February 1, 2019
This Week in Springfield the minimum wage debate began in earnest.
$15 STARTING WAGE
An effort to increase Illinois’s starting wage to $15 has gained early traction driven by the desire of Governor J.B. Pritzker to achieve passage sooner rather than later. TWIS readers will recall that the Governor made a $15 starting wage one of the cornerstones of his campaign.
Wednesday, during a subject matter hearing of the Senate Labor Committee, IRMA testified on the subject. It was noted that while IRMA is philosophically opposed to artificially imposed starting wages, we recognize that an increase is going to occur.
Proponents have noted that $15 starting wages in places like Seattle have not apparently led to significant job loss although research does point to lost hours particularly for low or unskilled workers. However, as even pro-wage increase researchers have noted, no one knows what the impact will be outside of urban centers like Seattle, New York City or Chicago and you cannot assume the experiences of a thriving city center will be the same experiences elsewhere as there are major economic differences. IRMA noted that the suburbs and downstate do not enjoy the concentration of economic dynamics that such urban centers enjoy. For example, Chicago benefits from robust tourism, a concentration of business headquarters, the daily influx of millions who spend money, and a concentration of wealth. No other location in Illinois even comes close to enjoying that combination of benefits.
IRMA also pointed to states like Oregon and New York that appeared to recognize such differences and took geographic-based approaches to increasing their starting wages.
In Oregon, the starting wages are higher in the Portland metro area, somewhat lower in their suburbs, and then even lower in the rest of the state. This is an approach that recognizes the substantial cost-of-living differences. It also recognizes the substantial differences that will occur between Illinois and every border state. With retail increasingly able to serve consumers regardless of where they are located, and 2/3rds of Illinois’ population within a 40-minute drive of a border, those disparities will have impact on employers.
New York increased the starting wage to $15 quickly in New York City, a bit more slowly in Long Island and Westchester County, and much more slowly in the rest of the state. In both cases, the increase to $15 started at a much higher rate in New York City. Similarly, Chicago will be at $13 July 1st while Cook County will be at $12. That is a significantly different starting point than the rest of Illinois which is currently at $8.25. A phase-in such as five years for the City of Chicago and Cook County, seven years for the collar counties and 10 years for the rest of the state is more realistic but will still be a large cost item for employers.
Even if the Illinois starting wages were increased from $8.25 to $15 over a 10-year period, the average annual increase would be just over 6% to the largest or single largest expense item of retail employers. That is why the tax credit currently proposed by the advocates to soften the blow on smaller employers is inadequate if policy makers insist on not taking an Oregon-like approach. First, the tax credit as currently proposed, only applies to employers with fewer than 50 employees at all locations. As IRMA noted, a single retail store can have more than 50 employees. Second, it treats franchisees as if they are owned by the franchisor. Franchisees are, in fact, small businesses so this inequality must be repaired. Third, the tax credit itself is not robust enough.
Additionally, the Illinois probationary/training wage allows employers to pay a trainee $0.50 less per hour than the current minimum wage. That was not very adequate at $8.25 but it is wholly inadequate at $15.00. The probationary/training wage needs to be in the neighborhood of $2.00 per hour less for the 90-day probationary/training period if employers are going to have any incentive to take the risk of hiring no-or-low-skilled employees.
While there are other issues, these are the primary issues under discussion. Additional considerations exist about impact on taxpayers. At $15, the State budget will be negatively impacted a few hundred million annually not to mention at least that kind of impact on local governments, higher education institutions, K-12 schools, park districts, etc.
IRMA will keep you posted as developments warrant.