Usually I don’t blog on Illinois political issues, but this topic is too important to pass on. The state of Illinois was without an approved operating budget for over two years. Living through some of the most rancorous partisan politics over the past two years resulted in economic hardship on many levels from the reduction in needed social services through less funding for public education. As usual, those most in need were most impacted by the budget crisis.
Among the issues which rose to the forefront during this time was the controversy over Illinois’ minimum wage. Cook County Democrats were touting the need to raise the minimum wage from $ 8.25 per hour to $10.00 per hour by July 1st, and then incrementally increasing the minimum wage in future years. The minimum wage argument was framed as providing a ‘living wage’ for workers.
Sounded good and played to frustration over stagnant wages and increasingly limited employment opportunities for people with minimal education and/or skills training. The political noise surrounding this issue drowned out any in-depth analysis of exactly what was to be gained or lost by instituting this wage hike.
First, a worker earning the former minimum wage of $ 8.25 per hour in an 80 hour work period with the state tax rate of .0375% would gross $ 660. and net $ 519.56. The hourly wage after taxes equals $ 6.49 per hour or a daily rate of $ 51.91.
A worker earning the new minimum wage of $ 10.00 per hour in an 80 hour work period with the state tax rate of .0495% would gross $ 800.00 and net $ 613.00. The hourly wage after taxes equals $ 7.66 per hour or a daily rate of $ 61.30.
In both cases – the worker does not have a ‘living wage’ – at least not in Illinois. Minimum wage positions were never designed to be living wage positions; only positions for entry level types of employment.
On the other hand, the real winner of the new minimum wage law is the state. That minimum wage worker who earned $ 8.25 per hour under the former state tax rate of .0375% paid $ 24.75 in state taxes. Under the new law, the minimum wage worker earning $ 10.00 per hour pays $ 39.60 in Illinois state taxes.
Even though the minimum wage worker nets an additional $ 93.44 in earnings over 80 hours of work (the difference between $ 613.00 and $ 519.56), he will be paying the state an additional $ 14.85 in taxes.
The net gain of $ 93.44 does not give the minimum wage worker a living wage, but it does pander to the interest of the state in raising taxes. Most interesting will be learning how employers respond to this challenge as this tax and wage increase financially impacts their profits. The net outcome may be the elimination of entry level positions.
Filed under: Minimum wage - living wage