Business
5:03 pm
Tue July 16, 2013

'Living Wage' Laws Create Both Winners And Losers

Originally published on Tue July 16, 2013 8:00 pm

Transcript

AUDIE CORNISH, HOST:

To learn more about these living wage bills throughout the country, we're joined by David Neumark. For years, he studied the effects of living wage laws, and he directs the Center for Economics and Public Policy at the University of California at Irvine. Welcome to the program.

DAVID NEUMARK: Thanks for having me.

CORNISH: So, first, some context. How does the living wage differ from what we're all more familiar with, the minimum wage?

NEUMARK: Well, you're right. Minimum wages are much more familiar. We've had a federal minimum wage for decades. Many states have their own minimum wages. Living wages are a more recent development, and they're really distinguished by two features: They're typically much higher than minimum wages. On the other hand, they cover far fewer workers.

Almost all living wage laws across the country cover city contractors, and roughly speaking, about half of them also cover companies that get any kind of financial assistance from the city for business or economic development.

CORNISH: What are the roots of this, the history of this, and how much of a trend is it?

NEUMARK: The history is relatively brief. In the mid-1990s, a coalition of groups - church groups, to some extent, advocates for the poor, public sector unions - started pushing for these, and the first one was implemented in Baltimore in the mid-1990s. And I think, to everyone's surprise, the movement just took off. Living wage laws were passed in city after city in the late 1990s. There's over a hundred of them now, and a very large share of the country's large cities now have living wage laws.

CORNISH: Of the living wage laws that are around, what is the evidence around whether or not they alleviate poverty, or are they really symbolic gestures?

NEUMARK: You know, when I first started doing research on the topic, that was actually the hypothesis I entertained, that they were largely symbolic gestures. I used to sort of equate them cynically to the nuclear-free zone in Berkeley, which, of course, doesn't have much effect.

But the research finds they actually do matter. They do have some bite. When you look at low-skilled workers in the cities that passed these laws, wages do get pushed up in roughly the lower tenth of the wage distribution.

CORNISH: Wages across the board go up.

NEUMARK: Well, wages of low-skilled workers go up. It's actually unfortunately very hard in the data to identify exactly the covered workers. So you can look at low-skilled workers and see what happens generally. So you get some wage effects. You do get some job loss as a result.

So what you always have is winners and losers, right? Some people are making higher wages. A lot of people are making higher wages, and a much smaller number have perhaps lost their job or lost the opportunity to find a new job. So there's winners and losers. And then the question is, well, how does that shake out?

The evidence for living wages says urban poverty in the cities that passed living wage laws declined a little bit. But for the most part, I think, what these laws are doing, they're kind of redistributing money among low-income families - that is, some are better off, some are worse off, and the net effect is pretty minor.

CORNISH: So this law that D.C. has passed is so very targeted, right? It doesn't apply to existing businesses of the same size. Is there any sense that something like this can be successful if it's so narrowly targeted towards one business?

NEUMARK: The D.C. law is kind of a different animal, right, because it doesn't just target Wal-Mart, but Wal-Mart and other big-box retailers like it. Thinking about the underlying economics raises some things that are a bit more of a concern. If we think about a minimum wage generally that applies to essentially everybody, a city or a state might impose a minimum wage on industry generally, and in the entire retail sector, then all competitors are going to have to pay that minimum wage.

What that means is if prices get pushed up a little bit because of the minimum wage, well, your competitors' prices get pushed up too. The problem with this narrow targeting is, you know, if store A is now told you have to pay a higher wage and store B isn't, store A is going to find it very hard to push through its price increases to pass them on to consumers because consumers can just go to store B. So I do worry that the narrow targeting actually implies more adverse effects on the companies that are actually affected than a general minimum wage floor would.

CORNISH: David Neumark, thank you so much for explaining it to us.

NEUMARK: Thank you, Audie.

CORNISH: David Neumark is director at the Center for Economics and Public Policy at UC Irvine. Transcript provided by NPR, Copyright NPR.