Illinois Small Businesses Dealing With Minimum Wage Hike

The New Year is already looking less prosperous to many Illinois small businesses as the statewide increase in minimum wage has been implemented (as reported by the Chicago Tribune, 1/4/05, Registration Required). The minimum wage hike was a 2 tier plan which upped the federal minimum wage by $.35 on Jan. 1 of 2004 and then reupped it by another dollar on Jan. 1, 2005, making the state minimum wage $6.50 per hour.

The Chicago Tribune cites some examples of small business proprietors that will be cutting workforce and hours and raising its prices in order to cope with the increases. Illinois may also be putting its small businesses at a competitive disadvantage as it is the only state in the Midwest that has a higher state minimum wage than the federally mandated minimum wage. Therefore it is making its small businesses located on the state boarder vulnerable to out of state competition which can utilize cheaper labor.

Conversely, advocates of the minimum wage hike point to the benefits reaped by minimum wage employees as proof that the hike is in the state's best interest. The wage hike will raise a full time minimum wage earner's yearly income from $10,712 annually to $13,520 annually thereby providing these employees with a substantial increase (i.e. 18% increase in income) in their quality of life.

The Center for Urban Economic Development at the University of Chicago entered the debate by conducting a study, which analyzed the economic impact of the minimum wage hike. The study concluded that restaurants and bars for fell the greatest impact by experiencing a 3.4% increase in wages. Yet, the study concluded that overall, the Illinois minimum wage hike will not make the state less competitive because most minimum wage jobs are located in local service businesses that do not compete across state lines.