Gov. J.B. Pritzker is aiming to pass a minimum wage hike ahead of his budget address.
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.
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.
https://www.illinoispolicy.org/illinois-lawmakers-moving-toward-15-per-hour-minimum-wage/
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