This article originally appeared in the Detroit News June 5 2024. 

A proposal to drastically raise the minimum wage will not be on Michigan’s November ballot. The Michigan Supreme Court decided last week to let stand a decision by the Board of State Canvassers not to certify the proposal.

If voters had approved such a measure, it would have hiked the state’s minimum hourly pay each year until it reaches $15 in 2027. It would also, over a six-year period, raise the current “tipped wage” of $3.93 per hour until it matches the state minimum for all workers. That new wage would have subsequently been adjusted each year by the inflation rate faced by urban wage earners. In the previous 12 months that would represent a 3.5% increase.

Lansing lawmakers should not now take up the same cause. Minimum wage mandates make economic mischief.

The ballot question came before the state’s highest court after the State Board of Canvassers deadlocked on the certification vote because of a language inconsistency. The original initiative contained summary language that stated the amendment would apply to employers with one or more employees, while subsequent language put the number at 21.

Econ 101 tells us there is an inverse relationship between the price of nearly everything and the quantity demanded of it. Raise the price of cars or restaurant meals, and people will buy less of them. Raise the cost of hiring people, and employers will cut back on hiring. Many studies that look specifically at the minimum wage demonstrate that higher mandates lower demand for workers, typically the least skilled among us.

A 2022 working paper posted at the National Bureau of Economic Research reviews the last three decades of minimum wage studies. The authors find 79% of the studies demonstrate overwhelmingly negative employment impacts from minimum wage mandates. The job loss effects were even “stronger for teens and young adults, and more so for the less-educated.”

The failed initiative was more invasive than previous minimum wage increases. Currently, restaurants, which typically have slim profit margins, can take a “tip credit” toward the full minimum wage requirement for their tipped employees. This means servers and bartenders earn a base wage of at least $3.93 per hour plus their tips. Michigan law requires that tips make up the difference between this base wage and the regular minimum wage of $10.33 per hour. If tips do not make up the difference, employers are required to pay the difference to their tipped employees.

A survey of more than 300 Michigan employees by the Michigan Restaurant & Lodging Association found roughly three-fourths of in-state servers and bartenders earn $20 per hour or more — with some earning up to $40 per hour — when tips are factored in.

Washington, D.C., and Chicago both recently eliminated the tip credit, forcing restaurants to raise their prices or switch to automatic service charges to account for rising payroll costs. Surcharges are not the same as tips; that revenue is taxable and the restaurant must disburse it through wage and benefit payments. Regardless, customers have grown increasingly confused and frustrated over service charges and the expectation that they tip anyway.

Diners in these cities are reporting they are less likely to eat out. Employees are saying they earn fewer tips and restaurants are struggling to make the numbers work and have been forced to lay off staff.

Other states and cities that have eliminated the tip credit have found that employees receive fewer tips. A Cornell University study found that as tipped minimum wages rise, customers tip less. In fact, states like California and Washington that eliminated their tip credits have some of the lowest average tipping percentages in the nation. Tipped employees in the nation’s capital say the tips just aren’t as high as they were before the new law, with one server saying his take-home pay has been cut in half.

Economists from Miami and Trinity universities estimate a $15 minimum wage combined with eliminating the tip credit could cost more than 43,000 Michiganders their jobs. Those who survive layoffs may have lower take-home pay or experience other adverse consequences.

There is so much evidence to demonstrate the harm such mandates do, it’s a wonder they are championed at all. Minimum wage mandates are bad for people and the economy whether they appear on a ballot or are adopted by Lansing lawmakers.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.