* If you haven’t watched the new PBS documentary on Henry Ford, you should. When Ford raised wages to $5 a day, doubling the going rate, he was attacked by his fellow industrialists and called an anarchist and a class traitor and confidently predicted Ford’s bankruptcy.
But one of Ford’s big problems at his factories was high employee turnover. People just didn’t like working at such repetitive tasks. Pretty much anybody could do those tasks, by design, but people just didn’t like doing them. Raising wages meant he attracted the best of the best and retained them for much longer.
* That documentary came to mind while I was reading an interesting story in today’s Tribune about Gov. Quinn’s State of the State proposal to raise the minimum wage to $10 an hour over a period of four years…
Chris Ondrula, chief executive of Downers Grove-based Heartland Food, which has more than 3,500 minimum wage employees at 178 Burger King restaurants in Illinois, said a wage hike would be ill-timed because he’s already dealing with higher prices for commodities and bracing for higher costs as the federal health care overhaul takes effect.
“The ripple effects are exponential,” Ondrula said. A restaurant that is marginally profitable, he said, might become unprofitable and be forced to close.
Ondrula’s views on job losses that could stem from a higher minimum wage were once widely shared by economists. But a now-famous case study published in 1994 by labor economists David Card and Alan Krueger began to change conventional wisdom. They compared employment trends in fast-food restaurants in New Jersey, which had just hiked its minimum wage, with trends in neighboring Pennsylvania, and found little impact on low-wage workers.
Berkeley’s Reich, along with two economists from the universities of Massachusetts Amherst and North Carolina, expanded on the research by examining restaurant employment in neighboring counties in different states with different minimum wage levels. They studied 16 years’ worth of data and found no negative effects on low-wage employment.
Instead, they found that higher wages reduced employee turnover, which saves business money.
Other academic research has found that minimum wage hikes increase consumer spending. A study by economists at the Federal Reserve Bank of Chicago reported that immediately following a wage increase, incomes in households with minimum wage earners rose on average by about $1,000 a year and spending by roughly $2,800 a year. Much of new spending was on automobiles.
* Despite all that, a minimum wage hike doesn’t look like a slam dunk…
Although the state already has one of the highest rates in the nation, Quinn argued another boost would help increase the quality of life for residents.
“Nobody in Illinois should work 40 hours a week and live in poverty,” Quinn said during his speech. “That’s a principle as old as the Bible.”
Quinn is seeking to revive a proposal that was floated last year but didn’t make it out of committee. Still, lawmakers said that such a proposal would need cooperation from the business community to get any traction.
The Illinois Retail Merchants Association and the Illinois Chamber of Commerce came out against the measure, saying Quinn should focus on the state’s massive financial problems. Illinois has the worst pension problem of any state in the country and billions in unpaid bills.
“Another minimum wage hike will only hurt those who are looking for a job and those who employ them in this challenging economy,” David Vite, the president of the merchants association, said in a statement. “It’s rather disappointing that Governor Quinn is supporting another job-killing proposal instead of focusing on solving our budget crisis and our bankrupt pension system.” […]
The chamber characterized the increase as “an untimely, ill-advised and outrageous proposal.”
Kim Clarke Maisch, state director of the National Federation of Independent Business, said it is ironic that Quinn is telling small business owners how to run their businesses when the state budget is a mess.
Not a bad argument.
* But raising the overall minimum wage is only part of the Quinn-endorsed plan by state Sen. Kimberly Lightford…
Lightford also seeks the elimination of the “tip credit,” which currently allows employers to pay as low as $4.95 per hour to employees who work for tips. This essentially amounts to the customer subsidizing a worker’s legally guaranteed wages.
This makes it even more difficult for a tipped worker to earn a living wage, because without precise documentation of tip income — the burden for which falls on the employee — a worker will have a difficult time obtaining a car loan or a mortgage if their employer only has to pay them $4.95 per hour.