Opinion Editorial | |
| Wednesday, December 2, 1998 | |
A Flawed Study Supporting A "Living Wage" |
Although it continues to fly under the radar screen in Washington, the living wage movement has become a major political force in almost every major American city. So-called living wage ordinances require contractors doing business with a city to pay their workers a minimum wage well above those required by state or federal law. Typical of these ordinances is the one approved by Detroit's voters on November 3, which requires city contractors, including non-profits, and businesses receiving city tax breaks to pay at least $7.70 per hour plus health benefits. If no health benefits are provided, the minimum wage rises to $9.63 per hour. The first living wage ordinance was enacted in Baltimore in 1994 and it has been a model for other cities. Baltimore has also been the subject of the most detailed study of the economic impact of living wage ordinances. Conducted by a group called the Preamble Center for Public Policy, its report was published in October 1996 and is available on the internet. Its most controversial finding is that the real cost of city contracts actually fell following enactment of the living wage ordinance. The Preamble finding is important because the major argument against living wage ordinances is that they increase costs for city governments. With labor being by far the greatest cost for any business, any mandated increase in that cost must be passed on to the purchaser of the firm's services or products if they are to stay in business. So the finding that city contracting costs fell is strongly contrary to expectations and economic theory. It turns out, however, that economic theory wasn't wrong after all; the data were. Recently, the Employment Policies Institute (EPI) in Washington reviewed the contracting data upon which the Preamble study was based. It found that many of the figures do not match those in Baltimore's official records. In the most significant instance, the Preamble study was so far off that the data appear to have been fabricated. The core of the Preamble is a review of some two dozen city contracts before and after the living wage took effect. The largest of them is one for meals for the elderly with the contracting code BP-94025. This was apparently a two-year contract that the Preamble study's authors arbitrarily separated into two parts. The second year of the contract, an extension of the first, was for a slightly lower amount. And since it fell after implementation of the living wage ordinance, it appeared to support the study's conclusions. Where the Preamble study's authors used trickery was in implying that the two-year contract was actually two separate contracts. They even made up a nonexistent contract code (BP-95025) that appears nowhere in city records. This single case is significant because it was the largest individual contract in the study. Removing it changes the overall data and reverses the conclusions. According to the EPI study, there were numerous other errors in the Preamble report, including misstating the number of bids on contracts, improper comparisons of contracts not covered by the living wage ordinance, and excluded data that would have contradicted its conclusions. In short, an honest study of the most prominent living wage ordinance finds that it did indeed raise the cost of city contracts, as one would expect. The counterintuitive conclusions of the Preamble study to the contrary simply do not stand up to close scrutiny. It is doubtful that refutation of the Preamble study will have any impact on supporters of the living wage. But it should give pause to those who think it is some kind of free lunch. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, December 2, 1998. For EPI study http://www.epionline.org/preamble.htm Home | Support Us | All Issues | Social Security Debate Central | Contact Us |