Chicago and Cook County raise minimum wage today

The minimum wage for residents working in Chicago and Cook County is increasing July 1. Research suggests the rise in wage rates will benefit the working Chicagoans at the expense of the city’s vulnerable unemployed.

The city of Chicago is raising the minimum wage July 1, requiring larger businesses to compensate non-tipped employees at least $15 an hour and increasing base wages for tipped employees in both the city of Chicago and Cook County.

The hike in labor costs will hit Illinois’ small businesses hard, as they struggle to meet both rebounding demand and their hiring needs. That is especially bad for Illinois, where small businesses account for 69% of overall job growth in the state. Data shows that in the past year, more than half of the state’s food and accommodation businesses vanished.

Unfortunately, that means fewer jobs available for the more than 363,000 Chicagoans still looking for work.

The wage hike is part of an ordinance passed by Chicago Mayor Lori Lightfoot in 2019. The law reduces the rate to $14 an hour for businesses with 20 or fewer employees, but even they will be forced to meet the $15 minimum by 2023.

The ordinance will raise rates for tipped Chicagoans to $9 an hour under the condition that workers still earn the static minimum wage after receiving tips, or the burden will fall upon employers to pay the difference.

After July 1, Lightfoot’s law ties future increases in Chicago’s minimum wage to the consumer price index. As the price index increases yearly as a reflection of inflation, this guarantees that the city’s minimum wage will continue to increase over time.

Larger businesses can often absorb these higher labor costs. Unfortunately, these increases have an outsize impact on small businesses, leading to fewer new hires in the fastest growing businesses.

Research suggests higher minimum wage levels lead to creation of fewer jobs. This is particularly true for the low-skill jobs which are often the first to decline in response to a rise in the minimum wage.

A 2018 University of Wisconsin, Madison study on the effects of Minnesota’s 2014 progressive minimum wage hike offers a relevant example. The study found that youth employment dropped by 9% and service industry employment overall fell 4% in the years immediately following minimum wage increases.

Moreover, empirical evidence suggests minimum wages do not elevate low-income families, nor reduce most forms of public assistance, but rather benefit individuals who are already employed.

In an area still facing significant unemployment and ravaged by the loss of businesses over the past year, this type of feel-good law, which flies in the face of established research, is surely a better political ploy than it is aid to struggling residents.