Raising and Maintaining the Value of the Illinois Minimum Wage: An Economic Impact Study

February 2003
Ron Baiman, Marc Doussard, Sharon Masstraci, Joe Persky and Nik Theodore - UIC Center for Urban Economic Development
PDF paper (133KB)

Executive Summary

The economic boom of the 1990s is rightly noted for lifting the wages of the vast majority of Illinois workers. But for all its force, the boom failed to reverse the long-term decline in the spending power of low-income households, particularly those reliant on minimum and near-minimum wage earners. Although the nominal value of the federal minimum wage is at an all-time high of $5.15 per hour, failure to adjust it for inflation has led real hourly wages of minimum and near-minimum wage workers to erode to a level near their all-time low.

In response to this problem, the Illinois General Assembly is considering the creation of a state minimum wage of $6.50 as well as a statutory provision to adjust that wage for inflation.

The UIC Center for Urban Economic Development has undertaken a comprehensive assessment of the need for and the economic impact of the proposed Illinois minimum wage. Our research was designed to answer three specific questions:

• Is the minimum wage an effective policy for improving the earnings of low-income households?

• Does raising the minimum wage weaken the competitive position of Illinois industries or impose excessive increases in labor costs?

• Does a higher minimum wage result in lower employment levels?

To answer these questions, we analyzed the wage and employment characteristics of Illinois households with workers earning at or near the minimum wage, conducted an in-depth statistical study of the relationship between state minimum wages and employment levels, and examined the changing characteristics of the low-wage workforce over a five-year period surrounding the 1997 federal minimum wage increase.

The evidence from this research suggests that an inflation-indexed Illinois minimum wage of $6.50 per hour will improve the earnings of a significant share of low-income workers and households while imposing minimal costs to businesses and resulting in a negligible impact on overall employment.