The Changing Employment Situation in Some Cities with Living Wage Ordinances

By Buss, James A.; Romeo, Arthur | Review of Social Economy, September 2006 | Go to article overview

The Changing Employment Situation in Some Cities with Living Wage Ordinances


Buss, James A., Romeo, Arthur, Review of Social Economy


Abstract More than 120 municipalities (cities, towns, and counties) have introduced living wage ordinances. These laws mandate that certain employers in their jurisdiction pay their workers wages that are above federal and state minimum levels. The opponents of these laws argue that these ordinances have adverse impacts on local labor markets. This study considers rates of growth of employment and unemployment trends in a sample of these cities before and after they introduced their living wage ordinances. It finds that while a few cities have had negative labor market experiences after introducing their living wage law these cities represent the exception rather than the rule.

Keywords: living wage, living wage ordinance, Campaign for Living Wages, local labor market conditions, urban/suburban unemployment

INTRODUCTION

When municipalities consider outsourcing jobs to private sector contractors, discussions about the appropriateness of this action often ensue. To make sure that the workers who perform services for the municipality are adequately compensated, some municipalities enact living wage ordinances (hereafter LWOs). These laws stipulate that certain employers in the municipality must pay their workers a wage that is above federal or state minimum levels. (1) By 2004 more than 120 municipalities had enacted LWOs (ACORN 2005) and there were at least 75 campaigns underway to pass such laws in other municipalities (and some universities) (Kern 2004).

In the extreme, some critics contend that the introduction of a LWO will initiate an economic downward spiral for the city (Baird 2002; Galles 2002; Malanga 2003; Summers 2003). Other critics of these laws believe that there will be winners as well as losers, and some of the workers who these laws are suppose to aid may be made worse off (Adams and Neumark 2005, 2004, 2003; Neumark 2002). Supporters of the LWOs obviously disagree with these negative assessments.

As reviewed by Waltman (2004) and Luce (2004), public opinion polls routinely show that the majority of Americans favor increases in the minimum wage. Yet referenda to enact LWOs often fail. In 1996, a referendum in Missouri to introduce a state minimum wage failed by a margin greater than two to one (Waltman 2004:156). Overall, for every municipality that has passed a LWO there are more than two communities in which similar laws were defeated. So the question must be raised as to why the voters and/or their local elected representatives vote against introducing LWOs. One plausible explanation is that the perceived costs to the community outweigh the possible benefits. One such alleged cost is the negative impact that an LWO might have on the local labor market. As one critic of the living wage commented, "when wages are not determined by the market ... a number of things happen. Most of them are not good ... The first thing that happens is that jobs contract" (Cagle 2003).

This study looks at local labor market conditions in some cities that have introduced a LWO. In particular this study looks at employment growth both before and after a city has introduced a living wage law. It also examines post-LWO unemployment trends in these cities. The approach used in this study is purely empirical. It centers its attention only on the employment issue. It does not consider other important issues in the LWO debates, such as hours worked, poverty levels, the cost of providing city services, or changes in tax rates. The primary purpose of this study is to provide an objective analysis of the city-wide employment effects of a LWO so that the public can become better informed about this issue.

The major finding in this study is that while a few cities have had negative labor market experiences after the introduction of their LWO, these cities represent the exception rather than the rule. Generally, the critics who claim the LWOs may harm an entire city are not supported by the findings in this study.

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