This week, Michigan’s liberal governor Gretchen Whitmer is urging caution on the recent court order to reinstate a $12 wage floor scheduled for February. The new rate will spikes the current tipped minimum wage by more than 200% in just a few months.
Earlier this year, a Michigan Court of Claims judge voided the state legislature’s 2018 amendment of a $12 minimum wage ballot measure, which pushed the deadline for achieving the $12 per hour target back and protected the state’s tip credit amid concerns over impacts on businesses and their employees. Based on the judge’s ruling, which is pending appeal, Michigan would adopt a $12 per hour minimum wage subject to yearly increases based on inflation on February 19, and the tipped minimum wage would roughly triple on that date.
Whitmer’s concern is appropriate: the bulk of economic literature on U.S. minimum wages finds that minimum wage hikes cause employment loss. Additional research on eliminating tip credits finds doing so costs tipped restaurant employees jobs and earnings, and most tipped workers prefer the current base wage system where they earn substantial tip income.
In fact, a recent survey found a strong majority (62%) of American economists believe the appropriate minimum wage should be below the $12 per hour mark. When asked specifically about the tip credit, 73% of economists responded that eliminating it and raising the tipped minimum wage to equal the standard rate would reduce the number of tipped job positions.
To solve this problem, Whitmer proposed phasing in the $12 per hour wage floor over a longer time period instead of an automatic increase in February. This isn’t a new idea: this was the solution originally enacted by the state legislature in 2018, now voided by the courts. Instead of reaching a $12 per hour minimum wage in 2022 as was proposed in the ballot measure language, the state adopted the measure and amended it back then to implement smaller annual increases to reach $12 by 2030.
While the new wage rate will go into effect in February as it currently stands, the court’s decision has been appealed for review.
If Whitmer is spooked by the upcoming overnight 200% spike, what’s coming (quickly) down the road could be even worse. Union-funded activist group One Fair Wage is churning out another potential ballot measure for 2024 (and collected over 600,000 signatures) to raise Michigan’s minimum wage again up to $15 per hour with a built-in annual increase after it reaches that target. If the court’s decision from this summer stands – the $15 minimum wage would apply to all employees. This second blow to Michigan’s employers would mean a 52% hike in the current minimum wage rate, and a 300% increase in the required cash wage for tipped restaurant employees in just a few years.
Yet again, lawmakers are recognizing the well-documented consequences of ill-conceived minimum and tipped minimum wage hikes–but could it be too late?