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"The Living Wage: A Progressive Movement in Action,"

by Jared Bernstein & Jeff Chapman January/February 2004 issue of Poverty & Race

In these times of dominant conservative politics, it’s particularly interesting to reflect on the marked success of a progressive policy, one that directly intervenes in the wage-setting function of the private market. We’re talking, of course, about the living-wage movement.

A living-wage ordinance is local legislation–typically at the city or county level–that establishes, for workers covered by the ordinance, a wage floor above that of the prevailing minimum wage. There are some 100 living-wage ordinances in place, plus over 70 ongoing campaigns to pass such measures. No two ordinances are the same; they differ in terms of what type of firms or employers are covered, which workers are covered, and the nature of the coverage.

When the contemporary living-wage movement began in the mid-1990s, the “contract model” dominated. Under these ordinances, private firms under contract with the city to provide a service–cleaning streets, maintaining public areas, etc.–are mandated to pay the wage level specified in the ordinance, typically a few dollars above the minimum wage. Many ordinances allow employers to take a dollar or more off the mandated living wage level if they provide health insurance. As the movement evolved, ordinances began to extend coverage to firms that receive a subsidy from the locality. The idea was that if you’re an employer who’s benefiting from doing business with the city, then you ought not to be creating poverty-level jobs. The way one organizer put it: “It’s our money, and as taxpayers, we’d prefer not to subsidize low-wage employers creating lousy jobs in our city.”

Thus, from the perspective of advocates, the movement is seen as a way to accomplish a variety of goals. Foremost, to raise the pay of affected workers. Also, by raising the pay in firms with which the city does business, living wages lower the wage differential between public- and private-sector workers. This then can dampen the motivation of city councils to outsource services provided by public-sector workers, whose jobs are usually of higher quality than the privatized version. Historically, the public sector has been an important source of employment opportunities for African-Americans. Higher rates of unionization and affirmative action laws within government employment have ensured higher wages and better mobility than in the private sector. Living wage ordinances also recoup some of financial assistance cities provide to firms that demand such subsidies, and does so in the form of higher compensation to workers. Finally, many living-wage campaigns involve broad coalitions including labor, religious groups, and low-wage workers themselves, giving rise to the possibility of an economic justice coalition that outlasts the wage campaign.

Variations in Coverage

Why have living wages appeared on the scene, and why have they been so successful? What impact have they had? What is their relevance for minority populations? To what extent are the goals of the movement being realized?

To begin with, we describe a typical living-wage ordinance, just in case one hasn’t yet come to your town. Since one of us lives in Alexandria, VA, where an active ordinance is in place, let’s describe that one. The ordinance applies to all non-construction contracts for over $50,000. Firms that win such contracts with the city must pay their workers no less than $10.89 an hour. This equals the poverty line for a family of four whose breadwinner has full-time, full-year work, plus about $2, the average hourly cost of providing health insurance coverage. The wage is indexed to inflation.

As noted, ordinance frameworks are extremely flexible, allowing living-wage campaigners and city councils to inject their particular preferences into the legislation. One flexible parameter is the contract value beyond which firms have to pay the living wage. In Arlington County, VA, contracts for less than $100,000 are exempted; in Cincinnati, the threshold is $20,000. In Boston, the original law stated that direct service contracts with the city must be for over $100,000 (for subcontractors, the limit was $25,000), but advocates later successfully campaigned to lower the direct contractors’ cutoff to $25,000. The Oakland, CA law requires coverage for workers on service contracts of at least $25,000 and development assistance of $100,000 or more (the tenants and leaseholders of the subsidy recipient are covered). In Chicago and other cities, nonprofits that contract with the city are exempted; in other cities, they are included, though there often exists a threshold here as well in order to exempt smaller providers.

One relatively new application of the living-wage model is in the university setting. A renowned recent example is Harvard University, where student supporters staged an aggressive campaign on behalf of low-wage workers employed by the University directly or indirectly (through subcontractors). The agreement covers security guards, custodians and dining service workers. Along with the initial pay raises, the agreement includes a “wages and benefits parity policy” requiring that outsourced jobs provide wages and benefits comparable to in-house unionized workers performing the same job.

A recent trend in the movement is to push for laws closer in spirit/coverage to the minimum wage. The only active policies of this type are in Santa Fe and San Francisco, both of which were passed in 2003 and require a minimum wage of $8.50 from many of the cities’ employers. New Orleans also passed a citywide minimum wage, but implementation was prohibited by the state’s supreme court based on jurisdictional issues.

Pragmatic political concerns often generate compromises regarding coverage. This flexibility avoids the “one size fits all” model of, for example, the federal minimum wage, where regional differences are not taken into account. For example, the San Jose living wage is relatively high compared to other ordinances around the nation, but community organizers there pushed for this level based on the very high cost of housing in the Silicon Valley area and the fact that, due to those costs, many of the covered workers had to travel long distances to get to work. In other cases, workers in certain occupations, such as those who work in the school system (as in Milwaukee) might be seen as particularly deserving by influential parties and thus might be strategically highlighted in the campaign and ultimately in the ordinance.

A further motivation for the living-wage movement lies in the negative economic trends that have beset low-wage workers and the lack of federal response. Prior to the late 1990s, this led to falling living standards as incomes stagnated or fell due to a series of forces—deindustrialization, fewer unions, lower minimum wages, high unemployment–that reduced the quality of jobs available to non-college educated workers. The tight labor market of the late 1990s reversed these trends for a few years, but as the unemployment rate has crept up over the past couple of years, despite the alleged economic recovery, real wage growth is once again stagnant for all workers. Since African-Americans tend to earn lower wages and rely more heavily on those wages to make ends meet, stagnating wage growth is of particular concern to black workers. They are also more likely to benefit from a living-wage ordinance–16% of the workers directly assisted by the most recent (1996) increase in the federal minimum wage are black, despite making up only 11.3% of the total workforce.

Over the long run, the economy has not provided much of a lift for many earning low wages. At the same time, other than the 1996 minimum wage increase, which brought the federal minimum up to $5.15 in 1997, there has been little to no action regarding policies to raise pre-tax wages (a large increase in the federal Earned Income Tax Credit in 1993 and the addition of various state EITCs have, however, made important contribution to raising incomes in families with low-wage workers). To the contrary, what changes have occurred, such as the passage of international trading agreements in the 1990s and highly regressive tax cuts more recently, can be seen as evidence of a more deregulatory approach to economic policy, changes that tend to further reduce the bargaining power of low-wage workers.

In this environment, the living-wage movement offers local organizers a simple, straightforward policy which they can pursue, one with the demonstrable result of raising wages for some of those workers facing these challenging trends.

Impact of Living Wage Ordinances

But have the ordinances delivered? Those who opposed the introduction of living wages argue that instead of helping the least advantaged, the wage mandates will lead employers to lay workers off or firms to avoid seeking contracts in cities with living wages (or, in the case of business subsidies, to avoid locating there). What does the evidence show?

A few years ago, this would have been a very tough question to answer. But since then, there has been a great deal of research evaluating living wage outcomes (see Bernstein 2004 in the accompanying Box).

The best way to learn about living wage outcomes is to do a before/after study in a city that has adopted the policy. There are two such studies, one for Los Angeles, the other for Boston. Both find that the ordinance lifted wages of affected workers significantly. Regarding job losses, there is some evidence that employers reduced hiring in response to the mandated wage hike, but a closer look at the Boston study suggests that affected firms tended to use fewer part-time workers and more full-time workers compared to unaffected firms–that is, total hours worked didn’t change.

Another useful strand of research is by city administrators called upon to report the impact of the ordinance in their city. These reports have the advantage of reflecting information by people who are “closest to the ground” regarding the implementation and impact of the laws.

The city/county studies are summarized in a review paper by Andrew Elmore of the Legal Aid Society of NYC, who tells us that the reports
“. . . suggest that localities after implementation of a living wage law tend to experience modest contract price increases for a small proportion of contracts,” leading to overall increases in contract costs to the city that were usually less than 1%. He does, however, note a few larger increases in individual contracts due to the ordinances, including a 31% increase in a security contract in Hartford (the only contract covered there), a 22% increase in a janitorial contract in Warren, MI, and increases of 10% in about 5% of the city contracts in Berkeley, CA.

How do contractors respond to these increases? According to the same study, they appear to absorb at least some portion (in some cases, all) of the increase, and there was little evidence of any diminution of competitiveness in the bidding process. One Ypsilanti, MI town supervisor found that the cost of the ordinance there was held down by an increase in the numbers of bidders. Her explanation was that “now that the wage standard is equal, the ability to compete is based on factors other than wages, so you’ve got to be tighter and provide less of a profit margin.” Other research reports that affected firms take lower profits as the primary means by which they absorb the wage increase.

While the above relates to service contracts, Elmore also reviews the impact of living-wage ordinances as they affect private sector businesses receiving public subsidies, and here the results are more mixed. He reviews nine cities with subsidy-based living wage ordinances and reports that only one–Oakland–reported a decline in the number and size of economic development projects. However, the Oakland example may reveal an important impact of this dimension of the policy. This is a city with a relative large proportion of underemployed minorities, and while the attraction of low-wage retailers (think Wal-Mart) is surely a double-edged sword, those jobs might still be viewed by local residents as valuable opportunities. We don’t mean to imply that retailers will necessarily respond this way when making location choices. Probably, most won’t. But some of these retailers–again, we’re thinking of Wal-Mart–will go to great lengths to avoid anything that smacks of local regulation, such as wage mandates or union presence. Whether localities want to pursue such “low-road” employers is an open question–there are obvious reasons to avoid engaging in their bargaining strategy–but living-wage advocates should be aware of the possible trade-off.

Are Goals Being Reached?

So if wages are up with few of the economic distortions that critics worry about, is it clear that the movement is realizing its goals? Yes and no. Living-wage campaigns have been tremendously successful at passing ordinances, and that of course is a first-order goal of the movement. Along the way, they’ve created a juggernaut, wherein opponents are hard-pressed to fight back against the logic of the ordinance. Any forecast of where this movement is headed would have to predict continued success.

On the other hand, there is a paradox here: The movement’s strength is also a weakness in terms of making a serious dent in working peoples’ poverty. The primary reason underlying the favorable results from the impact studies, and thus an explanation of why opponents are often unsuccessful in their crusade against these ordinances, is that coverage is very narrow. By remaining limited in the coverage provided by these ordinances, advocates have been able to convince city officials and, by proxy, taxpayers, that they will accomplish their stated goals of raising the economic fortunes of affected workers without leading to economic distortions in the form of significant layoffs, tax hikes, or reduced competition for contracts.

But the marginal coverage of the policy limits its effectiveness to raise the living standards of more than a few thousand workers per ordinance. While no national total of affected workers (those who have received wage hikes due to the policy) is available and is a quickly moving target, a rough count would unlikely surpass 100,000 and may well be closer to half that level. In a low-wage labor market of roughly 30 million, this gives a sense of the limitations of the movement and the nature of the paradox it faces.

As with any new policy, especially one as diverse as this, important questions remain. First, to what extent can coverage be expanded without generating unacceptable inefficiencies? Taken together, much–not all–of the literature on minimum and living wages suggests that given the indeterminacy of wages and the myriad other factors that determine hiring, quite modest wage increases with broad coverage (as in minimum wage increases) and much less modest increases with very limited coverage (living wages) can be absorbed without significant displacements or distortions. If, in fact, the next stage of the living-wage movement is towards expanding coverage, as in minimum wages for all employees in the city, research will be needed to gauge the impact on the relevant outcomes.

Second, even if coverage remains limited, there is the question of spillovers from the living-wage movement, specifically to the labor movement. There is some evidence that living wages successfully diminish the outsourcing of publicly-provided services (by unionized workers), and such effects should continue to be monitored. But a larger question is the extent to which living-wage campaigns can serve as organizing tools for unions. There’s not much evidence that the movement has gained much ground in that regard thus far, but there is almost no systematic research on this important question.

At this point, the living wage is one of the better known and more successful policies designed to address the difficulties faced by low-wage workers in the new economy. And, as we have stressed, unless the landscape changes dramatically, the number of ordinances is only likely to grow, perhaps at an even faster rate. The low levels of coverage constrain the policy’s reach, but it is a successful political strategy, and one that’s targeted at a deserving group of workers. The next step in the movement should be thinking about ways to take it to scale, increasing coverage and reaching greater numbers of the working poor. At the same time, researchers can monitor the impacts, to see if expanding living wages continue to provide higher living standards to low-wage workers without leading to layoffs or other distortions.

Jared Bernstein a senior economist at the Economic Policy Institute, is co-author of The State of Working America. In 1995-96, he was deputy chief economist at the U.S. Dept. of Labor. jbernstein@epinet.org
 
Jeff Chapman an economic analyst at the Economic Policy Institute, provides technical assistance to living-wage campaigns and other economic justice organizations. jchapman@epinet. org
 
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