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Do Living Wage Ordinances decrease overall poverty?
Economist David Neumark, in a 2002 study for the Public Policy
Institute of California concludes that Living Wage ordinances
do reduce poverty. Neumark collected data from 36 cities with
Living Wage ordinances and compared it to data from citites without
Living Wage ordinances. He found that a living wage 50% higher
than the minimum wage would raise average wages of workers in
bottom 10% of the wage distribution by 3.5%. A small, but significant
decrease in the percent (1.8%) of families living in poverty
was found.
Will jobs be cut because of a Living Wage Ordinance?
Based on numerous studies of Living Wage ordinances, Greenwich
concludes that anywhere from 15 to 25 workers out of 1000 workers
affected by an ordinance might lose their jobs. Pollin and Brenner
conclude that job loss would be between 1 to 7% for the estimated
2,500 workers covered by the Santa Monica Living Wage ordinance.
How will additional costs affect city budgets?
Government costs will increase, but not by much. Increased worker
skills and productivity enable firms and governments to absorb
much of the Living Wage cost increases. Pollin and Brenner conclude
that savings from increased productivity may offset as much as
30% of the Living Wage increases.
A comprehensive 2002 survey by Andrew Elmore of 18 cities with
Living Wage policies found that for most cities, contract costs
increased by less than 0.1% of the overall local budget in the
years after a living wage law was adopted. A few contracts involving
large numbers of low-wage workers (e.g., contracts for janitorial
and security guard services) increased substantially in price,
but officials found that most contracts increased little, if
any, in cost. In many cases, contracting employers were reported
to have absorbed much or all of the additional labor costs without
demanding increased funds from the cities. Living wage requirements
encourage some local governments to institute competitive bidding
for contracts that had not been put out for bid in many years,
reportedly yielding savings for the cities.
Will non-profit contractors be forced to cut back services in
other areas in order to meet the payroll needs of their city
contracts?
Most Living Wage ordinances allow for phase-ins for non-profits
in order that their development plans can be tailored to new
payroll structures. Furthermore, most payroll increases from
non-profits are passed on to government.
Economist David Reynolds studied the financial impact of Detroit's
Living Wage ordinance on affected non-profit organizations and
found that for three-quarters of them impacts were minor. In
Detroit 1,739 workers were covered with wage gains from 10-74%.
Three out of four non-profits had little difficulty in implementing
the law. For those that did, the financial difficulty was not
large relative to the funds received through the city.
Andrew Elmore found that in localities that extended
living wage requirements to contracts for human services such
as home healthcare
or child care, cost increases were from 0.3% to 2.79% of local
human services budgets. These increased costs reflect the high
concentration of low wages among city-contracted caregivers.
Cities have sometimes agreed to automatically pay for some or
all of the increased wage costs for such contracts because of
the vital nature of human services and the budgetary constraints
faced by the non-profit agencies that often provide these services.
SOURCES
David Neumark, "How Living Wage Laws Affect Low-Wage Workers
and Low-Wage Families."
http://www.ppic.org/content/pubs/R_302DNR.pdf
David Reynolds, "Impact of Detroit's Living Wage Law on
Non-Profit Organizations," Center for Urban Studies and
Labor Studies Center," Wayne University, June, 2000
http://www.laborstudies.wayne.edu/Resources/2000report.pdf
Andrew Elmore "Living Wage Laws & Communities",
Brennan Center for Social Justice, New York University, November,
2003
http://www.brennancenter.org/programs/living_wage/elmore_report.pdf
Robert Pollin and Mark Brenner, "An Economic Analysis of
Santa Monica's Living Wage Ordinance," Political Economy
Research Institute, University of Massachusetts, Amherst, 2000
http://www.umass.edu/peri/pdfs/RR2.pdf
Howard Greenwich, "City of Berkeley Living Wage Analysis," prepared
by Howard Greenwich under contract for the City of Berkeley Department
of Finance, November, 1999
What is a living wage ordinance?
A living wage ordinance requires employers
to pay wages that are above federal or state minimum wage levels
and is based
on the
cost of living for each community. The rationale behind the
ordinance is that city and county governments should not contract
with
or subsidize
employers who pay poverty-level wages in that community. Hard
work should be rewarded with adequate pay and benefits, and taxpayer
dollars should not support jobs that leave workers and families in
poverty. Over 120 communities nation-wide and more than
25 communities in California have passed Living Wage Ordinances.
Why do we need living wage ordinances?
The main reason for enacting a living wage
ordinance is to reverse the downward trend in wages for low-wage
earners. Nationally,
wages for the lowest-paid 10% of workers fell 9.3% between
1979 and 1999.
Meanwhile the cost of living, particularly in Santa Barbara,
has risen astronomically, the median home price now more than
$1 million. The
number of poverty-wage jobs also grew between 1979 and 1999.
In 1999, 26.8% of the workforce earned poverty-level wages,
an increase
from
23.7% in 1979.
Living wage ordinances are necessary to prevent city and county
governments from encouraging the creation of jobs that pay
wages so low that
workers live in poverty. Without living wage laws, governments
contribute to the creation of poverty-level jobs by hiring
low-paying contractors
or giving businesses tax breaks or subsidies to create jobs
that keep families in poverty. The living wage ordinance also promotes
health insurance. Santa Barbara County has the highest
rate of uninsured children in all of California.
Who is covered by the living wage ordinance?
The proposed Living Wage Ordinance will
affect about 300 City hourly workers who work a minimum of 520
hours per year, and
about 500-1,000
workers employed by businesses that have a minimum $10,000
contract with the City or those who receive subsidies and/or
grants from
the City of Santa Barbara.
Who is supporting the living wage?
In December 2004, PUEBLO (formally the Coalition
for a Living Wage) brought together members of several organizations
who
supported the living wage campaign from 2000-2002 to lead a new
living
wage
campaign. These
groups formed Santa Barbara for a Living Wage( SB4LW), a coalition
of organizations that are pushing for a living wage ordinance in
Santa Barbara. SB4LW includes the Santa Barbara Women’s
Political Committee, SEIU Local 620, Democratic Central Committee,
Clergy and Laity United for Economic Justice (CLUE), SB CAN,
PUEBLO, and many other labor, faith, and community organizations.
How much is a living wage in Santa Barbara?
The living wage proposed by SB4LW is $13.40
an hour. Employers
who do not provide health insurance will pay an additional
$2 an hour.
The proposed living wage is what it would take for a single person
to rent a studio apartment in Santa Barbara County, paying
30% of their salary in rent. The living wage numbers come from the
Annual Median Income developed by the Department of Housing and Urban
Development (HUD), based on 2000 Census family median income estimates.
Fair Market Rents are also developed by HUD from Random Digit Dialing
surveys. In Santa Barbara, a worker earning minimum wage ($6.75
per hour) must work 126 hours per week in order to afford a two-bedroom
unit. These same HUD numbers were used to calculate the
salary increases for City Council members, which was passed
as Measure
A in November 2004.
Our living wage number is a very conservative number because
the HUD region is defined by all of Santa Barbara County including
Santa Maria and Lompoc, which have much lower costs of living
than
Santa
Barbara. A “living wage” does also vary based on
family type. The living wage we chose is what it takes for
a single person to rent a studio apartment. While a single
parent with two children would require more to live, the proposal
would be a significant improvement for many. Despite
the conservativeness of the living wage level, we believe that
this
wage will provide
concrete gains for hundreds of workers in Santa Barbara who
are struggling to provide for their families.
How was the $2 an hour health benefit supplemental determined?
According to the Kaiser Foundation and Health
Research and Educational Trust Employer Health Benefits 2004 annual
survey, the national
average annual premium for a single worker for all types of
plans is $3,695
a year, or $1.78 an hour. While we have not found regional
studies that give local numbers, health care costs are more
in Santa Barbara due to the high cost of living, thus we rounded
up
to $2.00.
How much does a living wage ordinances cost?
In the most comprehensive research on the
actual cost of living wage ordinances, researchers interviewed
City staff in 14 communities
with living wage ordinances. They found that the cost of contract
increases ranged from .003% to .079% of a City’s budget. Since
the City’s budget is approximately $193 million, the living
wage would cost the City between $57,900 and $152,470. This
amount is far less than the cost of raising the salaries of the mayor
and six City Council members. The City will also incur direct
costs from paying their own workers covered by the ordinance a living
wage, estimated to be $200,000-$300,000 out of the general fund. Subsidy
recipients and non-profits covered by the living wage law will not
cost the City. There may in fact be savings from subsidy recipients
who choose not to pay a living wage, and therefore not receive the
subsidy, saving the City money. By comparison, raises
given to police officers for next year will cost the City $1.6
million.
How will the City pay for the living wage ordinance?
The living wage costs are expected to cost
such a small percentage of the City’s budget (.2-.3%) that major shifts in budget priorities
will not be needed. The City Council would deal with
nominal living wage costs in the same way they will deal with
the costs
of their own salary increases.
Who pays the cost of the living wage increase?
The evidence from living wage evaluations
indicates that contracting businesses through reduced training
and recruitment costs or
reduced profits primarily absorb the vast majority of costs
of living wage
ordinances. The evaluations found no evidence of job loss,
and the contract costs increased by an insignificant amount.
However, in addition to the cost of wage increases for workers,
there are also administrative costs associated with living
wage ordinances.
One evaluation of the Baltimore living wage ordinance found
that administrative costs amounted to $0.17 per taxpayer per
year. Even
if some costs from a living wage ordinance are passed on to
the taxpayers, it is a value judgment on the part of the community
as to whether
reducing poverty through a living wage ordinance is worth the
added
expense. While the living wage might increase the amount of
money the locality spends on contracts, local governments might
also
experience savings as families become less reliant on income
supports and social
services.
What are the costs of NOT paying a living wage?
There are significant costs that the City,
taxpayers, working families, and responsible businesses will continue
to pay as
long as there
is not a living wage ordinance in Santa Barbara.
The cost of poverty includes:
Family
Costs. Low-wage workers working multiple jobs to make ends
meet often have
little time for
their children, or for taking classes to improve their
skills and job opportunities.
Environmental
Costs. Due
to low-wages and high housing costs, an increasing
number of Santa Barbara workers are being forced out of Santa
Barbara, increasing
traffic congestion and pollution.
Taxpayer
costs. Taxpayers are paying twice: once for the contract,
and again for the
services needed to sustain families at poverty wages
(welfare, food stamps,
housings subsidies)
Costs to
good businesses. Responsible businesses that do pay a living
wage
are locked out of the contracting process because
they
can never outbid
a large
contractor
who pays poverty wages.
City Costs. City
currently spends a lot of money on recruitment
and training costs as a result
of high turnover due to low-wages paid by the
City to some workers.
Do living wage ordinances cause job loss?
EPI's evaluation of Baltimore's living wage
ordinance found no job loss as a result of the ordinance (Niedt
et al. 1999).
The majority
of workers interviewed for the study reported no changes
in the number of hours they worked after the ordinance went
into effect. Employers
interviewed for another study reported that although wages increased,
these costs were absorbed by improvements in efficiency; raising
wages decreased employee turnover, which decreased recruitment and
training costs. The evidence from minimum wage increases
also suggests that there should be little or no job loss
as a result of
living wage ordinances. A recent EPI study failed to find
any systematic, significant job loss associated with the
1996-97
minimum wage increase
(Bernstein and Schmitt 1998).
Do living wage ordinances have a negative impact on the business
climate?
Some living wage opponents argue that
the living wage will create a "hostile business climate." But
most living wage ordinances cover too small a portion of the
labor force
to have such a profound
effect; most living wage ordinances cover less than 1%
of the local workforce. Wages are only one factor in a
business'
decision
to
move to a location, and there is no evidence that an existing
living wage
ordinance has discouraged firms from locating in a city.
In addition, the costs of the living wage ordinance will have
a very small impact on the profits of the small number
of firms affected
by the law. The profit margins for firms affected by the
living wage are estimated to range from 10-20% of production
costs.
In comparison,
the wage increases from living wage ordinances are estimated
to be 2% of production costs.
Will living wage ordinances reduce poverty?
Some critics argue that living wage ordinances will not reduce
poverty because most living wage workers do not live in
poor households.
Evidence from EPI's evaluation of the Baltimore living
wage ordinance shows that this claim is not true. Interviews
with a small sample
of workers covered by the living wage reveal that the average
household income for covered workers was $13,632. The interviews
also show
how important a living wage worker's wages are to their
family's well-being: an overwhelming majority of the workers
interviewed
were the primary wage earner in their household, bringing
home an average
of 68% of their family's income.
Another frequent claim is that most living wage workers are teenagers.
However, studies of the minimum wage show that 70% of minimum
wage workers are adults. The proportion of adults is probably
higher
among living wage workers, since living wage ordinances
cover jobs typically
held by adults, like janitors and gardeners. Local
governments often have many effective initiatives to address
working poverty,
while at the same time they create poverty-wage jobs through
their contracting policies. Living wage ordinances are
designed to make
sure governments are not creating poverty through their
employment practices. However, it is also important to
keep in mind
that while the living wage is a crucial tool in the effort
to end
poverty,
it is only one part of a larger anti-poverty strategy,
which includes affordable housing, public transportation,
and affordable
health
and child care.
How does the living wage affect non-profits?
Some people have raised concerns that living wage ordinances
will cause job loss for non-profits and therefore reduce
the level of
services non-profits are able to provide. The reason for
this concern is that unlike private firms, non-profits are unable
to absorb the
cost of a living wage ordinance through a reduction in
their
profits. However, like private businesses, non-profits
can absorb some of
the costs from a living wage ordinance through a reduction
in recruitment and training costs because by paying higher wages
there is always
less employee turnover. One study--an evaluation of the
Detroit
living wage ordinance--looked systematically at the effects
of living wage
ordinance on non-profits (Reynolds, 2000). Of the 64 non-profit
organizations affected by the ordinance, there were lay-offs
in one organization,
where two part-time workers were laid off.
Santa Barbara for a Living Wage has a non-profit living wage
committee, which includes non-profit executive directors
who understand the
challenges that non-profits face. Most non-profits are exempted
from the proposed living wage ordinance for three years, and after
which they may apply for a hardship waiver. Non-profits where
the executive director makes more than four times what the lowest
paid employee makes, would fall under the living wage ordinance. Such
an organization has four options: 1) pay those affected by the grant
a living wage 2) lower the salary of the executive director, 3) increase
the salaries of the lowest paid employee to fall under the 4-1 threshold,
or 4) do not apply for the City grant (which average $20,000). The
living wage ordinance as currently proposed will not harm non-profits. In
fact many non-profits that receive City funding already
paying a living wage or are taking steps to do so.
Will employers replace less-skilled workers with higher-skilled
workers if they are forced to raise wages?
Research on the minimum wage suggests
that living wage ordinances will not cause job loss among less-skilled
workers. A recent
EPI study of the effects of the 1996-97 minimum wage increase,
for
example, found no evidence of job loss among teenagers
and adult workers with
less than a high-school education (two groups of workers
that typically have lower skill levels) (Bernstein and
Schmitt 1998).
In the absence of living and minimum wage laws, firms can choose
either the "low road" (low pay, low training, low motivation,
high turnover, and high vacancies) or the "high road" (higher
pay, more training, greater motivation, lower turnover,
and fewer vacancies). Almost every industry includes profitable
businesses
that follow both paths.
High-road employers, who would rather have a stable workforce
and produce a high-quality product, have to compete for
contracts with
low-road employers, who provide a poorer-quality product
at a lower cost. Living wage ordinances encourage businesses
to take
the high
road, leading to higher quality services for the public
and a more highly trained stable workforce.
Opponents of living wages have provided no evidence that the
transition from low-road to high-road employment will lower
employment opportunities
for less-skilled workers. The evidence suggests that employers
typically make the transition by retaining, training, and
motivating their
existing workforces.
What is the government's role in setting job quality standards?
Critics of living wage ordinances assert that the government
should not intervene in the marketplace. This argument
ignores the many
ways in which governments intervene in the market to help
businesses through subsidies, tax breaks, and other assistance.
Living wage
laws typically only cover businesses that receive this
type of assistance or have contracts with the government.
In addition, employers indirectly benefit from government programs
to help the poor. They are able to pay low wages because
some government programs exist to help low-income families meet
their
needs. This
means that the burden of providing income supports and
services to low-wage workers is passed on to the public, because
these
programs
are paid for through taxes and charitable contributions.
Many critics of the living wage argue that setting wage levels
should be the responsibility of businesses alone. But in
the United States,
the government has long had a role in setting job quality
standards that protect workers. Beginning in the 1930s,
activists struggled to get federal and state governments to
establish job quality standards
to prevent abuses of workers. Many of these provisions
are still in effect today, including minimum wage laws, overtime
requirements,
and prohibitions against child labor. More recently, activists
advocated for laws such as occupational safety and health
standards,
family
and medical leave, and living wage ordinances.
How is the minimum wage different from a living wage?
The federal minimum wage is the minimum
amount that a worker can be paid an hour (currently $5.15 federally,
$6.75 in
California) and applies to almost all workers. Living wages
commonly refer
to wages set by local ordinances that cover a specific
set of workers,
usually government workers or workers hired by businesses
that have
received a government contract or subsidy. A "living wage" is
a also term often used by advocates to point out that the
federal and state minimum wage is not high enough to support
a family.
What is the difference between a living wage and a "prevailing
wage"?
Prevailing wage laws require firms working
under a government construction contract to pay the "prevailing" wage for each job, that
is, the wage where half of all workers in the community in the particular
job earn more and half earn less. The prevailing wage is different
for each occupation and each city or county. Prevailing wage
laws ensure that low-wage firms cannot unfairly underbid higher-wage
firms when competing for federal or state government contracts. The
concepts behind prevailing wage for construction contracts and living
wage for service contracts are very similar. All
Santa Barbara City projects are currently covered by prevailing
wage laws.
Why is Santa Barbara for a Living Wage focusing on Santa Barbara?
Santa Barbara is one of the wealthiest communities
in the country. However
there is also a lot of poverty. Currently, the City of Santa
Barbara perpetuates this poverty through its contracting processes. The
City of Santa Barbara has a responsibility to make sure that Santa
Barbara is a livable community for all of its residents. Passing
a living wage will help hard-working Santa Barbara residents provide
for their families and contribute to the community. Santa Barbara
is a world-class city and has been the leader in the region on many
issues, such as affordable housing and the environment. By
passing a living wage ordinance, Santa Barbara can follow
the lead of other communities in the region that have done
so,
such as Ventura
County, Oxnard, and Port Hueneme.
Sources:
Bernstein, Jared, Chauna Brocht ,and Maggie Spade-Aguilar. 2000.
How Much is Enough? Basic Family Budgets for Working Families.
Washington, D.C.: Economic Policy Institute.
Bernstein, Jared, and John Schmitt. 1998. Making Work Pay: The
Impact of the 1996-97 Minimum Wage Increase. Washington, D.C.:
Economic
Policy Institute.
Chicago Institute on Urban Poverty. 1997. Does Privatization
Pay? Chicago: Chicago Institute on Urban Poverty.
Kraut, Karen, et al. 2000. Choosing the High Road: Businesses
That Pay a Living Wage and Prosper. Washington, D.C.: United
for a Fair
Economy.
LeRoy, Greg and Tyson Slocum. 1999. Economic Development in Minnesota:
High Subsidies, Low Wages, Absent Standards. Washington, DC:
Good Jobs First.
Mishel, Lawrence, Jared Bernstein, and John Schmitt. 1999. The
State of Working America 1998-99. Ithaca, N.Y.: Cornell University
Press.
Niedt, Christopher, et al. 1999. " The Effects of the Living
Wage in Baltimore." Working Paper 119. Washington, D.C.:
Economic Policy Institute.
Pollin, Robert, and Stephanie Luce. 1998. The Living Wage: Building
a Fair Economy. New York: The New Press.
Reynolds, David, with Jean Vortkamp. 2000. Impact of Detroit's
Living Wage Law on Non-Profit Organizations. Wayne State University.
Weisbrot, Mark, and Michelle Sforza-Roderick. 1998. Baltimore's
Living Wage Law. Washington, D.C.: Preamble Center.
For a closer look at the research on the living wage, see
EPI's publication, " The
Effects of the Living Wage in Baltimore."
Source on Health Insurance: http://www.kff.org/insurance/7148/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=46206
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