Illinois’ minimum wage will increase statewide to $15 from $8.25 by Jan. 1, 2025. Gov. J.B. Pritzker signed Senate Bill 1 into law Feb. 19, less than week after it cleared the Illinois House of Representatives.
Pritzker had long made clear his desire to pass a minimum wage increase before delivering his first budget address Feb. 20. SB 1 passed the Illinois Senate on Feb. 7, giving the House a little more than a week to approve the bill by Pritzker’s deadline.
Prior to the Senate vote, Pritzker had offered few details about the bill. 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 largely remained absent from state lawmakers’ considerations.
Not all communities share the same socio-economic characteristics, a concern that small business owners asked lawmakers to consider as the bill advanced through the General Assembly. 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. The new law does not account for the state’s regional cost-of-living differences.
Phase-in ramp
SB 1 will 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 will rise in $1 increments annually until reaching $15 on Jan. 1, 2025. The schedule will 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 law also includes a tax credit schedule first outlined in the memo. Businesses with 50 employees or fewer will receive a tax credit equivalent to 25 percent of the cost of their wage increases in fiscal year 2020. The benefit will decline with the wage increases, eventually flattening at 5 percent in 2025. Business with fewer than five employees will continue receiving the 5 percent credit until fiscal year 2030.
Economic impact
Illinois’ $15 minimum wage law 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.
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 is now one of just 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.
The minimum wage hike will 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, Illinois’ lawmakers’ failure to consider its unintended consequences does not bode well for the state’s most vulnerable workers.