Why living wage laws are riddled with holes

October 1, 2014, 2:15 PM UTC
Mayor De Blasio Announces Executive Order Raising Living Wage
<> on September 30, 2014 in New York City.
Photograph by Andrew Burton—Getty Images

New York law prohibits Mayor Bill de Blasio from instituting the minimum wage hike he thinks New York City so desperately needs. But it can’t stop him from executing plan B: a living wage for the city.

On Tuesday, de Blasio signed an executive order that increases pay for employees of projects that receive more than $1 million in city subsidies. Workers who receive benefits will earn a minimum of $11.50 per hour—up from $10.30; those without benefits will see their hourly pay increase from $11.90 to $13.13. United States Labor Secretary Thomas Perez said that New York City’s increase will “make other cities take notice.”

In truth, plenty of cities and counties have already caught on to the idea of a living wage. Since Baltimore first adopted a living wage in 1994 in an attempt to ensure that workers paid with public funds earn wages above the poverty level, 140 municipalities—from Portland to Milwaukee to New Haven, Conn.—have followed suit, according to the National Employment Law Project, which has defended living wage laws across the country.

And what has been the result?

There’s always concern that increasing contracted workers’ pay will inflate city contracts and bust a city’s budget, all while frustrating taxpayers. A 2006 study of 20 cities and counties with living wage policies suggested that those fears are unnecessary. It found that municipalities overestimated the overall budget impact of living wage laws—with contract costs increasing by less than one-tenth of 1% of budgets.

There were, however, a few outliers: some contracts increased from 0.3% to 2.8%, though that’s mainly because they dealt with labor-intensive industries like child care and home health care. Those increases, the study found, were “still quite moderate overall.” As an example, the study points to Berkeley, Calif., which in 2000 projected that its planned living wage would result in $479,425 in higher contract costs; the actual increase was less than half of that. A separate study found that a year after Baltimore adopted a living wage, the cost of its contracts did not increase considerably and the cost of implementing the law and monitoring contractors’ compliance were also minimal, “with the City allocating about 17 cents per person annually for this purpose.”

It’s harder to determine what kind of effect living wage laws have on the job market. In Baltimore, there was “no evidence that employment levels or working time had changed because of the living wage.” In Los Angeles, job losses affected 1.4% of workers covered by the city’s living wage law, while one in five employers reported making staffing changes due to the law. Yet another study, which compared employment in cities without living wage laws to those who had such laws, concluded the policies had positive wage results but negatively affected the overall employment of low-skilled workers.

For what it’s worth, the Economic Policy Institute took these studies into account and concluded that, “in summary, the best empirical research has shown that the adoption of higher wage floors has not resulted in measurable employment loss.” The increase of worker wages also increased productivity and decreased employee turnover, EPI says.

While there’s been lots of hay made over a living wage’s ramifications, there’s one fact that should be underscored: just how few people these laws cover. Exemptions based on how a company receives its government funds and its yearly revenue, along with employee exceptions based on industry or occupation, have turned living wage laws into ragged patchworks of coverage.

Baltimore’s living wage covered an estimated 1,494 jobs, or 7.4% of the 20,136 low-wage service jobs in the city at the time it was enacted. When Los Angeles’ ordinance went into effect in 1999 it covered non-supervisory workers employed by a service contractor but exempted employees of a contractor that provided the city with goods. Several years after it was enacted, the law had resulted in mandatory raises for 7,735 jobs according to a survey conducted between 2001 and 2003. Meanwhile, Portland’s living wage, which became law in 1996, applied to specific occupations: janitors, security guards, and parking attendants.

New York City passed a living wage law in 2012 that covered just 1,200 jobs since exceptions were carved out for companies that leased space from city-subsidized projects and for the ongoing development at the Hudson Yards on Manhattan’s west side. De Blasio’s order on Tuesday seeks to close those coverage holes, and it will apply to an estimated 18,000 workers over the next five years. Though there are still gaps in the new living wage: it doesn’t apply to manufacturers, businesses with gross income below $3 million, or housing projects with 75% or more affordable units.

Living wage laws are intentionally filled with exceptions and coverage holes. It’s part of an effort to ease officials’ concerns about the economic problems that these policies might produce, according to economist Jared Bernstein. That’s why many low-wage workers never benefit from these laws. In the end, Bernstein writes, the question of whether “the living wage movement is an effective policy tool for raising the living standards of the working poor” is “beset by [this paradox.]”