The Employment Effects of Living Wage Laws
March 20, 2002
For some years, liberal groups like ACORN (Association of Community Organizations for Reform Now) have pushed hard to get so-called living wage laws enacted in cities and counties throughout the country. More than 60 jurisdictions having enacted living wage ordinances since the first in Baltimore in 1994.
- Typically, living wage laws require city contractors to pay their employees a wage significantly higher than the minimum wage as a condition for doing business with the city.
- Living wage rates are often tied to the poverty-level income for a family of four, which was $17,761 per year in 2000 or just $8,959 for a single person.
- Thus one effect of a living wage law is to pay single people and two-earner couples considerably more than a living wage, as defined by the poverty level.
The point is that it is silly to assume every worker is the sole wage earner in a four-person family, as living wage advocates do.
Living wage campaigns are mainly fronts for municipal employee unions who want to raise labor costs for potential private competitors.
In fact, a new study by economist David Neumark finds that existing government employees are the primary beneficiaries of living wage laws.
- This is the main reason why he finds that living wage laws raise local wages.
- However, Neumark also finds that forcing up wages causes demand for labor to fall; thus while workers covered by the living wage law typically see a 3.5 percent increase in wages, there is a 7 percent increase in unemployment among low-wage workers.
Taxpayers foot the bill for the higher wages. They may pay again when businesses relocate elsewhere, thus reducing the tax base.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, March 20, 2002; see David Neumark, "How Living Wage Laws Affect Low-Wage Workers and Low Income Families," March 2002, Public Policy Institute of California.
Browse more articles on Economic Issues