Michigan employees may still be affected by a minimum wage hike this year. This week, a Court of Claims judge ruled the state legislature did not have the authority to “adopt and amend” a ballot measure proposal in 2018, which would have raised the state’s minimum wage to $12 by 2022 and eliminated the state’s tip credit.
Michigan’s regulations surrounding proposed ballot measures allows qualified proposals to go first to state legislatures to act on, and then if the legislature declines, to go before voters to decide. In 2018, Michigan lawmakers preempted and adopted this ballot measure, but understanding the consequences of sharp increases in minimum wage mandates on employment, then amended it to keep the tip credit intact and to delay the regular minimum wage hike to 2030.
The judge’s ruling this week could mean wages immediately revert to the original proposed ballot language – a $12 per hour wage for all employees – if a current attempt to appeal the decision fails. But restaurants, which employ a large majority of minimum wage employees and also employ many service staff who earn Michigan’s base cash wage plus tips, are waiting with bated breath.
That’s because a growing body of economic research shows hiking minimum wages and slashing tip credits harms restaurants and their employees. Especially in the restaurant industry, where establishments operate on characteristically razor-thin profit margins, bumping wages often forces employers to offset the new costs through price hikes, automation or self-service components, or mandatory service charges. If customers can’t afford new prices and surcharges, restaurants must adapt in other ways to keep their doors open. Research shows large increases in tipped minimum wages will slash employment and earnings for tipped restaurant workers and increase the likelihood that restaurants will close.
If that wasn’t enough, Michigan voters will face another minimum wage proposal already set up for 2024, this time up to $15 per hour. With the added weight of the judge’s ruling that would eliminate the state’s current tip credit, the blow will be severe to the state’s restaurant employees.
Economists William Even and David Macpherson of Miami and Trinity Universities estimate a $15 per hour wage for tipped employees would cost 21,666 jobs in Michigan’s full-service restaurant industry alone, and reduce total annual earnings of full-service restaurant employees by roughly $48 million.
Even without implementing these two mandates, Bureau of Labor Statistics data shows Michigan’s full-service restaurant employment has bounced back slower from the pandemic than the U.S. as a whole – the latest numbers show industry employment is still down more than 20% from pre-pandemic levels. Two more mandated wage hikes could make matters worse.
States that have experienced successive wage hikes and slashed their tip credits shows dramatic increases in the regular and tipped minimum wages has stunted full-service restaurant employment growth. For example, New York doubled the required wage for tipped restaurant employees since 2015, and prior to the pandemic saw full-service restaurant employment drop by 2.4 percent.
Voters and legislators should remain wary of the negative consequences that come with ever-changing minimum wage mandates.