Mich. evaluates minimum wage boost, tip credit cut as economy booms
As the national economy grows faster than it has in years, economists are left wondering why workers’ compensation is so sluggish in comparison.
The trend is generating controversy in Michigan, where voters may decide in November whether to raise gradually the $9.25 per hour minimum wage to $12 by 2022. The proposal also would increase the tip credit of $3.52 per hour to $12 by 2024 — a change that would affect nearly two million workers and produce $3.1 billion in economic stimulus, advocates say.
But many restaurant owners say the increased labor costs could hurt — perhaps even shutter — their operations. And many workers said they fear getting fewer hours or losing their tips.
“All my peers, we’re all making bank,” said 37-year-old Daniel Tucker, a bartender, manager and server at Lansing Brewing Co. and a captain for Restaurant Workers of America, an employee advocacy nonprofit that opposes the proposal. "We don't want it to affect our wage ceiling."
Unemployment in the United States is near an 18-year low of 3.8 percent, and consumer spending has risen for six straight months. The economy is expanding at a larger annual rate — 4.1 percent — than in nearly four years. Wages, however, grew 2.7 percent in July from a year earlier, a rate lower than previous economic booms. According to the Urban Institute, a nonprofit research organization, 40 percent of American families struggled to pay for basic needs last year from food to health care.
Michigan is no stranger to this trend. Although Southeast Michigan’s wage growth of 3.4 percent year-over-year in June beat the national average, the state’s gross domestic product grew at an annual rate of 4.2 percent in the second quarter of 2018. July’s jobless rate was 4.3 percent, the state’s lowest since 2000.
According to a recent survey from Robert Half International, a human resource consulting firm, 48 percent of Detroit workers said they feel underpaid, slightly more than the national average of 46 percent.
“Some jobs haven’t kept up,” said Trisha Plovie, regional vice president of Robert Half in Detroit. “The other reason is that in the candidate market we live in, people are getting calls from recruiters for better paying opportunities and hearing by word of mouth from friends and network contracts that they are making more today than what they were a few years ago.”
Michigan workers have seen some recent wins. Most notably, the Service Employees International Union Local 1 janitors ratified a contract last month that would increase wages to $15 per hour in three years. Mary Kay Henry, the union’s international president, will be in Detroit Monday for Labor Day.
“We were 100 percent serious that you can’t live in Detroit on $9.47 per hour,” said Stephanie Arellano, SEIU Local 1 Detroit city director. “It’s hard to make ends meet on $15. From the beginning for the janitors, this was not just a contract. We want ‘One Detroit’ where everyone can prosper and experience the growing Detroit.”
For 44-year-old Darrel Bonner, a Detroit Public Schools janitor and father of eight, his higher wage is helpful for getting his children ready for school: “That means a lot of things regarding the kids’ education. We can get upgrades in school clothes and supplies. During the holidays, that would mean a lot to help out.”
Stephen Spurr, a Wayne State University professor of economics who specializes in labor, said economic changes are transforming the American workforce. He said globalization and automation have made the labor force more competitive and shifted labor demand toward creative, highly skilled people.
He said research suggests firms that hold large portions of their sector’s market, such as Amazon.com, may be able to hold off raising wages longer because of their monopolistic position.
Following the passage of GOP-led cuts to the corporate income tax in December, many companies said they were devoting thousands of dollars in bonuses to employees. Spurr said bonuses over wage increases may reflect uncertainty.
“Firms may think this (economic growth) is not going to continue forever,” he said. “There’s been an enormous run-up in the stock market, and that’s not going to continue forever. We don’t know the effect of this trade war going on. We don’t know if there’ll be a lot of deregulation if the political climate changes.”
Plovie said companies also are looking to other benefits to compensate and attract employees such as flexible hours, working from home and shortened work weeks.
“Companies can offer different benefits to help keep their employees," she said, "without having to pay a higher salary."
For now, Dan Papineau, Michigan Chamber of Commerce director of tax policy and regulatory affairs, said he thinks Michigan’s wage growth is heading in the right direction. According to a 2017 study from the Michigan Chamber of Commerce Foundation and Northwood University, Michigan ranks second in real per capita GDP growth and third in personal per capita income growth since 2009. Additionally, Michigan's minimum wage already is the highest among Midwest states.
“It’s good to be in Michigan,” Papineau said. “I just don’t know how Detroit can’t just keep growing. The rebound is so significant. We’re also appealing as far as our overall tax liability. The minimum wage ballot proposal is just another concern we have to look at. With all these positive things happening, it doesn’t make sense.”
The Michigan Court of Appeals determined earlier this month that the Board of State Canvassers must “take all necessary measures” to place the minimum-wage proposal on the November ballot. The Republican majority state legislature also is weighing passage when it returns to session this week of the minimum wage and paid sick leave proposals, which would allow it to more easily amend them in the future.
Secretary of State Ruth Johnson’s office finalizes ballots for printing on Friday. The proposal would incrementally increase the state’s minimum wage from $9.25 to $10 an hour in 2019, to $10.65 in 2020, to $11.35 in 2021 and to $12 in 2022. Inflation would determine future increases.
Perhaps most controversial, however, is the more than 200-percent increase in the tip credit to the new minimum wage by 2024. The tip credit allows employers to pay tipped workers less than the minimum wage so long as they make more than it. If not, the employer must make up the difference.
One Fair Wage, the group leading the proposal’s campaign, however, says that isn’t happening. Pete Vargas, the campaign’s Michigan director and high road director for Restaurant Opportunities Center United, an employee advocacy nonprofit, said a federal review of 2010-2012 employment records found 84 percent of employers with tipped workers are noncompliant.
“It’s one of the fastest growing industries,” Vargas said. “When you think about the restaurant industry and how tipped workers are being left behind, it doesn’t make sense.”
Tracy Pease, a Detroit resident who said she has worked at more than 100 restaurants for more than 30 years, helped collect signatures to get the proposal on the ballot.
“There is not one restaurant I could go ahead to the boss and say, ‘Look, this was a bad week. I didn’t make minimum wage,’” she said during a One Fair Wage call with media. “I could go to the Department of Labor, I could, but you know what, I’m going to lose my job.”
Opponents to the ballot initiative, however, say many restaurant employees may lose their jobs if the measure passes. In a survey of 1,400 of its members, the Michigan Restaurant Association found 13 percent of respondents said they would close their business if the proposal passed, nearly two-thirds said they would lay off workers and more than 80 percent said they would increase menu prices.
“We’re at a crucial pivot point,” said Justin Winslow, president of the Michigan Restaurant Association and spokesman for Michigan Opportunity, which appealed the state court's decision to include the proposal on the ballot. “That future growth is at risk.”
Winslow said Michigan restaurants are evaluating their options. Some are contemplating investments in technology to allow servers to handle more tables. Others such as National Coney Island are looking at reducing their workforce and moving to a setup where customers order and pay at a counter.
Dan Roma, National Coney Island chief financial officer and a board member of the Michigan Restaurant Association, said the company’s locations employ about 50 people each. Such a change, he said, could reduce that to 15 employees per store.
“This fundamentally changes the paradigm of the restaurant industry,” said Roma, who added that his servers make $16-18 per hour on average. “That’s a huge increase for restaurants, and we operate on fairly thin margins."
Some restaurant owners, such as Joel Panozzo, co-owner of three restaurants in Ann Arbor including The Lunch Room, said there is no reason restaurants cannot pay their workers a “livable wage.” The eight-year industry veteran said none of his employees receive less than $14 per hour and that they have health and dental benefits, too.
“In a city like Ann Arbor, the cost of living is growing exponentially every year,” Panozzo said on the One Fair Wage call. “Our customers walk in every day, proud to be supporting a business like ours.”
Research on the effects of minimum wage increases differ. Jacob Vigdor, a professor of public policy and governance at the University of Washington, was the study director of the university’s evaluation of the Seattle minimum wage.
Last summer, its team found low-wage workers in Seattle lost $125 per month per job when the minimum wage increased from $9.47 per hour to $10.50-13 per hour depending on business size in nine months. Although pay rose 3 percent, hours were cut 9 percent. Since then, Vigdor said, researchers have revised their estimates to show hours were cut 5-6 percent, and it affected mostly workers with little to no experience.
A more comprehensive study of 137 minimum-wage increases since 1979 from Arindrajit Dube, a labor economist at the University of Massachusetts, found minimum-wage increases eliminated jobs paying below the new minimum and increased those paying at or above it.
“Clearly not all minimum wage increases are equal,” Vigdor said. “It matters how much you go. There is some level at which the minimum wage is too high."