For Release — Tuesday, April 9, 2002
'LIVING WAGE' LAWS WOULD DRIVE JOBS AWAY, RAISE COSTS FOR TAXPAYERS, STUDY SHOWS
ALBANY"Living wage" laws that raise the minimum wage employers must pay, in an attempt to help the working poor, can actually harm low-income workers by reducing the number of available jobs at the same time they drive up costs for taxpayers, a new study by The Public Policy Institute finds. The Institute is the research affiliate of The Business Council of New York State, Inc.
If proposed laws are adopted in New York City, Syracuse and other municipalities, job opportunities for thousands of lower-skilled workers could be at risk, according to the study. And, it shows, even those who receive higher wages under such laws may actually gain little or nothing because they lose public assistance, Food Stamps and other benefits.
"The only clear winners from such lawsand, by no coincidence, their most powerful proponentsare public-employee unions who use the statutes as a form of protectionism to strengthen their own bargaining position versus the taxpayers," according to the study, What's the Best Way to Help Low-Wage Workers Move Up?
Some 40 localities around the country have enacted "living wage" laws in recent years. Typically, the laws require businesses and non-profit organizations that contract with the municipality to pay wages significantly above the existing federal minimum wage of $5.15 an hour. In Suffolk County, for instance, a local law that takes effect July 1, 2002, requires wages of at least $9 an hour, or $10.25 if the employer does not provide health benefits. Many such laws also apply the higher wage mandate to businesses that receive local tax incentives.
Most independent economists say such laws reduce employment opportunities for lower-skilled workers, because employers will respond by eliminating jobs that do not produce enough profit to justify the higher wage or by hiring better-qualified workers. The most recent such study, released in March by Michigan State University economist David Neumark, found that "living wage" laws reduce employment among low-wage workers by 7 percent.
Using the methodology in the Neumark study, the Public Policy Institute calculated that a proposed "living wage" law being considered by the New York City Council would eliminate some 9,000 job opportunities for low-skilled workers in the city. In Syracuse, legislation pending before the Common Council could eliminate more than 200 jobs, the Institute found, while enforcement of an already enacted law in Buffalo could reduce employment by 400 or so, and a Suffolk County law, some 2,000 job opportunities.
The actual benefits that low-income workers receive from "living wage" laws are dramatically lower than their proponents suggest, the report says. For example, a single parent with two children who is paid $7 an hour has a higher disposable income than if she were paid $10.25 an hour, because at the higher wage she will lose Food Stamps, a cash welfare grant, part of her Earned Income Tax Credit, and other benefits, the Suffolk County Social Services Department has calculated.
While "living wage" laws do not help most low-income workers, they do increase taxpayer costs, often by significantly more than proponents admit, according to the study. The Suffolk County Legislature allocated $3.5 million to help day-care centers and other contracting organizations comply with its law, but county officials have since determined that $13 million or more may be required. Many of the municipalities that have enacted or are considering such laws, such as New York City and Syracuse, already face significant fiscal challenges.
Rather than impose new wage mandates on businesses and nonprofit organizations, the Institute said, governmental leaders should focus on creating an environment that gives low-skilled workers as many job opportunities as possible. The study points out that, when businesses created hundreds of thousands of new jobs during the second half of the 1990s, the proportion of New York State children living in poverty dropped sharply and charitable contributions rose significantly.
The study suggested that organizations concerned about low-income workers could do more to promote awareness of existing benefits such as the Earned Income Tax Credit. Local elected officials could focus more energy on improving public schools, so today's students can avoid becoming the low-skilled workers of the future, the Institute said. And the study suggested that advocates for the poor examine whether federal and state assistance programs should be redesigned so that eligibility is phased in and out, rather than disappearing entirely at a certain income level.
The Institute's study is available at www.ppinys.org/reports/2002/livwage.pdf.