critique. Brenner et al. 14. 2002. Brenner and Luce 2005, tables 4.4 and 4.6. A related byproduct is that workers may be less likely to leave their jobs, thus lowering the rate of employee turnover and reducing costs of recruiting and training new workers. In addition, the CPS does not contain data on the workers employer, making it impossible to positively identify those eight workers if they do appear in the survey. Referring to the Los Angeles example, Fairris estimates that fewer than 10,000 workers benefited from the living wage ordinance, but Neumarks and Adams classification scheme proceeds as if approximately 450,000 workers received a raise under the ordinance!22. "Minimum Wage. In fact, the share of workers earning more than $14 per hour at SFO more than doubled between 1999 and 2001.33. Disadvantages of Minimum wages - Economics Help The policy change studied by Howes was not just limited to a living wage ordinance, but also was accompanied by union organizing. Many economists and business executives who point out that labor is a major cost of doing business argue that businesses will be forced to cut jobs to maintain profitability. Reich, Michael, Peter Hall, and Fiona Hsu. Lacking a significant body of research until recently, prospective studies have tended to base their predictions of how much of the cost pass-through would be passed onto local governments in the form of higher contract prices on educated speculation, sometimes justified with references to economic theory.34. One frequently raised concern is that the cost of the living wage might be passed onto the municipality through higher prices for contracts. The mentality is different now. How Living Wage Laws Affect Low-Wage Workers and Low-Income Families. Are low-skilled workers being replaced with higher-skilled workers, or are workers working harder, getting better trained, and using more productive technology? "H.R. National Conference of State Legislatures. The Economic Policy Institute staff is unionized with the While employee turnover decreased for the entire sample of firms, it appears that firms affected by the living wage experienced larger decreases than firms that were not affected. A network of state and local organizations improving workers' lives through research and advocacy. Merit pay is sometimes called incentive pay or pay-for-performance, and it involves giving employees base pay increases or bonuses based on their performance. 2005, 95). Using the CPS to analyze the economic effects of living wage laws makes finding a needle in a haystack look like a relatively simple chore, which is why most researchers have eschewed it for the more costly and time-intensive process of administering new surveys targeted specifically to be able to calculate the impacts of living wages. There were nearly half as many spillover raises as mandatory raises resulting from the policy. Vol. Controlling for other factors, Fairris showed one-third less turnover among low-wage workers in firms affected by the living wage ordinance (Fairris 2005, 101). The Los Angeles Alliance for a New Economy conducted a survey in 2002 of 320 randomly selected workers who benefited from the Los Angeles living wage ordinance. 2005, 38).9. The Impact of a Large Wage Increase on the Workforce Stability of IHSS Home Care Workers in San Francisco County. 3.The competitiveness of UK goods abroad can suffer compared with low wage economies, such as China and India. Proponents of raising minimum wages argue that changes are needed to help incomes keep pace with increasing costs of living, and a higher minimum wage will lift millions out of poverty. 582 - Raise the Wage Act. 59-83. The number of workers benefiting from spillover increases is substantial, accounting for one-fifth of all workers benefiting from the ordinance, and is one-fourth the size of the group getting mandatory raises. Economic Development Quarterly. Two separate studies of the Baltimore living wage found that city contract costs increased less than the rate of inflation. Tweets by @EconomicPolicy In their 18-month review of the ordinance, Sander and Lokey considered the discipline process to be toothless, and one of several implementation problems limiting the effect of the ordinance (Sander and Lokey 1998, 4). Prospective studies frequently focus on how much a living wage would cost the municipal government. Howes studied the impact of a series of living wage policies, which nearly doubled the hourly wages of homecare workers in San Francisco, and provided them with health insurance. 2005, 20). In any event, estimates provided by Pollin suggest that the costs imposed on firms from living wage ordinances are too low to justify relocation as a feasible response even if it were possible to dodge the living wage ordinance requirements by doing so (Pollin 2005). 2005, 115-6). In general, the evidence from enacted ordinances, as well as the more carefully prepared prospective studies, shows that the overall cost of contracts does not rise significantly. Authoritative, up-to-date data on the living standards of American workers. Industrial Relations. The National Living Wage (NLW) is currently the government's flagship policy aimed at helping the low-paid in the UK. 1999, 6-9). 43. 33, pp. The idea of raising the minimum wage is noble and commendable, but many of the arguments rely upon raw emotion and neglect sound economic ramifications that will adversely impact the same people. Living Wages at the Airport and Port of San Francisco: The Benefits and the Costs. 40, No. Williams, E. Douglas and Richard Sander. They give the example of Multnomah County, Oregon, where consolidating janitorial services at the Department of Corrections, courthouse, and county jail into a single contract saved the county money and may also have improved the firms approval rating and turnover rate. 6% were age 20 and older; 58% were 35 and older, 71% had only a high school degree or less, On average, workers had been in the workforce nearly 20 years, The LAANE survey did not provide reliable family income data. 2005. Theres an inherent imbalance of bargaining power between employers and employees. These indicators, as well as sentiments expressed by workers at the airport, support Reichs conclusion that worker effort, rather than displacement, has driven increased productivity and decreased turnover. With higher wages, workers may feel greater satisfaction with their job and may decide to put in greater work effort.27 Increased effort could also result from fear of losing the job; now that the job is more desirable than available alternatives the cost of job loss is greater. Living Wages and Economic Performance: The San Francisco Airport Model. Luce, Stephanie. What Is Universal Basic Income? - The Balance Overall, though, they found total labor costs to have increased by about $2.5 million, a far cry from their prediction before the fact of $30 to 40 million (Williams and Sander 1997, 62; Sander and Lokey 1998, 10). A living wage is defined as the minimum income necessary for a worker to meet their basic needs. The competitive bidding environment may prevent firms from passing costs back onto the municipal government, and the relatively small size of the costs of the living wage may make it still worthwhile for the company to continue to bid on contracts. Pros and Cons of Raising Minimum Wage | Toggl Track Some opponents of living wages argue that firms will simply substitute away from low-skilled employees to employees with higher skills if forced to pay a higher wage. The proportion of Latinos has actually increased (Fairris et al. One telling fact is that 45% of the firms reported decreased employee grievances following the implementation of the QSP (Reich 2003, 60). As Brenner notes in his study of the Boston ordinance, nonprofits may go to greater lengths to avoid layoffs in the face of labor cost increases from a mandated wage increase (Brenner and Luce 2005). The economic effects of living wage laws: a provisi A study of home-care workers in San Francisco found that turnover fell by 57% following implementation of a living wage policy. 2005b. "Notes from Joe: My Plan to Build Back Better.". 2, pp. While it is not possible to fully address all of the criticisms in this review, below is a brief summary. When do living wages bite? Predictably, these few contracts were labor intensive operations that employed a large number of workers concentrated at low wages, notably janitorial and security guard services.4. Recent studies using original surveys in both Los Angeles and Boston have shown that the workers affected were mostly adults and mostly working full time. 2023 Economic Policy Institute On the negative side, increasing minimum wages too fast could cause a rise in business costs, a rise in unemployment, and higher prices for consumers - problems exacerbated in depressed, low wage sectors and regions. 2. The net outcome of an increased minimum wage might be a large number of overqualified workers taking minimum wage positions that would ordinarily go to young or otherwise inexperienced workers. Vol. The research on the living wage has provided new opportunities to test for evidence of these effects. This is a standard (and generally unproven) argument in the debate over minimum wage laws, but it is not relevant to living wage ordinances. : Political Economy Research Institute. Living Wages and the San Francisco Economy: The Benefits and the Costs (First Release). 44, No. Even cities budgeting for a new living wage policy have systematically overestimated the ultimate cost of the policy. Sander and Lokeys interviews with contractors following implementation of the living wage ordinance in Los Angeles also yielded evidence that some firms had responded to increased labor costs by becoming more productive. What Is Labor Market Flexibility, What Factors Impact It? 18 Crucial Pros and Cons of Raising Minimum Wage 19, No. Some of the recent living wage research, however, has directly addressed this issue, providing detailed information on the size of the spillover effect. Investopedia requires writers to use primary sources to support their work. Vol. 11. In at least five separate papers, Neumark and Adams examine the effects of living wage laws by comparing the experience of the lowest-paid workers in cities with living wage laws to those in cities without such laws.19 In each of their studies, Neumark and Adams report that the workers in living wage cities have experienced positive wage effects, but negative effects on employment relative to workers in non-living wage cities. 1998. About one-quarter of the other contracts did experience cost increases, in large part because, as Sander and Lokey explain, these were contracts that were not competitively bid; the city has a long-term relationship with a particular firm, and the firm was asked to determine the amount of the increased cost (Sander and Lokey 1998, 8). As a result of these policies, the two most common themes echoed by living wage proponents are (1) that wages should be high enough to allow workers to meet basic needs (i.e., living wages), and (2) that municipal policy should encourage or require living wages for its employees and contractors, rather than exacerbate the problems faced by low-wage workers. Also concerning Baltimore, the Preamble study no 1. Investopedia does not include all offers available in the marketplace. They also found that contracts already paying above the living wage experienced a decrease in the number of bids. In 1999, Niedt interviewed 26 workers employed in jobs affected by the Baltimore living wage ordinance. Living wage - Wikipedia To begin with, the data source used in the Neumark and Adams studies is the Current Population Survey (CPS), a national survey used by the Bureau of Labor Statistics to measure unemployment, wages, and other labor market outcomes. Because of these factors, it is unlikely that the differences in wages, employment, and poverty between the two groups of cities (living wage and non-living wage) are due to living wage ordinances. Weisbrot, Mark and Michelle Sforza-Roderick. An exhaustive study of three New England cities by researchers from the University of Massachusetts confirmed the general finding that modest costs should be expected, but found that one particular type of bidding process that is more likely to lead to cost increasesthe use of unit-cost bidding. If contract prices do increase, the municipal government will be faced with cutting services, raising taxes to pay for the higher costs, finding ways to become more productive, or some combination of the three. Pollin, Robert. While there is no evidence of wages of higher-paid workers being constrained, it does appear that living wages compress wage scales within the firm. Brenner and Luce (2005) determined that the large increase in the number of bidders in Hartford was the result of more security firms willing to bid because of the living wage ordinance. Raising the federal minimum wage to $15 an hour would improve the overall standard of living for minimum wage workers. Fairris, David. $15 Federal Minimum Wage? Advantages & Disadvantages - National Law Review Phone: 202-775-8810 epi@epi.org Regarding implementation and enforcement, there have been problems for living wage ordinances from the very beginning. 1, pp. 44, No. There are other cities in which the staff is incompetent, ineffective, or personally opposed to the ordinances. : National Bureau of Economic Research. Ordinances are narrowed when exemptions are granted for particular types or sizes of contracts, broad classes of industries, and certain types of workers.26. Urban Affairs Review. The living wage policy is actually part of a series of policies called the Quality Standards Program (QSP) that includes a wage floor. ct. According to EmPI, the results of the Preamble study hinged entirely on the inclusion of this whipped-up contract. On average, spillover raises were half the size of mandated wage increases. 2005, 93). In the largest cities with the broadest-based living wage policies, there has been little measured employment loss. Elmores survey of cities that have enacted living wage laws shows that all of the cities that created budget forecasts significantly overestimated the actual costs of implementation. Pro and Con: Minimum Wage | Britannica Merit pay may take the place of simple pay raises, compensation . Some cities also exempt contractors based on the source of their funding. 18. This extensive study, using original surveys of firms and workers, found that job loss occurred for less than 1% of the covered workers, or 1.4% of those receiving mandatory wage increases. One possible response to an increased wage floor is that profits will decline or that wage growth for higher-paid employees will be restrained. The modern living wage movement was born in Baltimore in 1994, when the city passed an ordinance requiring firms to pay employees a rate above the minimum wage while working on city contracts. The costs of poorly implemented airport security can be truly devastating, and indeed impossible to calculate. The final version uses the same dataset, but with improved methodology. Even in Los Angeles, with one of the broadest of living wage ordinances, Brenner, Wicks-Lim, and Pollin estimate that one year of CPS data would likely include about eight affected workers20 (Brenner, Wicks-Lim, and Pollin 2002, 13). Amherst, Mass. In 1999, the Economic Policy Institute (EPI) published the third study of the Baltimore experience. If credible, this information suggests that firms might reduce profits to absorb added labor costs from a living wage ordinance. The detailed interviews with firms affected by Los Angeless living wage ordinance buttress the statistical results. Using the growing body of research that has empirically determined the actual effects of living wage policies, this study shows that: Living wage laws have small to moderate effects on municipal budgets. The Los Angeles living wage ordinance directly raised the wages of an estimated 7,700 workers, according to the LAANE study16 (Fairris et al. Fairris, David and Michael Reich. Events It is not about whether or not there are large negative effects (Freeman 1995, 833). Bartik, Timothy. Opponents of raising the minimum wage believe that higher wages could have several negative repercussions: leading to inflation, making companies less competitive, and resulting in job losses. Perhaps because of the clearer connection to the costs of increased wage floors, this practice appears to make it easier for firms to pass on the costs to the city. Living wages and retention of homecare workers in San Francisco. Take Action 1. The Price Of A Toyota Pickup Truck Helps Explain Why. Washington, D.C.: Economic Policy Institute. The economic impact of greatest interest for most prospective studies, and policy makers as well, is jobs. 25. Also, the studies include specifications for contemporaneous effects, as well as six- and 12-month lagged effects. Question: what are the pros and cons of a living wage in the uk? Similarly, in Brenners survey of Boston firms, it was reported that the average per-employee cost of turnover was $9,297 and the median cost was $2,500. Because of their nonprofit status and strict limits on uses of some funding sources, nonprofits may respond differently to living wage ordinances than for-profit enterprises. The period under study was from November 1997 to February 2002. Firms that formally or informally peg wages of certain positions to the minimum wage have to raise those wages as well if they want to maintain the pre-existing wage differential. 2005, 31). Newsletter An Empirical Analysis of the Proposed Los Angeles Living Wage Ordinance: Final Report. Most prospective studies have discussed potential impacts on employment and some have provided estimates of job loss. The fair wage-effort hypothesis and unemployment. The LAANE study used needs-based budgets developed by the California Budget Project and the National Economic Development and Law Center. Akerlof, George and Janet Yellen. What Are the Pros and Cons of Raising the Minimum Wage? - Investopedia A detailed survey of 20 cities found that the actual budgetary effect of living wage laws had been consistently overestimated by city administrators; actual costs tended to be less than one-tenth of 1% of the overall budget. "State Minimum Wages | 2020 Minimum Wage by State.". Overall, the evidence from SFO suggests that substitution away from affected workers was minimal, and it was outweighed by improved job satisfaction and work effort among those workers. Is that a good idea for workers and small businesses . See related work on Income and wages and Wages, Incomes, and Wealth. Despite a recession-induced decline in airport activity by early 2001, SFO employment in jobs covered by the QSP rose by more than 15% between 1998 and 2001the period in which the QSP was implemented (Reich 2005, 129). Bernstein, Jared and Jeff Chapman. EmPIs key accusation was that Preamble created out of whole cloth a fictitious multi-million-dollar contra Fighting for other folks wages: the logic and illogic of living wage campaigns. Small contracts are also usually exempted from coverage, with small being defined as anywhere from under $10,000 to under $100,000. In their survey of affected workers, Niedt found that most reported an improved attitude toward their job, including a greater sense of worth of the job and an intention to stay on the job longer (Niedt 1999, 2). 2005, 111). Meanwhile, an intangible benefit that could translate into tangible benefits for both companies and employees is improved employee morale resulting from higher wages. Coverage of living wage laws is far from universal and does not necessarily apply uniformly across firms, industries, or occupations. As Reich et al. Berkeley, Calif.: Bay Area Living Wage Research Group, Center on Pay and Inequality, Institute of Industrial Relations, University of California, Berkeley. Clevelands Living Wage Law: A Three-Year Review. Nonprofit Professional Employees Union. Both the Boston and Los Angeles studies also showed that most living wage workers were in households struggling to meet a basic-needs budget. Although such cost increases are much lower than frequently predicted, as discussed in the previous section, they have occurred to some degree and have softened the blow to contractors accordingly. Raising the federal minimum wage to $15 an hour is a policy goal for many lawmakers. Straightforward interpretation of this evidence, however, is complicated by the fact that a large majority of firms affected by the Boston ordinance are nonprofits. The reason for this difference is that the Boston ordinance primarily covers nonprofit social service providers (a workforce with relatively low wages and relatively high educational attainment), while the workers impacted by the Los Angeles ordinance primarily work at the airport and in a variety of service contract jobs for the city. Thus far, the most reliable research on living wages suggests that the impact is modest. Vol. Can a Family Survive on the US Minimum Wage? Vol. There have been political changes, dealing with shifts in government and power. Nevertheless, the Preamble response shows that the exclusion of the contract does not change their key finding. With Joe Biden winning the presidential election in November 2020, a federal minimum wage of $15 an hour might be closer, as it is one of his policy agendas. One of the chief concerns among all observers has been the economic effects for municipalities, workers, and firms. 2002. 2005, 19). They are the working poor. As one bus company manager stated, We feel more able to compete against businesses that were drastically reducing wages in order to put in a low bid. The LAANE employer survey found that 11% of firms consider it easier to compete for city contracts following the living wage policy (Fairris et al. 29 Main Pros & Cons Of The Minimum Wage - E&C - Environmental Conscience Target, for instance, hiked its base wage to . Brenner found that while few service contractors reduced employment or reported less turnover, nearly 40% indicated that they had reduced profits as a response to the ordinance (Brenner 2005, 78). 1, pp. 1997. Berkeley, Calif.: Bay Area Living Wage Research Group, Center on Pay and Inequality, Institute of Industrial Relations, University of California, Berkeley. Working Paper No. 44, No. Reich addresses some of the difficulties associated with measuring turnover costs by combining survey information of affected firms with industry and academic research regarding turnover costs among low-wage workers. 1, pp. Nominal contract costs rose 0.2%, but after adjusting for inflation costs declined by 2.4%. 44, No. Neumark and Adams report that their findings are driven by laws that extend the living wage requirement to firms who are recipients of business assistance (such as tax breaks). A service contractor can elect to not submit bids for future contracts should they not wish to abide by the living wage mandate. In Baltimore and Boston, empirical studies have found no evidence of diminished employment. Seventy percent of firms had not changed their attitude toward city contracting; a significant minority (19%) indicated that they were less likely to seek city contracts in the future (Fairris et al. Yet many prospective studies predict the opposite. Baltimores Living Wage: Response to Critics. Another projected problem resulting from an increased minimum wage is that of potential job losses. 1, pp. The current federal minimum wage, $7.25 an hour, isn't enough for . The Los Angeles Living Wage: The First Eighteen Months. Washington, D.C.: Employment Policies Institute. Conversely, five southeastern states have not set state minimum wages. David Fairris study of Los Angeles found that employers in that city also reaped some benefits from the living wage. Reich, Michael and Peter Hall. The overall price for the heavily effected janitorial contracts, for example, rose 16.6% in nominal terms, with specific contracts seeing price increases ranging from less than 1% to over 50%.
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