Column: Living wages are for small businesses as well

By Andrew Mason

The fall veto session in the Illinois statehouse is scheduled to conclude today and among the more prominent pieces of legislation on the block is Senate Bill 1275. The bill would raise Illinois’s minimum wage from the current $6.50 an hour to $7.50 effective next July. National polls and democratic strategists have pointed to overwhelming support for a change in the federal wage that hasn’t been touched since 1997. As such, Democratic leaders plan to enact a raise as part of their ambitious “The First 100 Hours” plan. President Bush is likely to sign the measure into law.

Six states passed ballot initiatives raising the state wage, and Illinois is among three others that are trying to beat Congress to the punch. Perhaps it is coincidence that the two other states (Iowa and New Mexico) have democratic governors that are considering running for President in 2008. Governor Blagojevich campaigned on this issue as well and is currently the biggest proponent.

The Governor, apparently convinced of his mandate, pushed not only for a base hike but also an annual cost of living increase tied to the consumer price index. The bill also eliminates a provision that allows employers to pay a training wage to workers under 18.

While it is hard to argue that a minimum wage isn’t called for given that the dollar hasn’t been worth this little since 1955, it is unwise to enact an automatic increase on pay when economic growth is anything but automatic. Nor is it wise to ignore fundamental differences between small businesses and larger corporations.

Groups on both sides of the issue offer competing figures detailing the impact of the measure. According to unspecified federal statistics in a recent AP report, the Illinois workforce increased 6.4 percent from the time of the first raise in December 2003 and had a lower unemployment rate than the rest of the Midwest. A competing report from the Illinois Policy Institute shows, among other arguments, U.S. Department of Labor numbers that said job growth was only .7 percent in the same time period. So what now?

A compromise has risen that is more favorable to small business. It will raise the wage immediately to $7.50 and have 25 cent increases resulting in an $8.25 wage by 2010. It does not include an automatic increase provision and preserves the training wage. But regardless, small businesses that give young, mostly unskilled teenagers jobs will still be hurt. Their pain will be manifested in a reluctance to take on new unskilled labor of any age and will force many in small margin enterprises to raise prices or cut hours to cope with additional payroll taxes and employment insurance. But is there a way to help many low-wage workers while protecting small business? Illinois should consider Minnesota’s approach.

It also raised its rate above the federal level to $6.15 an hour. But it allowed for a measure that would ease the burden on small businesses by allowing those with total revenues of less than 500,000 dollars year to pay a minimum wage of $5.25 or about 85 percent. The floor was recently raised to 625,000 dollars a year.

Such a safeguard would serve the immediate purpose of protecting consumers from price increases that would be adopted by many small businesses. As economic theory goes, lower prices will attract more customers and thus generate more revenue for the business. If business is good, employers will have more of an incentive not only to hire more workers but also to reward higher skilled employees with earned raises in order to retain them.

Since the Chicagoland area and the rest of state have such different economies it would be prudent for the statehouse to take a more measured approach if Democrats want to live up to promise of fairer government they campaigned on. If not, they risk squandering their uncontested hold on the government. If they must govern absolutely, they must govern fairly.