Illinois Business Journal - Illinois Senate does two step in approving minimum wage increase

While Illinois Democrats are touting the socioeconomic advantages of increasing the state's minimum wage by $1.35, Republicans and small business owners are concerned it will negatively impact an already weak labor economy.

Where federal and state laws differ as to as to minimum wage, the higher standard applies. Illinois, Missouri and Indiana have minimum wage rates identical to the federal wage rate.

Illinois State Sen. Martin A. Sandoval, a Democrat from District 12 in Cicero, is one of three co-sponsors of Senate Bill 600. At press time, the bill had already passed through the Senate with a partisan vote of 33-23 and had been reassigned to the state House Labor Committee. The legislation proposes raising the rate from $5.15 to $6.50 an hour.

The revised bill language calls for a two-step increase; the rate would rise to $6.00 as of Sept. 3 and increase another 50 cents on Sept. 6, 2004 to reach $6.50.

"This bill is important not only for all the people in Illinois, but for the Latino community," said Sandoval, the sole Latino senator on the state's Senate Labor and Commerce Committee. "This is what the Democratic Party stands for - a good living wage."

Republican State Sen. Ed Petka, representing District 42 in Plainfield, said the minimum wage means more expenses to employers than just paying higher wages.

"The small business owner, who will be greatly impacted by this mandate also has to pay various employment payroll taxes tied to higher wages: Social Security, state unemployment tax, federal unemployment tax and workers' compensation," Petka said. "Without question, a higher minimum wage will result in higher costs to consumers and likely job losses."

John Renick, a partner with McMahon, Berger, Hanna, Linihan, Cody & McCarthy, said the size of the increase could spell trouble for some struggling businesses.

"One of several problems for Illinois is that it is a significant increase," Renick said. "Generally, when the minimum wage has been raised, it's been phased in over a period of time rather than taking a significant jump at once. This is obviously a very significant increase. Legislators tried to do this in Missouri a few years ago, and it (proposed increase) was defeated," Renick said.

Renick's understanding of the impact of the minimum wage law stems from 14 years as an attorney with the U.S. Department of Labor, enforcing the Fair Labor Standards Act. He's been in private practice for the past 17 years defending employers in wage and hour cases.

The attorney has argued and won cases on behalf of employers in venues as high as the U.S. Supreme Court.

"The way the Illinois minimum wage law has been in the past, it specified that the state's minimum wage would be the same as the federal - so Illinois wouldn't have to keep changing it," Renick said. "If no other states around us are raising (their minimum wage,) it's going to put us at a severe disadvantage. It's going to cause employers to have reluctance to expand or bring their businesses here."

"With passage of Senate Bill 600, Illinois will be less competitive when it comes to its business climate than our neighboring states," Petka said. "Our neighboring states are abiding by federal minimum wage guidelines. This effort would put Illinois' minimum wage rate above the federal minimum wage, making Illinois a costlier state for businesses to expand or locate."

The timing of discussions to raise minimum wage are consistent with what has occurred in past administrations, Renick said.

"The current wage has been in effect since September of 1997. Typically over the years, in the five to six-year range, federal legislators and those in various states begin to look at the issue again," he said.

Introducing a beefy minimum wage increase during a still-lagging economy runs definite risks, Renick said.

"You very well face the risk of putting Illinois employers at a competitive disadvantage, particularly in the St. Louis Metropolitan area," he said. "You'll have someone in Florissant (Mo.) who can run a restaurant and pay the employees $5.15 and someone in Alton or Belleville or East St. Louis who will have to pay significantly more."

Increases in the minimum wage don't just affect workers at the minimum wage benchmark, Renick said, but also have a 'bumping effect' on workers earning just above minimum wage.

"If you are in a job now that pays $6.50 (an hour) and you've got other people in the workforce making $5.50, then that employer is going to have to give the others a raise if the minimum wage employees will be making $6.50," Renick said. "The ripple effect is that employers will have to raise other employees' wages, too, in relation to what the minimum wage employees earn."

And at a time when the Illinois economy is struggling, he said, raising the minimum wage could discourage new businesses from locating in Illinois.

"It's a very significant competitive disadvantage," he said.

Sandoval said otherwise.

"I think businesses look at the prevailing wage when they consider either coming to Illinois or expanding, but I don't think it's the only criteria they use," the Illinois senator said. "Tax incentives are a significant reason, along with the amount of talent required for that service. We just do not think, in the Illinois Senate, that raising the minimum wage will have a dramatic effect on businesses deciding whether or not to stay in Illinois or come to Illinois."

Sandoval said he did not receive any correspondence from employers or constituents who asked to hold off on raising the minimum wage because they are having a difficult time. However, he acknowledged that small businesses might find the proposed increase tougher to handle.

"Smaller 'mom and pop' shops will probably have a little more difficult time trying to manage through that," he said. "I guess if you're selling sundries as a small, local, family-owned shop, you might feel it significantly more than if you were manufacturing spare parts for automobiles. But I really don't know."

John Valenti, director of Illinois government affairs for the Regional Chamber and Growth Association as its representative in Springfield, said despite a flood of communications from retailers, the month-long debate in the Senate ultimately resulted in passage of the $1.35 increase along party lines.

"As originally introduced, Senate Bill 600 would have increased the minimum wage on January 1, 2004 and deprived restaurants, bars and other businesses - where gratuities are accepted - of the tip credit," Valenti said. "It would have also increased the minimum wage annually by the rate of inflation. However, due to communications from retailers, the Senate Democrats first amended SB 600 to remove automatic increases and restore the tip credit."

SB 600 stalled on the senate floor for several weeks, he noted, as some Democrats said they would only lend their support if there were a phase-in of the increase.

Renick said the economy itself drives an unofficial minimum wage, simply to attract workers.

"My experience with clients is that often times they can't hire people at $5.15," Renick said. "So they have to pay people more to get them to come to work there. I doubt you will find anyone making $5.15 at even the major fast food restaurants. Even in these entry level jobs, or to recruit the people they are trying to attract, they have to pay more."