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Living Wage Impact Research Summaries and Citations

Prepared by ACORN Living Wage Resource Center

January, 2001

What follows is a summary of existing research on the economic impact of living wage laws, passed and proposed.

Post-passage studies: 

 


Baltimore: Baltimore's Living Wage Law: An Analysis of the Fiscal and Economic Costs of Baltimore City Ordinance 442 -- October, 1996

(Preamble Center for Public Policy)

In October 1996, the Preamble Center for Public Policy, a Washington-based independent research and education organization, conducted a study on the effect of Baltimore's living wage ordinance. The 1994 ordinance mandated a minimum hourly wage of $6.10 for anyone working on a city service contract, with an increase to $6.60 on July 1, 1996. The wage is indexed to $7.70 by 1999.

 


The real cost of city contracts actually decreased since the ordinance went into effect.
Business investment in the city increased substantially in the year following the ordinance.
Companies interviewed that held contracts before and after passage of the ordinance did not report reducing staff levels in response to the higher wage requirement. Some contractors praised the ordinance for "leveling the playing field" by relieving pressure on employers to squeeze labor costs in order to win low-bid contracts.
The cost to taxpayers of compliance with the ordinance has been minimal, with the City allocating about 17 cents per person annually for this purpose.


Baltimore: The Effects of the Living Wage in Baltimore -- February, 1999

(Economic Policy Institute)

Available at: www.epinet.org

This study, commissioned by the Economic Policy Institute in Washington, D.C. and carried out by researchers at The Johns Hopkins University, updates and largely confirms the earlier findings of the Preamble study (above). Benefiting from an additional year of data since the 1996 study, the study examines the impact of the 1994 living wage ordinance on the City budget, comparing contract data from before the ordinance was passed to data from living wage-covered contracts as of August 1997. In addition, using payroll data and interviews, the new study surveys the impact on workers covered by the ordinance.

In short, the researchers conclude that the living wage ordinance has had direct positive impact on a relatively modest number of workers in Baltimore without significant financial cost to the city. The study's findings also suggest that the City may be failing to sufficiently implement the ordinance:


For contracts that could be directly compared before and after the law went into effect, the real aggregate cost to the city for these contracts actually declined slightly, when adjusted for inflation, despite the increase in wage rates.
Cost changes varied considerably by contract type, with the largest percentage increase in the labor-intensive janitorial sector. However, other contracts with concentrations of low wage workers (i.e. bus aides) did not produce proportional contract cost increases.
The number of workers directly affected by the ordinance is estimated to be around 1,500. Since some part time workers "share" living wage jobs, the number could be substantially higher.
Payroll evidence suggests that higher wages and hours improve the stability of the work-force.
While praising the ordinance highly, the majority of living wage workers interviewed work only part time and report a need for full time work to raise themselves above poverty. Workers indicate a greatly enhanced sense of recognition for work, which may in turn be linked to increased job commitment, reduced turnover, and increased productivity.


San Jose: Living Wage Six-Month Evaluation Report -- May 6, 1999

(Office of Equality Assurance, City of San Jose)

To obtain a copy contact at 408-277-4025

City Staff was instructed to return to Council six months after the policy's adoption and every year from then on to report on work-force impact, cost, special populations impact, compliance, enforcement, etc. The evaluation summarized below covers the period from November 17, 1998 to March 31, 1999. The one year report is forthcoming.


Five living wage contracts were awarded totaling $437,018
55 people are working on those five contracts
15% received health benefits
28% received wage increases
No small businesses have been adversely affected by the policy's requirements
There is no evidence that contractors are unwilling to make bids as a result of the policy.


Detroit: Impact of Detroit's Living Wage Law on Non-Profit Organizations -- June 2, 2000

(David Reynolds, Wayne State University, Labor Studies Center)

Available at: www.laborstudies.wayne.edu

This study is based on a telephone survey of 64 (out of 96) non-profit organizations covered by the Detroit ordinance, along with more in-depth interviews of the fifteen non-profits that cited the most serious negative effects. The aim was to discover whether the living wage causes serious harm to non-profits, and also to find which policies best represent the needs of both employers and employees.


A non-profit's experience under the living wage is not correlated to it's size budget, type of work, or employment levels
Non-profit compliance is above 80%
71% of non-profit staff either actively support or are neutral toward the living wage
1,739 workers are covered, with wage gains from 10-74%
Three out of four non-profits had little difficulty in implementing the law. For those that did, the financial difficulty was not large relative to the funds received through the city. However, the restrictions on money allocation unique to some non-profits prevented them from easily shifting funds for wages. The city could provide the funds necessary to cover the wage increase for these firms for an amount that is less than one percent of the total funds currently allocated to the affected non-profit firms.


Los Angeles: Economic Analysis of the Los Angeles Living Wage Ordinance -- October 1996


Estimated impact studies:

(Robert Pollin and Stephanie Luce)

Available in book -- The Living Wage: Building a Fair Economy (New Press: 1998)

This study was commissioned by the Los Angeles City Council in 1996 to estimate the impact of the proposed living wage ordinance. The subsequent book updates and expands the study, and reviews the economic impact research on minimum wage, prevailing wage and living wage.

 


The study reviews experiences with federal and state minimum wage laws as well as existing living wage and prevailing wage regulations, concluding that these measures did not result in either unemployment or significant cost to their respective cities. In fact, the study notes, prevailing wage laws have led to increased worker training and have helped turn the construction trades into a well-paid field.
The study found that the proposed Los Angeles ordinance would not cause a net increase in the City budget, employment loss or loss of city services to the residents of Los Angeles.
The ordinance would bring a 50.4% reduction in the amount of government subsidies received by affected workers and their families, as well as growth in spending, home ownership, and small business markets for areas of the city where affected workers are concentrated.
The ordinance has the potential to encourage "high road" competition among businesses, characterized by decent wages, increased productivity, reduced turnover, and increased efficiency;
The living wage would not increase unemployment among less-skilled workers
The living wage ordinance does not place small business at any disadvantage;
The ordinance will not discourage businesses from either locating in Los Angeles or doing business with the city itself.


San Jose: Living Wage- An Opportunity for San Jose -- August, 1998

(Working Partnerships)

Available at: http://www.atwork.org/wp/lw/index.html 

This study was undertaken during the campaign to provide economic context for the debate around the enactment of a living wage for San Jose, CA. It found that over half of the jobs in Santa Clara County do not pay enough to support a family of four without subsidies, over 40% cannot sustain a single parent and child above the poverty level, and 19% of the jobs in Silicon Valley could not even support one person without government subsidy.


At least 1200 employees would be impacted by a living wage of $12.50;
Compliant firms should see increases in productivity and efficiency;
Of the three major categories of affected businesses, the average increased labor costs ranged from just 4% to as low as 0.5% of the companies' total revenue -- so the firms would be able to absorb most of the costs themselves;
Living Wage would result in substantial savings for taxpayers and positive community and family impacts


Miami-Dade: The Impact of a Living Wage Ordinance on Miami-Dade County -- October 22, 1998

(Bruce Nissen: Center for Labor Research and Studies, Florida International University)

Available at: www.fiu.edu/~clrs/index/publications.html

This study was undertaken to estimate the impact of a proposed living wage ordinance for Miami-Dade County, FL. That ordinance was passed in May,1999.


Costs to the county would total approximately $5 million over a three year period -- 0.1-0.2% of the county operating budget for the first year and .01-.02% of the budget for the second and third year of implementation;
Costs to Miami-Dade citizens and taxpayers are extremely small because they already pay a substantial "hidden subsidy" to maintain the lives of low wage workers and their families through federal and state measures.


Knoxville, TN: A Living Wage for Knoxville- Estimating the Costs -- April 2, 1999

(Tom Waters, Bob Becker)

Tennessee Industrial Renewal Network

To obtain copy: e-mail: tirn@igc.org; ph: 423-637-1576

 


Lowest possible cost to city: $379,310.92 -- where 150 workers now receiving less than a living wage are affected
Highest estimated cost: $972,799.89 is still only 0.6% increase to the city's annual budget of $164 million -- where 470 city workers receive a raise


San Francisco: Living Wages and the San Francisco Economy- The Benefits and the Costs -- June, 1999

(Michael Reich et al, UC Berkeley)

Available at: http://socrates.berkeley.edu/~iir/iirpub/iirpub.html

This study was undertaken to estimate the impact of the proposed living wage ordinance in San Francisco. The ordinance would cover both for-profit and non-profit city service contractors and businesses who lease land from the city. The San Francisco Board of Supervisors are expected to approve the ordinance on August 14, 2000.


The ordinance would generate a modest transfer from the City Budget, city firms, and external sources, to the intended beneficiaries of the ordinance without posing harm to the overall economy or the city's finances;
Considerable net benefit to the city economy is likely;
The aggregate benefits outweigh the aggregate costs, even in the short-run.


If every passenger flying out of Oakland airport paid just 59 cents more per ticket, and every visitor to the port paid $1.40, all workers at the airport and 4,400 workers at the port could be assured of receiving a "living wage" and health insurance;
The living wage will decrease turnover, increase productivity, and enhance security at the airport;
The increased costs amount to $59 million -- 2.7% of current business costs;


San Francisco: Living Wages at the Airport and Port of San Francisco- The Benefits and the Costs -- October 6, 1999



Detroit: The Impact of the Detroit Living Wage Ordinance -- September 21, 1999

(David Reynolds, Wayne State University, Labor Studies Center)

Available at: www.laborstudies.wayne.edu

This study was undertaken to estimate the impact of the Detroit living wage ordinance that was approved by 80% of Detroit voters in November 1999.

 


The maximum possible cost to city contractors would be $6.9 million dollars in the aggregate -- 2.5% of the overall funds allocated for contracts;
Even in a worst case scenario (where the ordinance only raises costs) the costs to the city would represent less than 0.3% of the city's annual budget;
For all employers covered under the ordinance, costs of compliance would represent less than 10% of the total value of the contract. Over half of the covered contractors would experience cost increases that represented 1% or less of the value of the contract;
The average costs to for-profit employers would be less than 1% of the firm's operating budget;
If the city decided to cover the costs to the non-profits, the total costs represent less than 0.2% of the $2.5 billion spent annually by the city.


Port of Oakland: Living Wages at the Port of Oakland -- December, 1999

(Carol Zabin et al, UC Berkeley)

Available at: http://socrates.berkeley.edu/~iir/iirpub/iirpub.html

This study was undertaken to estimate the impact of a living wage ordinance at the Port of Oakland, including retail tenants and contractors of firms leasing city land at the airport.


The ordinance would directly benefit about 2,600 low-paid workers at the Port of Oakland and another 500 would benefit indirectly from a "wage push" effect;
The ordinance would likely lower turnover costs and raise productivity among workers;
The ordinance would result in savings in county health expenditures for the uninsured and increased revenues from income and payroll taxes;
For the airport, this cost amounts to $0.59 per passenger;
The costs of the proposed ordinance are about $13 million and comprise only about 1 percent of revenues from the Port leaseholders' business.


Chicago, Illinois: Estimated Cost of the Chicago Jobs and Living Wage Ordinance -- June, 1996

(Center for Economic Policy Analysis -- Arthur Lyons, Jason Hardy)

This study was commissioned by SEIU to estimate the impact of the original living wage proposal for Chicago. A severely scaled-back version of this proposal passed in July of 1998.


The 2,200-2,600 employees covered by this ordinance would create a maximum cost of $8.8-10.6 million per year. This represents one fourth of one percent of the city's overall budget appropriations for 1995 ($4.5 billion).


New Orleans, LA: Economic Analysis of the New Orleans Minimum Wage Proposal - July, 1999

(Robert Pollin, Stephanie Luce, Mark Brenner, Univeristy of Massachusetts - Amherst)

In preparation for expert testimony in a then-pending court case, economist Robert Pollin of University of Massachusetts - Amherst headed a team of researchers to conduct an unprecedented study on the potential impact of a proposal to raise the minimum wage in the city of New Orleans to one dollar above the federal minimum wage level (effectively $6.15 an hour). The research included an extensive survey of businesses in New Orleans, comprising almost a quarter of the employment of the entire New Orleans workforce. This is the best data we could have to predict the effect of the proposed increase on families and the economy of New Orleans.

Costs:

 


For the city's 12,682 firms, the costs of these raises would amount to an average of less than 1% of their operating budget (.9%). Many firms already pay a living wage and would not experience any direct cost increases as a result of this law. This cost is lower for smaller firms, with less than 50 employees, averaging .5% of the average firm's operating budget.
Industries accounting for 86% of production and 79% of employment in New Orleans would face cost increases of less than one percent due to the minimum wage increase.
The two industries that would face the largest average increases are the restaurant industry (2.2%), and hotels (1.7%). In these two industries, firms compete almost completely with other businesses within New Orleans, who would also face the same increases.
Because the increased costs per firm are low, the overwhelming majority of firms will not lay off workers or relocate outside of New Orleans. Instead, most firms will either:


  1. Raise prices by a small amount and pass on the added costs to consumers;
  2. Raise productivity in the firm, which should occur in any case since the wage increases will encourage lower turnover and absenteeism, and thus lower hiring, training and supervisory costs; and/or
  3. Allow that low wage workers will receive a slightly larger share of the firm's total income.

Benefits:

 


The policy will bring significant, if modest, gains to low-wage working people and their families. For the average low-wage working family, income before taxes and subsidies (e.g. Food Stamps and Earned Income Credit) will rise by 11.8%.
Low-wage workers will benefit through the dignity of earning a higher share of their livelihood and thus becoming less dependent on government subsidies.
Reliance on Food Stamps and Earned Income Tax Credit will fall as actual earned income of low-wage workers and their families rises. These gains will be on the order of $15-20 million dollars to the federal government -- roughly what it spends annually on the Head Start program in Orleans Parish.
Even these modest gains are important to the City of New Orleans, given that as much as 40% of its population is poor (earning less than 150% of the poverty line).
It is estimated that 47,000 workers would receive the mandated wage increase. The average yearly increase among these workers would be $1,003. An additional 27,000 could receive raises through a so-called "ripple effect" among workers who are in roughly the same pay range as minimum wage workers.
The policy will benefit the retail stores operating in the city's low-income neighborhoods, as residents of these neighborhoods, with higher incomes, will increase local spending that should amount to roughly a 2.7% increase in an average low-income neighborhood.


Conclusions:


Based on the data, there is virtually no incentive for firms to relocate outside the city or decide against moving to New Orleans, nor will the proposed increase cause employment losses.
These conclusion are drawn from both the extensive evidence on the impact of minimum wage increases on relocation and employment at the state and national level and because the cost increases due to this increase will be so low that firms will find it most cost effective to absorb these costs through small price increases, productivity, or income distribution changes, rather than incurring the large expenses associated with laying off workers or relocation.
The proposal is a relatively efficient policy initiative in that the primary benefits of the policy would be concentrated among low-wage workers, their families, and neighborhoods, while its costs would be readily and widely diffused among the city's businesses, consumers, and government.
The benefits of the minimum wage increase, especially to low-wage working families, but also to retail store owners in low-income neighborhoods and the federal government, significantly outweigh the costs of the policy.

Living Wage Resource Center

88 3rd Avenue
Brooklyn, NY 11217
718-246-7900 x230