Municipal leaders in Illinois have expressed concerns about the anti-competitive, job-killing effects of Cook County’s minimum wage increases and new sick leave law and are using home rule authority to exempt their communities from the requirements.
A campaign to raise the minimum wage has captured headlines throughout Illinois in May and June.
A bill to raise the Illinois minimum wage to $15 an hour by 2022 passed the Illinois Senate and House of Representatives in May. And local ordinances to hike the minimum wage and mandate paid sick leave now loom over municipalities in Cook County, as the laws will take effect July 1.
Raising the minimum wage and mandating paid sick leave might sound pro-worker, but leaders in many municipalities in the Chicago area have said these measures could have the opposite effect and result in fewer jobs for residents in their communities. Research on minimum wage laws backs up their sentiments. For this reason, more than 50 municipalities in Cook County – more than one-third – have opted out of the pending minimum wage hike and sick leave mandate, according to the Chicago Sun-Times.
Cook County ordinances raise minimum wage to $13 per hour, mandate up to 5 days’ sick leave
While the federal minimum wage is $7.25 per hour, and Illinois’ statewide minimum wage is currently $8.25 per hour, the city of Chicago and Cook County have each hiked their minimum wages even higher. Chicago City Council passed a minimum wage increase for Chicago in 2014, setting the minimum wage in the city at $10 per hour in 2015, and raising it incrementally every year until it hits $13 per hour in 2019. After 2019, the minimum wage will be subject to annual increases based on the consumer price index, or CPI.
In October 2016, the Cook County Board voted to raise the county’s minimum wage to $13 by July 2020. The ordinance phases in the increase: By July 1, 2017, the minimum wage will rise to $10, and the level goes up by $1 each year after that until it reaches $13 in July 2020. After 2020, the county minimum wage will be subject to increases based on the CPI. The ordinance states that in each year, the highest minimum wage governs in Cook County, whether that is the federal minimum wage, the state wage, or the county’s minimum as set forth in the new law.
Interestingly, the Chicago and Cook County ordinances provide that when unemployment in Chicago or Cook County, respectively, reaches 8.5 percent or higher, the minimum wage will not increase the following year.
In October 2016, the Cook County Board also passed an ordinance mandating that employers in Cook County provide each employee with one hour of sick leave for every 40 hours worked, up to 40 hours of paid sick leave per year, for employees who have worked at least 80 hours within a 120-day period.
More than 50 municipalities have opted out of Cook County’s new mandates
More than 50 of Cook County’s 132 municipalities have used their home rule authority to opt out of the county’s wage hike and sick leave mandate, and the number of municipalities considering opting out continues to climb, according to WBEZ. The Daily Herald reported that the Des Plaines City Council voted to opt out of the ordinances June 19, reversing a previous decision to go along with the laws. And the Glenview board of trustees voted 4-1 on June 8 to opt out of Cook County’s minimum wage hike and sick leave ordinances, according to the Chicago Tribune.
Other towns that have opted out include: Hoffman Estates, Palatine, Rolling Meadows, Elk Grove Village, Hanover Park, Streamwood, Buffalo Grove, Arlington Heights, Barrington, Mount Prospect, Rosemont, Schaumburg, Wheeling, River Forest, Western Springs, Orland Park and Palos Park.
Among the municipalities that have opted out are some of the area’s major entertainment, restaurant and retail hubs. Rosemont, for example, is home to Allstate Arena, Rivers Casino is located in Des Plaines, and Arlington Heights has the Arlington International Racecourse. Schaumburg’s Woodfield Mall is a shopping destination with dozens of stores and eateries.
Minimum wage hikes can stifle job creation and competitiveness, and raise consumer prices
A June 2017 University of Washington report on the effects of Seattle’s minimum wage hike found a 9 percent decrease in hours worked by lower-wage workers and a reduction of over $100 million per year in total payroll for such jobs after the city’s wage hike. The Seattle Times noted, “For an average low-wage worker in Seattle, that translates into a loss of about $125 per month per job.”
This new study echoed findings in a 2016 University of Washington report on the effects of the first phase of Seattle’s increase in its minimum wage. That report revealed that the employment rate for low-wage workers fell by about 1 percentage point, and the number of hours worked by low-wage workers lagged behind those of similar workers in the region. Moreover, the income gains for low-wage workers who kept their jobs were mostly due to the strong local economy, with only 25 percent of those gains attributable to the hike in the minimum wage. The Washington Post summarized the study: “[A]lthough workers were earning more, fewer of them had a job than would have without an increase. Those who did work had fewer hours than they would have without the wage hike.”
A study released in June by researchers from the University of California, Berkeley, however, found the hike in Seattle’s minimum wage had no effect on employment in Seattle’s food services industry. But Leslie Shedd, vice president of the National Restaurant Association, said in an emailed statement to The Associated Press, “A study in one of the wealthiest cities in the U.S. does not reflect the impact drastic minimum wage increases could have across the country and should not be relied upon as this discussion continues – especially considering other studies have refuted these results.”
Officials in municipalities that voted against the Cook County wage hike and sick leave mandates have expressed concern for the job-killing effect they could have, especially given that many of these towns are near counties that have not increased the minimum wage or imposed new sick leave mandates. Palatine Village Manager Reid Ottesen said in a statement reported by the Daily Herald, “We already have sales tax and property tax disadvantages compared to Lake County.” Thus, Palatine can ill afford “two more disadvantages” with neighboring Lake County, in Ottesen’s view.
The head of government relations for Jewel-Osco grocery stores told the Tribune the grocery chain’s costs had shot up for its 35 Chicago stores after the city increased its minimum wage, causing Jewel-Osco to hire 5 percent fewer workers the year after the law went into effect.
And while a large chain might be able to absorb the costs of a minimum wage hike by hiring fewer new employees, these costs impose greater hardships on small businesses. Reflecting on the River Forest Village Board’s unanimous vote to opt out of the Cook County ordinances, Oak Park River Forest Chamber of Commerce President Cathy Yen commented that small businesses operate on “extremely thin margins, … [which] mean there is little excess profit that can be reallocated to employee salaries,” according to the Chicago Tribune. Yen also told the Tribune that business owners would “need to pass on the higher labor costs to the consumer through increased prices.”
Minimum wage hikes can drive companies out of business
Increases in minimum wages can drive some firms out of business entirely. A Harvard Business School study released in April examined San Francisco-area minimum wage hikes and their effect on restaurants in the Bay Area. The researchers found that across all restaurants, a $1 increase in the minimum wage means a 4-10 percent increase in the likelihood a restaurant will go out of business. But wage hikes have a worse effect on “lower quality” restaurants: A $1 increase in the minimum wage leads to a 14 percent rise in the likelihood a 3.5-star-rated (i.e., median-rated on Yelp) restaurant will close, according to the study. The report also found that minimum wage hikes deter the entry of new businesses into the restaurant industry by 4-6 percent for each $1 increase in the wage rate.
The study authors noted that according to U.S. Bureau of Labor Statistics data, the restaurant industry uses minimum wage workers more than other sectors.
Minimum wage increases can make it harder for teens to get starter jobs, and can hurt minority communities
Cook County Legislative Committee Chairman John Daley described the minimum wage hike and sick leave legislation as “the moral and right thing to do” when the Cook County Board passed the measures in October 2016, according to the Chicago Tribune. But research shows that increasing the cost of hiring people through minimum wage hikes means many workers with lower skill levels and comparatively little experience will be priced out of the job market altogether, and many job-creating businesses will have a hard time staying afloat.
Hikes in the minimum wage can make it more expensive for employers to hire relatively inexperienced teens, and can contribute to unemployment among young people. A study released in December 2015 by University of California, San Diego Assistant Professor of Economics Jeffrey Clemens reveals that minimum wage increases between 2006 and 2012 reduced employment for people ages 16 to 30 with less than a high school diploma by 5.6 percentage points.
And minimum wage hikes can reduce job opportunities in minority communities. According to a 2011 study by the Employment Policies Institute, for every 10 percent hike in the minimum wage, employment declined 6.5 percent for 16-to-24-year-old black males without a high school diploma. By comparison, employment decreased 1.2 percent for Hispanic males, and dropped 2.5 percent for white males in the same age and education categories.
Statewide, black Illinoisans had a jobless rate of 12.7 percent in 2016, according to Bureau of Labor Statistics data; Illinois is tied with Nevada for the highest black unemployment rate in the nation. The black unemployment rate in Illinois is more than double the state’s jobless rate for white residents.
In Cook County, young black residents in particular suffer from high rates of joblessness, with more than one-third of the county’s black 20-to-24-year-olds out of both school and work in 2015, according to a June 2017 report by researchers at the University of Illinois-Chicago.
The Chicago City Council and Cook County Board effectively admitted that wage hike mandates can depress employment when they included unemployment escape clauses in the ordinances. But if 8.5 percent citywide or countywide unemployment is high enough to halt increases in the minimum wage under the ordinances, shouldn’t the state’s 12.7 percent black unemployment rate and the fact that 34.3 percent of Cook County 20-to-24-year-old black residents are out of both school and work give lawmakers pause?
It is not surprising that so many municipalities are rejecting ordinances that can make it even harder for businesses to stay afloat, and to provide job opportunities for residents who need them. Chicago and Cook County should follow suit and reconsider their minimum wage hikes.
Amy Korte writes for Illinois Policy Institute.