Minimum Wage Report May Be Excluding Rural Illinois, Expert Says

Minimum Wage Report May Be Excluding Rural Illinois, Expert Says

ILLINOIS (IRN) — A report from a suburban-Chicago nonprofit group recommends the state gradually increase the minimum wage to $15 by 2024 because the benefits far outweigh the costs.

The author of a now-famous study on Seattle’s minimum wage said such a hike may be appropriate for the Chicago area, but the rest of the state would be a different story entirely.

“Raising the minimum wage boosts worker incomes while having little to no effect on employment,” the Illinois Economic Policy Institute report said. “Chicago’s minimum wage ordinance has already boosted incomes for 330,000 workers while having no discernible impact on the unemployment rate. Illinois should follow suit.”

Illinois’ minimum wage workers have earned $8.25 an hour since 2010.

The ILEPI, in collaboration with the Project for Middle Class Renewal at the University of Illinois, found that Chicago’s gradual wage hike to the existing $12-an-hour rate “had no effect on the unemployment rate but that it reduced working hours by 1.0 percent, on average.”

The institute bases its calculation of employment hour reductions in the city of Chicago in comparison to Indiana and the Wisconsin suburbs of Chicago from 2010 to 2016, a period following the Great Recession.

“…the City of Chicago did not fare worse on employment outcomes than the Illinois, Indiana, and Wisconsin suburbs where the minimum wage had not changed,” it read.

The institute’s study does not consider national economic growth since the Great Recession, including declining unemployment rates.

Jacob L. Vigdor, the Daniel J. Evans Professor of public policy and governance and the director of the Seattle Minimum Wage Study, said the report on Illinois makes some critical assumptions about the rest of the state outside of the Chicago area by using metropolitan numbers to estimate effects on rural communities.

“The minimum wage is least harmful when it’s irrelevant,” he said, referring to higher wages paid via economic demand. “It’s hard to see this whole virtuous cycle get established in a relatively low-income area. They’re going to discover that they’re not operating in a market where raising prices is an option.”

Vigdor said Illinois, like all of the state of Washington, would not possibly be able to absorb a hike in its minimum wage like their respective metropolitan areas would have because the economy is vastly different outside of the metropolitan area compared to, for instance, Carbondale.

“I would not really recommend looking at our results as a guide to what would likely happen there,” he said.

In 2016, the city of Carbondale’s median hourly wage was $13.61 per hour, according to the Illinois Department of Employment Security. The median entry-level position paid $9.36 per hour.

Now-retired Carbondale businessman George Sheffer said his hardware store would have laid off workers had the minimum wage been raised to $15.

“The more you raise the wage, the more you’ll need to cut out in terms of jobs happening there,” he said.

The study ILEPI combines with its Chicago wage study notes that any metric tying a minimum wage hike to a decrease of employment is an inexact science at its most generous.

“By and large, the size of the impact of an increase in a minimum wage is related only to the issue of job loss, and the observations are all over the map,” the report said.

ILEPI responded to Vigdor’s assessment of the report, saying the report provides the average effect across Illinois.

“…our study is based on both the actual experience of the Chicago Minimum Wage Ordinance as well as the preponderance of the evidence in over 200 peer-reviewed studies on the effects of the minimum wage in states and countries with a types of urban and rural breakdowns,” said President Frank Manzo IV.

Vigdor agreed with ILEPI’s findings that higher wages do result in lower turnover, pointing to the costs of hiring and training a new employee, but that doesn’t happen in isolation from other job losses, he said.

In the study of Seattle’s minimum wage, Vigdor’s group estimated that the result of government-mandated increases helped higher-skilled workers who employers felt actually earned the minimum wage, but ultimately hurt lower-skilled workers because employers were not willing to pay a premium to train them on the job. The latter aspect, the study found, was a constant across the entire state of Washington.

ILEPI used an assessment from Gov. Bruce Rauner’s office that estimated the economic effect of a proposed bill raising Illinois’ minimum wage to $13 by 2019. It said there would be a “positive effect on total wages” that “more than compensates for the loss in employment,” as well as raise the level of sales tax revenue. The same report estimated 67,500 job losses by 2025, in addition to a negative effect on the state’s economic output, higher prices for consumers, resulting in a mixture of higher but less real disposable income.