Brenner and Luce surveyed 97 low-wage workers employed in the industries most affected by Bostons living wage policy.10 The survey of this group of covered workers reveals a generally similar profile as Los Angeles: Workers were predominantly adult, full-time workers, who were disproportionately people of color11, The average age of covered workers in Boston was 32, with 95% age 20 or older (Brenner and Luce 2005, 51-52), 40% of covered workers were African American, and 79% were female, The average covered worker worked 43 hour per week (Brenner and Luce 2005, 60), Workers benefiting from the Boston living wage policy were also disproportionately poor and low-income, especially prior to its implementation. If someone is paying an average of 12% in taxes on their income from all fees and sources, then local governments receive more when a persons income rises. Williams, Dana. In their study of the Los Angeles living wage ordinance, Sander and Lokey found that enforcement, compliance, and discipline were all problems. 2005, 109). ", Massachusetts Institute of Technology. Raising the minimum wage, An estimated 1,850 workers who were already earning at or above the living wage level received indirect, or spillover raises. The Middle Class could thrive because excessive income was redirected toward better base wages for skilled workers. In attempting to answer the question of whether or not living wage ordinances have a significant impact on employment, different researchers have used a variety of approaches, ranging from qualitative interviews with service contractors and affected workers, to detailed before-and-after analysis of impacted firms, to econometric analyses of readily available labor market data. Reich, Michael, Peter Hall, and Fiona Hsu. The competitive bidding environment may prevent firms from passing costs back onto the municipal government, and the relatively small size of the costs of the living wage may make it still worthwhile for the company to continue to bid on contracts. Unlike most other living wage ordinances, the affected firms dont provide services for a municipal government, but instead operate in a publicly owned facility.7. 32. Increased productivity resulting from wage increases has been recognized for decades, particularly in the economics literature on efficiency wages and debates over the minimum wage. 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). In their study of New England cities, Brenner and Luce found that bids increased in one city (Hartford), didnt change in another (Boston), and declined in the third (New Haven). As such, living wages are often substantially higher than the legal minimum wage. Pros and Cons of Raising the Minimum Wage Living wages and retention of homecare workers in San Francisco. Of the nearly 8,000 workers getting a raise because of the QSP, one-third (2,550 workers) received spillover raises (Reich 2005, 119). On average, spillover raises were half the size of mandated wage increases. 78, No. 2002. Advantages And Disadvantages Of Raising Federal Minimum 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. ", U.S. Department of Labor. Actual costs ended up being between 30%-52% lower than what was forecast by the municipal government (Elmore 2003, 8). 30. The wage gap between men and minorities or women has slowly decreased over time, but it is still an issue that drags down economic activities in many communities. Vendors and the city have successfully absorbed the cost of the living wage ordinance. Several studies have attempted, however, to measure the cost-savings associated with decreased turnover. They report that laws that only cover employees working on municipal contracts (the majority of policies) do not have significant impacts on wages or employment. That could provide a savings of tens of thousands of dollars for each job given to freelancers. After increasing the wages of employees, the employers will charge a higher price of the goods and services which are provided by them to ensure their corporate profit. Get Access Negative Effects Of Raising The Minimum Wage One of the biggest political topics in today's society is the federal minimum wage and whether it should be raised or kept at where it is now at $7.25 an hour. Firms may become uncompetitive. kforce with higher-skilled workers, more firms raised the level of training provided; this occurred among 20% of employers at SFO. Finally, some living wage ordinances, even if they are implemented and enforced, have such narrow coverage that they raise the wages of few workers. The authors also identified a strategy that tends to lead to lower costsconsolidating multiple services into a single contract. The role of community involvement in implementing living wage ordinances. 1. 15. 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. 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. Before conservative reforms began after the Carter Administration, the upper tax bracket in the United States for the wealthiest few was above 90%. Among the disadvantages of increasing the minimum wage is the probable consequence of businesses increasing prices, thus fueling inflation . Baltimores Living Wage: Response to Critics. These gaps give rise to the possibility of horizontal wage push, where firms give raises to worker in order to maintain wage parity between workers that are affected and those that are not affected. The communities with the lowest average weekly earnings levels would benefit the most from this advantage. The mentality is different now. The bill died in the Senate, but the debate about whether to lift the minimum wage rages on. 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 most experienced workers can sometimes leave, forcing a business to pay the same labor cost for less quality in the workforce. 1, pp. Elmore, Andrew J. 2005. The cost of this system would come from a 10% VAT and the money currently used for social-welfare spending. Advantages and Disadvantages of the Living Wage, Minimum Wage: Federal vs. State, Exceptions, and FAQs, Understanding Non-Exempt Employee Status, Pros & Cons, Job Types, Means Test: Definition, How It Works, Examples, Household Income: What It Is and How to Calculate It, Consumer Price Index (CPI) Explained: What It Is and How It's Used, Out of Reach 2021 The High Cost of Housing, New Living Wage Data for Now Available on the Tool, History of Federal Minimum Wage Rates Under the Fair Labor Standards Act, 1938 - 2009, More Than Half of U.S. States to Institute a Minimum Wage Increase in 2022, Most Americans Support a $15 Federal Minimum Wage, How Increasing the Federal Minimum Wage Could Affect Employment and Family Income, President Biden Announces American Rescue Plan. How Increasing the Federal Minimum Wage Could Affect From an American perspective, the problem is that the minimum amount has not kept pace with inflation. 2005. Instead of bidding on the price of providing services for the entire period, firms bid on the price of one hour of service provision. 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. One study reporting mixed findings is Brenners analysis of Boston. 2005. In his research on Los Angeles, Fairris estimates that lower turnover offset 4% of the added labor costs from the living wage ordinance31 (Fairris 2005, 102). 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.) 19, No. The Disadvantages Of Raising The Federal Minimum Wage In addition, because the coverage of the two laws is so different, it is not clear they will have the same impacts on employment; while minimum wage laws cover most or essentially all firms in a geographic region, living wage ordinances cover the relatively few firms with direct voluntary financial relationships with municipal governments, and even then provide significant exemptions based on firm size and industry, as well as employee type. The CQ Researcher. Raising the minimum wage would increase housing and consumer goods costs for everyone and greatly disadvantage minimum wage workers. Prediction two: significant employment losses. 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. 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. The amount of compensation should be enough to let employees after shelter, clothing, and food. In fact, it is possible for a firm to have some employees in a particular occupation covered by the ordinance (those working on the municipal contract), and others in the same occupation that are not covered. This reaction forces employers into a costly sequence of training new people to replace those who leave. Baltimores Living Wage Law: An Analysis of the Fiscal and Economic Costs of Baltimore City Ordinance 442. A Step in the Right Direction: An Analysis of the Forecasted Costs and Benefits of the Chicago Living Wage Ordinance. In Pollins survey of hotels, retail establishments, and restaurants in Santa Monica, firms reported average non-managerial turnover costs of $2,090. 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. 2002. Supporters of living wages say they boost productivity and employee morale while critics argue they could hurt the economy and force corporations to reduce hiring. Instead, LAANE analyzed a similar group of low-wage workers from the Current Population Survey, finding that 69% fell below a basic needs budget (Fairris et al. In 2009, the federal minimum wage rose to $7.25 and remains there as of 2023; however, in some states, such as California and New York, the minimum wage for nonexempt workers is as high as $15 per hour. 21. Other studies have identified that living wage ordinances in some municipalities apply to large numbers of nonprofit/human services organizations. Newsroom One frequently raised concern is that the cost of the living wage might be passed onto the municipality through higher prices for contracts. Workers who cant find jobs will get paid cash under the table for odd jobs. 2, pp. 2005, 111). Chicago, Ill.: Center for Urban Economic Development, University of Illinois, Chicago. Los Angeles, Calif.: Los Angeles Alliance for a New Economy. Nursing homes are also the most expensive form of senior care. The Consumer Price Index (CPI) measures change over time in the prices paid by consumers for a representative basket of goods and services. Research: When a Higher Minimum Wage Leads to Lower The 12-month lagged effects are generally the most robust findings. 2005. From its survey of firms, LAANE found that, on average, raises were granted to workers earning up to 12% higher tha Amherst, Mass. Vol. Prospective studies frequently focus on how much a living wage would cost the municipal government. 22. How Does a Cost-of-Living Adjustment (COLA) Affect My Salary? Public policies have exacerbated the problem from the federal level to the local level. Industrial Relations. 40, No. One potential benefit of living wage ordinances (which is also one explanation for the minor impact on municipal budgets and employment levels) is that higher wage floors lead to decreased turnover and greater work effort among the affected workforce, as well as spur firms to seek out and adopt other means of boosting productivity. National Low Income Housing Coalition. Pareto inefficiency of market economies: search and efficiency models. A company that does not offer salary adjustments to offset inflation might find itself at a competitive disadvantage to companies that do offer this type of benefit to employees. Freeman, Richard. Living wage laws do not guarantee a reduction in poverty levels. Unit-cost bidding is used for services such as security or temporary office help, where the city is unable to predict exactly how much of a need they will have in advance. 1997. That means someone who just came off of the street could make the same amount that it took someone 10 years to earn. This option runs through the Belize Tourism 2005, 95). The Trump Administration announced a work requirement change for able-bodied adults who receive food stamps in the United States. The only way for workers to benefit from living wage laws is if they are covered by laws that are implemented and enforced. 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. 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. Some industries pay their workers equally, but most are still preferring white men over any other population demographic. 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. "More Than Half of U.S. States to Institute a Minimum Wage Increase in 2022. In Baltimore and Boston, empirical studies have found no evidence of diminished employment. A minimum wage is the lowest amount a worker can be paid hourly determined by law. Another advantage to living wages is that they reduce corporate costs associated with recruitment and training. Living wages laws have raised productivity and decreased turnover among affected firms. Referring to the Los Angeles example, Fairris estimates that fewer than 10,000 workers benefited from the living wage ordinance, but Neumarks and Adams classification scheme proceeds as if approximately 450,000 workers received a raise under the ordinance!22. There are similar pressures on firms that provide wage increases to maintain differentials based on employee tenure. 2003. Most states have their own minimum wage laws to try and align it more closely with a living wage. Overall, though, they found total labor costs to have increased by about $2.5 million, a far cry from their prediction before the fact of $30 to 40 million (Williams and Sander 1997, 62; Sander and Lokey 1998, 10). In fact, the EmPI study does not present a new interpretation of what actually happened to the overall cost of contracts, possibly because their analysis did not yield significantly different results than Preambles.2. Britains national living wage economists debate pros and cons Prospective studies produced by living wage opponents (e.g., Tolley 1999) have predicted massive costs that have not been reflected by the actual experience of cities. The livable wage in the United States varies state by state. The Economic Impact of Living Wage Ordinances. What Is a Living Wage? Definition, History, and How to Calculate Brenner et al. 830-34. 2002. There were nearly half as many spillover raises as mandatory raises resulting from the policy. Howes studied the impact of a series of living wage policies, which nearly doubled the hourly wages of homecare workers in San Francisco, and provided them with health insurance. Industrial & Labor Relations Review. Global Living Wage Coalition. 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. Bernstein, Jared and Jeff Chapman. Although critics will point out that unemployment rates increase with a higher living wage, it is almost always a negligible result. Adams, Scott and David Neumark. Evaluating living wage laws in the United States: good intentions an economic reality in conflict? 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. If labour markets are competitive, a minimum wage could cause unemployment because firms will demand 2. A study of home-care workers in San Francisco found that turnover fell by 57% following implementation of a living wage policy. The only way to counter this issue without laying off workers is to increase the cost of goods or services at the consumer level. A high living wage can reduce the number of tax revenues that come in for the government each year because it encourages an underground economy. 5. Information from the National Bureau of Economic Research shows that more people can find themselves on social support programs because experienced workers get higher pay while those with less experience end up losing their jobs. About one-quarter of the other contracts did experience cost increases, in large part because, as Sander and Lokey explain, these were contracts that were not competitively bid; the city has a long-term relationship with a particular firm, and the firm was asked to determine the amount of the increased cost (Sander and Lokey 1998, 8). Since then, over 120 communities have followed suit, some setting wage floors more than twice the federal minimum wage, and some requiring various benefits. Bernstein, Jared. Washington, D.C.: Employment Policies Institute. To most accurately reflect the likely cost of the policy, prospective studies need to acknowledge, at bare minimum, that municipal governments will not bear all of the cost of a living wage, and most likely will experience only relatively small budget impacts. Raising the minimum required wage at any level might general more household income, but it can also cause prices to rise on store shelves. Or is it that less-reliable workers are being replaced by more-reliable workers hired at the new wage? The earliest living wage studies relied on qualitative interviews, and presented evidence to suggest that employees were working harder with the new wage floor and turnover had declined. Differences in the questionnaires for the two types of firms complicate the analysis, but Fairris reported significantly lower levels of turnover at affected firms. Living Wage | UN Global Compact The overall price for the heavily effected janitorial contracts, for example, rose 16.6% in nominal terms, with specific contracts seeing price increases ranging from less than 1% to over 50%. In Los Angeles, the LAANE study shows that contractually determined staffing levels also prevented job losses at parking firms as well as airline service contractors (Fairris et al. Exploring how race, ethnicity, and class intersect to affect economic outcomes in the United States. Are low-skilled workers being replaced with higher-skilled workers, or are workers working harder, getting better trained, and using more productive technology? Nationwide there were potentially 100,000 workers that had received wage increases under living wage ordinances as of 2002, although dozens more successful campaigns since that time have likely increased that number by tens of thousands (Tanner 2002, 769). Higher wages create lower turnover rates for employers. Washington, DC 20005 4, pp. Reynolds, David and Jean Vortkamp. Typically these studies have relied on the minimum wage literature, both the theory and the empirical research, to infer the impacts of living wages on employment. Supporters of a living wage argue that paying employees higher salaries actually benefits corporations as a whole. Brenner et al. The Prohibitive Cost of Senior Care and How to Fund It 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. ", U.S. Department of Labor Wage and Hour Division. 44, No. critique. Washington State often requires businesses to pay the highest minimums in the nation, but it is also ranked at or near the top of the best places to live in the United States. 2005, 93). 2023 Economic Policy Institute Despite the obvious support, there are critics who suggest leaders should scrap the idea of living wages altogether. Living Wages at the Airport and Port of San Francisco: The Benefits and the Costs. Here is what they say about the policys impact on each: 1999. Preamble Center for Public Policy. 9. As Reich et al. Tweets by @EconomicPolicy Can a Family Survive on the US Minimum Wage? A study of the San Francisco airport found that annual turnover among security screeners fell from 95% to 19%, as their hourly wage rose from $6.45 to $10.00 an hour. 7. Newsletter "Minimum Wage. Reich et al. Qualitative evidence gathered in interviews suggests that this pass-through, inc 351-55. In their 1996 study, researchers from Preamble interviewed 31 contractors affected by the wage increase. Weisbrot, Mark and Michelle Sforza-Roderick. The term living wage refers to a theoretical income level that allows individuals or families to afford adequate shelter, food, and other necessities. "Poverty Guidelines. Implementing living wage laws can create internal conflict for businesses. In 2004, MIT created a Living Wage Calculator, which is updated in the first quarter of every year. They point out that the minimum wage does not provide enough income to survive as it doesn'trise with inflation; the minimum wage can only increase with congressional action. Industrial Relations. The latter is the lowest amount of money a worker can earn as mandated by law. While an excellent data source for many purposes, it is inappropriate for the task of analyzing the impact of living wage laws. Living wage movement: do laws requiring higher wages cause unemplo Two years after Preambles study, the Employment Policies Institute (EmPI) published a vitriolic response, even charging the Preamble researchers with fabricating evidence in order to reach their desired conclusions.1 Despite its use of heavily charged rhetoric, nowhere does the EmPI study refute Preambles key findingthat the living wage ordinance had no discernible impact on contract costs. The method of these studies has been severely criticized, and the findings discredited by many researchers. 105, No.2, pp. Neumarks and Adams argument on this point is probably correct, but is not relevant to the main part of the critique levied by Brenner et al. Vol. See, for example, Greenwald and Stiglitz 1988 and Akerlof and Yellen 1990. 1998. Earning a living wage means you can pay necessary costs, including shelter, food, healthcare, childcare, taxes, and transportation. Living Wage Laws in Practice: The Boston, New Haven and Hartford Experiences. Therefore, a federally mandated $15 minimum wage would increase the cost of labor for childcare providers by almost 33 percent. Neumark, David. Would a higher living wage minimum benefit the economy? The SFO policy is almost universally applied to the airport workforce, directly affecting the wages of about 5,400 workers6 (Reich 2005, 119). The bill aims to increase the federal minimum wage over five years for regular employees, along with those who receive tips and new workers under the age of 20. He calls it the Freedom Dividend, and it offers a universal living wage of sorts. 8. 48, No. Living wage - Wikipedia 7. Living Wages and the San Francisco Economy: The Benefits and the Costs (First Release). Before people didnt care, [they could] always find another $6 job (Reich et al. Industrial Relations. The LAANE employer survey asked Los Angeles contractors about their attitudes toward city contracts following the adoption of the living wage. 1, pp. Increases unemployment through deadweight loss. Doretha Clemons, Ph.D., MBA, PMP, has been a corporate IT executive and professor for 34 years. The federal poverty level is an economic measure used to decide whether an individual or family qualifies for federal benefits and programs. Some contracts experienced moderate price decreases, while others grew considerably. Under the current structure for American policies on wages, someone at the $7.25 per hour level may not even have enough to qualify to file a tax return in some years. Consequences and Disadvantages Regular Peoples Viewpoint Conclusion References Many citizens of the United States of America are not satisfied with their hourly incomes. 8. How do taxes and spending work, and where do you fit in? ", World Population Review. Marketplace costs rise when living wage minimums increase. Berkeley, Calif.: Bay Area Living Wage Research Group, Center on Pay and Inequality, Institute of Industrial Relations, University of California, Berkeley. Akerlof, George and Janet Yellen. Nonprofit Professional Employees Union. 2002. Although nonprofits are exempted altogether in some living wage ordinances and almost entirely in others, they are covered in some cities. Thinking about local living wage requirements. 106-38. Raising the federal minimum wage to $15 an hour from the current $7.25 an hour would still not provide a livable wage to many low-income adults and families in certain locations. As Niedt explains, the bus routes have not changed and cannot be drastically sped up, nor can an aide work on more than one bus at a time (Niedt 1999, 19). What Is a Living Wage? As long as they continue to contract, however, they will be covered by the law regardless of whether they relocate or not. 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). It could expand the underground economy. The passage of the law marked a turning point for the labor movement in the United States. Even cities budgeting for a new living wage policy have systematically overestimated the ultimate cost of the policy. Economic Development Quarterly. 2. If it did, then the minimum wage laws in the United States would require almost $11 per hour. 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. Even if a company pays an independent contract a full-time wage, U.S. law doesnt mandate that workers receive benefits in that employment structure. There are wage costs associated with paying the LW and the research shows that for those companies surveyed: Wage cost increases due to its introduction were 6% of the contract cost. One of the chief concerns among all observers has been the economic effects for municipalities, workers, and firms. 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. They do, however, identify some contracting arrangements that can lead to higher costs. New London, Conn.: Department of Economics, Connecticut College. Vol. We've outlined some of the arguments for and against living wages. Overall, the study adds more evidence to the finding that living wage ordinances do not put undue strain on city or county budgets.
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