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 Lawmakers in the Illinois House of Representatives passed a
bill to raise the statewide minimum wage to $15 by Jan. 1, 2025. Senate Bill 1
cleared the lower chamber by 69-47 on Feb. 14, with one lawmaker voting
“present.” The bill now heads to Gov. J.B. Pritzker.
Pritzker made clear his desire to pass a minimum wage increase before delivering
his first budget address on Feb. 20. The bill passed the Illinois Senate on Feb.
7, which gave the House a little more than a week to approve the bill by
Pritzker’s deadline.
Pritzker offered few details about the cost before the Senate vote, but a memo
from the governor’s office obtained Feb. 5 by WCIA-TV included a forecast of the
cost just for state workers’ wage increases: nearly $1.1 billion.
That estimate did not include the cost of local government workers’ wage
increases, which municipalities are likely to pay for by hiking Illinois’
already-high property taxes. While the state’s park and school districts raised
doubts about their ability to weather a minimum wage hike, local governments
still remained missing from the conversation at the state level.
Further, small business owners asked lawmakers to recognize not all communities
share the same socio-economic characteristics. While labor organizations favor
the prospect of higher wages for low-income earners, increasing labor costs
often harms the people the measures are intended to help. The National
Federation of Independent Business called the proposal a “job killer,” while the
Illinois Retail Merchants Association and restaurant owners across the state
have pleaded for alternatives that take regional differences into account.
Phase-in ramp
SB 1 would phase in a $15 minimum wage between fiscal years 2020 and 2025,
starting with a $1 increase from $8.25 to $9.25 in 2020 – followed by a 75-cent
jump to $10 that same year. The wage would rise in $1 increments annually until
reaching $15 on Jan. 1, 2025. The schedule would be slightly different for
tipped workers, whose minimum wage is 40 percent lower to account for
gratuities. For park districts, which employ many teen workers, the minimum wage
will instead increase to $13, according to WCIA-TV.
The proposal also includes a tax credit schedule first outlined in the memo.
Businesses with 50 employees or fewer would receive a tax credit equivalent to
25 percent of the cost of their wage increases in fiscal year 2020. The benefit
would decline with the wage increases, eventually flattening at 5 percent in
2025. Business with fewer than five employees could continue receiving the 5
percent credit until fiscal year 2030.
Economic impact
Pritzker’s push for Illinois to adopt a $15 minimum wage comes amid the “Fight
for $15” movement’s efforts to see the same wage mandate enacted nationally.
Evidence suggests higher wages can boost productivity for individuals who are
already employed. But advocates of minimum wage increases ignore rises in
unemployment numbers and in how long idled workers remain out of a job.
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Evidence suggests higher minimum wage levels lead
to fewer jobs. This is particularly true for low-skill jobs, which
are often the first to decline in response to a rise in the minimum
wage.
A 2018 University of Wisconsin, Madison study on
the effects of Minnesota’s 2014 minimum wage hike – which was also
phased in over a number of years – offers a recent example of this.
In the years immediately following Minnesota’s minimum wage hike,
the study found youth employment fell by 9 percent and service
industry employment overall fell by 4 percent.
Moreover, empirical evidence suggests minimum wages do not elevate
low-income families, nor reduce most forms of public assistance.
The purpose of raising the minimum wage is to increase take-home pay
for low-income families. So long as such an increase reduces job
creation for those families, it cannot accomplish that goal.
A pro-growth alternative
Illinois may become one of only five states to mandate a minimum
wage as high as $15. New Jersey became the fourth state to sign a
$15 minimum wage into law Feb. 4. Illinois’ current $8.25 statewide
minimum wage is in line with the national median.
This minimum wage hike would take the heaviest toll on state
finances since the Pritzker administration took office, but it is
not the first hit. Despite inheriting a budget deficit of $2.8
billion, Pritzker granted $100 million in pay raises to unionized
state workers the day after his inauguration.
Moody’s Investors Service took note of the poor budget outlook Feb.
5, reiterating the state’s need to address its massive unfunded
pension liability, structural deficits and the economic consequences
of its declining population.
State lawmakers’ policy failures have plunged job growth in Illinois
to among the slowest in the nation. The 2011 “temporary” income tax
hike cost the state $56 billion in investment, shrinking employment
by 9,300 jobs, and caused output per worker to decline by $7,200.
The impact of the 2017 tax hike will likely be similar.
For Illinoisans to prosper, lawmakers must confront the main source
of the state’s economic plight. The Illinois Policy Institute
recently unveiled a plan that would balance the state budget, pay
off its debts and cut taxes in five years. The resulting economic
growth would invite investment back to the state, thereby increasing
the quantity and quality of jobs.
Raising the cost of doing business in Illinois is only likely to
further repel investment, and further depress Illinois’ already-weak
jobs climate. Those lowest on the socio-economic scale would bear
the brunt of that downturn.
While raising the minimum wage is intended to help those most in
need, they more likely face new barriers after lawmakers rushed SB 1
through the Statehouse without proper caution about the negatives.
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