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Press Release · June 29, 2005

After A Decade Of Living Wage Laws — What’s The Verdict?

Ordinances Help Some, Hurt Others, New Study Finds

SAN FRANCISCO, California, June 29, 2005 — Ten years of experience with living wage laws in California has revealed some decidedly mixed effects, according to a study released today by the Public Policy Institute of California (PPIC). Although these ordinances provide vital assistance to some very important groups – such as low-income families – they are no cure-all for the ills of low-wage work and poverty.

On net, living wage laws do reduce poverty in the urban areas where they are enacted. Approximately one year after a living wage is implemented, poverty rates drop by nearly two percent – and these benefits are mostly spread across low-income families. The state’s largest cities – including Los Angeles, San Francisco, San Jose, Sacramento, and Oakland – all have living wage ordinances in effect. “Evidently, these laws can lift a detectable number of urban families above the poverty line, given data from the past decade,” says PPIC senior fellow David Neumark, who co-authored the study with Scott Adams, an assistant professor of economics at the University of Wisconsin, Milwaukee. Some may consider this the study’s key finding because the fundamental purpose behind living wages is to reduce poverty rates.

But there’s a troubling downside. Although, on average, the laws boost wages, they also shrink employment among the most unskilled, and perhaps most vulnerable, workers. The study finds that a 50 percent increase in wages reduces employment among the least skilled people in an area by 6 percent, one year after a living wage law is enacted. “Adverse effects on employment can be significant – and it is the most unskilled individuals who bear the brunt because they are the least likely to be employable as wages go up,” says Neumark.

The report, A Decade of Living Wages: What Have We Learned?, found that the positive wage and negative employment consequences are markedly higher in areas where living wage ordinances extend to both employers who do business directly with cities and those who receive some form of business assistance from cities.

The Public Policy Institute of California is a private, nonprofit organization dedicated to improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.