Minimum wage hikes: Job killer or economic helper? Quinn rekindles debate
Chicago Tribune, February 7, 2013
by Ameet Sachdev and Ray Long
Business groups bristle at increases to the minimum wage – arguing that they destroy jobs, particularly among young and unskilled workers.
And for many years economic research was on their side. But the latest studies might surprise you.
Evidence is mounting that wage floors can do more good than harm. A groundbreaking 2010 study by economists at three universities found that increasing the minimum wage in some counties was not the job killer that many feared.
Their study and others that point to the benefits of raising the minimum wage have their share of critics, but policymakers are paying attention. Nineteen states have minimum wage rates above the federal level of $7.25 an hour. Illinois is among those at $8.25 an hour, but Gov. Pat Quinn thinks it should be higher.
In his State of the State address Wednesday, Quinn proposed raising the state's minimum wage to $10 per hour over the next four years.
His idea reignited a long-running debate over government-mandated minimum wages. But sorting through the rhetoric is not as easy as saying, "Businesses lose and workers win."
Some even say controversy over the minimum wage is overblown. Only 3 percent of the nation's wage and salary workers earn at or below the federal minimum wage. Service industries, such as restaurants, health care and retail, provide the bulk of those jobs, data show.
"Too much time is spent on the minimum wage; it shouldn't be controversial," said Michael Reich, an economist at the University of California at Berkeley. "It's become a political football."
Of course, raising wages has populist appeal. Who doesn't want a bigger paycheck? Quinn can hope raising the minimum wage can boost his own woeful numbers in popularity polls as he gears up to fight potentially big-name Democratic challengers like Attorney General Lisa Madigan and Bill Daley, the former White House chief of staff, in next year's election.
House Republican leader Tom Cross of Oswego charged Quinn's priorities are askew when the "elephant in the room" is the state's $96.8 billion pension debt – a worst-in-the-nation status that has sent the state's credit ratings lower.
The pension battle has Quinn locked in a protracted war with union workers, who are fighting against any rollbacks in retirement benefits at the same time they are unable to come to terms with the administration on a labor contract.
But as Quinn revealed his minimum wage push to a joint session of the House and Senate, he sought to wrap his arms around the working class, saying Illinois must "honor the productivity of our workers."
Business leaders say there are other equally important considerations. Kim Clarke Maisch, the state director of the National Federation of Independent Business, said Quinn's proposal would put "added pressure" on small businesses that are dealing with a fragile economy.
Chris Ondrula, chief executive of Downers Grove-based Heartland Food, which has more than 3,500 minimum wage employees at 178 Burger King restaurants in Illinois, said a wage hike would be ill-timed because he's already dealing with higher prices for commodities and bracing for higher costs as the federal health care overhaul takes effect.
"The ripple effects are exponential," Ondrula said. A restaurant that is marginally profitable, he said, might become unprofitable and be forced to close.
And employees losing jobs as a result of closures, Ondrula said, "wouldn't be able to find jobs at competitors down the street, because they'd be facing the same problems."
Ondrula's views on job losses that could stem from a higher minimum wage were once widely shared by economists. But a now-famous case study published in 1994 by labor economists David Card and Alan Krueger began to change conventional wisdom. They compared employment trends in fast-food restaurants in New Jersey, which had just hiked its minimum wage, with trends in neighboring Pennsylvania, and found little impact on low-wage workers.
Berkeley's Reich, along with two economists from the universities of Massachusetts Amherst and North Carolina, expanded on the research by examining restaurant employment in neighboring counties in different states with different minimum wage levels. They studied 16 years' worth of data and found no negative effects on low-wage employment.
Instead, they found that higher wages reduced employee turnover, which saves business money.
Other academic research has found that minimum wage hikes increase consumer spending. A study by economists at the Federal Reserve Bank of Chicago reported that immediately following a wage increase, incomes in households with minimum wage earners rose on average by about $1,000 a year and spending by roughly $2,800 a year. Much of new spending was on automobiles.
An increase would make life a little easier for Kenyanna Brown, 20. The Chicago resident earns $8.75 an hour at Victoria's Secret.
"For me it would mean that I wouldn't have to live paycheck to paycheck," said Brown, a student at DePaul University. "I wouldn't have to make those conscious, hard decisions of being a young adult in college and doing what is necessary to sustain my life."
Quinn suggested that a higher minimum wage would help reduce poverty. The current state minimum wage translates to slightly more than $17,000 for a full-time minimum wage earner. The poverty line last year for a family of four was $23,050 in annual income.
But the research may not back him up. The Public Policy Institute of California released a study in 2000 that found that increasing the minimum wage does not efficiently target the poor. If minimum wage increases are passed along in the form of higher prices to consumers, as economists say they typically are, poor families end up paying proportionately more for the goods they buy, according to the study.
This is not the first time Quinn has suggested increasing the minimum wage. In his 2010 campaign, Quinn said Illinois' minimum wage should be increased every year to reflect the rising cost of living, much like Social Security payments are indexed to inflation. Nine states require automatic annual adjustments to the minimum wage to keep pace with inflation.
Currently, the state of Washington, which indexes its minimum wage, owns the highest minimum wage at $9.19 per hour, according to U.S. Department of Labor.
The chief sponsor of the minimum wage increase is Sen. Kimberly Lightford, a Maywood Democrat, who has sought to negotiate with opponents and backers of the legislation for eight months. She said she wants to roll out a bill for a Senate committee vote in the next few weeks, possibly in March.
Senate President John Cullerton and House Majority Leader Barbara Flynn Currie quickly embraced a possible wage hike. Cullerton flatly predicted, "We'll be able to pass a minimum wage bill."