University professors weigh in on minimum wage increases in Michigan

Wednesday, February 21, 2018 - 4:24pm

On Feb. 12, Detroit workers left their jobs and gathered in Martin Luther King Jr. Memorial Park to protest for a $15 statewide minimum wage. Linked to the 50th anniversary of the 1968 Memphis sanitation worker strike, where workers walked away from their jobs to protest inadequate pay and dangerous working conditions, similar protests were held in other major cities including Chicago, Houston and Cleveland.

The movement responsible for this, Fight for $15, aims to raise the minimum wage to $15 and was created when New York City fast-food workers led a strike for higher wages in 2012. Since then, California, New York and Washington D.C. have crafted incremental plans to reach a $15 minimum wage in the coming years, while Seattle already implemented a $15 minimum wage for large employers this year.

Despite these large national movements, however, public opinion is still largely split on whether a $15 minimum wage is a good idea.

Charles Brown, an economics professor at the University of Michigan, worked on the Minimum Wage Study Commission from 1979 to 1981 and published several related papers in the following decades. While the $15 minimum wage has been approved in several notable cities and states, Brown said he views Detroit as a different case.

“As a group , these wages are in more prosperous areas than Detroit,” Brown said.  

Though Detroit is a large city, its economy lags behind Seattle or San Francisco according to the speakers. Wallace Hopp, a professor of business and engineering, said the prevailing wage rate should be considered when adopting a new state minimum wage. Michigan just raised its minimum wage from $8.90 to $9.25 on Jan. 1, the last step of an incremental minimum wage increase plan enacted in 2014. When Seattle began its incremental minimum wage raise to $15 in 2015, its large employers’ minimum wage was $11, and its small employers with medical benefits’ minimum wage was $10. 

“In some cities, like Seattle, with hot labor markets, low-wage jobs were much closer to $15 per hour than in less hot labor markets like Detroit,” Hopp said. “So the ability of a Seattle to absorb an increase to $15 per hour is much greater than that of Detroit.  Of course, the cost of living is also lower in Detroit than Seattle.  So the minimum wage does not need to be as high here as it needs to be on the coasts in order for our people to achieve the same standard of living.”

If a $15 minimum wage was only enacted in the city of Detroit, rather than the entire state, Hopp said he worries businesses might flock to the metro area to escape the high labor costs, harming surrounding areas. 

“But I think city-level minimum wages are tricky,” Hopp said. “While they may help workers at restaurants and hotels that can't move out of the city, they serve as an incentive for factories, landscaping businesses and any other business that can relocate to move to the suburbs to do so.”

Despite these qualms, Hopp said he could foresee many positives of a statewide minimum wage increase, provided it is incremental.

“In contrast, a plan to increase the Michigan minimum wage in stages over time would benefit people who are struggling financially, help stem the tide of rising income inequality and do so with minimal harm to the economy or job market,” Hopp said.

Teia McGahey, a 2017 University of Michigan-Dearborn alum and organizer for the Lecturers’ Employee Organization, said she first became involved with Detroit’s division of Fight for $15, D15, through the Social Justice League on Dearborn’s campus. After graduation, she worked as an organizer for Jobs With Justice, a nonprofit that fights for workers’ rights, until accepting a position with LEO a couple months ago.

“The first prong of a better future is first getting people what they need, and I think that’s what a lot of the D15 efforts focused on,” McGahey said. “Making sure people can eat, making sure people have adequate housing, adequate health insurance, those sorts of things that we need to just survive.”

Many champions for a higher minimum wage argue minimum wage has not been adjusted properly for inflation. A 2016 report by Pew Research Center stated the $7.25 federal minimum wage had lost about 9.6 percent in purchasing power since its adoption in 2009. In 2015, The Economist reported that given the United States’ wealth compared to other countries, it would expect a minimum wage of $12.

Sociology lecturer Ian Robinson, who has worked on a team to analyze Washtenaw County’s wages, said though a $15 minimum wage might induce productivity losses, the magnitude of these effects are currently relatively unknown.

“If we had adjusted the minimum wage for productivity growth since the mid-1970s, it would now be at about $18 an hour,” Robinson said. “From the end of World War II through to the mid-’70s, the minimum wage did tend to keep up with productivity growth. In those 30 years, we had very low unemployment.”

While others share fears of the possible loss of productivity and lower employment related to a higher minimum wage, Robinson said much of this is offset by increased purchases from the lower class.

“Even if some jobs are lost in some sectors, the higher wage for millions of low-wage workers means increased purchasing power for working class people as a whole,” Robinson said. “That group will spend more money, and that extra spending will create more jobs.  Maybe not in fast-food, but from a macroeconomic point of view, the important questions are how many jobs are there and how well do they pay. If more money is spent on better paying jobs, that's more good paying jobs in the economy.”

While Hopp said job loss is an undeniable counterpart of raising minimum wage, he has seen minimal negative impacts with small increases in places such as Seattle. However, a rapid increase to a $15 minimum is uncharted territory, so Hopp recommends proceeding cautiously.

“No one doubts that increasing wages decreases jobs,” Hopp said. “But we've had a lot of experience with small increases in the minimum wage that show very little impact on unemployment.  We don't have much data on large increases and so need to be cautious.  The policies in Seattle and other places who are pushing minimum wages up at a faster pace look encouraging so far.  But we'll know more in a few years when we've had time to study the impacts.”

Among low-wage workers, McGahey note dstudents are especially susceptible to unfair wages.

“I think in every job I’ve had I’ve been underpaid, but that’s so many of us right now too, because we are an exploitable group of people,” McGahey said. “Students just need whatever we can get, so it’s really easy to pay us less than we deserve.”

As prices, especially rent costs, continue to soar in Ann Arbor and other cities, affordability becomes an even more pressing issue for many students. With the University’s median income of parents of students at $156,000, about three times the median income of Michigan households, LSA senior Zoe Proegler finds economic inequality on campus hard to ignore.

“Affluence is incredibly visible on our campus, from the clothes people wear to the places they live and eat to the ways they talk about socializing, vacations and more,” Proegler said. “I think after spending four years in that kind of environment, especially as someone who does occasionally have to worry about money, it was almost a given that I was going to be at least aware of the economic inequality discourse taking place on campus.”

In support of a $15 minimum wage in Michigan, Proegler said she especially sees a need for higher wages in expensive areas like Ann Arbor, Detroit, Lansing and Grand Rapids.

“A $15 minimum here would not only make achieving a livable income for working students possible, but would do a great deal to cut down on the growing wealth inequality in the county and help address the problem of a lack of service and food industry workers — or very long commutes — in cities like Ann Arbor,” Proegler said.

No matter the wage proposal, Brown takes issue with the process of minimum wage increases. He hopes the often politically-motivated method becomes more systematic and fair.

“In an ideal world, the legislators would agree on the ‘right’ minimum wage for 2018 and then have that value change smoothly and mechanically based on growth in average wages,” Brown said. “The current pattern –– no change, followed by big jumps –– reflects a political inability or unwillingness to agree on a more orderly process.”