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BLS report gives new argument to minimum wage advocates

by Kerry Cardoza
Aug 26, 2014


Gov. Quinn made headlines July 24 with his pledge to live briefly on the minimum wage, something 400,000 Illinois residents do every day. Recent findings from a Bureau of Labor report, however, may have more of an effect on the wage debate than the governor's decision to live the wage.

The July 18 report shows that the 13 states that raised their minimum wage this year have added jobs at a faster pace than states that did not. While economists caution that there are many factors that can cause employment to rise, this new data gives advocates a fresh argument for a wage increase.

“The only real, serious argument that opponents of minimum wage have ever raised is that it will lead to job loss,” said Robert Bruno, a labor and employment relations professor at the University of Illinois. “Now we again have some really good evidence, states are actually outperforming states that haven't raised the minimum wage. It's sort of taken the last arrow out of the quiver.”

The new data could have an effect on the ongoing wage debate in Illinois, where political players on both sides of the aisle have weighed in during the run-up to election season. Gov. Quinn has added a non-binding referendum to the November ballot that would increase the state wage to $10. His opponent, Bruce Rauner, has stumbled over the issue, at one point pushing for a rollback to the federal wage of $7.25. Mayor Emanuel, who is up for re-election in February, has proposed an ordinance that would gradually increase wages to $13 by 2018 for Chicagoans. Chicago currently has the same $8.25 rate as the state.

Income Inequality
Despite the ongoing political back-and-forth, the federal government has not raised the rate in five years as of July; Illinois last raised its minimum in 2010. According to Emanuel's Minimum Wage Working Group's report, a recommendation for the mayor put forth by politicians and community members, after adjusting for inflation, the current Illinois minimum wage leaves “its true value at 32 percent below the 1968 level of $10.71 in 2013 dollars.”

While pay has stagnated for low-wage earners, the highest-paid workers have reached full recovery since the recession. According to a recent study by economists Emmanuel Saez and Thomas Piketty, the top 10 percent of earners took more than half of the country's total income in 2012, the highest in a century.

Most economists agree that benefits to a wage increase include a real boost in quality of life for low-wage earners and a short-term boon to the economy. Jonathan Guryan, economics and human development professor at Northwestern, points to increasing levels of income equality as justification for a raise. “Income inequality is at historically high levels,” he said. “It's a way to redistribute income a little bit to lower-income families and workers.”

A 2013 study by economists at the Federal Reserve Bank of Chicago shows that a boost to the wage could lead to a 0.3 percent increase in GDP during the first year. The study says that when low-wage workers receive an income increase they immediately spend the money on items they couldn't easily previously afford. “They spend it in their communities by buying milk or going to the gas station,” said Aileen Kelleher, communications director at Action Now, a community organizing group for working families. “We need workers who can contribute back into the economy.”

Aileen Kelleher's Action Now organization is part of an effort to increase the minimum wage in Illinois to $15. She said threats from the business community that an increase will lead to high levels of job loss are not based on fact. “It's basically just a conjecture that business interests use to try to decrease worker pay so that CEO's can get bigger paychecks,” she said.

The Cost of Raising Wages
Representatives on Emanuel's working group from the business community voted against the proposal to raise the city minimum wage. John Carpenter, senior vice president of external affairs at the Chicagoland Chamber of Commerce, said that creating an island of higher wages in Chicago would have a negative effect on development, with companies outside the city operating with lower personnel costs. “There has to be some uniformity here to have a level playing field for all businesses,” he said.

Daniel Aaronson, vice president and director of microeconomic research at the Federal Reserve Bank of Chicago, also points to the tougher price competition that may pose a challenge to border towns if Illinois raises its wage, which is already higher than all of its neighboring states. If customers in border towns “are willing to travel a little extra time in order to save 5 cents less on their Big Mac, then there could be an effect,” he said.

“There's nothing to prevent jobs from jumping across the state lines,” Carpenter said.

According to data from the National Employment Law Project, this argument hasn't proven true in the past. On their website, NELP states that when Illinois raised its minimum wage in 2004 and 2005, the only Midwestern state to do so, it had higher job growth for both years than many surrounding states with lower minimum wages.