- Higher incomes for workers with no effect on business or employment growth
- City minimum wage will rise to $12 an hour on July 1
Chicago: Since Chicago increased its minimum wage, the policy has produced higher incomes for at least 330,000 low-wage workers, while having no negative impact on the growth of new businesses or overall employment in the city, according to a new study.
Click here for an Executive Summary.
Conducted by the Illinois Economic Policy Institute (ILEPI) and Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign, the research analyzed income, business growth, and employment data from 2010 to 2016 both for the City of Chicago– which increased its minimum wage from $8.25 to $10.50– and a control group of Chicago suburbs in Illinois, Indiana, and Wisconsin where the hourly minimum wage still stands at either $8.25 or $7.25 per hour.
“Chicago’s minimum wage increase is largely working as intended, and has directly benefited more than a quarter of the city’s workforce,” said study co-author and ILEPI Policy Director Frank Manzo IV. “The data shows that Chicago is producing higher incomes, less income inequality, and employment growth that is commensurate with neighboring communities that made no change to their local minimum wage policies.”
In December 2014, the Chicago City Council voted overwhelmingly to gradually lift its minimum wage from the state minimum of $8.25 per hour to $13.00 per hour by July 2019, after which it will be indexed to inflation. In doing so, the Council carved out an exemption for teen workers, who can still be paid $0.50 below the state minimum wage (or $7.75 per hour).
By comparing economic outcomes between the City of Chicago and suburbs that made no change in their minimum wage policy, the study was able to assess impacts on both hours worked and business and employment growth— common concerns raised by opponents of minimum wage increases. Notably, during the period covered by the study, job growth in the Chicago metro area surpassed the rest of Illinois, Indiana, or Wisconsin.
“As minimum wages in Chicago have increased, private sector business growth has kept pace— and in some cases even exceeded— that of suburbs where the minimum wage didn’t change,” added study co-author and University of Illinois Research Associate, Dr. Robert Habans. “In fact, the unemployment rate actually dropped more in Chicago than in the surrounding suburbs. This suggests that, even if the minimum wage had a small negative impact on employment, it was more than offset by favorable conditions for job creation, including the ripple effect as higher wages for low-income workers stimulate consumer spending.”
The report highlights the fact that the City of Chicago’s minimum wage increase now provides low-income workers as much as 25% more purchasing power than comparable workers in the suburbs and other portions of the state.
“By increasing its minimum wage, the City of Chicago is helping more low-income households keep up with the rising cost of living,” added study co-author and University of Illinois PMCR Director Dr. Robert Bruno. “But this also underscores the fact that low-income workers in other parts of Illinois, Indiana, and Wisconsin are falling further behind.”
While the study links Chicago’s rising minimum wage with income gains for all workers, there was some variation. The largest increases were observed in retail services like car washes and nail salons (10.3%), as well as janitorial and maintenance occupations (6.1%). Teen workers, largely excluded from the policy, saw no discernible change in income.
In recognition of these outcomes, the study’s authors offer a series of policy recommendations, such as include expanding coverage to include more occupations, increasing the citywide minimum wage for teenagers, improving wage enforcement, and raising the minimum wage across the state.
“Ultimately, our research confirms what 90% of prior studies on this topic have already concluded— that incremental increases in the minimum wage are good for workers and do not pose a threat either to businesses or the broader economy,” Manzo, Habans, and Bruno concluded. “We have also shown that more increases are justified to ensure that the most vulnerable workers in our economy retain the purchasing power they need to be able to support their families and contribute to their communities.”
The Chicago minimum wage will increase to $12.00 per hour on July 1, 2018.
The Illinois Economic Policy Institute (ILEPI) is a nonprofit organization which uses advanced statistics, reliable surveying techniques, and the latest forecasting models to develop timely and dynamic analysis of policy issues affecting the Illinois economy.
The Project for Middle Class Renewal at the University of Illinois investigates the working conditions of workers in today’s economy and elevate public discourse on issues affecting workers with research, analysis and education in order to develop and propose public policies that will reduce poverty, provide forms of representation to all workers, prevent gender, race, and LGBTQ+ discrimination, create more stable forms of employment, and promote middle-class jobs.