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E-mail Print Living wage laws offer no panacea
PRI in the News
By: George Avalos
6.30.2005

Contra Costa Times, June 30, 2005

The latest salvo in the battle over living wage laws suggests the ordinances have unleashed some unintended consequences and produced mixed results.

Over the past decade, the ordinances have helped some low-skilled workers and harmed others, according to a study released Wednesday by the Public Policy Institute of California.

"On one hand there are some job losses because of living wage ordinances, but on the other hand, poverty is reduced to some extent," said David Neumark, a senior fellow with San Francisco-based Public Policy who co-authored the study with University of Wisconsin professor Scott Adams.

The study by the think tank, which is dedicated to improving public policy in California, suggested that living wage laws can price some potential workers out of the job market if employers refuse to hire people to avoid the higher wage costs.

"Living wage laws, on average, boost the wages of the lowest-wage workers but also reduce employment among the least-skilled," the authors of the study wrote. "The adverse effects of living wages fall most heavily on the least-skilled individuals, who are the least likely to be employable after a mandatory wage increase is enacted."

Additional government policies are needed, the study suggested, to help the most disadvantaged employees. "Although living wages offer some assistance to some low-income families, they are not a panacea for the problem of low-wage work and poverty," the study added.

Oakland, Berkeley, San Jose and San Francisco are among the Bay Area cities that have passed living wage laws in recent years.

The uneven outcomes for living wage laws didn't surprise Anthony Archie, a public policy fellow with the San Francisco-based Pacific Research Institute, a free-market think tank.

"This just validates the theory that unemployment will rise when you artificially raise wages," Archie said. "You are essentially placing a tax on labor by instituting a living wage law."

Archie also believes such ordinances can interfere with the free flow of capital, human and money.

"Living wage laws are a protectionist kind of policy," he said. "They keep the people who are in the club, who are on the inside, happy because of their inflated wages. But these laws also keep people from getting a job or obtaining wages at that level."

What's more, if wages are boosted to an artificial level by government regulations, those additional costs have to be paid at some point, Archie warned.

"The burden will not go on the company, it will go on other workers or other individuals in the economy, such as consumers," he said.

Still, officials in Oakland, which approved a living wage law in 1999, believe their ordinance has neither erased jobs nor imposed economic burdens. The law obliges employers that have a services contract with the city worth $25,000 or more to pay their workers a living wage, said Deborah Barnes, Oakland's contract compliance and employment services manager.

"We haven't experienced a loss in employment in Oakland," she said. "The cost is actually passed along to the buyer of services, which is the city."

During the early years of the Oakland living wage law, the additional costs were about 2.5 percent to 3 percent above what the city might typically pay for a services contract prior to the ordinance. But that gradually leveled off.

"The city absorbed the costs," Barnes said. "The businesses didn't cut back. They paid the living wage rate, and the cost increase was passed along to the city."

Additional increases are on the way in Oakland. Starting July 1, employers that obtain services contracts with Oakland must pay $9.90 an hour if they provide benefits to their employees, or $11.39 an hour if the employer does not offer benefits.

Academics also studied the effect of a living wage law in Los Angeles. The law appeared to provide far more benefits than setbacks for low-skilled employees, said David Runsten, associate director with the North American Integration and Development Center at UCLA.

"The Los Angeles law did not lead to much job loss," he said. "Of the jobs affected by the law, about 1 percent were lost." That amounted to 112 of the 10,000 jobs believed affected by the ordinance.

On the other hand, the law did raise wages for the 10,000 employees by about $1.50 a hour in Los Angeles.

"The way these laws play out really depends on what employers choose to do," said Carol Zabin, associate chair of the Center for Labor Research and Education at UC Berkeley. "If employers choose to keep those employees at higher wages, they can. In general, these living wage laws do not have a deleterious effect on employers."

Zabin also believes that employees overall have benefited in ways that go beyond higher wages.

"Studies show that turnover drops after passage of a living wage law," she said. "Workers enjoy a higher retention level."

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