Living Wages

Living Wages

Introduction

Over the past decade, politicians have sought to reform the national poverty levels by lobbying for what is frequently referred to as a living wage. Living wages, on the most elementary level, are the absolute minimum a person must make per year or per hour to stay above the federal poverty level. While the number of people that receive living wages is still small, Wood (2002) suggests that this is a trend that is gaining momentum across the United States because it may help reduce employee turnover and increase worker productivity.

Living wages became a hot topic in 1994 when Baltimore, Maryland officials adopted a policy that required all companies that received public funds or worked on government contracts to pay a wage that would sufficiently provide for the basic needs of the people they employed. Living wages differ among cities since it is calculated by the cost of living in that area. The cost of living is based on available childcare, healthcare, housing, food, and transportation costs. According to www.responsiblewealth.org, (2005) in 2000, the living wage amounted to $17,050 a year for a family of four, or $8.20 per hour for a full-time, year around worker. Most studies show that the economical benefits of living wages, such as worker productivity and reduced turnover, are increasing, and I must agree with Neumark (2003) who explains that living wages overall can reduce poverty, and living wage laws are effective, but there is an obvious tradeoff that occurs with wage increases, specifically employment reductions for individuals with little or no skills. Issues such as these will be discussed in greater detail in this paper.

Reductions in Poverty

Neumark (2003) has performed numerous studies that show that increasing the minimum wage produces no significant reduction in poverty levels and may even increase the number of families living in poverty by eliminating many low-wage jobs. When the first minimum wage law was enacted in 1938, www.reponsiblewealth.org (2005) asserts that legislators reasoned that good paying jobs would increase consumer purchasing power, the notion that the economy can be healthy if wages are held synthetically high, which in turn would stimulate the creation of more jobs. This act was in the decade of the Great Depression, and people were struggling for necessities.

However, along the same line, people working for minimum wage today are not technically struggling to make ends meet in the first place. About 64 percent of people earning minimum wage in today's society are not the sole supporters of the family; they are children living at home with their parents. The people we, as society, consider to be poor are truly benefiting from living wages. According to Malanga, (2003) a recent study completed on low-wage workers in California found that 80 percent moved up the economic ladder in the 1990's with their income almost doubling to $27,194. Forty percent of the "poor" in California own their own home, 97 percent own color televisions, 66 percent have air conditioning, and about seven in ten own cars.

The steep wage increases brought about because of living wage laws are increasing the quality of the worker's lives, obviously bringing them slightly out of poverty and placing them on a semi-level playing field with the rest of American

workers. The minimum wage set by many living wage laws is pegged to the poverty line. Thus, states Neumark, (2003) almost all the living wages present in all the cities enforcing the laws would be enough for a family of three with a full-time worker to escape poverty.

Effectiveness of Living Wages

Living wage laws are seen to be effective since they in essence provide low-wage workers with higher compensation, especially for unionized firm's employees. From the employer's perspective, living wages also reduce competition from privatization and strengthen the bargaining positions of their workers. Wood (2002) reports that employers who thought that they'd suffer from the mandated laws are now saying that they get higher production from these employees, less turnover, more satisfaction...and are able to service their clients better. According to www.resposiblewealth.com, (2005) these mandated laws are allowing for more job vacancies to be filled, better work morale, and generating efficiency gains that could allow firms to absorb the increase in labor costs.

Some new studies by the Preamble Center for Public Policy are now suggesting that it is the big cities that are having to bear the costs, up to 100 percent, for enacting the laws. The laws have significantly helped businesses by providing workers that are willing to work for this higher wage, and providing workers that are willing to have higher productivity since they feel they are worth something to the company.

Employment Reductions

Employment reductions are a main concern with the new living wage laws. Many studies have been completed by Neumark, although most are upfront in saying that further evaluation is needed to have conclusive reasoning. Stephens (2003) states that Neumark's studies compared twelve cities with living wage ordinances to a control group without them. The studies found minimal job losses, which were more than compensated for by the significant income gains among the lowest paid workers. In Neumark's (2005) studies, he also found that these laws generated income gains for other workers, despite generating some negative effects for those at the very bottom of the wage or skill distribution. The negative effects he is referencing concern the amount of additional tax these employees will have to pay due to their new higher wages. These employees will be more likely to lose their earned income tax credits, which give substantial tax breaks for poverty stricken families. These government assistance programs, such as welfare, food stamps, and EITC help many low-wage employees survive. Without these support programs, the low-skilled workers that were originally eager to work for higher wages may decide that they are, in-fact, better off not working at all so as to maintain their assistance income.

Neumark (2003) has statistical evidence about the employment effects from living wages. His research shows that the largest estimated disemployment effects tend to correspond with the same people in which he found the largest positive wage effects, and he states that it is more likely than not that living wages reduce employment of those with low