Chicago's Foolish Decision to Hike the Minimum Wage

I live in Chicago, which is a badly governed city in the worst governed state in the nation. And it has just made another serious mistake, raising its minimum wage to $13.00 by 2019 and to $10 by next year. Ultimately, the new minimum will represent an increase of more than 50 percent over the present one.

Many of the criticisms of minimum wage are well known. For instance, it tends to increase unemployment and this effect falls most harshly on the least skilled. Moreover, earned income tax credits are a superior, targeted way of helping the poor. But there are some very unfortunate aspects of this decision that are peculiar to Chicago and the time in which we live.

First, Chicago is part of a much larger metropolitan area. Unless the state adopts a similar minimum wage, which is unlikely, this increase provides incentives for companies with low wage jobs to exit the jurisdiction and locate in the larger metropolitan area.  Some kinds of retail stores will particularly benefit from  this option.  It is easy to be in Chicagoland without being in Chicago proper.

Second, like some other urban areas, Chicago has many children with less than intact family structures. The school system is poor.   Some neighborhoods, wracked by violence and drugs, are places where kids are not likely to pick up good social habits.  In this context, teenage employment is essential to increase non-cognitive skills, like the ability to show up on time and work in harmony with others.  It can be a ladder out of dysfunction and into a lifetime of responsibility. And the teenagers who would most benefit are those that employers are least likely to hire at a higher minimum wage. The mayor and his supporting members of the city council are the perpetrators of yet more urban tragedy.

Finally, it is a particularly unpropitious time for a minimum wage hike.  Businesses today are more likely than ever to use machines to replace workers that become more expensive.  CVS drugstores are moving to use self-service checkouts almost exclusively. Machines that make hamburgers to order are already in production. To be sure, even without an increase in the minimum wage, such machines will displace workers, but the minimum wage hike hastens the displacement. The quickening of the pace will make it harder to handle the transition to new kinds of jobs, particularly for those who have not obtained basic skills from the kind of jobs the minimum wage will eliminate.

Chicago has not yet gone the way of Detroit. But political decisions like this one push it in that direction.