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UI Economist Examines Effects of Minimum Wage Increase

UI Economist Examines Effects of Minimum Wage Increase

An increase in the minimum wage could produce several reactions in the economy.

University of Illinois economist Elizabeth Powers says low-wage businesses, like pizza joints, would try to raise their prices. “Consumers would resist that, and they would find that there are plenty of other foods to eat besides pizza, which maybe are not quite as yummy as pizza but are pretty good, and eventually some of these providers would have to drop out, until the price of pizza was sustainable,” she said.

Other possible adjustments: Low-wage businesses could take less profit, they could try to hire a higher caliber of worker who is worth a higher wage in terms of productivity, or they could economize elsewhere.

Powers says there will be instances where jobs are lost if wages have to be higher, but a raise would put money in the economy and increase demand.

Powers says a minimum wage increase affects relatively few workers, but in the food preparation and serving and building maintenance industries, many workers earn at or near the minimum wage.

The Illinois minimum wage is $8.25 an hour; the federal minimum is $7.25. Both the governor and the president want them boosted into the $10 range and then indexed for inflation. Powers says adjusting for inflation makes sense if you believe in a minimum wage.

 

 

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