When we see a proposed schedule of minimum wage hikes in Illinois from $17/hr later this year on to $19/hr (2028), $21 (2029), $23/hr (2030), $25/hr (2031), and $27 (2032), one could see that the changes in the Illinois economy are making it unlike any other state in the country.  Keep in mind that this is all being suggested while the federal minimum wage has continued to be just $7.25 an hour.  In fact, the suggestion of a $27 an hour minimum wage alone should signal anyone looking to go into business to be careful what brand and business model to choose when operating in Illinois if you expect to be making a long-term investment.

Any business with low margins that depends upon a large staff of low paid workers knows how hard giving workers a pay increase is especially when for many businesses the price of labor is sometimes one of the few factors that they have much control over that directly impacts the bottom line.  Just imagine if you own a brick-and-mortar store or a fast-food restaurant that has lots of low wage workers that get paid $15 an hour at the current Illinois minimum wage and you will be expected to pay them $27 an hour in the future.  Even if you reduce all of your full-time positions to part-time and schedule employees around projected customer volume throughout the day, you will most likely still have to have at least one person on the clock making at least $27 an hour at some point running the shop if the legislation passes.

When people who are just a little business savvy who are only worth $26 an hour are expected to be paid $27 an hour, they may find themselves needing a source of income other than employment.  In cases like these, it is easy to see how a front yard full of junk cars suddenly becomes a, ‘car dealership’ and a trailer that a pickup truck can pull becomes a, ‘food cart.’  This can thus make an environment full of mom-and-pop businesses that make substandard incomes while the price of everything becomes much higher than the prices offered for the same goods and services in other states.

For the part of the Illinois population that have jobs that are virtually unreplaceable that will be paid at virtually any cost like in the case of workers in heath care, utilities, education, and government, some of these workers will have incomes that soar.  For those workers that would be required to work double time at a $27 an hour minimum wage, they could easily see incomes over $140,000 a year in gross pay while only being paid at the state’s minimum wage.  For homes with dual income at these numbers, a husband and wife could see close to $300,000 a year while only making the $27 an hour minimum wage if both work double time at their jobs and get cash for their holiday and vacation time without taking the days off.  This means that franchise systems that use technology in place of labor and that offer added value products and services that differentiate themselves from their competitors can really win big if they can correctly target the people that are raking in the money from the increase in minimum wage.

When the capital to labor ratio is high, businesses are wise to invest in more labor because it is proportionally cheaper than capital.  When the ratio is very low, businesses are wise to invest in more capital and less labor.  This only works of course if one can be substituted for the other.  Thus, a brand with a kiosk may have more potential compared to a brand that requires a cashier.  Also, brands that offer convenience at a low cost and that fit very well with the way that the busy $27 an hour minimum wage workers live may see growth.  Brands that fit around a busy lifestyle and that market to fantasy lifestyles might do well if they could correctly target who is going to be making the big money from the $27 an hour minimum wage.

What makes the $27 an hour minimum wage unique is that it can suggest a possible shift in wealth that favors the working class that are indispensable, and this means that they will have money to spend that they did not have before.  Typically, this would give a market space for new and emerging brands to fill the need.  At the same time people who already had been making well over the new $27 an hour minimum wage may be seeing their wages increase at a slower rate as businesses struggle to pay the bills, and this could ultimately mean less market volume for brands that target the older wealth.

In a state economy that has businesses that have a lot of high paying jobs along with low wage workers from a low state minimum wage, we might see fast food, home services, senior care services, and retail all do very well.  Sometimes however in a place like Illinois that has a high minimum wage, young people who would typically work low paying jobs may find themselves going to college or trade school instead of competing against a veteran seasoned $27 an hour minimum wage worker.  When families support young people going to school, they may be less likely to spend money on things like fast food, home services, retail, and senior care.  Thus, the Illinois economy can be very unhospitable to brands that might really thrive in southern states.

Some brands may target people that seek to have a neat, clean, easy, carefree life such that the customer is very thrifty and prudent to spend money to protect and continue their lifestyle.  On the other hand, people that have undergone and who undergo large shifts in wealth can be hoarders who sometimes have lots of cash and other times have difficult decisions to make.  Will Illinois become a hoarder economy, and if so, then what kinds of brands and services would do best?

Out of all of this consideration, one thing that becomes clear is that a strong home-based business model that has a well-honed franchise with many locations in operation and a good long-term track record can be a good option if labor security becomes unstable and fuel prices continue to rise.  For many people, a $27 an hour minimum wage could mean a cut in hours at work, and having a business at home that can be worked on the side can allow for more income streams.  Being in business all by yourself can be a recipe for disaster because even with a great idea unknown competitive forces and unanticipated problems can sink the ship (so to speak), and who really can be productive at business in their own home without a guide?

Buying a good home-based business model that is a well proven franchise system can be a great way to diversify and potentially grow into something that could allow a person to transition into becoming a full-time business owner.  What can be even better is that if children and grandchildren are raised around a home-based business, then they too may thrive to become entrepreneurs.  This can make for not just a home-based business but also a family business.  Overall, my vision for Illinois is that more people will own franchises and work at home while even less people may will work in large industrial facilities.

Posted by Franchise Consultant Mathew Mount