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An article reporting on raising
the minimum wage
of common citizen to $7.25 was considered an important first step,
however, the bill introduced was to gradually raise the wage floor to
$7.25 an hour by 2009. The article goes on to say that the current
president, although signaling some willingness to consider an increase,
also wants tax breaks for businesses for his cooperation.Disregarding
the fact that business owners have been served several large helpings
of tax cuts since 1997.
Another article
reported that a
minimum wage increase has often been
tied to a tax cut for the wealthy.
The article reported on August 2, 2006, which was the 10-year
anniversary since the last time Congress had voted to raise the minimum
wage, identified the period as the longest stretch between wage hikes
since the first federal minimum wage law was put into effect in 1938.
The article goes on to state that "There have been a lot of changes for
consumers in the past 10 years. Gas cost less than $2 a gallon back in
'96. In 2006, it edged above $3 -- not to mention how much more a Big
Mac or soda in a vending machine costs. Inflation has run wild. Just
ask an economists and look at the home prices."
But still the
country's poorest
American workers make just $5.15 an
hour. The article goes on to say that a block for a congressional pay
raise, in spite of members having received more than $30,000 in cost of
living raises since 1996, would likely occur until "certain" minimum
wage requirements were met. The article goes on to say that Democrats,
although champions of a wage hike, plan to block the so-called trifecta
bill that raises the minimum wage $2.10 to $7.25 because a substantial
tax cut for wealthy estate owners was attached to the most recent
minimum wage bill.
The article states
that a member of
Congress reported that "Under the
bill, Paris
Hilton and her family would get
$250 million, while the tipped
workers in Hilton hotels will lose up to $5.60 an hour.
Government for the
people, yeah!
Members of Congress
constantly raise
their own pay with no strings
attached.
Surely, common
decency suggests that
minimum wage workers deserve the
same respect. So basically, while most Americans remain just over
broke, the red team and the blue team engage in "gang-banging," er, I
mean politics. All the while knowing that minimum wage earnings are
poverty wages.
It is alleged that
Democrats call the
estate tax provision a "poison
pill." They also point to provisions in the bill that would supersede
state minimum wage laws for workers who receive tips, essentially
cutting their minimum wage back to the federal level. While the Senate
has voted nine times since 1996 to raise the minimum wage, Republican
leaders have blocked the measures in the House. In 2006, bowing to
almost 50 House Republicans who support a wage hike, the more
conservative Republican leadership allowed a vote in the House but
attached the estate tax cut, which Democrats claimed was a boon to just
over 8,000 super-rich Americans who have estates big enough to be hit
by an estate tax.
In addition to a minimum wage
law,
there is a living wage ordinance, which is an ordinance requiring
employers to pay wages that are above federal or state minimum wage
levels. Only a specific set of workers are covered by living wage
ordinances, usually workers employed by businesses that have a contract
with a city or county government or those who receive economic
development subsidies from the locality. The rationale behind the
ordinance is that city and county governments should not contract with
or subsidize employers who pay poverty-level wages.
How are living wage
levels determined?
The level of the
living wage is
usually determined by consulting the
federal poverty guidelines for a specific family size. Often, living
wage levels are equal to what a full-year,
full-time worker would need
to earn to support a family of four at the poverty line ($17,690 a
year, or $8.20 an hour, which was in 2000). Some living wage rates are
set equal to 130% of the poverty line, which is the maximum income a
family can have and still, be eligible for food stamps. The rationale
behind some living wage proposals is that living wage jobs should pay
enough so that these families do not need government assistance.
(The current
poverty guidelines are
available from the U.S. Department of Health
and Human Services.
Note that poverty guidelines are different from the poverty thresholds;
one main difference is that the poverty guidelines are more current.)
Cities and counties
with a higher cost
of living tend to have higher
living wage levels. The wage rates specified by living wage ordinances
range from a low of $6.25 in Milwaukee to a high of $10.75 in San Jose.
Furthermore, some advocates have attempted to calculate a living wage
based on an income that would provide for a family's basic needs (see
EPI's How Much is Enough? for a discussion of
"basic family budget" measures).
The living wage levels based on
these self-sufficiency income measures are generally much higher than
the poverty guidelines.
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 (since writing this, the bill to raise the minimum wage
incrementally became a law) and applies to almost all workers. States
may also set a minimum wage that is higher than the federal minimum.
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 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 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 prevailing wage is generally higher
than the minimum wage, but can be lower than a living wage. Thus,
prevailing wage laws do not prevent workers from being paid a
poverty-level wage.
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. Wages for the lowest-paid
10% of workers fell 9.3% between 1979 and 1999. The number of jobs in
which wages were below what a worker would need to support a family of
four above the poverty line 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 could contribute to the creation of poverty-level jobs by
hiring low-paying sub-contractors or giving businesses tax breaks or
subsidies to create jobs without any guarantee that the new jobs will
pay a decent wage.
Who pays the cost
of the living wage
increase?
The evidence from
living wage
evaluations indicates that the costs of
living wage ordinances are primarily absorbed by businesses through
reduced training and recruitment costs or reduced profits. 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 that administrative cost amounted to
$0.17 per taxpayer per year.
Even if some costs
from a living wage
ordinance are passed on to
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.
Do living wage
ordinances cause job
loss?
According to the
EPI's evaluation of
Baltimore's living wage ordinance,
they 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
detractors 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 should have a very
small impact on the profits of the small number of firms affected by
the law. The profit margins for firms effected 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.
What effect do
living wage ordinances
have on the contracting process?
There is no
evidence that living wage
ordinances have significantly
increased contracting costs for cities and counties. An EPI evaluation
of a living wage ordinance in Baltimore found no significant cost
increase for contracts in the city (Niedt et. al. 1999). The 1.2% cost
increase for the contracts examined was less than the rate of inflation
for the same period.
An evaluation of
the Baltimore
ordinance by the Preamble Center
(Weisbrot and Sforza-Roderick 1998) also found that the ordinance did
not reduce the competitiveness of the contract process. The small
decrease in the number of bids per contract wasn't high enough to lower
competitiveness or raise contract costs.
The evidence
suggests that most firms
absorb the wage increases through
reduced training and recruitment costs. Even if the costs to
contractors do increase, it is still profitable for firms to do
business with the city. Most firms will choose to sacrifice some of
their profit margins, which are estimated to range from 10% to 20% of
production, since wage increases from the ordinance only amount to an
estimated 2% of production costs.
What effect do
living wage ordinances
have on economic development?
Living wage
ordinances have the
potential to counteract the destructive
race to the bottom wherein cities and counties try to attract
businesses by offering larger subsidies than their neighbors. The more
prevalent living wage ordinances are the fewer firms will be able to
shop around for the cheapest locality on the basis of cutting wages.
Recent research focusing on the number and quality (in terms of wages
and benefits) of jobs created by tax incentives has found that many
economic development subsidies are not tied to job quality. A study of
tax incentives in Minnesota by the Good Jobs First project found that
72% of subsidized jobs paid below the average for their corresponding
industry. Living wage ordinances are one tool to ensure that economic
development policies create good paying jobs.
Are there problems
with enforcing
living wage ordinances?
In many cities, the
local government
is slow to develop procedures for
monitoring contractors' compliance with living wage ordinances.
Ordinances can be enforced more effectively if there are some
guidelines for enforcement written into the ordinance. Living wage
ordinances are also more effectively implemented if the community
groups that campaigned for the ordinance communicate with local
governments about their plans for enforcement after the law is passed.
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 showed 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 earners 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 bus aids.
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.
How do living wage
ordinances 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. And in many cases, non-profits can request a larger budget from
the city or county in order to cover the costs associated with the wage
increases. As a result of these concerns, many living wage ordinances
exempt non-profit organizations. Other ordinances include non-profits,
arguing that city and county governments should increase funds to
non-profits to cover the wage increases.
During living wage
campaigns,
non-profit managers have expressed widely
differing views on the effect the living wage will have on their
organizations. 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 effected by the ordinance, there were lay-offs in one
organization, where two part-time workers were laid off. Of the
organizations who stated that the ordinance had a "significant" impact
on their organization, nearly all would prefer to receive additional
funds from the city to cover the cost of the wage increase rather than
be exempt from the law.
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 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.
In recent years,
with the introduction
of welfare reform and renewed
interest in working poverty, advocates around the country have
developed what are called "basic family budgets," which attempt to
measure the amount of income families require to meet their basic
needs. These budgets, examined in this study, have been a useful tool
in a number of policy debates surrounding working poverty, including
welfare reform, the living wage, and job training initiatives, and they
address and in many ways overcome the inadequacies of the official
poverty thresholds as measures of well being.
Basic family
budgets use a
market-basket approach. First, they identify
budget items necessary for a working family to maintain a safe and
decent standard of living, and then determine how much it costs to
provide each item at an adequate level. This straightforward approach
may not be as straightforward as it sounds, however. Are transportation
costs based on public transit, car travel, or both? How many bedrooms
does a four-person family need? Does the lowest-cost child care meet
basic needs? Is television a basic necessity, or savings for
emergencies? In other words, the selection and costing of items raises
a host of conceptual and methodological issues, which are discussed in
this study.
Moreover, it is
important that each
budget item be specific to family
size and composition, work status of adults, and regional variations.
Unfortunately, data are not always available to meet all of these
criteria, and researchers often have to make compromises. As part of
our report, we review how researchers have constructed family budgets.
We then take what we consider to be the best methods to construct a
budget, using readily available data, and give an example, using
Baltimore, Md. Beyond the pragmatic construction of family budgets, our
report yields a number of insights relevant to the economic lives of
low-income, working families:
The current poverty
measure is
conceptually insufficient for measuring
the basic income needs of a working family. Alternative poverty
measures, such as that recommended by the Panel on Poverty and Family
Assistance of the National Research Council (NRC), are a vast
improvement over the current approach, and should be adopted by the
federal government as the official measure;
Except in the case
where one parent
stays home with the child, family
budgets for working families must incorporate childcare costs. Given
the variation and importance of quality care for child development, the
amount budgeted for childcare must be high enough to ensure that
working families can afford reliable care of decent quality; Given the
importance of capturing geographical variation in family budgets, there
is no meaningful national budget threshold. The three-person family
(one adult with two children) budgets we reviewed, as well as our own,
generated levels that ranged from about $20,000 to $40,000 in 1996
dollars. All estimates were well above the poverty threshold for a
comparable family ($12,636 in 1996);
Data from the
Consumer Expenditure
Survey reveal that low-income
families tend to spend less on basic necessities than recommended by
basic family budgets, a finding which suggests that such families are
not fully meeting their basic needs; Based on the income levels of
these budgets, few jobs in the low-wage sector of the labor market
provide the compensation that would enable working families to meet
their basic needs.
Family budgets tend
to follow the
pattern of the one that follows,
which we prepared for this study. The amounts are monthly estimates for
a family of four (two parents and two children) living in Baltimore:
Food: $500 for the
minimum amount a
family needs to spend for food
prepared at home, as recommended by the U.S. Department of
Agriculture's Low-Cost Food Plan.
Housing: $628 for a
two-bedroom
apartment that costs no more than 40%
of all safe and decent housing, as measured by the Department of
Housing and Urban Development's Fair Market Rents.
Health care: $267,
an amount that
recognizes that not all families
receive health insurance through their employers. We use a weighted
average of the employee share of the premium for employer-sponsored
health insurance and the premium costs for a non-group plan, plus the
cost of out-of-pocket medical
expenses.
Transportation:
$222 for miles driven
for work and other necessary
trips. This amount takes into account different driving distances for
cities, suburbs, and rural areas, and is based on the cost-per-mile
estimates from the Internal Revenue Service.
Child care: $626
for center-based
child care or family child care
centers, as reported by a local child care cost survey (when available)
or in a Children's Defense Fund study. Other necessary expenses: $338
for the cost of telephone service as reported by the Federal
Communications Commission, and the cost of clothing, personal care,
household items, bank fees,
union dues, reading materials, school
supplies, and television as
reported in Consumer Expenditure Survey data.
Taxes: $313 for
federal payroll taxes
and federal, state, and local
income taxes. This expense also takes into account funds received
through the Earned Income Tax Credit (EITC).
Thus, a family of four in Baltimore
would need an annual income of
$34,732.28 just to meet its basic needs and achieve a safe and decent
standard of living. But at this basic level, it would have to give up
many "unnecessary" goods that most families take for granted, including
restaurant (even fast-food) meals, vacations, movies, and savings for
education, retirement, and emergencies.
Few jobs in the
low-wage sector of the
labor market provide
compensation that would enable working families to meet the basic needs
costed out in these budgets. Thus, either low-wage workers supporting
their families need higher-paying jobs, or their budget needs will have
to be further subsidized. A combination of improved labor market
policies, nationalized systems for important budget items like health
care and child care, and subsidies to support working families are
important steps that should be taken to secure even just a basic,
no-frills standard of living for American working families.