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Background on Living Wage

Despite the wide spread agreement that the key to combating poverty is to move people "from welfare to work," many poor households have at least one working family member. These workers earn such low wages, however, that they cannot support themselves and their families. The Economic Policy Institute estimates that a full time living wage worker often must make 100% to 130% more than the federal poverty line in order to provide for a family of four.

Increasingly, the focus on raising wages has turned from federal minimum wage legislation to local "living wage" ordinances. Such laws require that contractors or subcontractors of city or county government service contracts pay their employees living wages. The reasoning behind these ordinances is that the government should set a community standard for wages, that tax dollars should not be keeping people in poverty, and that providing living wages ultimately reduces stress on the government by decreasing the number of people who will be dependent on social services. Many campaigns have defined the living wage as equivalent to the poverty line for a family of four. In localities that have passed these ordinances, living wages range from $6.25 in Milwaukee, Wisconsin to $12.00 per hour in Santa Cruz, California. Some newer campaigns push for wages exceeding $10.75. Living wage coalitions have also expanded their proposals to include health benefits, vacation days, community hiring goals, public disclosure, hiring practices, community advisory boards, environmental standards, and language that supports union organizing.

Living wage ordinances have become law in almost 141 municipalities around the country. The first living wage was passed in Baltimore in 1997, with Los Angeles city passing a living wage shortly thereafter. Other jurisdictions are currently wrestling with the issue, including a number of major cities. The issue is hotly contested wherever it is raised, and the success or failure of living wage bills is hard to predict. Variations on living wage laws have been passed in New York City, Milwaukee, Baltimore, San Jose, Minneapolis, St. Paul, Portland, Chicago, San Antonio, Los Angeles, New Haven, Des Moines, Cook County (IL), and several other college campuses, cities, and counties.

Living wage campaigns are typically local grassroots campaigns and are supported by a variety of community, religious, and labor groups and piloted by ACORN (the Association of Community Organizations for Reform Now). These campaigns engage in a broad range of grassroots activities, including circulating petitions, holding community meetings, gathering organizational endorsements, and meeting with councilmen and commissioners. Women's groups and groups representing minorities also have an invested interest in the matter since minimum wage earners are 60 percent female and disproportionately members of minority communities.

Critics of living wage ordinances offer the same arguments as those who challenge raising the federal minimum wage. They claim these laws actually harm those they are intended to help, because a raise in the minimum wage will eventually leading to increased unemployment. Business groups claim that as the price of labor increases, the demand for it will decrease. Some economists believe that wages will increase naturally due to market pressure. When the unemployment rate is low, businesses will compete for workers by raising wages.

These groups also warn of adverse consequences for businesses, especially small ones. Businesses that rely heavily on minimum wage labor may find themselves struggling to stay afloat if their operating costs are raised. They argue that local economies may slump as businesses close when forced to pay employees a living wage.

Supporters of the living wage respond to these warnings with empirical analyses from the last federal wage increases in 1996 and 1997, as well as case studies of living wage ordinances throughout the last ten years In 2002, Jeff Thompson and Jeff Chapman, released "The Economic Impact of Local Living Wages," a comprehensive study of the economic effects of living wage ordinances in cities throughout the nation. Thomas and Chapman found that:

1. Costs associated with the living wage were often overestimated and that the increased costs of a living wage ordinance were less than one-tenth of 1% of the overall budget.

2. Living wage ordinances did not make municipal contractors less competitive.

3. In many cities, including Boston and Los Angeles, unemployment did not increase. In fact, in San Francisco, employment increased because of living wage legislation.

4. Living wage ordinances lead to lower turn over and reduced absenteeism.

In 1996, the Preamble Center for Public Policy, a research and education organization, analyzed the effects of a 1994 living wage ordinance in Baltimore. The study refutes the arguments of many living wage critics. The study found that:

      1. The real cost of city contracts actually decreased since the ordinance went into effect.

      2. Business investment in the city increased substantially in the year following the ordinance.

      3. 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.

      4. 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.