Making a Living: How the living wage movement prevailed, by Jared Bernstein

Issue #123, May/June 2002

Making a Living

How the living wage movement has prevailed.

By Jared Bernstein

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Since the mid-1990s, 79 cities or counties in America have passed living wage ordinances. The movement’s success has been remarkable, given a legislative climate that looks suspiciously on any rules that might interfere with market forces. What has compelled city councils and others, including university presidents, to support this grassroots attack on working poverty?

The answer has a lot to do with the formidable coalitions that have promoted the living wage, and with the economic and social justice arguments behind the movement, which have proved very difficult for the “market forces” crowd to overcome. For activists seeking to raise the living standards of low-wage workers left behind by the economic growth of the last two decades, living wage campaigns have proved to be an effective strategy.

A living wage ordinance is a local—usually city—law that establishes a wage floor for a specific group of workers. While each ordinance is unique, they all establish a wage floor above that of the federal or state minimum wage. Typically, activists propose a wage level derived by dividing the poverty threshold by full-time, full-year work. This was the case in the first living wage ordinance, introduced in Baltimore in 1994, where the level currently stands at $8.20 (the poverty line for a family of four divided by 2,080 hours).

There are often two levels: one without fringe benefits, such as health insurance, and a lower level if benefits are provided. In 1998, the city of San Jose passed an ordinance requiring service contractors (with contracts of at least $20,000) to pay a living wage of $9.50 an hour with health benefits, or $10.75 if the company does not provide benefits. More than half of the ordinances are indexed to inflation.

By far the most common ordinance covers those who work for firms that have city contracts to provide services or goods. In somewhat less than half of the cases, the requirement extends to employers who have received some type of subsidy from the city, such as a tax abatement, a below-market-rate loan, or the below-cost provision of a city service (as, for example, when a city agrees to pay for new infrastructure, such as a roadway or sewerage connection, that will serve a new factory or office building).

Ordinances can be quite specific about who is covered. For example, in Los Angeles, non-supervisory workers who work for a service contractor are covered, but not employees of firms that sell goods to the city. A security guard who worked for a firm providing cleaning or bus service would be covered; a guard who worked for a firm providing building supplies would not.

As a result of bargaining during the political process, certain exemptions from coverage usually find their way into most of the ordinances. For example, contracts and subsidies below a certain dollar value may be exempted. In Boston, the living wage ordinance applies to firms which have direct service contracts with the city for more than $100,000; for subcontractors, the threshold is $25,000. In Chicago and other cities, non-profit organizations that contract with the city are exempted.

Hours worked can also affect coverage. In Jersey City, all workers under service contracts are covered by the living wage, but only full-time workers are required to receive vacation and health benefits. In Milwaukee, all workers, including part-timers and temps, are covered.

Unlike the minimum wage, which covers the vast majority of the low-wage workforce, living wage ordinances have much narrower coverage—a few hundred in a small city, a few thousand in larger cities like Los Angeles and Chicago. An “exception” is New Orleans, where a living-wage campaign evolved into a successful initiative to raise the minimum wage for all workers to $1 above the federal standard of $5.15. A civil district judge rejected a challenge to its constitutionality in March, but opponents are seeking to have its implementation delayed until the state Supreme Court can hear their appeal.

Clearly, there is no “one size fits all” model ordinance. From the perspective of city councils, community activists, and perhaps even the business community, this flexibility appears to be positive. For example, the living wage in San Jose is one of the highest in the nation, in recognition of the very high cost of housing in the Silicon Valley area and the long distances many employees must travel to get to work.

Flexibility also carries political risks, however. If the organizing environment is fertile, activists can push for more progressive ordinances, such as those that include indexing requirements that will keep the wage level abreast of inflation. Conversely, in cities where opponents have the upper hand politically, they may succeed in watering the measure down so much—reducing the wage level, limiting coverage, crippling enforcement—that it will have little bite, even if it passes. Still, most activists judge the flexibility of the movement to be a distinct advantage, one that allows them to tap the most relevant political pressure points.

Why have living wage ordinances been so widely embraced by so many cities at a time when economic conservatism and faith in “market forces” seem politically dominant? At the heart of the movement’s success are both the simplicity of its message and the organizational strategy that activists have employed to carry that message forward. The motivation for living wage ordinances originates with two related trends: the deterioration of the economic opportunities available to low-income working families, and the use of taxpayer dollars to create poverty-level jobs.

The first point has been documented extensively. Despite the historically low unemployment in the latter 1990s, many low-income working families still don’t earn enough to make ends meet. When adjusted for inflation, the income of working families in the bottom 20 percent of the income scale was 8 percent lower in 1999 than it was two decades earlier. About one-quarter of our workforce earns wages below that of the typical living wage ordinance.

One indisputable reason for this decline is the loss of middle-income jobs available to workers who lack a college education. Many of these jobs were lost in the manufacturing sector, which has contracted sharply over the last few decades.

Another factor is the increased privatization of work formerly provided by public sector workers, along with the increase in tax subsidies to low-wage employers. Research has established that these trends lowered wages and led to the creation of jobs paying well below the industry average. The fact that these jobs are financed by taxpayer dollars has proved to be a potent social justice issue in cities where officials have privatized a public service or granted a sizable subsidy to an entrepreneur.

Advocates have responded to the increasing prevalence of subsidies for “job creation” by demanding that local governments require subsidized firms to keep public records of the number and quality of jobs they create. The advocacy group Good Jobs First is particularly active in working to implement these types of reporting requirements, as well as identifying best (and worst) practices among localities using tax incentives to generate economic development.

Another key to the movement’s success has been its ability to harness a broad coalition of interests. The most successful campaigns have brought together unions, clergy, and advocates from the grassroots, as well as progressive members of the legal and economics professions and sympathetic politicians.

National community organizing groups, particularly those that focus on economic justice (such as ACORN and the Industrial Areas Foundation) place living wages high on their organizing agendas. The movement has also been a vehicle for unions to join forces with low-wage workers in typically unorganized sectors. These two groups bring different but complementary strengths to the organizing table. Labor offers clout, money, and political strength that grass-roots organizations frequently lack. And the organizers help labor connect with groups—minorities, immigrants, the working poor—that are natural constituents, but historically overlooked.

One potential outcome of this strategy is that living wage campaigns can strengthen union organizing efforts, even when they fail to pass an ordinance. In fact, some ordinances have “labor friendly” clauses in them. In San Jose, the living wage ordinance requires proposed contracts to undergo a so-called “third-tier review,” which allows the city to ensure that its contractors adhere to good labor practices. The Minneapolis ordinance gives preferential treatment to firms that engage in “responsible labor relations,” which includes neutrality towards organizing and acceptance of binding arbitration on the first contract.

Labor-community cooperation can outlast the living wage campaign. A 1999 case study by researchers at the University of California examined the Los Angeles Alliance for a New Economy, created by the Hotel Employees and Restaurant Employees Union, and its successful coalition of Hispanic neighborhood groups, Communities for a Better Environment, a tenants’ union, and religious organizations. The alliance, which succeeded in getting an ordinance passed in 1997, continues to monitor implementation and push for expanded coverage. One amendment extended the living wage to workers at Los Angeles International Airport. Another successful initiative raised the pay of hotel and restaurant workers in a beach-front area of Santa Monica to $10.50 per hour. (Implementation of that May 2001 initiative is delayed pending a public referendum.)

The fact that coverage of living wage ordinances is limited raises the question of their effectiveness at raising living standards. Although there has been little systematic research, existing evidence shows that living wage ordinances give a small but needed boost to the incomes of working poor families. While some low-wage workers live in high-income families, mandated increases in low wages disproportionately help those in families with low incomes. Research on the minimum wage has been very clear on this point, and it carries over into living wages as well: the benefits flow mostly to those who really need them.

Those who oppose the living wage movement have also argued that the ordinances will lead to economic upheaval—job losses and reduced hours among covered workers—but there is no evidence to support that claim. And with so many ordinances in play, if that were the case, it would be known. In fact, there are numerous factors which would lead one to discount this argument.

First, research on wage mandates has shown that their impact is proportional to the number of people they reach. Since a typical living wage ordinance will rarely reach more than a percent or two of a city’s workforce, this militates against the kinds of economic distortions—layoffs, hours reductions, fewer contract bids—that opponents fear.

Second, research on both contracting and wage mandates suggests that most contractors will be able to absorb the increase in labor costs by some combination of lower profits and efficiency gains. Depending on the margin built into the contract, some contractors will still be able to profitably perform services for the city without raising the contract bid (or without raising it enough to lose the contract). Because every contractor faces the same mandate, the ordinance helps to prevent “low-ball” bidders—no bidder is at a comparative disadvantage because of the ordinance. To the extent that low-ballers with wide profit margins absorb the increase by cutting profits, the ordinance will have its intended effect: partially redistributing taxpayer dollars from low-paying contractors to low-wage workers.

Efficiency gains are an under-appreciated absorption mechanism. Both economic theory and research maintain that higher pay, which by definition raises labor costs, also raises worker morale and effort. Within a range, a better paid workforce can generate savings through lower turnover, fewer vacancies, and more motivated effort. One recent study found that a living wage ordinance in San Francisco had exactly this effect. In fact, this better-pay, better-performance argument was espoused in the national media recently regarding baggage inspectors in our nation’s airports after the September 11 attacks.

Thus, what little evidence there is shows that living wage ordinances have neither resulted in higher contract costs nor increased taxes at the local level. “The impact on businesses and governments is very small,” the economist Robert Pollin recently told Time magazine. “If there were any evidence otherwise, it would have shut down the living-wage movement a long time ago.”

There’s no motivator like success, and the successes of the living wage movement have increased its visibility and popularity. A campaign at Harvard University to raise wages for university contractors caught the attention of the national media, a fact not lost on student activists elsewhere.

But legal and political challenges, such as the one in New Orleans, are becoming more common. In some cases, opponents have argued that the locality does not have the authority to adopt a wage mandate. In other states, localities have the same regulatory power over wages as the state itself, and the case law is by no means clear at this point.

Another emerging issue involves implementation. It is widely believed that in many cities, living wage ordinances are not appropriately implemented, and that not all workers are receiving the higher wages mandated by the law. In most cases, monitoring has been left up to the city. While this does not necessarily imply lax enforcement, it is certainly worrisome in cases where city officials opposed the campaign. Most organizers argue that the groups who campaigned for the ordinance should play some role in its implementation, and some ordinances include language and resources to this effect.

Despite these recent challenges, the living wage movement is clearly a juggernaut. With close to 80 ordinances on the books, it is already lifting the earnings of thousands of low-wage workers throughout the land, many of whom were formerly underpaid by low-ball contractors using taxpayer dollars to create poverty-level jobs while boosting their own profits.

Living wage ordinances, by dint of their narrow coverage, will not end working poverty. But the living wage movement should be considered one of the more promising efforts to raise the living standards of low-wage workers and to empower urban residents who have been consistently left out of the growing economy.

Jared Bernstein is an economist with the Economic Policy Institute.

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