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  • Commerce & Regulation

    One of the hot topics for Michigan’s 2014 gubernatorial election will be a possible increase in minimum wage. Mark Schauer, the Democratic candidate, favors a plan to increase minimum wage from $7.40 to $9.25 per hour. This increase will occur in three increments over a period of three years, and would also include a yearly adjustment to account for future inflation.

     

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    In a Detroit Free Press article Schauer is quoted as saying “This is about simple economics. When working families have more money to spend . . . it creates demand for the economy. When demand increases, small businesses grow and hire more workers. It is also morally the right thing to do for our families.” Although Schauer makes raising the minimum wage sound simple and right, there is more than one side to this complex issue.

     

    Raising minimum wage would certainly affect a significant number of people in Michigan. Right now there are about 283,000 minimum wage workers in our state, according to the Michigan League for Public Policy. Working fulltime at minimum wage still only puts a single person about $2,000 above the poverty line. Morally, it seems simply wrong that a person can work at a fulltime job and still make barely enough to live above poverty level. A wage increase of 20% would mean significantly more income for all these people. Since 20% of adult minimum wage workers are also parents this would affect more than just workers, and would also mean that fewer children are living in near poverty.

     

    In addition to helping workers and families there is also a case to be made that raising minimum wage could help Michigan’s economy. The wage increase is designed to help businesses in Michigan, who will benefit from increased demand as earnings go up. This should be particularly effective, as minimum wage workers tend to spend any extra earnings immediately on basics that they could not previously afford. As more is spent, businesses will see greater profits and be able to expand, potentially creating even more jobs.

     

    However, there are significant concerns as well as positives. A jump from $7.40 to $9.25 is a 20% raise. This means that employers would be paying the same amount for four workers at the $9.25 rate as they were for five workers at the $7.40 rate. The possible result here is that fewer people will be employed by these businesses, simply because they cannot afford the same amount of workers under the new wage. In fact, the Library of Economics estimates that for every 10% increase in minimum wage employment would decrease up to 2%.

    This means that Michigan’s unemployment could rise as much as 4% under the proposed minimum wage change. In a state where unemployment is already significantly higher than the national average this increase would be a serious problem. Businesses who must pay higher worker wages will see their expenses rise, and to offset this may be forced to raise prices. In addition to this some may reduce expenses by eliminating the least necessary workers. The workers who would be the first to go will be those with the least education, skill, training and experience, and in a market where businesses hiring low wage workers are attempting to cut expenses it will be difficult for them to find another job. Instead of assisting his target population, Schauer’s strategy may end harming a portion of them. There will be a benefit to some workers who experience a raise in their wages, but this may come at a heavy cost as other workers are laid off.

     

    There are certainly valid arguments to be made on both sides of the minimum wage debate. While economists can weigh the potential results of an increase in minimum wage, it is ultimately the voter’s opinion that hold the power to decide.

     

    References:

    "Mark Schauer calls for raising Michigan's minimum wage to $9.25." Detroit Free Press. N.p., 18 Nov. 2013. Web. 23 Feb. 2014. <.">http://www.freep.com/article/20131118/NEWS06/311180060/Schauer-calls-for-raising-minimum-wage-to-9-25>.

    Gorman, Linda. "Minimum Wages." Library of Economics and Liberty. N.p., n.d. Web. 23 Feb. 2014. <.">http://www.econlib.org/library/Enc/MinimumWages.html>.

    "Schauer Outlines Plan to Raise Michigan’s Minimum Wage." Mark Schauer for Governor. N.p., 18 Nov. 2013. Web. 23 Feb. 2014. <.">http://markschauer.com/schauer-outlines-plan-to-raise-michigans-minimum-wage/>.

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    Policy Fellow: Marie Hallberg

    Marie Hallberg is the commerce & regulation correspondent for the Michigan Policy Network and a first-year student at Michigan State University. Currently, she is a no preference major, but is interested in either a teaching or communications degree. Marie is very excited to be attending MSU and anxious to explore the opportunities that are available to her. Marie is originally from Illinois and enjoys hanging out with her family and friends, reading, and being in band. Her career aspirations include a job focused on serving and working with people, possibly in the guest service area. She is very interested in using her experience on the Michigan Policy Network to help better her understanding of the Michigan government and how its policies ultimately affect the citizens of Michigan.