NCPA - National Center for Policy Analysis

Down Side of the "Living Wage"

May 29, 2002

The so-called "living wage" movement aims to require companies with city and county contracts to pay their workers more than the standard minimum wage -- sometimes much more. Proponents have achieved their goals in a handful of cities and are busy launching campaigns in others.

Just one living-wage law existed in 1994. Today there are 94. But many economists say while some workers may receive increased pay, they are balanced by workers who are harmed.

  • A study by the Public Policy Institute of California found that while poverty fell 1.8 percent in cities where the living wage was 50 percent higher than the federal minimum wage, employment also fell 7 percent among the lowest 10 percent of all workers in those cities.
  • Analysts say that if a company increases the salary of a worker who makes the least up to the level of a worker who makes the most, then a business owners must suddenly give raises to everyone.
  • Many businesses don't operate on margins that will permit that.

This situation has forced businesses to seek help from state legislatures and courts.

Bills pending in several states would bar local living-wage laws. Also, court challenges are underway in Santa Monica, New Orleans and other cities.

Source: Joseph Guinto, "Living-Wage Efforts Gain Steam Even as They Force Payroll Cuts," Investor's Business Daily, May 29, 2002.


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