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Proposed Minimum Wage increase has politicans and economists at odds

Illinois Gov. Pat Quinn has given support to raising the minimum wage in Illinois
Illinois Gov. Pat Quinn has given support to raising the minimum wage in Illinois
Photo by Scott Olson/Getty Images

With the upcoming midterm election in November state officials are ramping up their agendas and Illinois Gov. Pat Quinn is no exception with his strong re-endorsement of raising the minimum wage, something that has become a plank in his populist platform for most of the preceding year.

This would be the first increase since it was last increased to $8.25, which was phased in over three years, starting back in 2006.

While some economist’s feel that the results of an increase may help low-income wage earners, many don’t, and some feel that any results are negligible.

Joseph Persky, professor of economics at the University of Illinois at Chicago, told Crain’s Chicago Business last year that after research on an increase in the fast-food industry, between 2003 and 2005, he surmised that, “the impact on jobs was “not statistically different from zero.”

Another of his colleagues, this time at the Urbana-Champaign campus, Elizabeth Powers, associate professor of economics, also told Crain’s, “As a policy matter, I would prefer to see an expansion of the state's EITC (earned income tax credit) if the state wants to help low-wage workers in low-income families.”

She also emphasized, “That's better targeting of the benefit. It also has the effect of subsidizing employment, which is stimulative. I suppose it's considered 'low cost' to raise the minimum wage because it isn't paid for out of state coffers.”

But, last year is not this year, and is furthermore changed by the upcoming March 18th primary. And, Quinn, as the Chicago Tribune stated last week, who after a year has been “calling for a minimum wage increase for nearly a year and hasn't gained much traction at the Capitol. But for the re-election-seeking Quinn, talking about his support for the issue could provide political dividends regardless of whether he's ever successful at pushing the hike through the General Assembly.”

Persky’s feelings, this year, are unknown, since he did not return phone calls, or emails, by our deadline.

The business community, however, is staunchly against the proposal because they see Quinn’s proposal as a blow to job creation, an area that Illinois still lags in, despite signs of relief in other parts of the country.

They noted, in January that the state had the fourth highest unemployment rate in the nation, and cited statistics from the Social Impact Research Center showing the increase in families living in poverty, from 11.9 percent in 2007 to 15 percent in 2011, and in a later editorial the Tribune asserted that there would a “modest effect” and there would be no lifting the poor from poverty, with an increase.

Yet, Protestants for the Common Good, a Chicago faith-based advocacy organization, that has long been a supporter of the issue, says, “Most of us have limited knowledge about what it means to live on the income from a minimum-wage job, and we may rarely think about the correlation between poverty and the minimum wage. Minimum-wage workers do not have that luxury.”

But, the faith community has long been united behind the increase, because they see it as a justice issue, and as The Rev. C.J. Hawking, executive director and United Methodist pastor, put in an emailed statement: “Raising the minimum wage is the good, right, and moral thing to do. For too long, families have had to endure living in poverty, in spite of working hard at two or three jobs. Raising the minimum wage and tying it to inflation has widespread support from religious leaders and an overwhelming majority of voters. To oppose the raise is to oppose stimulating the economy because it will create more jobs.”

Adamant in his opposition, however, is David Vite, president and CEO of the Illinois Retail Merchants Association, who also told Crain’s last year: “People are going to be displaced, businesses are going to be shut down,” he said “This just doesn't make economic sense in today's economy.”

Political rivals take sides

With Quinn’s gubernatorial rivals – all Republican – keening in their opposition to an increase, the leader of the pack is wealthy venture capitalist, Bruce Rauner; whose wealth has set up a populist contest, between the two, and one, some say, is designed to shore up Quinn’s standing with low-income earners.

Rauner himself seems to have struggled with the issue, and at one point made a huge gaffe last month when he suggested a one-dollar cut, in an on-air forum, but later modified his position last year by stating that he “proposes tying the Illinois minimum wage to the national wage, saying that the state is less able to lure businesses than other states because it requires higher wages than what federal law mandates.”

The Tribune also noted that he is seeking some relief after being rebuked for his support for the recent pension reform bill; one that alienated many labor and union leaders with its tiered benefit levels, and lack of adjustment for inflation.

They editorialized that a better move would be to reduce the state’s corporate tax rate so that businesses could use the extra revenue to increase wages on their own, without legislative intervention.

Also proposed was better access to affordable housing, giving landlords a tax break for renting to low-income tenants, and increasing awareness of assistance programs, and protecting food assistance programs, like the Illinois LINK, and requiring merchants to ask for identification before checkout authorization.

Nationally, President Obama has lent his strong support to minimum wage increases, and he noted in a speech in Galesburg, at Knox College that income inequality "is not just morally wrong, it's bad economics," plus his unequivocal support in last month’s State of the Union Address, where he announced an executive order raising the minimum wage to $10.10 an hour for future federal contract workers.

And, in another appearance in Maryland, last month, during a morning speech at a Costco store he stressed, as reported in the New York Times: “Americans overwhelmingly agree nobody who works full-time should ever have to raise a family in poverty.”

The president’s remarks have many economists shaking their heads, in opposition, and most Republicans using their often shop-worn phraseology about the effect on small businesses, long a mantra to oppose economic reform, say many observers; and often upheld in the objections to Obama’s signature legislation, the Affordable Care Act.

The business community shows concern

In general, Illinois has the highest minimum wage, of its surrounding Midwestern states, especially when compared with nearby Wisconsin and Indiana, who ring in, respectively, at $7.25 per hour.

For some lawmakers, and members of the business community, that is seen as the death knell for existing businesses located, either in, the state, or considering opening branches there.

Doug Whitley, president and CEO of the Illinois Chamber of Commerce, said in an email to Cain’s Chicago Business, nearly a year ago to date, “Given the state's high unemployment situation and the obvious need to encourage hiring and job growth, the governor's desire to dictate the highest minimum wage rate in the country is outrageous,” and he continued, not mincing words, by saying, “This issue is a dagger in the heart of the very employers politicians say they want to grow and be successful: small, medium and entrepreneurial businesses. I see it as a deterrent to the creation of seasonal and part-time employment for young people and entry-level jobs.”

Catherine Rampell of Economix – a blog from the New York Times - recently cited a poll conducted by “The Initiative on Global Markets at the University of Chicago’s Booth School of Business” with “elite economists” (including Nobel laureates, John Bates Clark Medal recipients, and past Democratic and Republican members of the President’s Council of Economic Advisers) and cited their overall reaction to the question of whether an increase would “make it more difficult for low-skilled workers to find jobs.” But the resulting answers were mixed, with a quarter of them saying that they were “uncertain.”

Economists vary in their opinions

The employment effect of the minimum wage is one of the “most studied topics in all of economics,” and, in general, most economists have insisted that any increase depresses the wages of young and unskilled wages, especially those of teenage workers, and those less skilled, with a corresponding decrease between 1 and 3 percent for each increase of the minimum wage of ten percent.

Yet, others have said that there was no reduction in employment, despite an increase in teenage wages, with an increase, most notably a study in 1994 by Alan Kreuger, and David Card, using a methodology called natural experimentation, that “sought to reproduce in the real world some of the features of a laboratory experiment,” noted the Center for Economic and Policy Research, in a paper released a year ago this month; but others, using more traditional methods, have said just the opposite.

There is also some fear that employers may decide to offset the required wage increase by reducing the amount of non-monetary benefits such as training, or even hours.

As Rampell remarked, by changing the question as to how the increase, tied to inflation, might help low-income workers, some economists feel that it might help them, and that the benefits might even outweigh the costs.

Recent studies, even some which have replicated Card and Kreuger have noted that regional differences are very widespread and can account for different results.

And, in one conducted by Dube, Lester and Reich in 2010, they stress that one cannot entirely rule out these differences, and that effects might have been larger, or smaller than Card had reported, and also in their replication they saw a much stronger pattern overall, than one merely predicated on state levels of employment.

Politicians take a legislative stand

But, if all politics is local, then the remarks by Sen. Dick Durbin (D-Chicago) who joined the fray, when he told the local ABC affiliate, that it is time for the nation to have a “serious discussion” on raising the minimum wage, thus supporting Obama’s desire to increase it, or in the president’s words, “to give America a raise.”

Illinois Senators, Bill Brady and Kirk Dillard are also on record as being against the increase, both of whom previously had been supporters, but now Dillard in reversal told the Associated Press last month, "Last decade, economic times were better and Illinois hadn't raised its minimum wage up to the fourth highest in the country."

Of course, pundits, lawmakers, and academics don’t always agree, and Joe and Mary Average might have a thing, or two to say in response.

Career Builder, the national on-line job board, has noted the following: “Each state has its own guidelines for compensation. Some states don't require overtime compensation if your monthly income is above a certain threshold. You can be exempt from minimum wage depending on your occupation, also. A waitress might have a base pay of $3.50 per hour but could earn enough tips to compensate for the difference. Basically, no two states are alike, so you should investigate what policies are in place where you live.”

But, State Sen. Kimberly Lightford (D-Illinois) who has sponsored SB 1565 wants to eliminate the distinction between those who receive tips and those who don’t.

She also wants to return the spending power it had in 1968, and eliminate age distributions (currently to those under 18 years-of-age), thus removing one of the opposition’s planks that it disproportionally affects teenage and low-skilled workers.

And, “she realizes that jumping from $8.25 per hour to $10.55 per hour would be difficult for some small businesses, Lightford’s plan gradually raises the minimum wage by $0.50 per year plus inflation adjustments,” according to her website.”

State Rep. Kelly Cassidy (D-Chicago), who is one of the chief co-sponsors of the House version claimed in an e-mailed statement: “I am a strong proponent of an increased minimum wage. I am a cosponsor of the bill and am pleased that the discussion seems to be moving towards an understanding that the current minimum wage isn't keeping pace with the real costs of living and raising a family.”

Quinn strident in his support of the bill says, ““No one in Illinois should work 40 hours a week and live in poverty.”

History of the minimum wage

When first enacted in 1938 under President Franklin D. Roosevelt, the bill, the Fair Labor Standards Act, which gave an increase of twenty-five cents an hour, was also addressed in a State of the Union address, where FDR noted that the nation had “millions of industrial workers [who] receive pay so low that they have little buying power,” and would “suffer great human hardship,” he also pointed out that these same workers were “unable to buy adequate food and shelter, to maintain health or to buy their share of manufactured goods.”

The resulting firestorm of protest, from that address, seems familiar enough to 2014. Here is s sample: “The National Association of Manufacturers insisted that the law was but the first step in taking the country down the road to “communism, bolshevism, fascism and Nazism.”

Joining the pack, at the time, was, who boldly asserted, in no uncertain terms, was “The National Committee to Uphold Constitutional Government” who “insisted the act was unconstitutional and part of a larger conspiracy to turn the president into a dictator.”

But, addressing the country in one of his famous radio Fireside Chats, FDR later countered with the following words:

“not [to] let any calamity-howling executive with an income of $1,000.00 a day, who has been turning his employees over to the Government relief rolls in order to preserve his company's undistributed reserves, tell you—using his stockholders’ money to pay the postage for his personal opinions—tell you that a wage of $11.00 a week is going to have a disastrous effect on all American industry.”

And, much later, in 1961, it was President Kennedy who noted his “great satisfaction” at being able to give the historical increase, in his signing remarks, and also emphasized, “I don't believe that there's any American who believes that any man or woman should have to work in interstate commerce, in companies of substantial size, for less than a dollar twenty-five cents an hour, or fifty dollars a week. That itself is a very minimum wage.”

Kennedy’s words rang with confidence, and courage, when he told those gathered, “This doesn't finish this job, but it is a most important step forward, and as a former Member of the Senate who is particularly interested in it, I must say that I am delighted to sign it.”

Fast forward to 2014, and the now contentious battle shows Quinn following Kennedy and Obama’s lead in championing it, making one Illinois lawmaker who confided to me, on deep background, “would that we could take an unequivocal stand, and move on with the show.”

New Fed Reserve chief offers her support

But, the new chairperson of the Federal Reserve Board, economist Janet Yellen, profiled in the New York Times, noted that in the early 1980s when she and her husband paid their babysitter more than the minimum wage, they “reasoned that a happier baby sitter would provide better care.”

The down-to-earth Yellen is expected to offer more advice, albeit outside of her domestic history, but one that focuses on Main Street, rather than Wall Street, and one that sees the Fed has having more of a direct role on the lives of rank-and-file Americans.

For most modern economists, like Yellen, monetary stimulus harkens back to the days of John Maynard Keynes whose theories emphasized the role of monetary intervention by the state, which at the time amounted to near revolutionary thought against the prevailing classical ideal that said the market guaranteed “full employment, as long as workers were flexible in their wage demands.”

“Keynes instead argued that aggregate demand determined the overall level of economic activity, and that inadequate aggregate demand could lead to prolonged periods of high unemployment. According to Keynesian economics, state intervention was necessary to moderate "boom and bust" cycles of economic activity.”

Yellen takes a revisionist turn with the great man’s theories and notes that “New Keynesian advocates maintain that prices and wages are "sticky", meaning that they adjust more slowly to short-term economic fluctuations. “

While some may say that the demand is political, and that the only stickiness is the votes that politicians hope to gather there, nevertheless, is a reality-based argument to be made.

One important note was struck in a telephone interview that I held with Samantha Tuttle, Director of Policy and Advocacy, for the Heartland Alliance for Human Needs and Human Rights, who said, “Raising the minimum wage will allow many people to help end the poverty in their lives, and at Heartland, we see many people – over 110,000 -- who care for parents, children, and others, that see this as a much needed necessity.”

Certainly the stories are compelling as seen on the website which has given public support and advocacy to the move for an increase.

The question remains as to how best to protect and sustain, not only the American worker, but his family and children – and that is where the rubber meets the road: the reality of a roof over one’s head, food on the table, and children who don’t suffer - a fact that does not depend on election cycles.

If you enjoyed reading this feature story, then click on the subscribe button above, or follow me on Twitter @dgrantchi where you can read similar pieces, and also news stories on issues that affect our daily lives.

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