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 As the 101st General Assembly settles into Springfield and bill
filing begins, Gov. J.B. Pritzker is looking to quickly fulfill one of his
campaign promises – a $15 per hour minimum wage. No state currently offers more
than a $12 minimum wage statewide. The governor has said he intends to sign the
bill into law prior to his budget address on Feb. 20.
While lawmakers have not yet filed detailed language on the minimum wage hike,
it appears likely the Senate will do so as early as the first week of February.
The Senate is not scheduled to be in session the week prior to the governor’s
budget address and will need to pass the bill onto the House at least a few days
in advance so that the House can conduct a vote.
This push comes extremely early in the legislative calendar, as the House has
yet to even announce committee membership lists.
No timeline yet
What is the timeline for phasing in the $15 an hour minimum wage? The most
recent proposal for a $15 minimum wage, which the General Assembly passed in
2017 and former Gov. Bruce Rauner vetoed, would have set a $15 minimum wage by
2022.
Proponents of the minimum wage increase have stated Illinoisans won’t see the
$15 mark until 2025, but lawmakers haven’t released a timeline establishing a
date for the increase. As it stands, Illinois’ current statewide minimum wage is
$8.25, which is around the median for U.S. states.
Only three states and Washington, D.C. have passed laws mandating a $15 minimum
wage in future years. D.C. will hit $15 an hour in 2020. California will ratchet
up to $15 an hour by 2022, and Massachusetts by 2023. Beginning in 2021, New
York will adjust a $12.50 statewide minimum wage upward with inflation every
year until it reaches $15.
Concern among lawmakers
The main concern among Illinois lawmakers, including many Democrats, is the
difference in cost of living throughout the state. Several Democrats voiced
concern over having a statewide, uniform increase without taking regional costs
of living into consideration during the Senate Labor Committee’s Jan. 30 hearing
on the matter.
Many states that increased their minimum wage in recent years have done so on a
regional basis, with higher minimum wages in metropolitan areas and lower
minimum wages in more rural areas. Although Chicago and Cook County already have
a higher minimum wage – $12 ($13 after July 1) and $11 per hour respectively –
there is concern about the constitutionality of a tiered, state-mandated minimum
wage.
Business concerns
While many labor groups testified in favor of the minimum wage increase,
business groups offered a different perspective.
Small business advocates such as the National Federation of Independent Business
expressed concern over the $15 per hour rate, calling the proposal a “job
killer.” Meanwhile, the Illinois Retail Merchants Association endorsed the idea
of varying rates among regions, noting that other states such as Oregon and New
York have followed this blueprint.
Budget effects
Notably missing from the conversation are the implications for state and local
government budgets. While the Illinois Association of Park Districts voiced
concern over the their ability to pay lifeguards and camp counselors higher
wages, there have been no estimates as to what the $15 minimum wage proposal
would cost Illinois governments.
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The state already has an anticipated budget shortfall of more than
$1 billion, and in one of his first official acts as governor,
Pritzker granted automatic raises to workers represented by the
American Federation of State, County and Municipal Employees that
increased state spending by more than $100 million. The minimum wage
proposal will exacerbate the state’s already distressed financial
situation and burden local governments who already levy the nation’s
second highest property taxes.
Economic effects
The expert literature on minimum wages suggest a $15 minimum wage in
Illinois will likely do more harm than good.
Those in favor of increasing the minimum wage want to increase
take-home pay for low-income families. So long as an increase in the
minimum wage does not reduce job creation, the policy accomplishes
this goal.
Unfortunately, the majority of evidence suggests higher minimum wage
levels lead to fewer jobs. This is particularly true for low-skilled
jobs, as they are most likely to decline with a rise in the minimum
wage.
The empirical evidence suggests minimum wages do not help low-income
families or reduce most forms of public assistance. While the policy
is intended to provide relief for those most in need, raising the
minimum wage ultimately makes finding a job harder and exacerbates
the problem.
Arguments in support of minimum wage laws often claim regulations
that increase worker wages foster higher-quality work at the same
cost due to higher productivity. In labor economics, this is often
referred to as the “efficiency wage hypothesis.” The efficiency wage
hypothesis argues that wages, at least in some markets, form in a
way that is not market-clearing (meaning there are more job seekers
than job openings). Specifically, it points to the incentive for
managers to pay their employees more than the market wage in order
to increase their productivity or efficiency, or reduce costs
associated with turnover in industries where the costs of replacing
labor are high. This increased labor productivity and/or decreased
costs compensate for the higher wages.
There is evidence to suggest that higher wages can boost
productivity for individuals who are already employed, but many
advocates conveniently omit the substantial evidence that
“efficiency wages” lead to increases in time unemployed for job
seekers.
The classic example of efficiency wages is the “five dollar day”
enacted by Henry Ford at the Ford Motor Company in 1914. As Raff and
Summers (1987) allude, after the wage increase was enacted,
productivity and profitability at Ford increased. However, as the
study also admits, after the “five dollar day,” the company slowed
hiring despite long lines of applicants for Ford jobs, and the
number of people receiving unemployment relief in the same county as
the Ford factory increased by two-thirds due to rising levels of
unemployment. The authors also admit there is debate about how much
of this increase in productivity was due to technological and
production process advancement and not to higher wages.
Furthermore, when examining more recent Current Population Survey
data, Krueger and Summers (1988) highlight that efficiency wages can
result in reduced turnover and better performance, but that these
wages will also create higher levels of unemployment due to the
pricing out of less-skilled workers. Lastly, Stiglitz (1984) finds
that the presence of efficiency wages can help explain why women and
minorities are more likely to be unemployed. These findings suggest
minimum wage laws contribute to higher unemployment and increased
racial and gender inequality.
Without adequate consideration for the impact on state and local
budgets or the potential to hinder the state’s already weak labor
market, Pritzker’s first legislative lift appears to be ill-advised.
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