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Illinois' minimum wage increases to $6.50, surpasses federal minimum by $1.35
By KERRY L. SMITH

   As Illinois employers watch the state's minimum wage rise to $6.50 per hour on Jan. 1, labor analysts say hirers who will most likely feel the impact are those in the retail and food service sectors.

   On Jan. 1, the second phase of a two-phase wage increase will take effect, raising Illinois' minimum wage by a total of $1.35. On Jan. 1, 2003 under the provisions of Senate Bill 600, the amount increased 35 cents from $5.15 to $5.50; on Jan. 1, 2004, the level will rise an additional dollar to bring the state's new minimum wage to $6.50 for employees aged 18 and older.

   Illinois joins 11 other states and the District of Columbia in adopting a minimum wage level that exceeds the federal standard, $5.15, which has not increased since 1997.

   The other U.S. states that have higher-than-federal minimum wage levels are: Alaska, Hawaii, Washington, Oregon, California, Maine, Massachusetts, Delaware, Rhode Island, Connecticut and Vermont.

   Of the Midwestern states, Illinois is the only one whose wage level is above the federal minimum, according to the U.S. Department of Labor.

   Nik Theodore, director of the Center for Urban Economic Development at the University of Illinois at Chicago, said only 5.9 percent of Illinois' total workforce is earning at a minimum wage rate. According to the Illinois Department of Employment Security, nearly six million individuals are employed statewide. The U of I study also noted that in only 22 of Illinois' 208 recognized industries do minimum wage workers comprise more than 10 percent or more of the workforce.

   The two-step increase in Illinois' minimum wage, he said, likely will not have a detrimental effect on the state's ability to compete for jobs.

   "In our recent study, we found that although opponents of raising the minimum wage argue that higher labor costs would hurt the competitiveness of Illinois industries vis-à-vis industries in neighboring states, the statistics show that industries with significant portions of minimum wage workers are 'place-bound' and do not compete with out-of-state businesses," Theodore said.

   Explaining "place-bound," he shared an example from the restaurant industry, one that he said commonly pays minimum wage. "A diner in Peoria is not competing against a diner in Wisconsin," said Theodore. "Typically where there is real concern for interstate competitiveness is in an industry such as manufacturing, but that is one that pays its workers well above the minimum anyway."

   The Center for Urban Economic Development's study also concluded that if you average all the payrolls in Illinois, including the food service industry, the percent of total wage increases as of Jan. 1 would be 3.4 percent.

   "Some states, such as the state of Washington, do have a cost of living adjustment built into their wage policy in order to keep pace with inflation," said Theodore. "Illinois initially had language to that effect, but it was taken out of the bill in negotiations."

   Just as proponents of raising state minimum wage levels argue that the levels - if not adjusted for inflation over time - are inadequate, those in favor of raising the federal minimum wage contend that it, too, has not kept pace with the cost of living.

   "A lot of economists say we need to be raising the federal minimum wage because of inflation," said Thomas E. Berry Jr., an attorney with the law firm of McMahon, Berger, Hanna, Linihan, Cody & McCarthy in St. Louis. "U.S. Sen. Dick Durbin is the co-sponsor of SB 2370, which would raise the federal minimum wage, in three steps, from the current $5.15 up to $7 per hour. That's why we're seeing so many states stepping in; they don't believe the minimum is keeping pace with the cost of living."

   In the general election on Nov. 2, Berry said, Florida voters voted to increase their minimum wage $1 to $6.15 an hour.

   Southwestern Illinois College, one of the larger employers in St. Clair and Madison counties, will be slightly impacted by the increase in Illinois' minimum wage due to the number of student workers it employs.

   Pat Crowe, director of public information and marketing, said that approximately 120 student workers will see their pay rise to match the new per-hour rate of $6.50.

   David Stoecklin, program administrator for the Madison County Employment and Training Department, said the smaller employers in retail and food service will notice the minimum wage increase.

   "My concern is that these increases not put a damper on new job creation," said Stoecklin. "These entry-level sectors are often the way through which young workers enter the local workforce and get their start."

   Dennis Hoffman, labor market economist with the Illinois Department of Employment Security, said an increase in wages also means an increase in the employment taxes - on a per-employee basis - that employers pay. The Jan. 1 increase, he said, may force small business owners to make tough choices.

   "So much depends upon the situation of the individual employer," Hoffman said. "Where he's located - urban versus rural - and the type of industry he's in will determine how this (increase) will affect him. In most of our metro areas, jobs are starting out at $6.50 or more an hour to begin with. But in the smaller communities across the Metro East, more employers may be paying the minimum. Smaller employers, especially smaller retailers, may see a big increase in their payroll taxes and they may have to make some decisions…use fewer workers, raise the cost of their products and services or some combination of the two," he added.