Guv’s plan to raise minimum wage will hurt unskilled workers

  • Author: Rick Berman

  • Publication Date: July 2003

  • Newspaper: Chicago Sun-Times

  • Topics: Minimum Wage

It’s official. The unemployment rate in Illinois continued its steady upward march to 6.3 percent last month. One hundred forty thousand Illinois workers have joined the jobless lines since April 2000.

But for 800,000 Illinois residents, the statewide increase masks a more troubling story. A new study by the Employment Policies Institute identifies 18 Illinois cities and counties with a population of 10,000 or more where the unemployment rate was stuck at 9 percent or more last year.

While economists boast that the statewide rate has stayed well below that of the recessions of the early 1990s and early 1980s, these parts of Illinois have rates approaching the state’s historic high: 12.9 percent in December 1982. They include parts of Illinois, like Kankakee, where unemployment was 11.9 percent, and North Chicago, where it was 11 percent.

Worse yet, the number of these depressed areas statewide has increased dramatically as the economy has worsened. In 2001, there were nine Illinois cities and counties with this level of high local area unemployment. In 2000, there were only two.
While 800,000 people now live in these high-unemployment areas, Gov. Blagojevich is pressing ahead with a policy that will raise labor costs by increasing the state minimum wage 26 percent higher than the federal minimum of $5.15.

The governor believes he is helping the poorest workers in the state, but in reality he is locking the most vulnerable employees in the state out of the only opportunity there is to earn a living and increase their wages.

A 1995 Michigan State University study found that while increases in the minimum wage raise labor rates, they heat up the competition for jobs. Ultimately, employers seek out more highly skilled workers, who come off the sidelines to take these opportunities, leaving those with the fewest skills out in the cold.

At a time of rising statewide unemployment, such an effect is dangerous, but in the 18 depressed Illinois cities and counties it spells disaster.
Blagojevich’s proposal comes at a time when Illinois is having a harder time creating jobs than its neighboring states. While the Illinois unemployment rate is 6.3 percent, in Indiana, it’s 4.7 percent; in Wisconsin, it’s 5.6 percent; in Iowa, 4.2 percent; in Missouri, 5.6 percent, and in Kentucky, 5.9 percent. Unlike Illinois, Indiana and Iowa saw their unemployment rates fall last month, bucking the Illinois trend.

All Illinois’ neighbors set the minimum wage at the federally mandated minimum of $5.15. Fourteen states in the West and Northeast, and the District of Columbia, set minimum wage rates above the federal minimum, but none of these states are in the Midwest. Alone in the region, Illinois employers would pay an annual $2,800 premium for employing workers at minimum wage.
More than denying the state’s most vulnerable workers job opportunities, this proposal cuts off the on-the-job training that entry-level employment brings.

A recent Miami University of Ohio study found 65 percent of minimum wage workers increase their wage at some point during their first 12 months on the job. They are also eligible to receive the federal earned-income tax credit, an anti-poverty program that supplements the income of low-wage workers.
But as the minimum wage increase encourages employers to replace less-skilled employees with those more highly skilled, many of the opportunities of the least skilled to learn the skills necessary to earn more than the minimum wage will be destroyed. This is surely not what the governor had in mind.