wage is scheduled to increase from its current rate of $9.45 per hour to $12.05 per hour by 2030.

Although the minimum wage is expected to increase annually, Paul Sicilian, an economics professor at Grand Valley State University, said it will have a nominal impact on the Michigan economy.

“Because the increase is happening over a long period of time, there is a pretty good chance that the minimum wage will not be rising much faster than the median wages in Michigan over the same time period,” he said. “So, in that sense, it is likely not to have a real big effect.”

According to the Current Population Survey, sponsored by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics, the mean weekly earnings in 2018 were approximately $932 and the median weekly earnings were $754.

Christyn Herman, communication specialist from the Michigan Department of Technology, Management and Budget, said the median wage for all Michigan workers in 2018 was $18.08 per hour and there were approximately 535,000 positions paying under $10 per hour, which includes individuals that may have held multiple jobs.

There were four occupations in Michigan that had the most jobs paying below $10 per hour in 2018: combined food preparation and serving workers including fast food; waiters and waitresses; retail salespersons; and cashiers, according to Herman.

While employees who work for minimum wage will see an increase in their paychecks, Paul Isely, associate dean of the Seidman College of Business at GVSU, said he agrees with his colleague that it will not have a great impact on the economy.

However, he acknowledged there is a theory that suggests “poor people spend a lot more of their income and do not save as much as more wealthy people; therefore, it will be a boost to the economy.” Isely said that is an unpopular notion among researchers.

In 2014, he said the Congressional Budget Office estimated that an increase from $7.25 to $10.10 would essentially increase the income of people below three times the poverty level by $17 billion nationwide; however, it also would decrease the net income for those who are six times above the poverty level by $17 billion because of the increase in prices for goods and services to pay for the changes.

“As you see, above a more than 30% increase in the minimum wage ($7.25 to $10.10) only shifted $17 billion in a $20 trillion economy,” Isely said. “So even if the (theory) is true, it would not impact economic growth in a meaningful way.”

Judging from the approaches other states have taken when deciding how to increase minimum wages, Isely said the model of gradually increasing minimum wage over the course of several years is better suited for the economy as opposed to abruptly increasing wages from $9.45 per hour to $12.05 per hour in a year.

“Generally, small, well-telegraphed changes in the minimum wage have positive effects on the working poor,” he said. “As the increase becomes larger or less well-telegraphed, the effects start to become less certain. This is because there is a substitution away from using labor (like ordering food from a kiosk) as the wage level goes up. One controversial study done recently in Washington state saw negative effects for poor people as a result of an increase above $13 per hour. This happened because of lost job opportunities. However, a large number of studies of smaller changes find positive effects.”

The increase in minimum wage, which was fostered by the passage of the Improved Workforce Opportunity Wage Act, has some caveats.

If the unemployment rate in the state reaches 8.5% or higher — by the Bureau of Labor Statistics standard — in a calendar year, then the minimum wage will remain the same the following year.

The increase in minimum wage is as follows:

  • 2020: $9.65

  • 2021: $9.87

  • 2022: $10.10

  • 2023: $10.33

  • 2024: $10.56

  • 2025: $10.80

  • 2026: $11.04

  • 2027: $11.29

  • 2028: $11.54

  • 2029: $11.79

  • 2030: $12.05

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