Economic Impact of Local Living Wages

Publication Date: February 2006

Publisher: Economic Policy Institute

Author(s): Jeff Chapman; Jeff Thompson

Research Area: Economics; Labor

Type: Brief

Abstract:

The modern living wage movement was born in Baltimore in 1994, when the city passed an ordinance requiring firms to pay employees a rate above the minimum wage while working on city contracts. Since then, over 120 communities have followed suit, some setting wage floors more than twice the federal minimum wage, and some requiring various benefits. The astounding growth of the living wage movement has been a response to the predicament of Americans who work but are unable to make ends meet, as well as to the public policies contributing to the problem.

Public policies have exacerbated the problem from the federal level to the local level. Since the early 1980s, the federal government has generally neglected the minimum wage; by 2005, a minimum wage paycheck bought less than it had in 49 of the last 50 years. Local governments have contributed to the problem, following the trend of cutting costs by contracting out services to firms who frequently pay lower wages and offer fewer benefits than public employment.

Too often, economic development efforts have channeled public funds in the form of tax breaks or tax incentives to businesses without regard to the quality of the jobs those businesses provide.