SAN FRANCISCO, California, March 14, 2002 – A pathbreaking national study finds that although living wage laws reduce employment, they also decrease poverty among urban families. A report released today by the nonpartisan Public Policy Institute of California (PPIC) shows that the substantial pay increases generated by such laws can outweigh job losses among low-income workers – and the net effect is a modest decrease in family poverty.
The report, How Living Wage Laws Affect Low-Wage Workers and Low-Income Families, is the first to examine actual experiences of cities with living wage laws and analyze the effects of these policies on the workers they were intended to assist. Author David Neumark, a professor of economics at Michigan State University, looks at 36 cities with living wages across the nation, including Baltimore, Boston, Chicago, Denver, Detroit, Los Angeles, Minneapolis, New Haven, San Francisco, and San Jose.
The report finds that if a city passes a living wage that is 50 percent higher than the state’s minimum wage, it will raise the average wage of low-income workers (bottom 10 percent of the income distribution) by 3.5 percent. In California, where the minimum wage is now $6.75, a living wage of $10.13 could increase wages by 24 cents per hour or $480 per year for full-time work. The study estimates that this increase would be substantially larger in cities – such as Cambridge, MA, St. Paul, MN, and Berkeley, CA – where living wage laws extend beyond city contractors to include businesses that receive some form of assistance from the city.
A 50 percent increase in the living wage would also reduce employment among low-wage workers by 7 percent, according to the study. “Living wage laws will lead to some employment loss, but on balance, the steep wage increases make it less likely that families with a living wage worker will live in poverty, especially in cities where the law applies more broadly,” says Neumark. However, he cautions that other issues, such as the effect of living wage ordinances on city budgets, should be explored before drawing firm policy conclusions about these laws.
The analysis also suggests that unionized municipal workers gain sizable wage increases in cites where living wage laws cover city contractors. “Because contractors are likely to pass on the increased cost of living wages, cities appear less inclined to contract out work that can be done by their own workers,” says Neumark. “As a result, unions representing city workers have greater bargaining power.” The study notes that labor unions are very active in the movement to pass living wage laws.
The Public Policy Institute of California is a private, nonprofit organization dedicated to objective, nonpartisan research on economic, social, and political issues that affect the lives of Californians. The Institute was established in 1994 with an endowment from William R. Hewlett. David W. Lyon is President and CEO of PPIC.