Labor Day Report: Michigan’s Paycheck Blues

 Full report in PDF 

While wages  have gone up for higher earners in Michigan, the majority of Michigan workers earn less than workers earned 30 years ago after adjusting for inflation. This is especially true for African American workers. It is also clear that for many workers, one job is not enough to meet the needs of themselves and their families. Raising the minimum wage and making postsecondary education and skills training more accessible are two ways that the state can address the consequences of low-wage work.

Michigan’s Declining Wage

Most Michigan workers have seen a decline in the earning power of their wages over the past 30 years. Those earning the median wage in 2012 ($15.89 per hour) can purchase 7% less with their earnings than median wage earners could in 1982, while those earning the 90th percentile wage ($38.25 per hour) can purchase 22% more than their 1982 counterparts. (Figs. 1 and 2)

In 1982, Michigan had the 4th highest median wage in the country, but following the loss of high-paying manufacturing jobs, it fell to 24th highest in 2012. While most states, including six of the eight Midwest states, experienced gains in their median wage even when adjusted for inflation, Michigan’s median wage fell by 7%. This drop means that when measuring median wage change from 1982 to 2012, Michigan ranks second to worst among the 50 states and District of Columbia. (Only Alaska had a  bigger wage drop.) (Fig. 3)

The Racial Wage Gap

The decline of Michigan’s median wage has been more pronounced for African American workers than white workers.1 The data reveals two startling gaps. First, the difference between Michigan’s median wage for white workers ($16.85 per hour) and that of African American workers ($12.65 per hour) is the widest for the 34 years for which data is available. While median wages tracked about equally for the two races during 1979-1982 and the African American wage even exceeded the white in 1983 and 1984 (likely due to massive layoffs in automobile manufacturing), the gap between the respective median wages began to widen in 1988. The gap became widest in 2012, when the white median wage was $4.20 an hour (25%) higher than the African American median wage. (Fig. 4)

The other startling gap when comparing median wage by race is the decline in the African American median wage itself, compared with that of white workers. Between 1982 and 2012, the white median wage declined by only 1% when adjusted for inflation, while the African American median wage declined by 24%. Most of the gap during those 30 years occurred between 1992 and 2002, when white workers made great wage gains and African American workers’ wages remained flat. The celebrated prosperity for Michigan workers during the 1990s did not include African American workers. (Fig. 5 )

The median wage gap between white and African American workers in Michigan is likely due to a complicated mix of reasons. The following factors may be contributing to the gap:

1) Gaps in the educational level of Michigan’s white and African American workers. The percentage of African Americans without a high school diploma is twice as high as the percentage of whites without one. Conversely, 40% of white Michigan residents have an associate degree or higher compared with 23% of African Americans. The median wage for someone with an associate degree is 60% higher than that of someone without a high school diploma, and for someone with a bachelor’s degree, 164% higher. (Fig. 6)

2) Wage disparities between white and African American workers with similar academic credentials. A recent report from the George-town University Center on Education and the Workforce shows startling differences in the median wages for several selected majors (electrical engineering, for example, has a $90,000 median wage for whites and a $68,000 median wage for African Americans).2 Although the report does not explore the reasons for the disparity, it does indicate that while attaining a postsecondary credential can greatly increase earnings for African American workers, some racial disparity will continue to exist.

3) Residential segregation by race. Although formal segregation was abolished in the 1960s, the metropolitan Detroit area remains one of the most segregated in the country. A paper from the Rutgers University School of Management and Labor Relations finds a link between occupational and residential segregation, saying that “residential patterns that segregate black and white youth increase the likelihood that these whites will find better-paying jobs in overwhelmingly white occupations and that blacks will end up in lower-paying occupations filled mostly by other blacks.”3

Michigan Wages and Poverty

In 2011, 28.5% of Michigan workers did not earn a wage high enough to lift a family of four out of poverty.4 That was the highest level of “poverty wage” workers since 1993.  The percentage earning poverty wage decreased steadily for several years following 1993, as the economy grew and the state prospered. After 2003, the only year in which the percentage dipped below one-fifth of workers, it began to rise steadily as Michigan’s unemployment began to grow and workers began to experience financial hardship. (Fig. 7)

Michigan is out of sync with most of the country on this, however. While most states reduced the percent of workers that were earning below the poverty wage between 1982 and 2011, Michigan had a 14% increase, ranking 46th in the nation  in progress in this area. (Fig. 8) 

Six of the 10 occupations in Michigan with the highest employment have a median wage that will not lift a family of four out of poverty. The workers are retail salespersons, cashiers, restaurant workers, janitors and stock clerks. The median wages of 12 of the top 50 occupations will not lift a family of four out of poverty, and the median wages of 37 of the top 50 occupations pay less than what is needed to bring a single parent

with two children to economic self-sufficiency. (The self-sufficiency level for a single parent with two children is estimated by the Michigan League for Public Policy to be $44,365 in total household income.) (Appendix A)

Accounting for more than 704,000 jobs in the state, the 50 lowest-paying occupations in Michigan do not pay enough to bring a family of four out of poverty, nor come anywhere near to bringing a single parent with two children up to self-sufficiency level. (Appendix B)

Some Consequences of the Prevalence of Low-Wage Jobs

A recent paper by the Center for Economic Policy Research shows that low-wage work does not necessarily lead to higher-wage work, and can in fact have adverse effects for workers’ future employment prospects. As with long periods of unemployment, long periods of low-wage work may be associated with the erosion of accumulated skills and may also suggest to potential employers that a worker has low productivity. The paper points out that in light of this, a worker’s long-term earning potential would be better enhanced by a period of education and training than by working in a low-wage job.5

Having so many workers in jobs that do not pay enough to meet their families’ needs also puts a strain on public assistance programs such as Food Assistance, State Emergency Relief and the Family Independence Program (although most low-wage workers earn too much to qualify for FIP even if their families are below the poverty line). As there is a shortage of child care that is affordable to low-wage workers, some may be forced to have their children cared for in environments that are not ideal, or to miss work because of child care needs.

Finally, when wages are low, the economy suffers. Workers spend less in their communities when they have less, and the state pulls in less tax revenue for maintaining public infrastructure and services. Taking steps to both increase wages at the lower level and to give workers the skills they need to advance to higher wage levels will have a ripple effect as businesses and units of government see increased revenues.

Policy Recommendations

While there is no silver bullet to solving the state’s economic challenges, there are things that Michigan can do to help low-wage workers. One is to raise the minimum wage to make up its erosion in recent years due to inflation. There is currently a bill in the Michigan Legislature to increase the minimum wage to $10 per hour by 2016 and index it to inflation in the years after that. This would help to ensure that the workers at the lowest wage levels do not continue to experience heavy erosion in their wages and buying power. An increase to $10 would raise the wages of 1 million Michigan workers, 85% of whom would be 20 years old or over.6

Keeping postsecondary training accessible will also help low-wage workers. A recent report by the Michigan League for Public Policy shows that as college tuition is rising, state financial aid is being cut.7 There are also many barriers for low-wage, low-skill workers who want to acquire skills through postsecondary education to increase their success in the labor market, such as the need for remediation and child care. Increasing investment in workforce and training programs, and in wrap-around services for parents who need to balance school with work and child care, can help many low-wage workers get the skills they need to increase their success in the labor market.

Endnotes:

1. Data is unavailable for other racial categories such as Latino, Asian or Native American.
2. Carnevale, Anthony.P., Jeff Strohle and Michelle Melton, What’s It Worth: The Economic Value of College Majors, Georgetown University Center on Education and the Workforce, 2011, (http://www9.georgetown.edu/grad/gppi/hpi/cew/pdfs/whatsitworth-complete.pdf, accessed August 20, 2013.)
3. Von Lockette, Niki D., Occupational and Residential Segregration: The Confluence of Two Systems of Inequality, Rutgers University School of Management and Labor Relations, (no date). (http://smlr.rutgers.edu/research-brief-9-occupational-and-residential-segration-dickerson, accessed August 20, 2013.)
4. 2011 is the latest year of data available for this measure.
5. Schmitt, John, Low-Wage Lessons, Center for Economic Policy Research, January 2012. (http://www.cepr.net/documents/publications/low-wage-2012-01.pdf, accessed August 20, 2013.)
6. Cooper, David and Doug Hall, Raising the Federal Minimum Wage to $10.10 Would Give Working Families, and the Overall Economy, a Much-Needed Boost, Economic Policy Institute, March 2013. (http://www.epi.org/files/2013/IB354-Minimum-wage.pdf, accessed August 20, 2013.)
7. Michigan League for Public Policy, Keeping It Affordable in Michigan: Disinvestment in Financial Aid Grants Hurts Students and Their Families, November 2012.