Economy & Jobs

Increasing Minimum Wage Rates: Balancing the Pros and Cons

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In an aggressive move, the Chicago City Council voted to increase the city’s minimum wage to $13 an hour by 2019. The politicians who supported this decision say the increase will help thousands of citizens and boost the economy. However, critics believe it will do more harm than good. It’s hard to say who’s right; increasing minimum wage rates can positively and negatively impact a local economy.

The Benefits of Increasing Minimum Wage

1. Higher Salaries for Workers

The most direct result of a minimum wage increase is obvious: higher salaries for minimum wage employees. Right now the minimum wage in Chicago is $8.25 an hour, so those who work 40-hour work weeks make only $16,500 a year. If a single parent is raising a child on this salary, they’re just barely over the poverty line of $15,730. If Chicago raises the minimum wage to $13, that same worker will have a more comfortable salary of $26,000, greatly improving their quality of life.

2. More Disposable Income

Increased income means increased spending. This is especially true for low-income workers because they have a lower savings rate than others. By increasing minimum wage rates, Chicago — or any city that raises its minimum wage — would give thousands of people more money to spend every week, which would most likely increase sales for local businesses and help improve the local economy.

3. Lower Employee Turnover

Replacing an employee is expensive. The process requires business owners to spend time finding a new employee and then invest in training. If an employee is making less than $9, or the bare minimum wage, they’ll likely quit when a better opportunity comes along. Supporters of the higher minimum wage say that by paying employees more, employers will reduce their turnover, which could partially offset the cost of higher wages.

The Drawbacks of a Higher Minimum Wage

1. Fewer Jobs

While a minimum wage increase sounds like a no-brainer, workers must have jobs in order to benefit. An increase in minimum wage will make it more expensive for smaller businesses to hire workers and keep as many existing employees on their staff, leading to decreased hiring rates and an increase in layoffs. Some business owners may even consider replacing workers with technology. It might not be worth it for a supermarket to install automatic checkouts when the minimum wage is $8.25, but at $13 an hour, those machines start to make a lot more sense financially.

2. Business Owners Take a Profit Hit

The economy hasn’t fully recovered and many business owners are struggling to make a profit. Chicago’s decision to increase minimum wage rates will make it more expensive for stores to conduct business in the city. This could force struggling businesses, especially small businesses, to permanently close their doors.

3. Businesses Pack Their Bags

While Chicago is increasing the minimum wage to $13, the rest of Illinois is not. Some companies might decide it’s just too expensive to do business within the city limits and relocate elsewhere. The city, itself, would likely see a drop in sales and property taxes, a lower demand for Chicago storefronts, and rapidly diminishing property values.

Chicago’s minimum wage hike has its share of supporters and critics, and both sides have fair points. As local officials aim for higher wages by 2019, the rest of the country should be watching closely to see how the decision affects the Windy City.