[This piece was written by Organization member Ryley Bruun]

Background

The Illinois General Assembly this spring passed S.B. 1, which will raise minimum wage in the state of Illinois from $8.25 an hour to $9.25 beginning January 1, 2020 and then to $10 on July 1, 2020. From there on, every January 1st would be a $1 bump to the minimum wage until 2025 when it reaches $15. This means that state minimum wage will increase from $8.25 set in 2010 to $15 an hour over a 5-year span.

While the state will experience incremental increases per year, the bill does not attach the minimum wage to the Consumer Price Index (CPI). This means that after 2025, the minimum wage would stay $15 an hour even if the value of the dollar was worth less than the year before. The City of Chicago, along with other cities and states, mandate their minimum wage to adjust to CPI, thus having the minimum wage change adjust with inflation.

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Inflation and the Minimum Wage

One of the largest factors in the push for a higher minimum wage is that overtime the US dollar has been losing value due to increases in inflation—which is a factor as to why prices on goods and commodities, such as gasoline, appear more expensive in price compared to years past.

The Federal minimum wage is currently at $7.25, which was set back in 2009. According to the Bureau of Labor Statistics CPI Inflation Calculator, $7.25 in May of 2019 (adjusted for inflation) is equivalent to $6.05 back in May of 2009. That comes out to be a $1.20 less now than a decade ago, meaning people earning the Federal minimum wage now are actually earning less today than they did in 2009. Statistically speaking, anyone who is being paid the current minimum wage in the state of Illinois at $8.25 now, is making $1.22 less than what they were paid a decade ago due to inflation.

image2This means that in order for the minimum wage to be the same as it was in 2009, or even at the height of the minimum wage rate (accounting for inflation) in the 1970s, the current minimum wage should increase incrementally with inflation in order to keep pace with current prices so that earners can fully utilize their purchasing power and be able to afford to buy goods and services. What’s more, prices overtime have continued to keep pace with inflation. According to the USDA, 2018 was the first time in three years that the overall rate for food-for-the-home purchases increased and they increased by nearly have a percent. Before that, there was a twenty year average of increases upward of two percent, which according to the inflation chart above, fits in with the rates of inflation for that time period. The USDA predictions for 2019 is somewhere between a half a percent and one and a half percent increase in the cost of food-for-the-home. If the cost of food keeps up with inflation, so too should the minimum wage.

Does increasing the minimum wage reduce employment?

This is a complex question and the answer is murkier than anyone would like to argue. While increasing the minimum wage abruptly has led to sharp decreases in employment in the past, smaller incremental increases have had much more minimal effects on employment, a UCLA article states. The article also states that raising the minimum wage has actually had impacts on workers who have already been making above the minimum wage, in such as giving them a bump in pay as well, and thus more purchasing power.

The current unemployment rate for the state of Illinois is 3.7 percent, which is low. While there are opportunities for people to work, the question is how much does one have to make to either support themselves or their family? What is often argued for an increase in the minimum wage is a push for what is called the Living Wage, which differs between cities, counties, and states. In a short, it is the wage a person or a family must make to meet the minimum standard of living.

Not so Employee vs. Business After All

There are many people who fight for increases in minimum wage as a moral issue and there are those who fight against increases in minimum wage as being anti-business. Yet, the minimum wage increase is not simply a moral issue and it is definitely not anti-business, it’s a matter of creating a stable economy in which people can be employed and be able to live at the same time. As being employed and being able to live is not just about employees, but businesses who need to hire employees as well. The whole reason of minimum wage is to try and find a fair ground between creating jobs and making sure people who are working are able to provide for themselves and their family.

In order to create a strong economy, there needs to be a balance between workers earning enough to live and companies being able to employ workers. This is a difficult balance, and as the chart shown above, the minimum wage in the 1970s was really worth roughly $12 an hour in today’s money, which is roughly $5 more than the current Federal minimum wage and $4 more than the minimum wage for Illinois in 2019.

The Impact on Illinois

According to a study done at the University of Illinois Urbana-Champaign called Project for Middle Class Renewal, there are 1.4 million adult workers who will be impacted by the increase in the minimum wage. While the City of Chicago and Cook County already have higher minimum wages, workers earning the minimum wage in the Chicago area can expect an increase of $5,000 dollars a year when the minimum wage hits $15 as compared to what minimum wage workers are making now, and other areas such as Springfield and Bloomington-Normal minimum wage workers will be earning $8,000 more per year. Other regions such as Rockford and Champaign-Urbana workers will gain $7,000 a year and communities around St. Louis $6,000 respectively. This results in billions of dollars being poured into the state’s economy, between $5 billion and $19 billion annually, and an increase in the purchasing power for hundreds of thousands, if not more than a million people.

Conclusion

The U.S. dollar is creating a situation in which workers overtime are losing purchasing power due to inflation. Increasing the minimum wage to meet with the times, especially since an overwhelming majority of the money is going to end up being spent on the local economy, is necessary, especially since the minimum wage in the context of inflation has been decreasing and not worth as much as it was in the 1970s. This means more people will be able to have more purchasing power that will help to spur growth in the local economies and the state economy overall.

(This piece was written by Organization member Ryley Bruun. For any questions or comments, please email the Organization at brookfield.il.dems@gmail.com)