Illinois’ Proposed Minimum Wage Hike: The Pros and Cons

cashIn his recent State of the State address, Illinois Gov. Pat Quinn [D], called for, among other things, an increase in the state’s minimum wage. It would increase to $10 an hour from the current $8.25 over the next four years. If enacted, Illinois’ minimum wage would be the highest in the US.

I’d like to take a step back and really explore the pros and cons of the minimum wage. Instead of the typically boring left and right arguments (click the links if you’re interested in those), I’ve found some fresh perspectives on the issue.

Lets begin with a new argument against the minimum wage. It comes from the always worth reading Matthew Yglesias. He writes:

The problem is that while a given company can try to convince customers to accept higher prices in exchange for higher wages, in the economy as a whole this isn’t a matter of persuading anyone to accept anything. The Federal Reserve prevents the price level from rising more than 2 percent per year. The Fed is open to the idea that price increases driven by temporary fluctuations in global commodities should be ignored, but it deems price increases driven by higher wages to be especially alarming. So higher wages have to be processed as some combination of lower profits (which is fine at a time of record profits) and reduced employment (which is not so fine at a time of high unemployment).

Now the converse of this is that expansionary monetary policy—more tolerance for inflation—under today’s circumstances would almost certainly create jobs. And more robust job creation would reduce profit margins and increase wages on average. But real wages would fall for some people (I’m probably an example of such a person), and we might worry about the impact of that, especially on the lowest-wage workers. Pairing expansionary monetary policy with a higher minimum wage could make sense.

If you’re interested in delving a bit deeper into that discussion, The American Conservative has a direct rebuttal to Yglesias posted here.

The argument for the minimum wage comes, unexpectedly, from The American Conservative as well. Ron Unz makes a compelling case for why conservatives should support a higher minimum wage. I’ve actually written about this article before. Unz argument covers a broad landscape of reasons to increase the minimum wage, but income inequality and wage stagnation is a key focus:

My larger point is this. Wage stagnation is a serious economic and social problem with far-reaching consequences. You don’t get to say “I don’t care about that problem” because your ideology doesn’t have a ready-made answer.[emphasis mine] That applies to free-market-oriented conservatives and client-service-oriented neo-liberals alike, because solving the problem is going to require solutions from the “left” and “right” side of the policy box, and these solutions may be more complementary than contradictory. Using government power to increase the negotiating leverage of labor in the market is more likely to increase wages without taking those gains back through inflation if business owners have more freedom to respond creatively to an increase in labor costs. Giving business more freedom to respond creatively to an increase in labor costs is more likely to result in gains to labor, rather than just increased rents for capital and the businesses that service capital, if the government acts to increase labor’s negotiating leverage in the market.

I’ve tried to approach this old debate from a fresh perspective, particularly in recruiting a conservative embrace of an idea which has long been one of the cornerstones of the left.

Let me know of this approach has been persuasive to you, and what your thoughts are on the minimum wage.

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15 Responses to Illinois’ Proposed Minimum Wage Hike: The Pros and Cons

  1. Pingback: The Minimum Wage, From 1928 To Now | Reason and Politics

  2. espo says:

    San Francisco pays 10.55 per hr… and therefore would be NOT the highest in the US. get your facts right

  3. Pingback: Omnibus Links-2.8.2013 « J.uris D.ebtor

  4. johnhaskell says:

    What I am waiting to read/hear from a conservative pundit is how the rise in worker productivity has not been met with a commensurate rise in wages in the face of increased business profits–although, to be fair, the business profits are not shared by firms of every ilk, and so coupling mom and pop stores with fortune 500s is unfair.

    I also would like to see a discussion about the tax implications of raising wages as wages and salaries are deductible business expenses–I cannot accept that raising wages is a revenue-neutral activity for businesses, but also cannot think that it is a simple 1:1 ratio between increased wages:lost profits. Maybe it is, maybe not, but I don’t think it is axiomatic as conservatives suggest that it is.

    At the same time, I would like to see those on the left be more honest when the issue of economic mobility gets brought up. There is something to be said for the ability to people to move up the income ladder, which, in some instances, reduces the negative impact of stagnant wages–though not entirely.

  5. Do you think hiring will he affected by this? Mind you Illinois has like the 4th highest min. Wage in the country .

    Thanks for writing about this topic.

    • It certainly could be, especially if Illinois does it alone. If we were going to raise it, a federal law would be better. That way everyone would be in the same boat and we wouldn’t have states competing for businesses.

      Unz’s case even pointed out that Wal-Mart lobbied the Feds to increase it. If Wal-Mart did it alone, it could really harm their business, but if all companies do it at the same time… that changes everything.

      • Gov. Quinn likes promoting policies that deter job creators and drive large businesses to neighboring cities. That’s why I’m not surprised. A national raise should be the way to go. Don’t see it happening though. I don’t know if it should go up. $10 to start is pretty high, especially when we already are in the top 5 nationally. We have to many financial issues to deal with. At this point we are the worse in the country (yeah worse than California). I don’t see this helping.

  6. Amyclae says:

    There’s also an argument, an interesting one, that minimum wage(s) is inherently discriminatory. It prices out minority applicants.

    • Yes I read an article by Bruce Bartlett on that after I wrote this.

      Thanks for reading!

      • Amyclae says:

        What do you think about it? On one hand it seems like common sense. Many people are racist, they’re only going to pay for a minority applicant at a price that is lower than other applicants. The history of America is replete with examples of non-white minorities (Irish, Polish, Jews) working their way up by pricing out their competition until they reach the Valhalla of American politics: white-dom. Yet on the other I wonder if we’re approaching the problem backwards. Minority applicants should not have to undercut their competition. They should be mushing along with the other Huskies, as it were, without any worries that their labor is somehow inferior.

      • Even in Bartlett’s piece, the data suggesting the link was pretty weak to say the least. It’s possible that it affects minorities, but after reading Ron Unz’s case for the minimum wage, I’d say on balance its probably better to increase it, or at the very least not eliminate it.

      • I thought you may also enjoy this new article by Ron Unz. It ties increases in minimum wage with decreases in illegal immigration.

      • Amyclae says:

        Thanks for the link! I’m not as paranoid about illegal immigration as Ron is, but nevertheless he does have an argumentation that isn’t easily dismissed.

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