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Paper: Raise state minimum wage to stimulate Illinois economy

Robert Bruno
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L. Brian Stauffer

Raising the minimum wage in Illinois to $10 per hour would stimulate the state economy but not have much of an effect – positive or negative – on employment, according to a new study co-written by Robert Bruno, a professor of labor and employment relations on the Urbana campus.

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3/19/2014 | Phil Ciciora, Business & Law Editor | 217-333-2177; pciciora@illinois.edu

CHAMPAIGN, Ill. — Raising the minimum wage in Illinois to $10 per hour would reduce income inequality, increase consumer demand and grow the state economy, according to a new study from a University of Illinois labor expert.

Robert Bruno, a professor of labor and employment relations on the Urbana campus, says increasing the minimum wage from the current $8.25 per hour would have a substantial stimulative effect on the state economy but not much of an effect – positive or negative – on employment.

“We analyzed the impact that raising the minimum wage has on employment, hours and income, and concluded that it’s the best way to reduce wage inequality, grow the state economy and ensure that workers are paid a wage that’s commensurate with the cost of living,” said Bruno, also the director of the Labor Education Program in Chicago. “And most importantly, we found that raising the minimum wage would have no discernible negative effect on total employment.”

Bruno and study co-author Frank Manzo IV, the policy director of the Illinois Economic Policy Institute, also advocate for a host of other public policy recommendations, including:

  • A national expansion of The Fair Labor Standards Act to cover more workers.
  • A state minimum wage that is indexed to the chained Consumer Price Index.
  • An increase in the punitive damages for “wage theft.”

“While a minimum wage increase addresses income inequality, the effect is short-lived if additional actions are not taken,” Manzo said. “The minimum wage must be indexed to inflation, more workers must be covered under the law and violators must be penalized to ensure that the policy continues to help low-wage workers.”

The study also recommends setting the rate for workers under the age of 18 at $1 per hour below the new adult rate. Currently, young workers are allowed to be paid $0.50 less per hour than adult workers, putting their minimum wages at $7.75 per hour.

Under Bruno and Manzo’s recommendations, the wage floor for minors would be $9 per hour.

“We think that decreasing the youth wage-gap by $1 below the new adult minimum wage would still increase consumer demand in the economy while maintaining an incentive for employers to hire young workers,” Bruno said. “We also believe that a portion of the new tax revenues generated by the higher minimum wage should be set aside and dedicated to encouraging young workers who might be laid off due to the changes to earn a GED diploma or college credits.”

Bruno and Manzo also would like to see a higher minimum wage paired with an expansion of the state’s earned income tax credit.

“The earned income tax credit is one of the best programs we have to incentivize work among the low paid,” Bruno said. “It’s a proven poverty fighter. So to help offset any negative effects associated with a minimum wage increase, optimal labor market policy calls for bumping up the earned income tax credit in concert with raising the minimum wage.”

Business interests often argue against raising the minimum wage by claiming such a move would blunt job growth. But those fears are overblown, the researchers say.

“Raising the minimum wage in Illinois to $10 per hour for adults would cause either a small drop or a small gain in employment, and it would have virtually no impact or maybe a small impact on weekly hours worked,” Bruno said. “Either way, the benefits of the policy far exceed the costs.”

According to the paper, the proposed minimum wage increase would increase labor income by $1.87 billion for intended beneficiaries and by at least $5.39 billion total for the Illinois economy. The increase would persist in the years that follow, the researchers say.

Bruno and Manzo also conclude that the new rate would generate between $141.2 and $192.2 million in new annual state income-tax revenue.

“And if sub-minimum wage earners are brought up to the $10 per hour minimum wage level, the increase in total labor income would be raised from $5.39 billion to between $5.41 billion and $5.43 billion,” Bruno said. “Over 10 years, total tax revenues would also increase by between $31.1 and $63.0 million for Illinois’ state and local governments and by between $42.0 and $89.2 million for the federal government.”

On the enforcement side, the researchers recommend three steps to ensure that workers are earning at least the minimum wage rate.

First, they recommend increasing the punitive damages for not paying the minimum wage to the annualized minimum wage amount per employee in addition to back pay.

“That translates into an initial deterrent of $20,800 per employee,” Bruno said.

Second, the authors recommend doubling the number of minimum wage investigators in Illinois from 13 to 26, so that there would be one investigator per 228,000 workers, or one for every 10,000 to 16,000 sub-minimum wage earners.

Finally, they also recommend promoting unionization and partnerships with worker centers to reduce minimum wage theft.

“Union membership reduces the probability that a worker earns a sub-minimum wage by about 80 percent by raising wages and giving workers a voice,” Bruno said. “Worker centers can help new state investigators target particularly bad employers to reduce minimum wage theft.”

Editor's notes: To contact Robert Bruno, call 630-487-0013; email bbruno@illinois.edu.

The paper, “Minimum Wage, Maximum Benefit: How a $10 Wage Floor Impacts All Workers and the Economy,” is available online.

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