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Proposed Increase To Federal Minimum Wage Mirrors Illinois, With 1 Key Difference

J. Scott Applewhite
/
AP
According to Pew Research, the minimum wage was last raised in 2009, to the current $7.25 per hour, the federal minimum has lost about 9.6% of its purchasing power to inflation.

Democrats have vowed to continue pushing to raise the federal minimum wage to $15. Illinois already has beat them to the punch, but the federal proposal includes something Illinois’ minimum wage law doesn’t have.

Illinois Wesleyan professor emeritus Michael Seeborg said it goes beyond the $15 minimum wage. Once it climbs to $15, the federal minimum wage would be indexed to median wage growth, meaning it would automatically keep up with inflation.

“The nice thing about the federal proposal that isn't in the state plan is that once the $15 minimum is reached, then it will be adjusted upward every year, depending on what happens to median wages. So if the median wage increases by 5%, let's say, during the year nationally, then the minimum would be adjusted upward by 5% also,” said Seeborg. “So you wouldn't have to keep going back and reinventing the wheel and legislating.”

It’s similar to how Social Security benefits are indexed for inflation to protect beneficiaries from the loss of purchasing power implied by inflation. But this would be an indexing of the bottom wage rate.

“It would do a lot in reducing wage and income inequality in the United States and that’s a huge problem that we face right now,” said Seeborg. “On the downside, it could cause some unemployment and some business failures.”

The federal proposal mimics the current Illinois minimum wage law in many ways, including the scheduled increases. Both are phased in and end up at $15 per hour in about four years.

“The federal proposal is very similar to the Illinois Minimum Wage Act. So Illinois workers aren’t going to benefit that much from passing the federal minimum increases,” said Seeborg. “Although there could be some differences, the way that people that work for tips are treated under the minimum wage legislation and maybe very young beginning workers. Some of those workers could benefit from the federal reforms.”

There are 21 states that comply with the current $7.25 per hour federal minimum wage standard. Seeborg said that might change competitive pressures across state lines.

“There's some evidence that that's happening. The Illinois population has been declining for a number of years now, and there's a number of businesses that have relocated for cost reasons. Not just minimum wages, but taxes on businesses,” said Seeborg. “So the good news for Illinois is that if the federal bill is adopted, we won't have that low-wage competition from other states. There'd be less incentive for employers to leave the state, to relocate in lower cost places.”

Seeborg said big firms, like Amazon, already have increased minimum wages for competitive reasons, adding claims that bigger companies will leave the U.S., like Illinois business owners left the state when the minimum wage increased, don’t hold up.

In 2018, Amazon raised its minimum wage to $15 for its U.S. workers, after facing pressure to boost compensation in its fulfillment centers and other facilities.

“It’s the smaller firms, the ‘mom and pop’ restaurants and small manufacturing firms that pay the actual federal minimum that would be affected the most nationwide,” said Seeborg. 

Seeborg said the costs would only be dramatically affected if there were rapid increases in the minimum wage.

“The estimates by most economists, though, are that if you have a phased-in increase in the minimum wage, that those unemployment effects will be relatively small and manageable,” said Seeborg.

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