Economic Policy Institute

 “Living Wage:Facts at a glance

Living wage ordinances have been enacted in over 40 localities.

• A living wage ordinance requires employers to pay wages that are above federal or state minimum wage levels. Only a specific set of workers are covered by living wage ordinances, usually those employed by businesses that have a contract with a city or county government or those who receive economic development subsidies from the locality. The rationale behind the ordinances is that city and county governments should not contract with or subsidize employers who pay poverty-level wages.
• The living wage level is usually the wage a full-time worker would need to earn to support a family above federal poverty line, ranging from 100% to 130% of the poverty measurement. The wage rates specified by living wage ordinances range from a low of $6.25 in Milwaukee to a high of $10.75 in San Jose.
• In addition to setting wage levels, many ordinances also have provisions regarding benefits (such as health insurance and paid vacation), labor relations, and hiring practices.

Living wage ordinances provide much needed raises for low-income workers.

• Wages for the bottom 10% of wage earners fell by 10.5% between 1979 and 1998.
• The number of jobs where wages were below what a worker would need to support a family of four above the poverty line also grew between 1979 and 1997. In 1997, 28.6% of the workforce earned poverty-level wages, an increase from 23.7% in 1979.

Living wage ordinances can ensure that pay for contractual workers does not fall behind the pay of city workers.

• The trend toward privatization of services formerly provided by public sector workers is well documented.
• These privatization efforts have often resulted in decreases in wages for the private sector workers in the same job categories. A study by the Chicago Institute on Urban Poverty, which compared the wages and benefits of Chicago city employees to contractual employees for low-skill jobs, found that privatization led to compensation losses for entry level workers ranging from 25% to 46%.
• Since government agencies disproportionately hire (and advance) female and minority workers, these changes have meant the loss of relatively high-quality jobs for these workers.

Living wage ordinances promote responsible economic development policies.

• Living wage ordinances have the potential to counteract the destructive race to the bottom wherein cities and counties try to attract businesses by offering larger subsidies than their neighbors. The more prevalent living wage ordinances are, the less firms will be able to shop around for the cheapest locality on the basis of cutting wages.
• Recent research focusing on the number and quality (in terms of wages and benefits) of jobs created by tax incentives has found that many economic development subsidies are not tied to job quality. A study of tax incentives in Minnesota by Good Jobs First found that 72% of subsidized jobs paid below the average for their corresponding industry.
• Some detractors argue that the living wage will create a "hostile business climate." But most living wage ordinances cover too small a proportion of the labor force to have such a profound effect. Most living wage ordinances cover less than 1% of the local workforce. In addition, for most firms, the increase in labor costs is expected to be less than 2% of total production costs.

Living wage ordinances have no negative effects on a locality's contracting process.

• An EPI evaluation of a living wage ordinance in Baltimore found no significant cost increase to the city. The 1.2% cost increase for the contracts examined was less than the rate of inflation for the same period.
• An evaluation of the Baltimore ordinance by the Preamble Center also found that the ordinance did not reduce the competitiveness of the contract process. The small decrease in the number of bids per contract wasn't high enough to lower competitiveness or raise contract costs.
• Even if the costs to contractors do increase, it is still profitable for these firms to do business with the city. Most firms will choose to sacrifice some of their profit margins, which are estimated to range from 10% to 20% of production, since wage increases from the ordinance only amount to an estimated 2% of production costs.

There is no evidence of job losses as a result of living wage ordinances.

• The EPI evaluation of Baltimore's living wage ordinance found no job loss as a result of the ordinance. The workers interviewed for the study reported no changes in the number of hours they worked after the ordinance went into effect.
• Employers interviewed for the study reported that although wages increased, these costs were absorbed by improvements in efficiency. By raising wages, they decreased employee turnover rates, which decreased recruitment and training costs.

Sources:

Chicago Institute on Urban Poverty. 1997. Does Privatization Pay? Chicago: Chicago Institute on Urban Poverty.

LeRoy, Greg, and Tyson Slocum. 1999. Economic Development in Minnesota: High Subsidies, Low Wages, Absent Standards. Washington, D.C.: Good Jobs First.

Mishel, Lawrence, Jared Bernstein, and John Schmitt. 1999. . Ithaca: Cornell University Press.

Niedt, Christopher, et al. 1999. . Working Paper No. 119. Washington, D.C.: Economic Policy Institute.

Pollin, Robert, and Stephanie Luce. 1998. The Living Wage: Building a Fair Economy. New York: The New Press.

Weisbrot, Mark, and Michelle Sforza-Roderick. 1998. Baltimore's Living Wage Law. Washington, D.C.: Preamble Center,