THIS PIECE ORIGINALLY APPEARED IN THE SPRING 1999 COMMUNITY ACTION DIGEST. Tanner, Jane. For the few living wage ordinances that are place-based (in that they apply to firms leasing public facilities), it is either not feasible to relocate (airlines) or the geographic region of application is so narrow that firm relocation would not necessarily imply job loss for a city even if such relocation made sense (airport concessionaires or firms leasing other types of public facilities.) This spillover effect has been long discussed in research on the minimum wage and is the result of voluntary action by firms seeking to maintain pre-existing wage structures. Amherst, Mass. Berkeley, Calif.: Bay Area Living Wage Research Group, Center on Pay and Inequality, Institute of Industrial Relations, University of California, Berkeley. Preambles study of the Baltimore ordinance found that, despite opponents predictions to the contrary, contracts that faced the largest increases in the wage bill saw an increased number of bids (Preamble 1998, 13).5 Elmores survey quotes one policy maker in Ypsilanti Township, Mich., as saying that there were more bidders than ever, at better rates following the living wage policy. In order to rule out the possibility that their findings were spurious, Neumark and Adams calculated the wage and employment effects for two groups of workers they call covered and non-covered workers. Controlling for other factors, Fairris showed one-third less turnover among low-wage workers in firms affected by the living wage ordinance (Fairris 2005, 101). Fairris, David and Michael Reich. Here affected workers are those in low-wage occupations who had been on the job between one and five years. Los Angeles, Calif.: Los Angeles Alliance for a New Economy. What Does the Evidence Show? Cambridge, Mass. INTRODUCTION TO LIVING WAGE MODEL 18. The Economic Impact of Living Wage Ordinances. Next well take a brief tour through the arguments of the opposition. The degree of price increases passed onto taxpayers involves a further set of assumptions regarding the responses of local governments. with annual incomes below $21,666 before taxes). An Empirical Analysis of the Proposed Los Angeles Living Wage Ordinance: Final Report. EPIs research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans. Brenner, Mark, Jeannette Wicks-Lim, and Robert Pollin. Living wage ordinances end up being narrow in scope because some sectors are excluded from coverage (nonprofits, for example). Vol. 830-34. Because of the policys stated goals, information on the demographics and family income of the workers receiving raises is relevant when judging success. Reich, Michael, Peter Hall, and Ken Jacobs. Vol. Preamble appears to have been given incorrect information by the city and it is likely the contract was not covered. All told, Neumarks and Adams results are simply not believable. The annual U.S. trade deficit in goods and These higher (though still modest) price increases could result from a range of factors, not least of which includes large concentrations of low-wage workers and a willingness of municipalities to pick up at least some of the increased wage bill of community-based nonprofit organizations. Economic Development Quarterly. Early discussions of spillover effects in the living wage debate were primarily speculative, based primarily on educated guesswork and application of rules-of-thumb gleaned from the limited work on this issue in the minimum wage literature. In their study of the Los Angeles living wage ordinance, Sander and Lokey found that enforcement, compliance, and discipline were all problems. Lacking a significant body of research until recently, prospective studies have tended to base their predictions of how much of the cost pass-through would be passed onto local governments in the form of higher contract prices on educated speculation, sometimes justified with references to economic theory.34. Previously, firms that paid their workers higher wages were unwilling to bid when the outcome of the contract was determined exclusively by who could offer the lowest wages. Bernstein, Jared. These studies suggest that increases in productivity at firms subject to a living wage ordinance are not the result of wholesale replacement of the workforce, but something else. The detailed interviews with firms affected by Los Angeless living wage ordinance buttress the statistical results. In their study of the Baltimore living wage ordinance, Niedt identifies that the specific nature of the major school bus contracts makes it almost impossible to reduce either worker hours or employment levels. How Living Wage Laws Affect Low-Wage Workers and Low-Income Families. Living Wages at the Airport and Port of San Francisco: The Benefits and the Costs. Brenner, Mark D. 2005. 6. Why give to EPI Academic research on turnover costs in the hotel industry shows that average turnover costs range from $1,300 to $7,700 depending on the position and the region of the country. 2005. What can we do to combat these trends? WebThe Living Wage is an hourly rate calculated according to the basic cost of living in the The competitiveness of the market and the price elasticity of demand for the products in question influence the ability of producers (in this case, service contractors) to pass cost increases on to their consumers (in this case municipal governments). Bartik, Timothy. Other Bay area airports fared better with airport traffic than SFO in 2001, primarily due to the relocation of Southwest Airlines to the Oakland airport, which left SFO after failing to secure additional terminal facilities (Reich 2005, 131-32). 1998. In fact, the share of workers earning more than $14 per hour at SFO more than doubled between 1999 and 2001.33. Some opponents of living wages argue that firms will simply substitute away from low-skilled employees to employees with higher skills if forced to pay a higher wage. Vol. This may be a profitable strategy in the short-run, but it will ultimately serve to corrode some of our most valuable resources. Research Report No. 2005a. In their research on living wages at the San Francisco International airport, Reich et al. Since then, over 120 communities have followed suit, some setting wage floors more than twice the federal minimum wage, and some requiring various benefits. Living Wage Policies In the study of the San Francisco airport, Reich also reports some basic demographic characteristics of affected workers. Other questions referring to living wage in the B Impact Assessment 5. Although not primarily concerned with the cost of the ordinance to the city of Los Angeles, a study by University of California Riverside economist David Fairris, UCLA researcher David Runsten, and colleagues at the Los Angeles Alliance for a New Economy (LAANE) reaches similar conclusions on this issue. These narrow cost savings, however, radically underestimate the potential benefits resulting from more reliable airport security. In addition, employers reported a range of other positive outcomes following the implementation of the QSP: 35% reported improvement in work performance, 47% reported better employee morale, 44% reported fewer disciplinary issues, and 45% reported improved customer service.29 Newsletter This is a general problem with living wage ordinances around the country. A related byproduct is that workers may be less likely to leave their jobs, thus lowering the rate of employee turnover and reducing costs of recruiting and training new workers. Although a number of companies (including Adidas, Gap, Sainsbury, and The authors also identified a strategy that tends to lead to lower costsconsolidating multiple services into a single contract. You could probably get every factory and sports team in the world to move to your town if you cut them every tax and environmental break available. If you believe these theoretical propositions, then you are likely to be troubled about mandated wage increases. 2, pp. Sample Research Proposal on the Living Wage 1, pp. Overall, the study adds more evidence to the finding that living wage ordinances do not put undue strain on city or county budgets. Based on data from the U.S. Census Bureau, less than 30 percent of those workers who would benefit from LWOs are from families below twice the poverty line. First, even those of us who support living wage ordinances should accept that these arguments cannot be rejected out of hand. For an additional 10% of adopted ordinances, implementation has been blocked either by courts or elected officials, or was overturned by voters. The Employment Policies Institute (EmPI) is an operation housed at the lobbying firm Berman and Company and works with low-wage employers to oppose minimum wages and living wages. To learn more about the movement or to get involved with a campaign, call them at 202-547-2500. Phone: 202-775-8810 epi@epi.org Greenwald, Bruce and Joseph Stiglitz. The analysis by Reich et al. Too often, economic development efforts have channeled public funds in the form of tax breaks or tax incentives to businesses without regard to the quality of the jobs those businesses provide. While a comprehensive review of prospective research is not within the scope of this paper, following are two predictions that prospective studies have commonly made, but have not been borne out. 2004. Freeman, Richard. 2005b. Several studies have attempted, however, to measure the cost-savings associated with decreased turnover. In a major city such as Los Angeles, this could translate into saving as much as $3 to $7 million annually. In 1996, one year after the implementation of the first modern living wage ordinance in Baltimore, the Preamble Center for Public Policy published a study reviewing the fiscal costs of the ordinance. In his initial study, Fairris estimated 6,500 affected workers, but the figure was revised in later work he completed with LAANE. : Political Economy Research Institute, University of Massachusetts, Amherst. 16. Industrial Relations. 1995. The 12-month lagged effects are generally the most robust findings. 199. WebLiving Wage Campaigns in the Economic Policy Arena: Four Case Studies from assumed. These estimates are influenced by the degree of reduction induced by living wage ordinances and the cost of employee turnover at the affected firms. Events Industrial Relations. Whats different about living wage ordinances (besides the obvious fact that they set a wage level above the federal minimum) is that they are much more narrowly targeted than the federal law. Ordinances are narrowed when exemptions are granted for particular types or sizes of contracts, broad classes of industries, and certain types of workers.26. The estimate of 1,000 workers getting a raise includes employees directly covered by the law, and the ripple effect on non-covered employees. Citro, Constance F. and Robert T. Michael, eds. The likelihood that a new worker would stay at least one year on the job rose by 89%, after controlling for the effects of general economic growth. While an excellent data source for many purposes, it is inappropriate for the task of analyzing the impact of living wage laws. Local governments can expand their programs to help families in need without relying on LWOs. Note that only those workers actually working under the city contract are covered by the ordinance. The effects of living wage laws The first research to directly assess this possibility was Brenners analysis of the Boston living wage ordinance. With the increasing availability of quality studies and data on the actual (as opposed to projected) effects of living wages, future prospective studies should be less speculative and instead be based on the findings of the highest quality empirical studies. 1999, 6-9). Second, employers will not always respond to the wage hike by laying off workers, for there are other, less disruptive ways they can absorb the price increase. Nineteen states (including the District of Columbia) also provide earnings-based tax credits that supplement the federal EITC. Minimum Wages 2005. Amherst, Mass. They usually cover those employed by city contracts and, in some cases, 17. This is because the tax credits are not subject to payroll tax and not generally counted in determining eligibility for many government assistance programs. Some studies make the extreme assumption that local governments will absorb all of the cost increases from a living wage. Newsletter WebFor example, consolidating and shortening supply chains may be necessary to living 44, No. critique. Essentially, these are rules that set a wage level below which certain employers cannot pay their workers. The LAANE employer survey asked Los Angeles contractors about their attitudes toward city contracts following the adoption of the living wage. How Much is Enough? Some of those who argue against living wages are simply ideologues who oppose any mandates on the private sector. Even in Los Angeles, with one of the broadest of living wage ordinances, Brenner, Wicks-Lim, and Pollin estimate that one year of CPS data would likely include about eight affected workers20 (Brenner, Wicks-Lim, and Pollin 2002, 13). They usually cover those employed by city contracts and, in some cases, those employed by firms who have benefited from some form of favorable tax treatment by the locality. Living Wage Wage Policy - Economics Discussion A large majority of economic research and American labor economists agree. 2. As she explains: In some places, implementation seems to simply fall through the cracks: there is no single person in charge and no one who knows much about the ordinance. Commentary By Jared Bernstein March 4, 2002. Prospective studies have typically been created to inform and influence policy decisions, and have varied widely in their methodology, predictions, and accuracy. As far as these studies could discern, the cost increase to the city after the living wage ordinance went into effect was less than the rate of inflation; Again, given data limitations, these studies found no evidence of job loss in response to the wage increases; There was a small decrease-concentrated among smaller firmsin the number of bids per contract after the ordinance went into effect; this small decline, however, did not appear to lower competitiveness or raise contract costs; Interviews and case studies with affected employers suggests some absorption of labor cost increases through efficiency gains, particularly lower turnover; While there is evidence that the ordinance raised wages for those at the bottom of the wage scale, the affected group appears to be small (less than 2,000); Given their low levels of hours worked, the income/poverty-reducing effect was also small; other benefits include some spillover increases to workers above the new wage floor. Privacy Policy Contact Us. [ If These points were made by Reich in an earlier draft of the study, published as a UC Berkeley working paper. Contact us Multiple studies have shown that the bidding for municipal contracts remained competitive or even improved as a result of living wage ordinances. The possibility that firms would lower their profit margins as a response to living wage ordinances was suggested in the very first assessment of living wage ordinances. Brenner et al. In their reply to EmPIs charges, the Preamble researchers showed that even accepting each of EmPIs charges does not change the conclusion that Baltimores living wage ordinance did not significantly increase contract costs (Preamble 1998). 24. This point should not be minimized. tes that some of the large janitorial contracts have mandatory staffing levels that the firms cannot alter even if they want to (Preamble 1998, 12). The mentality is different now. Measuring Poverty: A New Approach. Some of these firms may be able to attract better qualified workers at the living wage than before, but the current workforce is experiencing less turnover, less absenteeism, and likely greater work effort that is increasing productivity enough to offset some of the higher costs associated with the living wage ordinance. Sharpe.1996. The most thorough evaluations (of which I am aware) are two separate studies of the Baltimore living wage ordinance, which was approved by the city council in December of 1994. 1999a. The LAANE study quotes one employer as stating, Higher wages mean less turnover (Fairria et al. 1998. Among workers impacted by Bostons living wage, 37% had only a high school degree or less, compared to 71% in Los Angeles (Fairris et al. The Economic Policy Institute staff is unionized with the The number of workers benefiting from spillover increases is substantial, accounting for one-fifth of all workers benefiting from the ordinance, and is one-fourth the size of the group getting mandatory raises. The impact of living wages on employers: a control group analysis of the Los Angeles ordinance. Things are particularly tough in some of our cities, where quality jobs for low-wage workers have been disappearing, only to be replaced by service sector jobs with low pay and few benefits. Vol. Some contracts experienced moderate price decreases, while others grew considerably. Living Wage Policy Statement - Arke Creative A number of states also provide targeted relief to low-income working families, including packages of assistance for families leaving welfare. They also found that contracts already paying above the living wage experienced a decrease in the number of bids. These increases are less than what many municipal governments had expected when they were preparing cost projections in anticipation of law changes, and much smaller than what was predicted by opponents of living wage laws. Most of the available studies have concluded that there have been either no or only small employment losses as a result of adopting living wages. 2003. 2023 Economic Policy Institute Similarly, in Brenners survey of Boston firms, it was reported that the average per-employee cost of turnover was $9,297 and the median cost was $2,500. What is Living Wage? HR Definitions & Examples es. Tax credits do not raise employer costs and thus do not discourage employers from hiring low-skill job applicants. While the existence of the efficiency wage effect seems to be well documented in the living wage literature, it is less clear how much of the increase in labor costs is offset through greater productivity and decreased turnover. 44, No. The astounding growth of the living wage movement has been a response to the predicament of Americans who work but are unable to make ends meet, as well as to the public policies contributing to the problem. Staff Fairris, David. Phone: 202-775-8810 epi@epi.org Implementing a Living Wage Program | Blog | Sustainable First, we will look at the different types of living wage ordinances that are currently in place. On the firm side, less than one in five affected firms reported making any staffing changes due to the living wage.17 See, for example, Greenwald and Stiglitz 1988 and Akerlof and Yellen 1990. Though living wage ordinances come in a variety of flavors, they all amount to the same thing: they force employers who receive contracts or tax benefits from the locality to pay their workers a wage rate a few bucks over the minimum. As one bus company manager stated, We feel more able to compete against businesses that were drastically reducing wages in order to put in a low bid. The LAANE employer survey found that 11% of firms consider it easier to compete for city contracts following the living wage policy (Fairris et al. WebLiving wage. Newsroom Jobs at EPI Working Paper No. Washington, D.C.: National Academy Press. 1-13. Howes, Candace. Adams, Scott and David Neumark. Williams, Dana. They give the example of Multnomah County, Oregon, where consolidating janitorial services at the Department of Corrections, courthouse, and county jail into a single contract saved the county money and may also have improved the firms approval rating and turnover rate. In general, the evidence from enacted ordinances, as well as the more carefully prepared prospective studies, shows that the overall cost of contracts does not rise significantly. 32-58. Reich, Michael, Peter Hall, and Ken Jacobs. Living Wage Policy Sample Clauses | Law Insider Published estimates from human resource practitioners and trade associations indicate that the average per-worker turnover costs (including lost productivity) for employees earning $8 per hour range from $3,500 to $8,000 depending on the industry (Reich 2003, 56). The effects of Detroits living wage law on nonprofit organizations. Living Wage Princeton, N.J.: Princeton University Press (1995). Most of the available research on living wages suggests that these types of responses are occurring. In fact, two fundamentals of economic theory support these concern 1, pp. While some predictions of job losses resulting from living wage ordinances have been based on perfectly defensible, if not empirically supported reasoning, others are simply re-treads from different debates that are not actually relevant to living wage ordinances. This essay will explore the debate around this relatively new movement. The price is that the ordinances and policies affect only those relatively few workers. METHODOLOGY UPDATES CSA 2021 - S&P Global Chicago, Ill.: Center for Urban Economic Development, University of Illinois, Chicago. Reich addresses some of the difficulties associated with measuring turnover costs by combining survey information of affected firms with industry and academic research regarding turnover costs among low-wage workers. 21. Based on extensive interviews with city administrators, living wage advocates, and review of newspaper reporting on living wage laws, Luce considers more than half of all living wage ordinances to have been only narrowly implemented25 (Luce 2005, 45). These cities report that the return to bidding led to cost savings. Special circumstances 3.1 Minimum wage higher than living wage 3.2 Collective bargaining agreements 3.3 Other special circumstances 4. 78, No. A living wage is a wage that covers the basic needs of workers and their families, including food, clothing, shelter, healthcare, education, transport to work and a little extra for unforeseen circumstances. A friend from a New York City suburb told me that in her town, in order to accommodate a local tax cut, the trash removal service was privatized, which, in this case simply meant that a private firm bought the citys dump trucks, painted the firms name on them, and charged residents a rate that was a bit less than the tax cut (the other change was that now my friend had to bring the trash to the end of the driveway herself). Living Wages and Economic Performance: The San Francisco Airport Model. Basic Family Budgets for Working Families.

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