Research & Commentary: Illinois Minimum Wage Reform
In his 2013 State of the State speech, Illinois Gov. Pat Quinn proposed increasing the state’s minimum wage from $8.25 to $10 an hour over the next four years. A similar minimum wage proposal failed to pass in the state Senate in 2012. Minimum wage laws are meant to protect workers’ health and well-being by mandating a base level of pay for certain covered employees.
Illinois’ last minimum wage increase came in 2010, when it was raised to $8.25 as part of a four-step increase implemented in 2006 under former governor Rod Blagojevich. Illinois’ current rate is considerably higher than the federal rate of $7.25. According to the U.S. Department of Labor, only Washington and Oregon have higher minimum wage rates than Illinois.
Quinn argued in his speech that no one should work a 40-hour week and still live in poverty. His mandate would give Illinois the nation’s highest minimum wage rate. Quinn’s proposal has drawn criticism from several quarters, including the Illinois Chamber of Commerce, which argues a minimum wage increase will make things worse for employers and job-seekers.
Opponents of minimum wage laws say these artificial wage hikes increase unemployment and poverty. When laws require businesses to pay higher wages, those businesses have to make adjustments elsewhere to offset the increased costs. That often involves reductions in hiring, employee hours, and benefits; higher prices for consumers; and less investment. A minimum wage hike can cause businesses to move out of the state. All of Illinois’ bordering states have minimum wage rates lower than Illinois’, and the proposed rate hike would only heighten that disparity.
Increasing minimum wage laws is not an effective method for addressing poverty because it raises barriers to entry for less-skilled and -educated workers.
The following articles examine minimum wage laws and their effects on the economy.
Raising the Minimum Wage Hurts Vulnerable Workers’ Job Prospects without Reducing Poverty
According to James Sherk of The Heritage Foundation, while minimum wage laws are intended to reduce poverty, in reality they encourage teenagers to drop out of school and reduce low-income workers’ future job prospects and earnings.
Minimum Wage: Hurting More than Helping
This policy brief from the Illinois Policy Institute examines Illinois’ most recent minimum wage hike and contends the state should not increase its minimum wage rate. The report advocates keeping the minimum wage at existing rates or at the rate set by the federal government. “Illinois’s minimum wage rate puts a financial strain on businesses and ends up hurting many workers more than helping them,” the brief states.
Increasing the Mandated Minimum Wage: Who Pays the Price?
D. Mark Wilson of The Heritage Foundation examines minimum wage increases, arguing they are not cost-free: “Economic research indicates that those who pay the most are unskilled youth through fewer job opportunities, consumers through higher prices, and taxpayers through higher taxes or fewer services.”
Racial Disparities in the Employment Consequences of Minimum Wage Increases
This study from the Employment Policies Institute, by William E. Even and David A. Macpherson, investigates whether the effect of minimum wages on the employment and hours of young, low-skilled men differs by race. The authors find the minimum wage was more harmful than the recession for this subgroup.
The Negative Effects of Minimum Wage Laws
Mark Wilson of the Cato Institute reviews the economic models used to understand minimum wage laws and examines the empirical evidence about their effects. Wilson explains why most of the academic evidence points to negative effects from minimum wages and discusses why some studies may produce seemingly positive results.
The Negative Effects of the Minimum Wage
David R. Henderson of the National Center for Policy Analysis examines several of the negative effects of the minimum wage, including its effect on unemployment, job benefits, and competition.
Research & Commentary: Earned Income Tax Credit vs. Minimum Wage Laws
The Earned Income Tax Credit (EITC) and minimum wage laws have been two of the primary mechanisms the federal and state governments have used to help low-income families move out of poverty. A debate is currently ongoing in many state legislatures and Congress over which of these two policies is more effective and should be expanded. Recent studies have shown the EITC to be more effective.
Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research
David Neumark and William Wascher review the literature on the employment effects of minimum wages—in the United States and other countries—that was spurred by new minimum wage research beginning in the early 1990s. Their review indicates a wide range of existing estimates and, accordingly, a lack of consensus about the effects on low-wage employment of an increase in the minimum wage. Their review found very few studies that provided convincing evidence of positive employment effects of minimum wages.
Thinking about Local Living Wage Requirements
Timothy J. Bartik of the W.E. Upjohn Institute for Employment Research reviews what is currently known about the benefits and costs of different varieties of a “living wage”: a local government requirement, now adopted by more than 50 local governments, for wages above the federal minimum imposed on employers with some financial link to the local government. The paper concludes that moderate living wage requirements applied to the local government’s own employees, and contractors’ and grantees’ employees who are funded by the local government, may do more good than harm. However, excessive living wages or living wages applied to non-city-funded workers are more likely to have negative side effects.
Living Wage and Earned Income Tax Credit: A Comparative Analysis
Writing for the Employment Policies Institute, Mark Turner and Burt Barnow argue “living wage” laws are vastly less efficient than localized Earned Income Tax Credit programs.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the FIRE Policy News Web site at http://news.heartland.org/insurance-and-finance, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.
If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or firstname.lastname@example.org.