The Problem
Illinois’s minimum wage, already high at $8.00 an hour, is set to increase by another 25 cents on July 1, 2010. This ill-timed hike in the minimum wage will hurt low-skilled workers and the small business owners who want to employ them. With each of Illinois’s neighboring states having a lower minimum wage, hiring new workers in Illinois makes less business sense for entrepreneurs watching the bottom line.

Why did Illinois approve a minimum wage increase in the middle of a great recession? Former Governor Rob Blagojevich made his first minimum wage increase in 2003, raising the rate from $5.15 to $6.50 per hour. This change made the rate in Illinois higher than the federal government’s rate, which at the time equaled $5.15. On December 18, 2006, Blagojevich signed Senate Bill 1268 and increased the state minimum wage to $7.50 per hour, effective on July 1, 2007, and required an annual increase of 25 cents for the next three years.

Only California, Connecticut, Massachusetts, Vermont, Oregon and Washington have higher minimum wage rates than Illinois. All six states pay $8.00 or more in minimum wages, with Washington’s $8.55 an hour rate being the highest. As shown in the chart below, Illinois has sustained a higher minimum wage than the federal level since Blagojevich’s 2003 increase.

According to American Enterprise Institute adjunct scholar Richard Burkhauser, over the last two decades a majority of studies by economists conclude increases in the minimum wage directly correlate with considerable increases in unemployment and cause no decrease in poverty among the working poor.

The National Center for Policy Analysis argues minimum wage increases hurt younger workers, especially minority teenagers, who need entry-level jobs and have limited employment opportunities. Imposing a minimum wage—especially one higher than the federal government’s—puts a strain on employers by increasing operating costs. If the government requires a small business to pay more than the market value of labor, the employer will often respond by simply not hiring for the job. High rates can force employers to cut back on entry-level jobs. This results in higher unemployment, and ends up hurting—rather than helping—people looking for job opportunities, especially at the lower end of the skill ladder.

This has a ripple effect for teenagers, who need entry-level job experience to get higher-level jobs later on. The longer teens are out of work while they are young, the harder it will be for them to get jobs when they are older.  Down the road, it becomes more likely they will have lower-income jobs because of lost entry-level job experience. In the end, high minimum wage rates bring about additional, unnecessary barriers to success for young or low-skill workers—and yet, in the midst of a recession, Illinois is set to increase its minimum wage.

Our Solution
Illinois should not increase its minimum wage rate to $8.25 on July 1, 2010. A preferable option would include at least keeping it at the current rate. Even better, the state should reduce it to the minimum rate set by the federal government.

Why This Works
Illinois’s minimum wage rate puts a financial strain on businesses and ends up hurting many workers more than helping them.

Entrepreneurs and businesses form the backbone of an economy. When labor is artificially priced above its market value by government, jobs that would have been filled go uncreated. Without the ability to build and grow, the economy suffers, and most importantly, people suffer.