Latest posts by Joe Barnett (see all)
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- A Paternalistic Government Solution to Payday Loan ‘Debt Traps’ - August 13, 2019
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Like a train wreck in slow motion, the Illinois General Assembly is moving to fulfill Gov. J.B. Pritzker’s campaign promise to increase the statewide minimum wage to $10, $12 and then $15 per hour over the next few years.
Supporters claim, and some sincerely believe, that raising the floor on the price of labor will benefit low-paid employees. What they fail to consider are the costs: the existing jobs that will be eliminated, and the new jobs that will not be created, in Illinois.
Existing jobs will be eliminated as stores with low profit margins and lots of low-wage employees — such as fast-food restaurants — act to accommodate their higher costs. This is already happening in progressive cities that have raised their minimum wage floors.
For example, consider this Daily Signal report on a Seattle Subway sandwich store. Like tens of thousands of stores in nationally branded chains, the Subway highlighted is owned by a couple who invested their life savings in the sandwich shop.
Faced with Seattle’s minimum wage hikes, the owner-manager couple raised prices. Business fell — as customers reacted to the higher prices by eating at home, going elsewhere for a cheaper sandwich or doing without. The owners eventually laid off four of their seven employees. Now the couple will likely close their shop. A higher minimum wage does not benefit the workers it causes to become unemployed.
Chicago already has a $12 minimum wage, which will go up to $13 this summer. The Illinois Economic Policy Institute reports that Chicago’s unemployment rate is no higher than surrounding suburbs. However, people are not classified as unemployed if they are no longer looking or have moved out of Chicago to get a job elsewhere.
Chicago is not growing or attracting people with additional, higher-paying jobs. It’s not doing either because new jobs are not being created. Hiking the minimum wage statewide will only inflict more economic pain across the Prairie State.
Unlike Chicago, many suburbs in Cook County have declined to raise their local minimum wage to the county’s $11. Raising the minimum wage in the rest of Illinois to the same level as Chicago’s will be akin to a huge tax increase, raising the cost of doing business across the state. Indeed, the Pritzker administration estimates the state government’s labor costs will rise by $1 billion over the next five years alone.
A minimum wage hike is like a penalty for employing low-skilled employees. In effect, it cuts off a couple of lower rungs on the ladder of employment opportunities for young, inexperienced workers. If they can’t reach the lowest rung left on the ladder, potential workers will not make any progress in raising their incomes.
Illinois is already in a poor competitive position compared with its neighbors, and raising the cost of doing business will make matters worse. People are fleeing Illinois in droves — the National Movers Study from Allied Van Lines says inbound moves were only about one-third of outbound moves, only slightly better than dead-last New Jersey.
People are moving to states where new jobs are being produced. Companies are investing in creating new jobs in those states because the cost of doing business is lower.
It’s true that Illinois’ current minimum wage of $8.25 an hour is not enough to support a family — but it is enough to raise the income of one person well above the poverty level. Raising the minimum wage is a poorly targeted way to raise the incomes of low-income working families, while making life more difficult for individuals who want to work.
[Originally Published at the Chicago Tribune]