Political Hay

The Cost of Doing Business

Illinois Democrats raised the minimum wage and now state contractors are paying the price.

By 6.1.07

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SPRINGFIELD, Illinois-- Last fall, Governor Blagojevich signed his second increase in the statewide mandatory minimum wage in five years. The legislation raised the Illinois minimum wage to $7.50 per hour with an additional hike to $8.50 in 2010.

At the time the governor claimed that, "Raising the minimum wage again will make it a little easier for thousands of families to pay the bills, put food on the table or buy clothes for their children." But for many it isn't really panning out as planned.

Just as opponents of minimum wage increased warned, employers are choosing cheaper out-of-state labor or taking other steps to mitigate the increase's effects. That employers are taking steps, in and of itself, is no surprise. What is however, that chief among those employers is the Blagojevich Administration itself.

A May 19 story in the Springfield State Journal-Register reported that Rely Services, a Carlinville, Illinois based data processing contractor had lost two large state contracts in the past year because Illinois' minimum wage law is pricing the computer contractor out of the Illinois market.
The story went on to report that if the company, also known as Accudata Computer Services, loses another state contract it may have to lay off most of its 134 full and part time employees. The story details how, at the time of the contract losses, the winning bids came from North Carolina, Indiana and Michigan who all had lower minimum wages.

Two of whom have raised their minimum wage since, but neighboring Indiana is maintaining its competitive edge by holding the line at the Federal level of $5.15 per hour.

And it's not just one company. State Sen. Deanna Demuzio (D-Carlinville), who voted for the minimum wage increase, told the Journal-Register that, "Not only myself but other legislators are having the same experience where bidding has gone out of our state."

In the last election cycle, Democrats around the country viewed minimum wage increases as a political winner. Democrats either ignored minimum wage hike opponents or attacked them on moral grounds. It was a fight about politics not policy; the Democrats were not about to surrender to sound economic reasoning in their pursuit of power.

During the debate opponents pointed to price theory -- the idea that if you raise the price of jobs, there will be fewer of them -- and a long history of academic research to argue that minimum wage hikes are a bad idea.
Research has consistently found that minimum wage hikes increased teenage unemployment -- particularly among African-American males -- punished poorer and unskilled workers; reduced average earnings of young workers; led to reduced benefits; and made labor saving technologies more attractive.

Lucky for us, the same research also suggests an easy fix for Illinois. Simply roll back the minimum wage and put Illinois businesses in a better competitive position. It's no stretch to assume that if the state government is opting for less expensive labor, so are private firms.

Yet, Illinois won't do that. Instead of making the state more competitive, the Illinois Senate simply chose to spend more. By a unanimous vote the Senate decided that if state contractors were struggling financially, then they would give them hiring preferences and pay the extra costs. To them it made sense.

After all, the state senate wasn't voting to spend their money, they were spending ours. Another irony is that while state government is willing to pay a premium for contractors, they are also in a bi-partisan fashion crying poverty and working to hike taxes.

State Sen. Dave Syverson (R-Rockford) has stated a willingness to hike taxes to pay to current services. Two House Republicans supported a massive tax hike cloaked as education funding reform in Committee earlier this spring. Senate Democrats, who have a veto proof majority, overwhelmingly support tax increases for new spending on education and health care.

Yet, by their willingness to pay more for government contractors, they are proving they are poor stewards of the public treasury who shouldn't be trusted with more money.

After being flogged in the 2006 elections and having the increase rammed down their throats, one would think that Illinois Republicans would have been spoiling to collectively say, "We told you so." After all, the Governor told us this would help Illinois workers, but it's his Administration throwing workers under the bus. Instead, Senate Republicans rolled over. We can only hope House Republicans will have more spirit.

While an argument can be made that Republicans were focused on the fighting the Governor's now all but dead $7.6 billion gross receipts tax. It's more likely a well beaten party just wanted the minimum wage debate to go away -- even when they have a winner.

For the rest of the country, however, we now have a striking example of how even government is even unwilling to pay for the wages it has set. Highlighting how the Illinois minimum wage increase backfired, and Illinois lame attempt to fix it, is a lesson we should remember in future minimum wage fights.

Pointing to Democrat hypocrisy and incompetence won't hurt either.

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About the Author

Greg Blankenship is director of the Illinois Policy Institute in Springfield, Illinois.